Financial Statements 44 Financial Statements and Auditor’S Opinion

Annual Report for

Year 2017

TABLE OF CONTENTS

3 Corporate Background 4 Message from the President 5 Message from the CEO 6 Mission and Vision Statement 7 Our Business Model 8 Our Board of Directors 11 Our Management Team 15 Our Branches 16 Products and Services 17 Financial Highlights 18 Operational Highlights 19 Marketing Highlights 21 Corporate Social Responsibility 22 Stockholders and Organizational Structure 23 Risk Management 29 Corporate Governance 43 Statement of Management’s Responsibility for Financial Statements 44 Financial Statements and Auditor’s Opinion

CORPORATE BACKGROUND

Malayan Bank is a savings bank which was granted authority to operate by the Bangko Sentral ng Pilipinas in June 1996, pursuant to the Monetary Board Resolution No. 1201. It opened its doors on July 1,1996, offering a wide array of product lines and services that cater to the rising needs of the banking public.

The bank is a joint undertaking of some of the principal shareholders of GMA Network, Inc., LINQ Information Entertainment Quadrant Corp., Majalco Inc., Liberty Flourmills, and G.A. Yupangco among others.

Malayan Bank is proud of its impressive roster of shareholders. Bank clients are secure that their hard-earned money is held safe in Malayan Bank, a bank owned by media giants and highly respectable Filipino corporations.

Malayan Bank is committed to provide its customers with quality-banking services through a balanced and maximized offering of Service, Yield, Security, and Liquidity.

As a savings bank, it is the Bank’s goal to assist micro, small and medium enterprises by offering them flexible corporate and business loan packages. It is also the Bank’s dream to see all of its entrepreneurial clients reach greater heights in their respective businesses. Aside from assisting small enterprises and corporations, Malayan Bank makes financing easy for its retail clients. The Bank’s individual customers can easily avail of attractive and affordable loan offerings, such as auto loans, motorcycle loans, jewelry loans, or multi-purpose loans.

Today, Malayan Bank stands strong with twenty- one branches located in the key cities of Metro Manila and in the Visayas and Mindanao regions. Malayan Bank is happy to have a growing base of highly satisfied clientele.

Malayan Bank hopes to share with YOU a New Way of Banking as we promise excellent customer service, tailor-fit bank products and expert investment advice.

Experience Personalized Banking with Malayan Bank.

MESSAGE FROM THE PRESIDENT

Dear Stakeholders ,

The Philippines has maintained its position as one of the fastest-growing economies in Asia. The country’s economic growth remains robust, posting a 6.7% GDP growth for 2017. This was anchored by enhanced imports and exports, strong government consumption, and improved agriculture sector. As we expect inflationary pressure to intensify in 2018 due to both domestic and external factors, the Philippine economy is projected to continue its current growth trajectory. The main drivers for this growth is seen to be coming primarily from the services sector, supported by the manufacturing and construction industries.

2017 has been an exceptional year for Malayan Bank as it continues exceeding its targets and making breakthroughs. The Bank posted a net income of P70.5 million which is 6.35% higher than plan and 228.60% higher than previous year’s net income of P21.8 million. This translates to a Return on Equity of 6.13% and a Return on Assets of 0.93%. Out of 65 savings banks, the Bank now ranks 21 st in terms of Return on Equity coming from rank 36 in 2016. The Bank’s total loan portfolio now stands at P3.93 billion, while the deposit portfolio is at P6.53 billion. Through the efforts of the Bank to boost its consumer loan portfolio, the Bank was able to generate a higher interest income of P408.1 million by year-end 2017. The Bank has also winded down its Trust Operations to focus more on the consumer market.

In its aim to improve and efficiently deliver its banking services to be at par with the leading banks, the Bank has launched several projects such as the upgrading of ATM cards from magnetic stripe to EMV, the implementation of check truncation system, and the improvement of the Bank’s collection and management system. With all these initiatives in place, the achievement of our goals will be fast tracked.

I would like to express my gratitude to the Board of Directors for their guidance and wise counsel, to our Corporate Partners for their confidence and trust, to our Shareholders for their unwavering support, to our loyal clients for their complete trust, and to our Malayan Bank employees for working hard and being proactive players. Our Bank continues to grow stronger because of your loyalty and dedication.

Cheers to synergy!

Reynold Y. Gerongay President and COO

MESSAGE FROM THE CEO

Dear Stakeholders ,

In the year 2017, Malayan Bank continued to intensify its efforts to boost its deposit portfolio and loan portfolio.

