CBP Memorandum

August 6, 1973 CBP MEMORANDUM TO : All Commercial Banks The Monetary Board, in its Resolution No. 1458 dated August 3, 1973, approved the attached "SUPPLEMENT TO THE GUIDELINES ON INCREASED CAPITALIZATION AND MERGER OR CONSOLIDATION OF COMMERCIAL BANKS" intended to clarify certain matters contained in the Guidelines as approved by the Monetary Board in its Resolution No. 1223 dated July 6, 1973. aisadc (SGD.) G. S. LICAROS Governor SUPPLEMENT TO THE "GUIDELINES ON INCREASED CAPITALIZATION AND MERGER OR CONSOLIDATION OF COMMERCIAL BANKS" CONTENTS I. INCREASING BANK CAPITALIZATION A. Program of Capital Build-Up A.1 Definition of capital gap A.2 Program of a bank with P100 million capital accounts A.3 Program of a bank with less than P100 million capital accounts B. Paid-In Capital B.1 Capital contributions B.2 Convertible preferred shares B.3 Paid-in surplus B.4 Stock dividends C. Purchase of Outstanding Shares in an Existing Bank C.1 By a new investor C.2 By a stockholder in the same bank D. Local Branching Privileges II. FOREIGN EQUITY INVESTMENT IN DOMESTIC BANKS A. Equity Investment by Foreign Banks and/or their Affiliates A.1 Foreign banks with local branches A.2 Foreign banks without local branches B. Counterpart Foreign Currency Loan or Other Investment B.1 In general B.2 Composition of the counterpart loan or other investment B.3 Foreign exchange credit component of counterpart loan C. Repatriation of Foreign Equity Investment D. Foreigners as Directors or Officers of Domestic Banks E. General Procedures for Implementing Foreign Equity Investment in Domestic Banks cdll III. EQUITY INVESTMENT FROM THE DEVELOPMENT BANK OF THE PHILIPPINES A. Amplification of DBP Conditions B. General Procedures for Implementing Equity Investment by the Development Bank of the Philippines IV. MERGER OR CONSOLIDATION A. Merger or Consolidation between Commercial Banks and Savings Banks B. General Procedures for Merger or Consolidation of Commercial Banks I. INCREASING BANK CAPITALIZATION A. PROGRAM OF CAPITAL BUILD-UP A.1. Definition of capital gap The term capital gap as used herein for each particular bank is defined as P100 million less the unimpaired paid-in capital and paid-in surplus which is not returnable to stockholders, as of May 31, 1973. A.2. Program of a bank with P100 million capital amounts Banks with combined capital accounts (net of valuation reserves required by the Central Bank) of at least P100 million as of May 31, 1973 shall submit on or before September 30, 1973 a program of paid-in capital build-up and, for this purpose, a commitment by the bank to actually convert the pertinent net worth accounts into paid-in capital in accordance with a specified schedule shall be acceptable. The specified schedule should be similar to that described in A.3.1) below. A.3. Program of a bank with less than P100 million capital accounts Banks not falling under paragraph A.2. shall submit on or before September 30, 1973 a program of increasing paid-in capital which shall include, as a minimum, the following features: 1) The program shall have not more than five semestral periods of capital build-up, the first deadline of which will be September 30, 1973; or not more than four semestral periods for capital build-up, the first deadline of which will be March 31, 1974. In any case, the deadline for the last semestral period will be September 30, 1975. 2) The periodical capital build-up required for each semester shall be capital gap divided, as much as possible, into equal amounts for the five or four scheduled dates, as the case may be, which may be met through: cdtech (a) the conversion of surplus, surplus reserves, and undivided profits outstanding as of May 31, 1973 into paid-in capital, hereinafter described as converted capital ; and/or, (b) the input of fresh capital which, for this purpose, may include new capital contribution, new paid-in surplus, and/or conversion into paid-in capital of net earnings accumulated after May 31, 1973. 3) The proportion of permissible converted capital to the periodical capital build-up for each scheduled date shall not exceed the proportion which the amount of surplus, surplus reserves, and undivided profits as of May 31, 1973 bears to the capital gap existing as of May 31, 1973. FORMULA Permissible Surplus, Surplus Reserves Amount of Periodical Converted = and Undivided Profits x Capital Build-up Capital Capital Required B. PAID-IN CAPITAL B.1. Capital contributions The capital contributions to the bank shall not be funded by any loan or credit accommodation granted by the same bank. B.2. Convertible preferred shares If preferred shares convertible into common voting stock are issued as part of the bank's increased capitalization, the conversion rate should not effect an above-book valuation for the converted shares. B.3. Paid-in surplus Paid-in surplus representing premium actually paid on the issuance of new shares may be considered as part of paid-in capital for purposes of the increased capitalization program. However, increases in paid-in surplus arising from the consion of part of earned surplus to paid-in surplus to cover premium on stock dividends declared shall not be permitted. B.4. Stock dividends Stock dividends shall be considered accretions to paid-in capital only if there is actual declaration and issuance of stock dividends in accordance with the requirements of applicable laws and regulations. C. PURCHASE OF OUTSTANDING IN AN EXISTING BANK C.1. By a new investor Natural person A new investor who is a natural person may purchase in one transaction the entire voting stock of a stockholder in an existing bank, regardless of the extent of such stockholdings. If he acquires twenty per cent or more of the voting stock of the bank in that transaction, he shall, thereafter, be subject to the provisions of Section 12-D of Republic Act No. 337 as amended, on the maintenance or increase of the percentage of individual stockholdings in the bank. However, a new investor with relatives within the third degree of affinity or consanguinity