East West Banking : 2021 Annual and Sustainability Report - Financial Statements

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2021 Audited Financial Statements

CONTENTS

1. Statements of Management's Responsibility for Financial Statements
   02 Independent Auditor's Report
   07 Statements of Financial Position
   08 Statements of Income
   09 Statements of Comprehensive Income

1. Statements of Changes in Equity

1. Statements of Cash Flows

1. Notes to Financial Statements
   162 Annex I: Reconciliation of Retained Earnings Available for Dividend Declaration (Annex 68-D)
   163 Annex II: Schedule of Financial Ratios
   164 Annex III: Conglomerate Map
   165 Annex IV: Supplementary Schedules

EASTWEST 2021 ANNUAL REPORT

STATEMENTS OF MANAGEMENT'S RESPONSIBILITY

FOR FINANCIAL STATEMENTS

The management of East West Banking Corporation (the Bank) is responsible for the preparation and fair presentation of the financial statements including the schedules attached therein, for the years ended December 31, 2021 and 2020, in accordance with the prescribed financial reporting framework indicated therein, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Bank's financial reporting process.

The Board of Directors reviews and approves the financial statements including the schedules attached therein, and submits the same to the stockholders.

SyCip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders, have audited the financial statements of the Bank in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such audit.

JONATHAN T. GOTIANUN

Chairman

ANTONIO C. MONCUPA JR.

Chief Executive Officer

MINDA L. CAYABYAB

Financial Controller

Signed this March 15, 2022.

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INDEPENDENT AUDITOR'S REPORT

The Stockholders and the Board of Directors

East West Banking Corporation

East West Corporate Center

The Beaufort, 5th Avenue corner 23rd Street

Fort Bonifacio Global City

Taguig City

Report on the Audit of the Consolidated and Parent Company Financial Statements

Opinion

We have audited the consolidated financial statements of East West Banking Corporation (the Parent Company) and its subsidiaries (the Group) and the parent company financial statements of the Parent Company, which comprise the consolidated and parent company statements of financial position as at December 31, 2021 and 2020 and the consolidated and parent company statements of income, consolidated and parent company statements of comprehensive income, consolidated and parent company statements of changes in equity and consolidated and parent company statements of cash flows for each of the three years in the period ended December 31, 2021, and notes to the consolidated and parent company financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated and parent company financial statements present fairly, in all material respects, the financial position of the Group and the Parent Company as at December 31, 2021 and 2020, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2021, in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and the Parent Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and parent company financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

EASTWEST 2021 ANNUAL REPORT

We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

Adequacy of allowance for credit losses on loans and receivables

The Bank's application of the expected credit loss (ECL) model in calculating the allowance for credit losses on loans and receivables is significant to our audit as it involves the exercise of significant management judgment. Key areas of judgment include: segmenting the Bank's credit risk exposures; determining the method to estimate ECL; defining default; identifying exposures with significant deterioration in credit quality; determining assumptions to be used in the ECL model such as the counterparty credit risk rating, the expected life of the financial asset and expected recoveries from defaulted accounts, and impact of any financial support and credit enhancements extended by any party; and incorporating forward-looking information (called overlays), including the impact of the coronavirus pandemic, in calculating ECL.

Allowance for credit losses on loans and receivables of the Group and the Parent Company as of December 31, 2021 amounted to =12P.68 billion and =12P.04 billion, respectively. Provision for credit losses of the Group and the Parent Company in 2021 amounted to =4P.40 billion and =4P.35 billion, respectively.

The disclosures related to the allowance for credit losses on loans and receivables are included in Note 15 to the financial statements.

Audit response

We obtained an understanding of the board-approved methodologies and models used for the Bank's different credit exposures and assessed whether these considered the requirements of PFRS 9, Financial Instruments, to reflect an unbiased and probability-weighted outcome, the time value of money, and the best available forward-looking information.

