Philippine National Bank

July 30, 1999 PSE CIRCULAR FOR BROKERS NO. 1909-99 SUBJECT : Philippine National Bank Terms and Conditions of the 1:2 Pre-emptive Rights Offering The following are the terms and conditions of Philippine National Bank's 1:2 Pre-emptive Rights Offering: Amount of Proceeds at least P6,874,008,600.00 Offer Ratio 1 Rights Share for every 2 Common Shares held. No fractional shares shall be issued Offer Shares, par value 68,740,086 common shares, P100.00 par value Offer Price Range Offer price will range between a low equal to P100.00 per share up to a high equal to the weighted average market price of PNB shares during the last six (6) trading days prior to ex-date Record Date August 18, 1999 Ex-date August 12, 1999 Offer Period September 6-17, 1999 Purchase of Additional Rights Eligible Shareholders may subscribe Shares to more than what they are entitled to in the Rights Offering, by filling up a designated portion in the application form. Accordingly, the corresponding payment for the extra shares should already be tendered upon filing of the application. Grant of additional Rights Shares shall be on a pro-rata basis. Payment Terms The Rights Shares must be paid in full upon submission of the Application to Subscribe by a check drawn against a bank in Metro Manila to the order of PNB Rights Offer. Underwriter PNB Capital and Investment Corporation Stock Transfer Agent Office of the Corporate Secretary, Philippine National Bank The net proceeds from the offering of approximately P6.65 billion, assuming an offer price of P100.00 per share, will be used to finance its loan portfolio expansion, and capital expenditure in technology upgrade and branch improvement. cdpr Attached is a copy of the Bank's projected financial statements covering the year 1999. For your information and guidance. (SGD.) JOSE LUIS U. YULO, JR. President & CEO PHILIPPINE NATIONAL BANK FORECASTED STATEMENT OF INCOME For the Year Ended December 3, 1999 (In Million Pesos) Original Revised 1999F 1999F Interest Income Loans 14,446 13,891 Investments 3,091 3,105 Due from Banks 384 433 Total Interest Income 17,921.00 17,429 Interest Expense Deposits 12,786 13,149 Borrowings 709 649 Total Interest Expense 13,495.00 13,798 Net Interest Income 4,426 3,631 Add: Fee-Based Income 4,740.00 4,740 Less: Administrative Expenses 7,200 7,200 Net Income Before Tax and Non-recurring Items 1,966.00 1,171 Less: Provisions for Income Tax 627 613 Net Income/(Loss) Regular 1,339.00 558 NON-RECURRING ITEMS Sale of Subsidiaries & Other Assets 801 801 Underwriting Fees & Other Related Expenses (149) (149) Provision for Probable Loan and Other Losses (953) (953) Net Income/(Loss) 1,038 257 PHILIPPINE NATIONAL BANK FORECASTED STATEMENT OF CONDITION BANK PROPER As of December 31, 1999 (In Million Pesos) Original Revised 1999F 1999F ASSETS Cash & other cash items 3,461 2,255 Due from Bangko Sentral ng Pilipinas 5,926 8,847 Due from other banks 5,448.00 6,245 Interbank loans receivable 3,823 9,516.00 Investment Securities 33,894 35,464 Receivables from customers (net) 117,072.00 111,384 Equity Investments (net) 4,365 4,458 Property and equipment (net) 10,399 10,349.00 Real and other properties owned or acquired (net) 9,815 13,155 Other Resources (net) 19,255 18,715.00 TOTAL ASSETS 213,458 220,388 LIABILITIES Demand 13,483 14,561 Savings 119,053.00 113,587 Time 39,006 54,213 Total Deposit Liabilities 171,542 182,361 Bills and Acceptances Payable 10,215 9,050 Due to Bangko Sentral ng Pilipinas 561.00 377 Margin deposits and cash letters of credit 273 288 Manager's checks and demand drafts outstanding 1,460.00 1,580 Accrued taxes, interest and other expenses 3,295 4,027 Other Liabilities 3,719.00 1,863 Total Liabilities 191,065 199,546 CAPITAL FUNDS 22,393.00 20,842 TOTAL LIABILITIES AND CAPITAL FUNDS 213,458 220,388 Revised 1999 Business Plan