Clients know the value of saving during these volatile times and carefully bank with financial institutions they trust. We are proud that more and more Filipinos choose Malayan Bank to safe keep and grow their deposits and investments. We are also happy to see that SMEs and individuals now select Malayan Bank over commercial banks for their financing needs.

Malayan Bank continues to grow, in terms of resources, profitability, and stability. Through the years, we have maintained our rank as one of the Top 15 Savings Banks in the country, and we aim to be among the Top 10 Savings Banks in the Philippines this coming year 2018.

We are proud of the Bank’s sound performance in the year 2017. We continue to boast of the Bank’s value proposition of offering competitive investment products, flexible loan packages, and affordable over-the-counter services for our customers.

For the year 2018, Malayan Bank aims to significantly increase its retail loan portfolio, which consists of products such as auto loans, motorcycle loans, personal loans, and jewelry loans. The Bank will also focus on increasing its fee-based income from remittances, bills payment, and foreign exchange trading.

We are positive that year 2018 will be a banner year for the Bank. We are confident that our team will exceed revenue and income targets, and increase operational and collection efficiency.

Together, Everyone Achieves More.

George J. Martirez 2nd Vice Chairman and CEO

MISSION AND VISION

OUR VISION

Malayan Bank is the desired partner of Filipino Families and Business Enterprises every step of the way.

OUR MISSION

We shall keep a respected position as one of the country’s top savings banks in terms of stability and strength.

We will build long-term relationships with our customers and assist them in achieving the security and growth of their assets.

We will develop our employees to the point where they can exceed our customers’ standards and service expectations, and enhance their expertise to realize their potential as financial services professionals.

We will always ensure that we meet the aspirations and expectations of our stockholders and other stakeholders.

CORE VALUES

Quality Service

Professionalism

Teamwork

Efficiency

Customer Satisfaction

OUR BUSINESS MODEL

Anchor the Business Plan on Malayan Bank’s branch service areas

The Business Plan will focus on areas where a branch of Malayan Bank is present. Bolstering of the Bank’s presence in its service area.

Re-launch the Community based marketing approach ‹ Localized Marketing – more cost efficient as the Bank does not need a national marketing campaign. ‹ Each branch can tailor fit its participation or marketing efforts in a community it is servicing. ‹ Establish Malayan Bank’s presence and active role in the community. ‹ Brings the Bank closer to its clients.

Adding new consumer banking services

A Malayan Bank branch should be able to offer banking services similar to what the other savings banks are offering. The branch currently offers CASA accounts, Time Deposit, Back-to-Back Loans, Remittance, Bills Payment.

Widen the product range being offered in the branches by offering other Bank products. ‹ Auto Loans ‹ Motorcycle Loans ‹ Multi-Purpose / Personal Loans ‹ Sale of Securities ‹ Active Buying and Selling of FX ‹ Enhance Remittance business

Target and provide banking services to Small and Medium Enterprises (SME) within the scope of the branch network.

Assign Corporate Banking Account Officers to handle financing needs of SME branch clients. Branch Head and the Corporate Banking Account Officer will work in together in data gathering and marketing.

To diversify Malayan Bank’s loan portfolio to include SMEs’ within a branch service network. ‹ Diversification the loan portfolio mix will result into lesser concentration risk ‹ Lending to SMEs will enhance the loan portfolio return ‹ Other collateral businesses may be provided by the SME loan account (proximity of the branch area).

Strategy for Existing Loan Clients: Offer Deposit Products and Services

‹ Offer CASA accounts to existing loan accounts to improve deposit mix ‹ Loan release for SME loans and Retail Loans is via credit to CASA account ‹ Offer Bills Payment service and Personal Loans to employees of SME accounts ‹ Offer short-term placements (3days - 14days) with competitive rates to SMEs ‹ Cross-sell insurance products, payroll accounts, to SME and Corporate clients ‹ For MB Account Officers: Add deposit target in AO scorecard and provide incentives ‹ For MB Branch Managers: Add loan target in BM scorecard and provide incentives.

BOARD OF DIRECTORS

Atty. Jose Mario C. Buñag / Chairman & Independent Director

Atty. Buñag is the Chairman of the Board of Directors since January 2016, and was first appointed to the Board as an independent director in 2008. He was previously the Commissioner of the Bureau of Internal Revenue from 2005 to 2007. Prior to this, he held the position of Deputy Commissioner from 2002 to 2005. Concurrently, he serves as Chairman for Becton Holding Corp., Director for Unicapital Inc., Majalco Finance, and Lacson & Lacson Insurance Brokers, Inc. He is also a Partner at the Buñag & Lotilla Law Offices, is President of Scanmar Maritime Services Inc., and is President of Skanfil Maritime Services Inc. He graduated cum laude of Bachelor of Arts from Ateneo de Manila University, and finished as Class Valedictorian and cum laude of Bachelor of Laws from the same institution. He received his Master of Comparative Jurisprudence in 1973 at the New York University School of Law, as a University Fellow. He also took a Graduate Course in Taxation from 1984-1985 in the same university.