We (a) assessed the Bank's segmentation of its credit risk exposures based on homogeneity of credit risk characteristics; (b) tested the definition of default and significant increase in credit risk criteria against historical analysis of accounts and credit risk management policies and practices in place; (c) tested the Bank's application of internal credit risk rating system, including the impact of the coronavirus pandemic on the borrowers, by reviewing the ratings of sample credit exposures; (d) assessed whether expected life is different from the contractual life by testing the maturity dates reflected in the Bank's records and considering management's assumptions regarding future collections, advances, extensions, renewals and modifications; (e) tested loss given default by inspecting historical recoveries including the timing, related direct costs, write-offs and collateral valuations, and the effects of any financial support and credit enhancements provided by any party; (f) tested exposure at default considering outstanding commitments and repayment scheme; (g) evaluated the forward-looking information used for overlay, including considerations to overlay for the impact of the coronavirus pandemic, through statistical test and corroboration using publicly available information and our understanding of the Bank's lending portfolios and broader industry knowledge; and (h) tested the effective interest rate used in discounting the expected loss.

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INDEPENDENT AUDITOR'S REPORT

Further, we compared the data used in the ECL models from source system reports to the data warehouse and from the data warehouse to the loss allowance analysis/models and financial reporting systems. To the extent that the loss allowance analysis is based on credit exposures that have been disaggregated into subsets of debt financial assets with similar risk characteristics, we traced or re-performed the disaggregation from source systems to the loss allowance analysis. We also assessed the assumptions used where there are missing or insufficient data.

We recalculated impairment provisions on a sample basis. We involved our internal specialists in the performance of the above procedures. We reviewed the completeness of the disclosures made in the financial statements.

We involved our internal specialists in the performance of the above procedures.

Other Information

Management is responsible for the other information. The other information comprises the information included in the SEC Form 17-A, SEC Form 20-IS (Definitive Information Statement) and Annual Report for the year ended December 31, 2020, but does not include the financial statements and our auditor's report thereon. The SEC Form 17-A, SEC Form 20-IS (Definitive Information Statement) and Annual Report for the year ended December 31, 2020 are expected to be made available to us after the date of this auditor's report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audits of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated and the Parent Company Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group and the Parent Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

EASTWEST 2021 ANNUAL REPORT

Auditor's Responsibilities for the Audit of the Consolidated and the Parent Company Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and parent company financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and parent company financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated and parent company financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated and parent company financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated and parent company financial statements, including the disclosures, and whether the consolidated and parent company financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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INDEPENDENT AUDITOR'S REPORT

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Reports on the Supplementary Information Required Under Bangko Sentral ng Pilipinas (BSP) Circular No. 1074 and Revenue Regulations No. 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under BSP Circular No. 1074 in Notes 36 and Revenue Regulations No. 15-2010 in Note 37 to the financial statements is presented for purposes of filing with the BSP and Bureau of Internal Revenue, respectively, and is not a required part of the basic financial statements. Such information is the responsibility of the management of the Parent Company. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

The engagement partner on the audit resulting in this independent auditor's report is Veronica Mae A. Arce.

SYCIP GORRES VELAYO & CO.

Veronica Mae A. Arce Partner

CPA Certificate No. 0117208

Tax Identification No. 234-282-413

BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024 SEC Partner Accreditation No. 117208-SEC (Group A)

Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions SEC Firm Accreditation No. 0001-SEC (Group A)

Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions BIR Accreditation No. 08-001998-135-2021, November 10, 2021, valid until November 9, 2024 PTR No. 8853465, January 3, 2022, Makati City

March 15, 2022

EASTWEST 2021 ANNUAL REPORT

STATEMENTS OF FINANCIAL POSITION

(Amounts are presented in thousands of Philippine Pesos)