who own twenty per cent of voting stock of the bank cannot acquire any share therein. Where the purchase of the shares will increase the group's aggregate holdings of the voting stock to more than twenty per cent of voting stock, the prospective investor may purchase only such number of shares as will bring the group's aggregate holdings to not more than the prescribed twenty per cent ceiling. In any case, the new investor may purchase not more than twenty per cent of voting stock from two or more stockholders of an existing bank. Corporation If the new investor is a corporation, its total holdings in any bank shall not exceed thirty per cent, or twenty per cent, of the voting stock of the bank, as the case may be, as provided in Section 12-B of Republic Act No. 337 as amended. C.2. By a stockholder in the same bank Natural person A stockholder of the bank who is a natural person may acquire the voting stock of another stockholder provided that his aggregate holdings, including the shares to be acquired from another stockholder, shall not exceed per cent of the voting stock or such percentage thereof which, if added to the shares therein of relatives within the third degree of affinity or consanguinity, does not exceed the twenty per cent limit prescribed by law. cdta Corporation A corporation already holding stock in a bank may acquire the voting stock of another stockholder provided that the thirty per cent and twenty per cent limits prescribed by Section, 12-B and the second paragraph of Section 12-D of Republic Act No. 337 as amended, are not exceeded. D. LOCAL BRANCHING PRIVILEGES A bank may be considered for local branching privileges in the proportions set, at P5 million per branch for Greater Manila and P2 million per branch Greater Manila, in the "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks' only after full compliance with the first scheduled build-up of capital in accordance with its submitted program as approved by the Monetary Board; provided that the bank may accelerate the implementation of its approved program by increasing its paid-in capital in aggregate amounts corresponding to periodical capital build-up commitment for purposes of qualifying for more branches. A set of clarifying illustrations follow hereunder: Illustration : Bank "X" with a paid-in capital of P20 million and surplus of P30 million as of May 31, 1973, holds the following Monetary Board approved program of increasing its paid-in capital to P100 million by September 30, 1975: Schedule of Periodical Capital Build-Up Mode of Capital Sept . 30 Mar . 30 Sept . 30 Mar . 30 Sept . 30 Total Build-Up 1973 1794 1974 1975 1975 for five (Per Formula) Periods Converted Capital 6 6 6 6 6 6 Fresh Capital 10 10 10 10 10 10 Capital Build-up per Period 16 16 16 16 16 16 == == == == == == Case 1 . Bank "X" partially accelerates the implementation of its program by converting P6 million surplus into paid-in capital and infusing fresh capital of P7 million by August 30, 1973. The bank cannot yet be considered for local branching privileges because it is still short by P3 million of its scheduled build-up of paid-in capital for the first period. Case 2 . Bank "X" accelerates the implementation of its program by increasing its paid-in capital by P16 million, of which not less than P10 million is fresh capital, by August 30, 1973. The number of branches that may be considered immediately after August 30, 1973 are, say, 2 branches in Greater Manila and 3 branches outside Greater Manila, or any other proportion allowable P16 million under the "Guidelines," say, 8 branches all outside Greater Manila. Case 3 . Bank "X" implements its program by increasing its paid-in capital by P16 million, of which not less than P10 million is fresh capital by September 30, 1973. The number of branches that may be considered immediately after September 30, 1973 would be the same as in Case 2. Case 4 . Bank "X" partially accelerates the implementation of its program by increasing its paid-in capital by P29 million, of which P12 million is converted capital and P17 million is fresh capital, by September 30, 1973. LLpr The number of branches that may be considered immediately after September 30, 1973 would be the same as in Case 2 because the bank is still short by P3 million of fresh capital for its scheduled build-up of paid-in capital for the second period. Case 5 . Bank "X" accelerates the implementation of its program by increasing its paid-in capital by P32 million equivalent to two periods of scheduled capital build-up, of which not less than P20 million is fresh capital, by September 30, 1973. The number of branches that may be considered immediately after September 30, 1973 are 4 branches in Greater Manila and 6 branches outside Greater Manila, or any other proportion allowable for P32 million under the "Guidelines," say, 16 branches all outside Greater Manila. II. FOREIGN EQUITY INVESTMENT IN DOMESTIC BANKS A. EQUITY INVESTMENT BY FOREIGN BANKS AND/OR THEIR AFFILIATES A.1. Foreign banks with local branches Foreign banks with local branches desiring to invest in equities of existing domestic banks within the limit of allowable foreign investment therein may do so through their subsidiaries or their parent companies under the general provisions of Section 12-B in relation to Section 12 of Republic Act No. 337 as amended. The percentage of foreign-owned voting stock of the bank which is less than thirty per cent of its total voting stock may be increased up to thirty per cent of the bank's voting stock with prior approval of the Monetary Board, in accordance with Section 12-A. The authority of foreign banks with local branches to invest directly rather than through their subsidiaries or their parent companies in equities of banks other than rural banks, subject to the conditions prescribed in Section 21-A of Republic Act No. 337 as amended, shall be limited to the purchase of foreign-owned equities in the domestic banks. In any case, it would still be desirable for the foreign bank with a local branch to consult with the