George J. Martirez / Vice Chairman & CEO

George is the Vice-Chairman of the Board of Directors, and was first appointed to the Board in 1996. Concurrently, he serves as the Chief Executive Officer of Malayan Bank, as Vice President of Majalco Inc., and Director of Unicapital Inc., Majalco Finance & Investment, Inc., and Chamber of Thrift Banks. He previously served as President of Malayan Bank from 1998 to 2015, and as its Treasurer from 1996 to 1998. He received his Bachelor of Science in Economics from De La Salle University, and his Master in Business Administration from University of the Philippines.

William Carlos Uy / Director & Treasurer

William is a Director and Treasurer of Malayan Bank, and was first appointed to the Board in 1996. Concurrently, he serves as Chairman of Liberty Flour Mills, Inc., and UPCC Securities Corp. He also serves as President of Parity Values Inc., and Director for Unicapital Inc. He received his Bachelor of Science in Commerce from San Juan de Letran Colleges.

Reynold Y. Gerongay / President & COO

Rey is the President and Chief Operating Officer of Malayan Bank, and was first appointed to the Board in 2015. He served as Chairman of the Board for Value Max Finance Corporation. He spent 15 years as President, CEO, and Director of Robinsons Bank, from 1999 to 2011 (as Robinsons Savings Bank) and from 2011 to 2014 (as Robinsons Bank Corporation). He also served as Vice-Chairman and Director of Legaspi Savings Bank from 2012 to 2014, and as President of Security Savings Bank, and Security Finance Corporation, from 1997 to 1998. Prior to this, he spent 20 years with United Coconut Planters Bank, with his last held position as Vice President and Division Head of the Consumer Finance Division, and as concurrent Acting President and Director of UCPB Savings Bank. He graduated with a Bachelor of Science in Accounting from Holy Cross College of Digos in Davao, where he was a recipient of a Gold Medal for Academic Excellence, and received his Masters in Business Administration from De La Salle University. In addition to this, he completed the Advance Bank Management Program from Asian Institute of Management, where he received a Superior Academic Performance Award, and also received formal training from the Gemological Institute of America.

Manuel R. Chanco III / Director

Manuel is a Director of Malayan Bank, and was first appointed to the Board in 2011 as an Independent Director. Concurrently, he is a Director of Corogn Ltd. Hongkong, Int’l Printing APFS Management Corp., and Matrix Resource Portfolio, and the President of Dag Express, and JCM Well Holdings. He is also Vice President of Sunvar Realty, Lexmedia Realty, and Inquirer Holdings, Inc., and is the CFO for Flax Ltd. Hongkong and for KUNI Ltd. Hongkong. Moreover, he is a Proprietor at MCS Tiangge. He graduated with a Bachelor of Science in Accounting from Far Eastern University, and received a post-graduate in General Accounting from International Correspondent School.

Emmanuel M. De Ocampo / Director

Bong is a Director of Malayan Bank, and was first appointed to the Board in 2017. Concurrently, he is the President of Filremit Corporation, Safeserve Company Inc., and Mancarex Inc. He is also a stockholder of Filchoice Services Corporation. Previously, he was the President of Maxipack Inc. Bong graduated with a Bachelor of Arts in History major in Political Science from De La Salle University. He also took courses on Business Management Real Estate from the University of California, Los Angeles.

Cesar T. Duque / Director

Cesar is a Director of Malayan Bank, and was first appointed to the Board in 2017. Concurrently, he is the Chairman of UPCC Holdings Corporation, Telequip ICT Incorporated, Sterling Properties, Inc., Pangasinan Medical Center, Tempsys Corporation, Prince Shuttle Services Corporation, Triple A Shuttle Bus Services, Inc., and Inner Lane Transport, Inc. He is also the Managing Director of Resort & Leisure, Inc. and President of Doctors’ Pharmaceuticals, Inc., Data Control, DUMA Corporation, Mei Yen Corporation, Asia Auto Interior, Inc., Scuola Montessori Tutorial Centre, Inc., Sanvit Corporation, Colegio San Antonio, and Dominic & Sons Transport & Shuttle Services, Inc. He graduated with a Bachelor of Arts in Economics minor in Political Science from Ateneo de Manila University. He received his Master in Business Administration from Harvard Business School.

