Security Bank Corporation
and Subsidiaries
Financial Statements
December 31, 2019 and 2018
and for the Years Ended December 31, 2019,
2018 and 2017
and
Independent Auditor’s Report
, SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
Security Bank Corporation
Report on the Consolidated and Parent Company Financial Statements
Opinion
We have audited the consolidated financial statements of Security Bank Corporation and its subsidiaries
(the Group) and the parent company financial statements of Security Bank Corporation (the Parent
Company), which comprise the consolidated and parent company statements of financial position as at
December 31, 2019 and 2018, 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, 2019, 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, 2019
and 2018, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2019 in accordance with Philippine Financial Reporting Standards (PFRS).
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 Consolidated and Parent Company 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 (the Code of Ethics) together with the ethical requirements that are relevant to our audit
of the consolidated and parent company 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.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
, -2-
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated and Parent Company 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 consolidated and parent company 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 consolidated and parent
company financial statements.
Applicable to the Audit of the Consolidated and Parent Company Financial Statements
Allowance for Credit Losses on Loans and Receivables
The Group’s and the Parent Company’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 Group’s and the Parent Company’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 incorporating forward-looking
information (called overlays) in calculating ECL.
Allowance for credit losses on loans and receivables as of December 31, 2019 for the Group and the
Parent Company amounted to P =5.93 billion and P
=5.92 billion, respectively. Provision for credit losses on
loans and receivables of the Group and the Parent Company in 2019 amounted to P =4.31 billion and
=3.51 billion, respectively.
P
The disclosures related to the allowance for credit losses on loans and receivables are included in Note 14
of the financial statements.
Audit Response
We obtained an understanding of the methodologies and models used for the Group’s and the Parent
Company’s different credit exposures and assessed whether these considered the requirements of PFRS 9
to reflect an unbiased and probability-weighted outcome, and to consider time value of money and the
best available forward-looking information.
We (a) assessed the Group’s and the Parent Company’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 Group’s and the Parent Company’s application of internal credit risk
rating system 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 Group’s and the Parent
Company’s records and considering management’s assumptions regarding future collections, advances,
extensions, renewals and modifications; (e) tested loss given default by inspecting historical recoveries
and related costs, write-offs and collateral valuations; (f) tested exposure at default considering
outstanding commitments and repayment scheme; (g) checked the reasonableness of forward-looking
information used for overlay through statistical test and corroboration using publicly available
information and our understanding of the Group’s and the Parent Company’s lending portfolios and
broader industry knowledge; and (h) tested the effective interest rate used in discounting the expected
loss.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
, -3-
Further, we checked the data used in the ECL models by reconciling data 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 reviewed the completeness of the disclosures
made in the financial statements.
We involved our internal specialists in the performance of the above procedures.
Adoption of PFRS 16, Leases
Effective January 1, 2019, the Group and the Parent Company adopted PFRS 16, Leases, under the
modified retrospective approach which resulted in significant changes in the Group’s and the Parent
Company’s accounting policy for leases. The Group’s and the Parent Company’s adoption of PFRS 16 is
significant to our audit because the Group and the Parent Company has high volume of lease agreements;
the recorded amounts are material to the consolidated and parent company financial statements; and
adoption involves application of significant judgment and estimation in determining the lease term,
including evaluating whether the Group and the Parent Company are reasonably certain to exercise
options to extend or terminate the lease, and in determining the incremental borrowing rate. This resulted
in the recognition of right of use assets amounting to P
=1.58 billion and P
=1.57 billion for the Group and the
Parent Company, respectively, and lease liability amounting to = P1.74 billion and P
=1.73 billion, for the
Group and the Parent Company, respectively, as of January 1, 2019, and the recognition of depreciation
expense of P=0.63 billion for both the Group and the Parent Company, and interest expense of
=0.13 billion for both the Group and the Parent Company, for the year ended December 31, 2019.
P
The disclosures related to the adoption of PFRS 16 are included in Notes 2 and 16 to the consolidated
financial statements.
Audit response
We obtained an understanding of the Group’s and the Parent Company’s process in implementing the new
standard on leases, including the determination of the population of the lease contracts covered by
PFRS 16, the application of the short-term and low value assets exemption, the selection of the transition
approach and any election of available practical expedients.
We tested the completeness of the population of lease agreements by comparing the number of leases per
operational report against the database. On a test basis, we inspected lease agreements (i.e., lease
agreements existing prior to the adoption of PFRS 16 and new lease agreements), identified their
contractual terms and conditions, and traced these contractual terms and conditions to the lease calculation
prepared by management, which covers the calculation of financial impact of PFRS 16, including the
transition adjustments.
