Due Diligence Report

For the Acquisition of

Rural Bank of Calaca

Due Date: October 9, 2015

Table of Contents
Scope of Work..................................................................3
Source of Information........................................................3
Assumptions and Qualifications...........................................3
Summary Company Background and Data............................3
Mission............................................................................ 4
Vision.............................................................................. 4
Management and current status..........................................4
Products and Services of the Bank.......................................5
Branches and Human Resources..........................................5
Real Property, Plant and Equipment of the Bank....................6
Legal and supervisory matters............................................6
Insurance Coverage...........................................................6
Government Agencies........................................................7
Movement made to buy weak banks strengthening program
for rural banks and incentive given to buyer-banks................7
Recommendation..............................................................8

Scope of Work
We have prepared this report to ascertain whether a possible
merger or acquisition is favorable to our client, Universal Bank
XYZ.

Source of Information
The findings and analysis made and the conclusions reached in
this report are based on the documentation and explanation
provided by, or on behalf, of Rural Bank of Calaca.

Assumptions and Qualifications

For the purpose of this report, we have assumed that:
(1)
(2)

All factual statements in the report are accurate and

valid
Due diligence review is based on the documents
provided to us by Rural Bank of Calaca

After due diligence conducted, the results of the due diligence

are as follows:

Summary Company Background and Data

Founders Judge Manuel P. Calanog and his wife, Dr.
Dolores Macatangay-Calanog, established Rural Bank of
Calaca, Inc. as a family-owned bank. At the time, the
banks services consisted of the acceptance of savings
deposit from, and the extension of simple loans to,
residents of Calaca and neighboring barrios. Lending was
limited to extending small agricultural loans.
The children took over the ownership of the bank for a
brief period upon the demise of the founders. In 1991, the
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eldest daughter, Atty. Fe Calanog-Ona and her spouse, the

former Judge Sofronio A. Ona, acquired all the shares of
the Rural Bank and are now at the helm of its
management with their children, Atty. Christine C. Ona,
Dr. Jacqueline Ona-Joo, Sofronio C. Ona Jr. and Manuel C.
Ona.

Mission
The banks mission is to promote progress in communities
they are involved in and to upgrade peoples' lives and
well-being both financially and morally as well. Placing a
high premium on social responsibility in uplifting quality of
life was always part of the company philosophy.

Vision
The banks vision has always been to increase their
presence in countryside development through strength,
stability, security and flexibility derived from utmost
professionalism, honesty and good governance. All these
qualities have been at the cornerstone of their very
existence since the establishment of this institution.

Management and current status

The management has taken a new approach in its rural
banking operations. Fresh capital was infused to
strengthen its position in the rural banking industry. The
bank's operations were upgraded to include savings
deposit, time deposit and demand deposit/checking
account. Loan coverage has been expanded to
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accommodate
agricultural,
commercial,
industrial,
personal, salary and special loans. The upgrading of its
equipment was given priority to simplify operations and
provide better service. Its stable standing made it
inevitable for the bank to branch out to other
municipalities. its branches in San Jose and Nasugbu, both
in the province of Batangas, started operations in 1997 to
further strengthen the Rural Bank of Calaca, Inc.'s
presence in the countryside development.1

Products and Services of the Bank

Savings Account
Current Deposit / Demand Deposit
Time Deposit
Agricultural Loan
Commercial Loan
Salary Loan

Branches and Human Resources

Calaca Head Office
o 137 Marasigan St. Calaca, Batangas
San Jose Branch
o Macalintal Ave. cor. Ona Ave. San Jose, Batangas
Nasugbu Branch
o F. Castro St., Poblacion 3 Nasugbu, Batangas
Each branch is composed of:
1 Branch Manager
1 Compliance Officer
4 Teller
1 Janitor
1 http://ruralbankofcalaca.com/
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 2 Security guards

Real Property, Plant and Equipment of the Bank

Aside from the 3 branches of the bank, Rural Bank of
Calaca owns several real properties acquired as a result of
several foreclosure proceedings due to unpaid loans
secured by Real Estate Mortgage.
The bank did not provide the inventory list of said real
properties.