Central Bank regarding its proposed investment in equities of domestic bank even where Monetary Board approval is not required. The investment in voting equity of a bank by any single corporation, domestic or foreign (including the above-mentioned foreign banks with local branches, their subsidiaries and/or their parent companies), shall be limited to thirty per cent of voting stock notwithstanding an increase in the percentage of permissible foreign equity investment in such bank from thirty per cent to forty per cent of voting stock, under certain circumstances, as provided for in Section 12 of Republic Act No. 337 as amended. cdtech A. 2. Foreign banks without local branches Foreign banks without local branches, together with their wholly or majority-owned subsidiaries and their parent companies having majority holdings in such foreign banks may invest, with prior approval of the Monetary Board, in equities of existing domestic banks other than rural banks up to an amount not exceeding thirty per cent of the voting stock of the local bank. The investment in voting equity of a bank by any single corporation, domestic or foreign (including the above-mentioned foreign banks without local branches, their subsidiaries and/or their parent companies), shall be limited to thirty per cent of voting stock notwithstanding an increase in the percentage of permissible foreign equity investment in such bank from thirty per cent to forty per cent of voting stock, under certain circumstances, as provided for in Section 12 of Republic Act No. 337 as amended. B. COUNTER FOREIGN CURRENCY LOAN OR OTHER INVESTMENT B.1. In general The requirement that every $1 of foreign equity investment in new commercial banks that may be established under the increased capitalization program should be accompanied by a $10 counterpart loan or other investment shall also be applied to foreign equity investment in existing commercial banks, as follows: 1) Foreign equity investment with respect to which the 10:1 counterpart foreign loan or other investment requirement shall be imposed refers to equity investments of foreign investors, represented by preferred and/or common stock, whether voting or non-voting. 2) Except as otherwise provided herein, the foreign investor shall be required to comply with the 10:1 counterpart foreign loan or other investment requirement with regard to the acquisition of outstanding shares and/or of new shares representing increased capitalization of the bank, including (a) stock dividends declared out of surplus earned as of May 31, 1973, and (b) acquisitions through the exercise of pre-emptive rights by the foreign investor. However, if the foreign investor is (a) an individual, (b) a non-bank financial entity which is not owned or controlled by any one or more banking institutions (including their subsidiaries or holding companies), or (c) a non-bank non-financial entity, then the 10:1 counterpart foreign loan or other investment requirement will not be imposed if the aggregate par value of the equity investment (voting and non-voting) of the foreign non-bank investor does not exceed an amount equivalent to two per cent of the aggregate par value of the voting stock of the domestic bank. Only that portion of the equity investment beyond two per cent of the aggregate par value of the voting stock shall be subject to the 10:1 counterpart foreign loan or other investment requirement. 3) The 10:1 counterpart foreign loan or other investment will be required to the full extent of its equity investment in the domestic bank, if the foreign investor is a foreign banking institution or its wholly or majority-owned subsidiaries or its holding company having majority holdings in such foreign banking institution. prcd 4) The 10:1 counterpart foreign loan or other investment shall, however, not be required of any foreign individual or corporate investor, including foreign banks and their affiliates, acquiring foreign-owned equities in domestic banks, provided that said equities were outstanding and foreign-held as of April 27, 1973, and continued to held by foreign stockholders up to the date of the acquisition by the foreign investor. 5) The basis of the 10:1 counterpart foreign loan or other investment shall be the par value of the shares of stock acquired by foreign investors, provided that whenever required, the conversion rate to be used shall by the interbank guiding rate of exchange as of the date of the acquisition of equity in the domestic bank. 6) Whenever required, the 10:1 counterpart foreign loan or other investment requirement shall be imposed on the initial acquisition of equity in the domestic bank by foreign investors, with the effect that subsequent transfers of the shares of stock thus acquired to other foreign investors shall not be subject to a further 10:1 counterpart requirement, provided that the original 10:1 loan shall run its full term and the matter of assumption thereof shall be left to the buyer and seller to agree upon. 7) The 10:1 counterpart foreign loan or other investment requirement shall be complied with by the foreign investor not later than his acquisition of equity in the domestic bank. If the acquisition of equity is done by installments, compliance with the 10:1 requirement may also be done by corresponding installments. 8) Failure to maintain the required 10:1 ratio between the foreign loan or other investment and the equity investment at any time shall subject the foreign investor to such measures as may be prescribed by the Monetary Board, such as restrictions on servicing of the foreign investment. cdpr B.2. Composition of the counterpart loan or other investment The counterpart loan or other investment shall be in foreign exchange eligible to form part of the international reserve. (a) Concessional-term portion 1) Concessional terms refer primarily to time periods and, secondarily to costs, which are more advantageous than normal commercial terms from the point of view of the recipient of the loan or investment. The term of the foreign loan or investment which may be included under this portion shall be more than ten years. 