Joel Marcelo G. Jimenez / Director

Joel is a Director of Malayan Bank, and was first appointed to the Board in 2011. Concurrently, he is a Director of Majalco Finance and Investments, Inc., Nuvoland Philippines, Inc., Majent Agro Industrial Corp., International Freeport Traders, Inc., and Unicapital Inc. He is also Director and Vice President of M.A. Jimenez and Ent., Inc., and Majent Mgmt. and Development Corporation. Joel also holds executive positions in Alta Prod. Group Inc., GMA Marketing and Productions Inc., QTV Channel 11, RGMA Network, Inc., GMA Network, Inc., GMA New Media, Television International Corp., Friends of Manila Zoo, and Kinder Zoo. Furthermore, he is currently the Chairman and CEO of Image One Multimedia Corp. He graduated International Marketing at Loyola Marymount University, and received his Masters in Management from Asian Institute of Management.

Jaime J. Martirez / Director

Jaime is a Director of Malayan Bank, and was first appointed to the Board in 1996. Concurrently, he is Director for Basic Energy Corp., XCT Corp., Unicaptial, Inc., Unicapital Securities, Inc., ACME Pawnshops, Basic Ecomarket Farms, and Des Eaux Utilities Co. Inc. He is also President of Majalco Finance and Investment, Inc., President of Unoventure, Inc., Vice President of Majalco Inc. and MJ Realty, and Treasurer

9 of GJ Holdings. He was previously Director of HMR PTY LTD., SOS Philippines, and JMCM. He graduated with a Bachelor of Science in Business Administration from De La Salle University, and complete MBA Units from Ateneo de Manila Graduate School.

James Gerard A. Ong / Director

James is a Director of Malayan Bank, and was first appointed to the Board in 2012. Concurrently, he is President and Owner of Casa Europa, President and Owner of B+B Studio, and Vice President and Director of Coffee Bean and Tea Leaf. He graduated with a Bachelor of Science in Finance from Boston College, and received his Master in Entrepreneurship from the Asian Institute of Management.

Lydia P. Samonte / Director

Lydia is a Director of Malayan Bank, and was first appointed to the Board in 2010. Concurrently, she is Vice President for the following: Corinthian Commercial Corp., Corinthian Industrial Property Inc., Cosmopolitan Realty Corp., Ionian Realty Development Corp., and Caymen, Inc. She is also the Comptroller for IMI Salcedo Realty Corp., Electra House Condominum Corp., Conthex Inc., and Tuscan Condominum Corp. She graduated with a Bachelor of Science in Business Administration from Philippine School of Business Administration, and is a Certified Public Accountant.

John Carlos Uy / Director

John is a Director of Malayan Bank, and was first appointed to the Board in 2017. Concurrently, he is a Director of Liberty Flour Mills, Inc. and Vice-Chairman of Carlos Uy Corporation. He graduated with a Bachelor of Science in Business Administration from De La Salle University.

Justice Josue N. Bellosillo / Independent Director

Justice Bellosillo is an Independent Director of Malayan Bank, and was first appointed to the Board in 2015. Concurrently, he is Vice-Chairman and Director of Philtrust Bank, and an Independent Director of Datem, Inc. He was previously active as a judge for several courts in Iloilo, and also held several posts in the Supreme Court from 1991 to 2003, where he last held the position of Senior Associate Justice. Prior to joining Malayan Bank, he was the Chairman of the Construction Industry Arbitration Commission. He received his Bachelor of Laws from the University of the Philippines, and his Doctor of Laws from Pamantasan ng Lungsod ng Maynila and University of the East.

Harry G. Liu / Independent Director

Harry is an Independent Director of Malayan Bank, and was first appointed to the Board in 2014. Concurrently, he is the Chairman and President of Summit Securities Inc. He is also the Chairman for Los Ricos Global Transport, Inc., and Los Ricos Compania Corp., and President of Automated Identification Technology, and Philippines Stock Exchange Foundation, Inc. He is also Director of Rockwell Leisure Club, and a Nominee of the Philippine Stock Exchange, Inc. He received his Bachelor of Science in Business Administration from De La Salle University.