Legal and supervisory matters

As advised by the bank,
No judicial or administrative actions against it
No investigations pending or threatened against it
Has not participated in and is not participating in
any litigation
No cause for litigation or claim against it
Not yet subject to any insolvency or winding up
order
No insolvency petition has been made against it

Insurance Coverage
Membership of banks to PDIC is mandatory; hence, all
operating banks are members of PDIC. 2
2 http://www.pdic.gov.ph/index.php?nid1=6&nid2=1&nid3=6
6

Government Agencies
Letters of inquiry were sent to government agencies such
as Bangko Sentral ng Pilipinas, Bureau of Internal
Revenue, and Securities and Exchange Commission to be
able to determine the current status of the bank.
We have yet to hear from the Registry of Property
regarding the mentioned real properties acquired as a
result of several foreclosure proceedings for unpaid loans.

Movement made to buy weak banks

strengthening program for rural banks and
incentive given to buyer-banks
Pursuant to Philippine Deposit Insurance Corporation
(PDIC) Board Resolution No. 2012- 04-103 dated 25 April
2012 and Bangko Sentral ng Pilipinas (BSP) Monetary
Board (MB) Resolution No. 759 dated 10 May 2012,
approving the Strengthening Program for Rural Banks Plus
(SPRB
Plus),
this
implementing
guidelines
(the
Guidelines) for availment of the SPRB Plus Financial
Assistance (FA) and regulatory reliefs/incentives is hereby
issued.
The BSPs Monetary Board extended the validity of the
program until the end of 2014.
SPRB-Plus aims to strengthen the banking system and to
minimize bank closures, the BSP said in a weekend
statement.
SPRB-Plusa modified version of the original SPRBis a
joint project between the BSP and the Philippine Deposit
Insurance Corp. (PDIC), which acts as receiver for
shuttered banks.
It provides incentives for white knight investors to
acquire smaller banks and encourage consolidation within
the sector that caters to the most sensitive segment of
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the economy. The previous SPRB rules limited the

definition of white knights to rural banks. SPRB-Plus
expands this to include bigger thrift, and universal and
commercial lenders.
Along with the extension, the BSPs Monetary Board also
approved certain changes to the SPRB-Plus rules. This
includes the relaxation of the required ownership level of
white knights in banks being rescued. From the previous
67 percent, acquiring banks now need to only acquire 60
percent of a smaller bank to be eligible for the SPRB-Plus
incentives.
Apart from making it easier for mergers to take place, this
relaxation also puts the rules in line with the recently
passed Rural Banks Act, which allows foreign firms to
acquire as much as 60 percent of rural banks in the
country.The BSP and PDIC also incorporated incentives for
mergers involving banks that were affected by
Supertyphoon Yolanda.The PDIC will now pay for 100
percent of the required additional capital to restore a
banks operations, if that bank was affected by the recent
calamity. Under normal circumstances, the deposit
insurers financial assistance would be limited to 50
percent.Existing incentives in the SPRB-Plus program
include the relaxation of rules for branch expansions, and
temporary regulatory relief such as on capitalization
requirements, among others. 3

Recommendation
Despite the due diligence conducted, no recommendation
can be given for the time being for such information
obtained is insufficient to be able to give a sound and
competent recommendation.

3 http://business.inquirer.net/160839/bsp-extends-incentives-for-ruralbanks
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The bank has yet to provide us with all the requested

documents and data such as:
Financial statements and financial forecasts
Inventory list of all real and personal property
o List of real properties, leased or owned, with
description of use
o Machinery and equipment and other personal
property
o Encumbrance on or over personal property
Organizational structure
List of the names of their Board of Directors
Copies of all current labor contracts, including any
collective bargaining agreements.
Complete employee list of the entire Bank, setting
out names, job titles, addresses, age (if available),
salary, and length of service
Copies of all personnel policies
Copies of all employee handbooks
Copies of any agreements which employees are
required to sign:
o Confidentiality agreements
o Non-competition agreements
o Non-solicitation agreements
o Any other agreements with employees, such as
loan agreements, consulting agreements.
Statutory Compliance List of Compensation and
Benefits