2) To facilitate the entry of the required foreign exchange loan or investment accompanying foreign equity investment in domestic commercial banks, the flotation of 12-year bonds, free of Philippine taxes, is contemplated. 3) Other similar alternative arrangements, which may include even longer term funding on less concessional rates of interest may be considered. 4) Long-term financing on concessional terms by a foreign source other than the foreign investor may be considered as part of the required counterpart foreign exchange loan, provided (a) the foreign lender acknowledges that this is to be credited to the foreign investor for purposes of compliance with the 10:1 counterpart requirement, and (b) the foreign lender extending the funds must be a private entity, as distinguished from a foreign government or an international entity such as AID, World Bank, IFC, or ADB. (b) Normal commercial term portion 1) The normal commercial term portion may be inclusive of outstanding foreign financing (e.g., total credit lines availed of) extended directly to local Filipino enterprises, public and private, and to banks, including the Central Bank of the Philippines. In the case of stand-by L/Cs and similar arrangements, only the actual outstanding drawings thereon shall be considered. 2) Total availments of foreign credits under normal commercial terms should not fall below the required 5:1 ratio for a period of at least five years. 3) In case of failure to maintain the required 5:1 ratio in the form of normal commercial availments, the deficiency may be filled by investment in foreign exchange denominated National Government obligations and/or Central Bank Certificates of Indebtedness with repurchase agreements where required. B.3. Foreign exchange credit component of counterpart loan Foreign currency loans or other credit accommodations is foreign exchange to the extent of the excess, if any, in the net "Due to Head Office" account of the local branch of a foreign bank over the minimum amount of capital accounts required of the branch under Section 68 of Republic Act No. 337 as amended, may be applied to the 10:1 counterpart foreign loan requirement. That portion of the excess applied to the 10:1 loan requirement must be earmarked under a separate account. C. REPARATION OF FOREIGN EQUITY INVESTMENT Certain type of foreign equity investment are assured capital repatriation and profit remittance privileges, as set forth in Circular No. 365 and Circular No. 375. The same benefits are also made available, under these circulars, to equity investment in banks by non-resident Philippine citizens funded in foreign exchange. On the other hand, certain other types of equity investment by foreigners not covered by these circulars will also be permitted, but not necessarily the privileges provided for in the circulars. D. FOREIGNERS AS DIRECTORS OR OFFICERS OF DOMESTIC BANK * 1) Foreigners duly elected and qualified under existing laws, regulations and the by-laws of the bank may occupy seats in the directorship of a bank to the number proportionate to the foreign voting equity in the bank but in any case, not exceeding the maximum number allowed by Section 13 of the General Banking Act, where applicable. 2) A foreigner may not occupy the position of Chairman of the Board of Directors, nor act as Presiding Officer of the Board of Directors. 3) A foreigner-director may be designated to be a member, but not the Presiding Officer, of a Committee which, under the bank's by-laws, is to be created by the Board of Directors from among its members and to exercise any of the powers of the Board of Directors in the management of the business of the bank. 4) A foreigner may concurrently hold the positions of director, committee member, and officer of the same bank. 5) A foreigner may not hold, regularly or in an acting capacity, the position of President or Executive Vice-President (No. 1 or No. 2 executive position); nor perform under delegated authority any of the functions normally vested upon the President or Executive Vice-President. 6) Except as above provided, a foreigner may be an officer of a bank provided all existing laws and regulations are complied with. E. GENERAL PROCEDURES FOR IMPLEMENTING FOREIGN EQUITY INVESTMENT IN DOMESTIC BANKS In following these procedures, reference should also be made to the "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks." 1. Bank submits to CB, through CB-AC, on or before September 30, 1973, the program for increasing its paid-in capital to P100 million. If foreign equity investment is envisioned in meeting the increased capital requirement, the bank should identify the foreign investors and submit appropriate documentation indicating the stage of negotiations which should, as a minimum, be beyond mere expression of intent. 2. CB-AG, in coordination with DCSB and MEDIAD, studies the program and forwards its recommendation to MB. 3. CB informs Bank of the action taken by MB; and if the program is approved, advises Bank to proceed with the negotiations with the foreign investors. 4. Bank files a formal application for approval in principle of proposed foreign investments and loans with CB, using the attached form (CB-AG Form No. 1). 5. CB informs Bank of the action taken by the Monetary Board on the application; and if approved in principle, advises bank to finalize negotiations on the foreign equity investment transaction. 