	Consolidated	Parent Company
		As of December 31
	2021	2020	2021	2020
ASSETS
Cash and Other Cash Items	P=7,705,729	=8,148,882P	P=7,641,626	=8,076,124P
Due from Bangko Sentral ng Pilipinas (Notes 7 and 16)	58,842,366	48,892,706	58,425,477	48,469,521
Due from Other Banks (Note 7)	19,335,182	11,392,088	19,292,742	11,353,609
Interbank Loans Receivables and Securities Purchased	17,518,984	17,111,092	17,518,984	17,111,092
Under Resale Agreements (Note 7)
Financial Assets at Fair Value Through Profit or Loss	4,056,851	7,523,592	4,056,851	7,523,592
(Notes 8 and 17)
Financial Assets at Fair Value Through Other	41,660,568	29,471,707	41,660,568	29,471,707
Comprehensive Income (Notes 8 and 17)
Investment Securities at Amortized Cost (Notes 8 and 17)	20,815,382	20,899,699	19,137,174	19,282,889
Loans and Receivables (Notes 9, 15 and 28)	213,562,586	243,716,429	188,800,600	219,918,514
Investments in Subsidiaries (Note 10)	−	−	5,919,095	4,739,211
Investment in a Joint Venture (Note 10)	614,494	665,313	614,494	665,313
Property, Equipment and Right-of-Use Assets (Note 11)	4,422,355	5,089,529	4,016,329	4,601,091
Investment Properties (Notes 12 and 15)	927,988	981,147	927,291	979,914
Deferred Tax Assets (Note 25)	4,160,134	5,169,692	3,719,088	4,677,278
Goodwill and Other Intangible Assets (Note 13)	6,795,374	6,792,893	6,756,211	6,742,229
Other Assets (Notes 14 and 15)	4,343,837	2,347,231	4,274,746	2,275,298
TOTAL ASSETS	P=404,761,830	=408,202,000P	P=382,761,276	=385,887,382P
LIABILITIES AND EQUITY
LIABILITIES
Deposit Liabilities (Notes 16 and 28)	P=120,321,094		P=120,746,901
Demand	=106,938,343P	=107,609,113P
Savings	124,667,522	121,848,341	104,766,430	101,302,860
Time	69,420,051	87,846,290	69,420,051	87,846,290
Long-term Negotiable Certificates of Deposits	12,436,238	12,422,976	12,436,238	12,422,976
	326,844,905	329,055,950	307,369,620	309,181,239
Bills and Acceptances Payable and Securities Sold Under	98,150	3,568,803	98,150	3,568,803
Repurchase Agreements (Note 17)
Accrued Taxes, Interest and Other Expenses (Note 18)	2,975,265	2,947,250	2,623,040	2,642,599
Cashier's Checks and Demand Draft Payable	730,702	678,795	730,702	678,795
Bonds Payable (Note 19)	3,687,686	3,677,434	3,687,686	3,677,434
Subordinated Debt (Note 20)	1,241,964	1,240,785	−	−
Income Tax Payable	141,255	402,325	31,745	306,336
Lease Liability (Note 27)	3,106,320	3,466,742	2,791,079	3,105,100
Other Liabilities (Note 21)	6,585,949	7,681,373	6,079,620	7,244,533
TOTAL LIABILITIES	345,412,196	352,719,457	323,411,642	330,404,839
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT COMPANY
Common Stock (Note 23)	22,499,754	22,499,754	22,499,754	22,499,754
Additional Paid in Capital (Note 23)	5,065,059	5,065,059	5,065,059	5,065,059
Surplus Reserves (Note 29)	946,618	936,635	946,618	936,635
Surplus (Note 29)	31,585,667	27,080,614	31,585,667	27,080,614
Fair Value Reserves on Financial Assets at Fair Value
Through Other Comprehensive Income (Note 8)	(138,821)	189,936	(138,821)	189,936
Remeasurement Losses on Retirement Plans (Note 26)	(211,495)	(402,661)	(211,495)	(402,661)
Cumulative Translation Adjustment	(397,148)	113,206	(397,148)	113,206
TOTAL EQUITY	59,349,634	55,482,543	59,349,634	55,482,543
TOTAL LIABILITIES AND EQUITY	P=404,761,830	=408,202,000P	P=382,761,276	=385,887,382P

See accompanying Notes to Financial Statements.

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