For selected lease contracts with renewal and/or termination option, we reviewed the management’s
assessment of whether it is reasonably certain that the Group and the Parent Company will exercise the
option to renew or not exercise the option to terminate.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
and Subsidiaries
Financial Statements
December 31, 2019 and 2018
and for the Years Ended December 31, 2019,
2018 and 2017
and
Independent Auditor’s Report
, SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
Security Bank Corporation
Report on the Consolidated and Parent Company Financial Statements
Opinion
We have audited the consolidated financial statements of Security Bank Corporation and its subsidiaries
(the Group) and the parent company financial statements of Security Bank Corporation (the Parent
Company), which comprise the consolidated and parent company statements of financial position as at
December 31, 2019 and 2018, 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, 2019, 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, 2019
and 2018, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2019 in accordance with Philippine Financial Reporting Standards (PFRS).
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 Consolidated and Parent Company 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 (the Code of Ethics) together with the ethical requirements that are relevant to our audit
of the consolidated and parent company 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.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
, -2-
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated and Parent Company 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 consolidated and parent company 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 consolidated and parent
company financial statements.
Applicable to the Audit of the Consolidated and Parent Company Financial Statements
Allowance for Credit Losses on Loans and Receivables
The Group’s and the Parent Company’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 Group’s and the Parent Company’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 incorporating forward-looking
information (called overlays) in calculating ECL.
Allowance for credit losses on loans and receivables as of December 31, 2019 for the Group and the
Parent Company amounted to P =5.93 billion and P
=5.92 billion, respectively. Provision for credit losses on
loans and receivables of the Group and the Parent Company in 2019 amounted to P =4.31 billion and
=3.51 billion, respectively.
P
The disclosures related to the allowance for credit losses on loans and receivables are included in Note 14
of the financial statements.
Audit Response
We obtained an understanding of the methodologies and models used for the Group’s and the Parent
Company’s different credit exposures and assessed whether these considered the requirements of PFRS 9
to reflect an unbiased and probability-weighted outcome, and to consider time value of money and the
best available forward-looking information.
We (a) assessed the Group’s and the Parent Company’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 Group’s and the Parent Company’s application of internal credit risk
rating system 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 Group’s and the Parent
Company’s records and considering management’s assumptions regarding future collections, advances,
extensions, renewals and modifications; (e) tested loss given default by inspecting historical recoveries
and related costs, write-offs and collateral valuations; (f) tested exposure at default considering
outstanding commitments and repayment scheme; (g) checked the reasonableness of forward-looking
information used for overlay through statistical test and corroboration using publicly available
information and our understanding of the Group’s and the Parent Company’s lending portfolios and
broader industry knowledge; and (h) tested the effective interest rate used in discounting the expected
loss.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
, -3-
Further, we checked the data used in the ECL models by reconciling data 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 reviewed the completeness of the disclosures
made in the financial statements.
We involved our internal specialists in the performance of the above procedures.
Adoption of PFRS 16, Leases
Effective January 1, 2019, the Group and the Parent Company adopted PFRS 16, Leases, under the
modified retrospective approach which resulted in significant changes in the Group’s and the Parent
Company’s accounting policy for leases. The Group’s and the Parent Company’s adoption of PFRS 16 is
significant to our audit because the Group and the Parent Company has high volume of lease agreements;
the recorded amounts are material to the consolidated and parent company financial statements; and
adoption involves application of significant judgment and estimation in determining the lease term,
including evaluating whether the Group and the Parent Company are reasonably certain to exercise
options to extend or terminate the lease, and in determining the incremental borrowing rate. This resulted
in the recognition of right of use assets amounting to P
=1.58 billion and P
=1.57 billion for the Group and the
Parent Company, respectively, and lease liability amounting to = P1.74 billion and P
=1.73 billion, for the
Group and the Parent Company, respectively, as of January 1, 2019, and the recognition of depreciation
expense of P=0.63 billion for both the Group and the Parent Company, and interest expense of
=0.13 billion for both the Group and the Parent Company, for the year ended December 31, 2019.
P
The disclosures related to the adoption of PFRS 16 are included in Notes 2 and 16 to the consolidated
financial statements.
Audit response
We obtained an understanding of the Group’s and the Parent Company’s process in implementing the new
standard on leases, including the determination of the population of the lease contracts covered by
PFRS 16, the application of the short-term and low value assets exemption, the selection of the transition
approach and any election of available practical expedients.
We tested the completeness of the population of lease agreements by comparing the number of leases per
operational report against the database. On a test basis, we inspected lease agreements (i.e., lease
agreements existing prior to the adoption of PFRS 16 and new lease agreements), identified their
contractual terms and conditions, and traced these contractual terms and conditions to the lease calculation
prepared by management, which covers the calculation of financial impact of PFRS 16, including the
transition adjustments.
For selected lease contracts with renewal and/or termination option, we reviewed the management’s
assessment of whether it is reasonably certain that the Group and the Parent Company will exercise the
option to renew or not exercise the option to terminate.
*SGVFS038997*
A member firm of Ernst & Young Global Limited