6. Bank applies with CB for registration of foreign investments and any required counterpart loan. (a) In the case of foreign exchange-funded investments, the application shall be accompanied by: (1) Authenticated copies of conformed equity investment agreement and loan agreements; and (2) Proof of inward remittance of foreign exchange funds for investment and counterpart lending, if required, including acquisitions of foreign currency CBCIs and/or RP bonds, where required. (b) In the case of peso-funded investments, the application shall be accompanied by: (1) Authenticated copies of conformed equity investment agreement and loan agreements; and (2) Proof of actual peso investment and inward remittance of the foreign exchange funds for the counter CB-AG Form No. 1 APPLICATION FOR APPROVAL OF FOREIGN EQUITY INVESTMENTS IN DOMESTIC BANKS AND COUNTERPART LOANS I. BANK APPLICANT 1. Name ___________________________ Tan _______________ 2. Address _________________________ Tel. No _______________ II. INVESTOR * 1. Name _________________________________ Nationality __________ 2. Address ____________________________________________________ 3. Local Representative _________________________ TAN ___________ 4. Address ____________________________________________________ 5. Form of Business Organization Sole Proprietorship Partnership Corporation 6. Type of Business Banking Non-bank financial Non-financial 7. Principal Stockholders/Partners/Proprietor Name Outstanding Share as of ______ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ TOTAL ________________________________ III. PARTICULARS OF TRANSACTION 1. Amount of Investment ________________________________________ 2. Type Direct cash in foreign exchange, Expected Date of Inward Remittance ________________________________________ Direct cash in pesos Others Applicable also to investment by non-resident Philippine citizen funded by foreign exchange. CB-AG Form No. 1 IV. SCHEDULE OF COUNTERPART LOANS Amount in $000 Name of Borrower Commercial Terms Concessional Terms A. Outstanding as of Date of Application 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. _____________ _____________ Sub-Total _____________ _____________ B. Additional Loans to be Extended 1. 2. 3. 4. 5. ______________ _____________ Sub-Total ______________ _____________ C. Grand Total ============= ============ D. Ration to Paid-Up Capital ============= ============ ______________________ (Name of Bank) By: _________________________ (Signature of Authorized Officer Over Printed Name) Designation ____________________ Date _______________________ part loan, if required, including acquisitions of currency CBCIs and/or RP bonds, where required. (c) Proof of compliance with such other conditions as the Monetary Board may have required in the approval in principle. 7. Upon verification of compliance with the above requirements and those of other pertinent government agencies such as the Board of Investments and the Securities and Exchange Commission, CB approves the foreign equity investment and counterpart loans, and registers the transaction involved. LEGEND: Bank Commercial Bank CB Central Bank CB-AG Central Bank Advisory Group on Bank Capitalization and Merger CBCI Central Bank Certificate of Indebtedness DCSB Department of Commercial and Savings Banks MB Monetary Board MEDIAD Management of External Debt and Investment Accounts Department RP bonds Republic of the Philippines bonds III. EQUITY INVESTMENT FROM THE DEVELOPMENT BANK OF THE PHILIPPINES A. AMPLIFICATION OF DBP CONDITIONS A.1. Preferential treatment shall be accorded merging or consolidating banks such that: (a) DBP's dividend rate on the preferred shares to be issued to DBP by the merging or consolidating banks shall be eight per cent per annum; and (b) the merging or consolidating banks shall qualify for equity investment from DBP even if their total paid-in capital, inclusive of DBP equity, does not reach P100 million by September 30, 1975. A.2. For its equity investment in individual commercial banks: (a) DBP shall charge a dividend rate of ten per cent per annum; (b) DBP shall consider investing in equity of qualified individual banks determined on a case-by-case basis, where no merger or consolidation is involved, only if they are able to increase their paid-in capital partly through capital contributions from Filipino stockholders or through foreign equity investment provided that (1) the amount raised from either source or both combined shall not be less than three times the amount of equity investment requested from DBP; (2) all earnings of the commercial bank for the period May 31, 1973, to September 30, 1975 are retained as part of the bank's combined capital accounts; and (3) total projected paid-in capital, including DBP equity, on or before September 30, 1975 shall not be less than P100 million. B. GENERAL PROCEDURES FOR IMPLEMENTING EQUITY INVESTMENT BY THE DEVELOPMENT BANK OF THE PHILIPPINES In following these procedures, reference should also be made to the "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks." STEP . 1. Bank submits to CB, through CB-AG, on or before September 30, 1973, the required program for increasing its paid-in capital to P100 million. If DBP capital assistance is envisioned, the program should also specify the amounts of capital build-up and draw-down schedules requested for DBP's equity investment. 2. CB-AG, in coordination with DCSB, studies submitted proposal and forwards recommendation to MB. 3. CB advises Bank of action taken by MB; if favorable, CB also advises DBP. 4. Bank makes a formal offer to sell shares to DBP. 5. DBP Board of Governors approves amount of DBP equity investment and the conversion price of the preferred to common stock. 6. DBP advises Bank and CB of approval of requested equity investment and conditions of the approval. Among the pertinent conditions (in conjunction with the other conditions outlined in the "Guidelines") that may be imposed are: (a) The approved investment shall be completely documented within 90 days from date of advice of approval by DBP, and the required documents should include the financing agreement between the Bank and DBP, and amended Articles of Incorporation providing for increased capitalization and preferred shares with agreed features to be issued to DBP. (b) Releases to Bank for DBP's equity investment shall be according to MB-approved schedule. In any event, no releases from DBP shall exceed the amount necessary for Bank's capital to be increased on a pro-rata basis out of investments coming from local and foreign sources and the DBP. cdlex (c) DBP's director in the Bank shall be designated within 90 days from date equity investment from the DBP is documented. 