SUMMARY OF ASSUMPTIONS Original Revised A. Peso US$ Exchange Rate (PNB ERD) 38.500 B. Interest Rates 1 Loans a Peso (Projected T-Bill + 4.5%) 16.500% b Dollar (Actual as of 3/31/99) 9.410% 2 Investment Securities a Peso 91-Day T-Bill (PNB-ERD) 12.000% b Dollar (Actual as of 3/31/99) 5.700% 3 Regular Time Deposit a Peso (Projected T-Bill 1.5%) 10.500% b Dollar (Actual as of 3/31/99) 5.770% 4 Treasury Negotiated/ Special Savings Deposits (Projected T-Bill) 12.000% C. Loans 1 Loan Growth P4.3 B -1.4 B 3.9% -1.2% 2 Past Due Ratio 18.4% 18.8% D. Fund Sourcing 1 Issuance of Common Shares P6.8 B 2 Sale of subsidiaries, real estate properties and other assets P2.3 B 3 Deposit Growth P18.3 B 29.2 B 12.0% 19.0% E. Fee Based Income Regular P4.7 B Growth 40.7% Gain from sale of Bank assets P801 M F. FX Remittances US$3.3 B Growth 21.8% G. Import Transactions US$1.2 B Growth 0.0% H. Export Negotiations US$524 M Growth 10.1% I. Sale of Acquired Assets (book value) P1.6 B J. Capital Expenditures P800 M K. Trust Assets P60.0 B Growth 15.5% L. Administrative Expenses P7.2 B Growth -7.6% M. Derived Indicators 1 Loans to Deposit ratio (Peso) 77.7% 71.5% 2 Capital Adequacy ratio 11.5% 11.8% 3 Cost to Income ratio 78.6% 86.0% 4 ROE (Based on regular net income) 7.2% 3.1% 5 ROA (Based on regular net income) 0.7% 0.3% Philippine National Bank REVISED 1999 BUSINESS PLAN The Revised 1999 Projected Statement of Condition and Projected Income Statement were computed using the actual levels as of May 31, 1999 as beginning balances. Hence, full year projections reflect what actually transpired during the first five months of 1999 and the possible calculations for the remaining months of the year. The following are the major changes in the business plan assumptions: Not Income Projected net income (including extraordinary items) declined from P1.038 billion to P257 million due to lower interest income from loans and higher interest expense on deposits. The projected Interest income from loans declined by P555 million to account for the contraction of loan levels and increase in past due loans. On the other hand, the estimated interest expense on deposits increased by P363 million because of the anticipated funding requirements which will be sourced from additional deposits. Loan Portfolio a. Growth in Loans The Bank's loan portfolio is originally assumed to post a modest growth of 3.9% or P1.348 billion to reach P117.072 billion by end-1999. However, because of the substantial decline in loans amounting to P11.865 billion during the first five months of the year, the Bank's loan portfolio is assumed to decline to P111.384 billion by year-end. As scheduled, new loans will be released with the funding to come mainly from the proceeds of a common stock offering. Additional deposits to be generated during the rest of the year will provide additional funds for new loans. LLphil b. Past Due Loans During the first five months of the year, the Bank's past due loans were seen at levels higher than projected, indicating a significant decline in the volume of projected interest income for the year. However, end-1999 past due ratio remains at about 18% assuming the necessary past due reduction schemes will be implemented. c. Provision for Probable Loans Provision for probable loans will remain at P953 million, given the same ratio for past due loans. Deposits The growth in deposits is estimated at 24.0%, higher than the earlier projected growth of 17.6%. It is assumed that the increase in deposits will provide the funds for additional loans in order to augment the volume of interest income. FRCDs will be paid as scheduled, in June and September, and this will bring down deposit growth to 19.0%. As of May 31, 1999, total deposits were recorded at P177.4 billion, approximately P6.0 billion more than the original year-end target of P171.5 billion.