7. Bank secures approval by MB of its increased capitalization and its Amended Articles of Incorporation, and registers same with SEC. 8. Bank executes and presents all legal documents as may be required by DBP in Step 6. 9. Bank issues to DBP seven preferred stock certificates of equal values, the total of which shall be the equivalent of each release to be made by DBP for its approved equity investment in the Bank. LEGEND: Bank Commercial Bank CB Central Bank CB-AG Central Bank Advisory Group on Bank Capitalization and Merger DBP Development Bank of the Philippines DCSB Department of Commercial and Savings Banks MB Monetary Board SEC Securities and Exchange Commission IV. MERGER OR CONSOLIDATION A. MERGER OR CONSOLIDATION BETWEEN COMMERCIAL BANK AND SAVINGS BANKS Mergers between commercial banks and savings banks will be considered, subject to such terms and conditions, including incentives, as may be determined on a case-by-case basis. B. GENERAL PROCEDURES FOR MERGER OR CONSOLIDATION OF COMMERCIAL BANKS In following these procedures, reference should also be made to the "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks." STEP: 1. Participating Bank submit to CB, through CB-AG, on or before September 30, 1973, their program for increasing paid-in capital. The program must be supplemented by appropriate documentation indicating the stage of merger or consolidation which should, as a minimum, be beyond mere expression of intent. 2. CB-AG, in coordination with DCSB, studies preliminary proposals, or confers with Banks' representatives, and advises its views to the participating Banks. 3. If advice of CB-AG is favorable, participating Banks file an Application for Merger or Consolidation (CB-AG Form No. 2) with CB through CB-AG, complete forms of which are attached, accompanied by (among others): (a) Copies of minutes of the respective boards of directors' meeting of the applicant Banks approving the Agreement for Merger or Consolidation which Agreement shall contain, among its provisions, the agreed ratio for exchange of shares between or among the participating Banks; (b) Copies of minutes of the respective stockholders' meeting of the applicant Banks ratifying the above-mentioned Agreement for Merger or Consolidation; (c) Draft of Deed of Assignment or Transfer of all the assets as well as the liabilities of the absorbed bank or banks in favor of the resulting Bank in exchange for shares of the latter; (d) Audited financial statements (balance sheet and related profit or loss statement) of the absorbed bank or banks, together with a long-form report of an independent certified public accountant. 4. CB-AG, in coordination with DCSB, processes Application and forwards recommendation to MB for approval or denial of the proposed merger or consolidation. 5. CB informs applicant Banks of action taken by MB as well as, if action is favorable, of the requirements or conditions imposed by MB in approving the Application. 6. Applicant Banks submit the requirements and/or comply with the conditions, among which are: (a) Merger agreement duly approved by the Board of Directors and ratified by the stockholders of the constituent corporations; (b) Amended Articles of Incorporation of the absorbed bank or banks, executed in accordance with Section 18 of the Corporation Law, shortening its or their respective terms of existence to a specified date not later than the effective date of merger or consolidation; (c) Amended or new Articles of Incorporation of the resulting Bank to effect the terms of the merger or consolidation agreement and/or any relevant conditions that may be imposed by the MB; (d) Certificate of Increase of the capital stock of the resulting Bank, executed in accordance with Section 17 of the Corporation Law, whenever necessary to create shares of stock for issuance of the participating or absorbed bank or banks in accordance with the merger or consolidation agreement; (e) Duly executed Deed of Assignment or Transfer of all the assets as well as the liabilities of the absorbed bank or banks in favor of the resulting Bank in exchange for shares of the latter; and requests CB to issue a Certificate of Authority to register with the SEC the amended Articles of Incorporation of the absorbed bank or banks, as well as the amended or new Articles of Incorporation of the resulting Bank. 7. With the Certificate of Authority issued by CB, participating Banks and the resulting Bank file with SEC their respective amended and/or new Articles of Incorporation and copies of all pertinent documents filed with CB; after which, the resulting Bank may operate as a merged or consolidated bank effective on the date its amended or new Articles of Incorporation has been duly registered with the SEC. 8. Resulting Bank furnishes CB a copy of its amended or new Articles of Incorporation as registered with the SEC. 9. Resulting Bank submits its amended or new By Laws and requests CB to issue a Certificate of Authority to register with the SEC. 10. With the Certificate of Authority issued by CB, resulting Bank registers its amended or new By-Laws with the SEC and furnishes CB a copy thereof as registered. LEGEND: Applicant Banks banks which are parties to a proposed Participating Banks merger or consolidation Resulting Bank bank arising from the merger or consolidation CB Central Bank CB-AG Central Bank Advisory Group on Bank Capitalization and Merger DCSB Department of Commercial and Savings Banks MB Monetary Board SEC Securities and Exchange Commission CB-AG Form No. 2 The Governor Central Bank of the Philippines Thru: The Central Bank Advisory Group on Bank Capitalization and Merger (CB-AG) Manila APPLICATION FOR ______________________ (Merger/Consolidated) _______________________________ (hereinafter called Applicant Bank No. 1) and _______________________________ (hereinafter called Applicant Bank No. 2) hereby apply to the Monetary Board of the Central Bank of the Philippines for approval to ____________________ under the charter of ______________________ (merge/consolidate) ____________________________________ (charter of buying bank, or new charter Attached and made part of this Application are: Schedule I Copy of Agreement to Merge/Consolidate Schedule II Consolidated Statement of Condition Schedule III Allotment of Stock Schedule IV Adjustments to Book Values Schedule V Pro-forma Balance Sheet of Resulting Bank Schedule VI Future Earning Prospects Schedule VII Miscellaneous Representations The applicants hereby represent that the information contained in this application are true and correct to the best of their knowledge and belief. cdti _________________________ By: _________________________ (Applicant Bank No. 1) (Authorized Officer) ________________________ (Designation) _________________________ By: _________________________ (Applicant Bank No. 2) (Authorized Officer) ________________________ (Designation) _________________________ (Date of Application) CB-AC Form No. 2 SCHEDULE I AGREEMENT TO MERGE/CONSOLIDATE * * To be prepared by the Applicant Banks. CB-AC Form No. 2 SCHEDULE II CONSOLIDATED STATEMENT OF CONDITION 1 As of ____________________, 19 ___ (In Thousands of Pesos) ASSETS Applicant Applicant Bank No . 1 Bank No . 2 1. Cash P _________ P _________ 2. Checks and Other Cash Items _________ _________ 3. Due from the Central Bank _________ _________ 4. Due from Other Banks _________ _________ 5. Total Loan Portfolio Less: Valuation Reserves _________ _________ Net _________ _________ 6. Investments in Bond and Other Securities Less: Valuation Reserves _________ _________ Net _________ _________ 7. Bank Premises, Furniture & Equipment _________ _________ (Net Book Value) 8. Other Property Owned or Acquired _________ _________ 9. Other Assets _________ _________ 10. TOTAL ASSETS P _________ P _________ LIABILITIES 11. Deposits (including Deposits of Banks) P _________ P _________ 12. Cashier's, Manager's and Certified Checks _________ _________ 13. Outstanding Acceptances Executed By or For Account of this Bank _________ _________ 14. Bills Payable _________ _________ 15. Marginal Deposits on Letters of Credit _________ _________ 16. Other Liabilities _________ _________ 17. Unearned Income and Other Deferred Credits _________ _________ 18. TOTAL LIABILITIES P _________ P _________ CAPITAL ACCOUNTS 19. Capital Stock P ________ P _________ Common ________ _________ Preferred ________ _________ Total ________ _________ 20. Paid-in Surplus ________ _________ 21. Surplus ________ _________ 22. Surplus Reserves ________ _________ 23. Undivided Profits ________ _________ 24. TOTAL CAPITAL ACCOUNTS P ________ P _________ 25. TOTAL LIABILITIES AND CAPITAL ACCOUNTS P ________ P _________ CONTINGENT ACCOUNTS 1. Unused Letters of Credit P ________ P _________ 2. Inward Bills for Collection ________ _________ 3. Outward Bills for Collection ________ _________ 4. Future Exchange Bought ________ _________ 5. Future Exchange Sold ________ _________ 6. Items for Safekeeping ________ _________ 7. Trust Department Accounts ________ _________ 8. Rediscounts ________ _________ 9. Others (Specify): ______________________________ ________ _________ ______________________________ ________ _________ ______________________________ ________ _________ 10. TOTAL P ________ P _________ Additional Information: 1. Total Past Due Loans P ________ P _________ 2. Total loans to Stockholders, Directors and Officers (Direct or Indirect) P ________ P _________ Footnotes 1. Use current figures as of common date (Head Office, together with its Branches). CB-AG Form No. 2 SCHEDULE III ALLOTMENT OF STOCK (In Thousands of Pesos) (Current Actual Data) Proposed or Applicant Applicant Resulting Bank No . 1 Bank No . 2 Combined Bank Number of Shares: Common P _________ P _________ P ________ Preferred P _________ P _________ P ________ Par Value Per Share: Common P _________ P _________ P ________ Preferred _________ _________ ________ Total Par Value: Common P _________ P _________ P ________ Preferred _________ _________ ________ Capital P _________ P _________ P ________ P ________ Surplus _________ _________ ________ ________ Surplus Reserves _________ _________ ________ ________ Undivided Profits _________ _________ ________ ________ TOTAL P _________ P _________ P ________ P ________ Per Cent of Total ___% ___% 100% Net Adjustments. (See Schedule IV) P ________ P ________ P ________ Estimated fair value of assets, over and above liabilities to creditors, contributed by each bank P ________ P ________ P ________ Per cent of Total __% __% 100% Applicant Applicant Combined Bank No . 1 Bank No . 2 Allotment of stock: Number of Share: Common P ________ P ________ P ________ Preferred ________ ________ ________ Total Par Value: Common P ________ P ________ P ________ Preferred ________ ________ ________ TOTAL P ________ P ________ P ________ Per cent of Total ___% ___% 100% CB-AG Form No. 2 SCHEDULE IV Adjustments to book values in determining the estimated fair value of assets, over and above the liabilities of each merging or consolidating bank, in support of the allotment of stock of the resulting bank to the respective groups of shareholders. (In Thousands of Pesos) Applicant Applicant Bank No . 1 Bank No . 2 Combined Adjustments: Additions: Bank Premises P ________ P ________ P ________ Furniture and Equipment ________ _______ ________ Other Property Owned or Acquired ________ _______ ________ Others (Specify): ___________________________ ________ _______ ________ ___________________________ ________ _______ ________ ___________________________ ________ _______ ________ Total Additions P ________ P ________ P ________ Deductions: Accrued Expenses P ________ P ________ P ________ Depreciation-Bank Premises ________ ________ ________ Depreciation-Furniture and Equipment ________ ________ ________ Estimated Losses-Loans ________ ________ ________ Estimated Losses-Other Property ________ ________ ________ Owned or Acquired ________ ________ ________ Estimated Losses-Others ________ ________ ________ Others (Specify) ____________________________ ________ ________ ________ ____________________________ ________ ________ ________ ____________________________ ________ ________ ________ Total Deductions P ________ P ________ P ________ Net Adjustments-To Schedule III P ________ P ________ P ________ CB-AG Form No. 2 SCHEDULE V PRO-FORMA BALANCE SHEET of ___________________________ (Name of Resulting Bank) As of ________________, 19 ___ (In Thousands of Pesos) ASSETS 1. Cash P _______ 2. Checks and Other Cash Items _______ 3. Due from the Central Bank _______ 4. Due from Other Banks _______ 5. Loans, Discounts and Advances (Net) _______ 6. Investment in Bonds and Other Securities _______ 7. Bank Promises, Furniture and Equipment (Net Book Value) _______ 8. Other Property Owned or Acquired _______ 9. Other Assets _______ 10. TOTAL ASSETS P _______ LIABILITIES AND CAPITAL ACCOUNTS LIABILITIES 11. Deposits (including Deposits of Banks) _______ 12. Cashier's, Manager's and Certified Checks _______ 13. Outstanding Acceptances Executed By or For Account _______ of this Bank _______ 14. Bills Payable _______ 15. Marginal Deposits on Letters of Credit _______ 16. Other Liabilities _______ 17. Unearned Income and Other Deferred Credits _______ 18. TOTAL LIABILITIES P _______ CAPITAL ACCOUNTS 19. Capital Stock P _______ 20. Paid-in Surplus _______ 21. Surplus _______ 22. Surplus Reserves _______ 23. Undivided Profits _______ 24. Total Capital Accounts _______ 25. Total Liabilities and Capital Accounts P _______ CONTINGENT ACCOUNTS 1. Unused Letters of Credit P _______ 2. Inward Bills for Collection _______ 3. Outward Bills for Collection _______ 4. Future Exchange Bought _______ 5. Future Exchange Sold _______ 6. Items for Safekeeping _______ 7. Trust Department Accounts _______ 8. Rediscount _______ 9. Others (Specify): _______ ________________________________ _______ ________________________________ _______ ________________________________ _______ ________________________________ _______ 10. TOTAL P _______ CB-AG Form No. 2 SCHEDULE VI FUTURE EARNING PROSPECTS (In Thousand of Pesos) These statements should include actual current operating earnings and expenses for the participating banks for the last full calendar year prior to merger or consolidation. The estimates for the Resulting Bank should reflect any anticipated economy in operations or any reduction or increase in income or expense which is expected to result from the proposed merger or consolidation. LexLib Applicant Applicant Estimated Bank No. 1 Bank No. 2 First Twelve Year 19__ Year 19__ (12) Months' Operations of Resulting Bank A. CURRENT OPERATING EARNINGS 1. Interest and discount on loans and advances P _______ P _______ P _______ 2. Interest on investment securities _______ _______ _______ 3. Commissions, fees, service and collection charges _______ _______ _______ 4. Foreign exchange profit 5. Trust Department earnings _______ _______ _______ 6. Other current operating earnings _______ _______ _______ Total Current Operating Earnings P _______ P _______ P _______ B. CURRENT OPERATING EXPENSES 1. Salaries and wages P _______ P _______ P _______ 2. Bonuses and overtime pay _______ _______ _______ 3. Allowances _______ _______ _______ 4. Interest on deposits _______ _______ _______ 5. Interest and discount on money borrowed _______ _______ _______ 6. Taxes (other than income tax) _______ _______ _______ 7. Foreign exchange losses _______ _______ _______ 8. Depreciation on bank premises, furniture and equipment _______ _______ _______ 9. Other current operating expenses _______ _______ _______ Total Current Operating Expenses P _______ P _______ P _______ C. NET CURRENT OPERATING EARNINGS (LOSS) P _______ P _______ P _______ NET CURRENT OPERATING EARNINGS (Previous 5 Calendar Years) (In Thousands of Pesos) Year Applicant Applicant Bank No . 1 Bank No . 2 _________ P _________ P _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ Average P _________ P _________ CB-AG Form No. 2 SCHEDULE VII MISCELLANEOUS REPRESENTATIONS 1. Paid-in Capital . The paid-in capital of the resulting bank, after merger/consolidation, will amount to ____________________________________ pesos (P 2. Citizenship of Stockholders . After merger/consolidation, ______________ per cent ( % ) of the voting stock of the resulting bank shall be owned by citizens of the Philippines. 3. Corporate stockholders . After merger/consolidation, there will be ____________________ ( ) corporate stockholders each owning twenty per cent (20%) or more of the voting stock of the resulting bank. 4. Diffusion of ownership . After merger/consolidation, there will be _____________________ ( ) distinct groups of persons related to each other within the third degree of consanguinity or affinity-with each group owning more than twenty per cent (20%) of the voting stock of the resulting bank. cdll 5. Capital Stock . The capital stock of the resulting back will consist of ____________________ shares of common stock with a par value of P _______ per share and ________________ shares of preferred stock with a par value of P___________ per share. 6. Directors . The Board of Directors of the resulting bank will consist of ( ) ___________________ ( ) members. 7. Management . The position-designations of officers of the resulting bank will be as follows: Position-Designation No . of Positions 8. Principal Office . The principal/head office of the resulting bank shall be in ________________________ 9. Disposition of Corporate property . Neither of the applicant banks shall declare nor pay any dividend to its stockholders between the date of this application and the time at which the merger/consolidation shall become effective (or upon withdrawal of the application), nor dispose of any of its assets in any other manner except in the normal course of business and for adequate value. llcd Footnotes * Not necessarily applicable to any foreign-owned or controlled domestic bank. * To be prepared by the Applicant Banks. 1. Use current figures as of common date (Head Office, together with its Branches).