MANAGEMENT TEAM

George J. Martirez Reynold Y. Gerongay Philip S. Madrigal Vice Chairman President Executive Vice President Chief Executive Officer Chief Operating Officer Operations Segment Head

Dennis I. Paredes Anna Liza M. Siapno German Jeremy E. Pampolina III Senior Vice President Senior Vice President Senior Vice President Branch Banking Group Head Marketing Segment Head Treasury Head

Nathaniel P. Delos Reyes Rizalino Rhett Q. Holganza James D. Chua First Vice President First Vice President First Vice President Comptrollership Head Loans & Credit Group Head Risk Management Head

Raul B. Cirio Redentor S. Sirug Cherry Ann R. Cruz Vice President Vice President Vice President Audit Head Compliance Head Systems and Methods Head

Anastacia C. Regnim Leonisa V. Cura John Walvine C. Rata Vice President Vice President Senior Assistant Vice Account Management Credit Cycle Department President Department Head Head IT Group Head

Michael Gerard N. Martirez Gerardo V. Malig Martha Cecilia M. Singson Assistant Vice President Assistant Vice President Manager Special Asset Management Chief Security Officer Human Resources Unit Head Department Head

Angela Diane Q. Alegarbes Atty. Maryrose O. Toledo

Assistant Manager Assistant Manager Corporate Planning Officer Legal Department Head

BRANCHES

METRO MANILA Pasig M.H. Del Pilar St., Brgy. San Nicolas, Pasig City Makati Head Office 641-5098 / 916-8420 Majalco Bldg Trasierra cor. Benavidez Sts., Legaspi Village, Makati City Caloocan 814-0884 / 810-6072 Ong Sing Bldg., 440 Rizal Ave. Extension, Caloocan City Kalentong 365-1047 / 363-8819 The Market Place, Gen. Kalentong St., Mandaluyong City Malabon 533-3660 / 533-3659 El Domus Properties, 55 Unit A General Unit St., San Agustin, Malabon City Marikina 282-3676 / 282-3695 J.P. Rizal St., Concepcion Uno, Marikina City 948-1780 / 948-1790 Las Piñas M.J. Realty Bldg., Alabang Zapote Road, Almanza 1 GMA Service Unit Cor., Pilar Road, Las Piñas City Kapuso Bldg., GMA Complex Samar Ave., 805-5225 / 805-5218 Diliman Quezon City 948-1780 / 948-1790 Taguig #86 Bayani Rd., AFPOVAI Phase V, Fort Bonifacio, Taguig City 425-7307

PROVINCIAL

Sta. Rosa, Laguna Dasol, Pangasinan Akisada Commercial Center, Old National Don Marcelo A. Jimenez Blvd., Dasol, Pangasinan Highway, 546-6495 Macabling City of Sta. Rosa Baguio 542-9512 / (049) 302-0618 West Burnham Place Condominium Bldg., No. 16 Imus, Cavite Kisad Road cor., Chanum St., Baguio City JSS Bldg., Aguinaldo Highway, 542-1426 / (074) 420-9006 Bayan Luma IV, Imus, Cavite 529-8763 / (049) 471-6725 Cebu Lahug La Belle Bldg., Gorordo Ave., Rosario, Cavite Lahug, Cebu City Gate 1, Cavite Economic Zone, 584-4677 / (032) 505-6537 Tejero Rosario, Cavite 542-5471 / (046) 476-0765 Cebu Jones Harrison’s Place, Osmena Blvd., Meycauayan, Bulacan Cor. Urgello, Cebu City Mancon Bldg., McArthur Highway, Calvario, 584-4610 / (032) 505-6155 Meycauyan City, Bulacan 542-1409 / (044) 228-6021 Iloilo Parking Bldg., Robinsons Place Iloilo cor., De Leon & Angeles, Pampanga Quezon Sts., Iloilo City AYA Bldg., Sto. Rosario St. San Jose, 542-6613 / (033) 508-7503 Angeles City, Pampanga 542-4939 / (045) 322-5277 Davao M&M Marble Bldg., J.P. Laurel, Bajada, Davao City Dagupan, Pangasinan 584-4422 / (082) 222-3513 P&C Fernandez Bldg.,

Perez Blvd., Dagupan City 546-6807 / (075) 523-3140

PRODUCTS AND SERVICES

Deposits • ATM Savings Account • Passbook Savings Account • Checking Account • Checking Account with Automatic Transfer • Peso Time Deposit • USD Savings Account • USD Time Deposit

Treasury • Government Securities • Peso and Dollar Bonds • Foreign Exchange

Loans • Working Capital Loan • Term Loan for Capital Expenditure • Receivables Discounting • Revolving Credit Line • Import / Domestic Letter of Credit • Group Salary Loan • Bus Loan • Auto Loan • Motorcycle Loan • Jewelry Loan

Other Services • Over-the-Counter Bills Payment • Remittances • Deposit Pick-Up Arrangement • Check Warehousing • ATM Payroll • Safety Deposit Boxes

FINANCIAL HIGHLIGHTS

(in millions) 2017 2016 % Change Profitability Net Interest Income 243.8 241.9 0.78% Non-Interest Income 494.8 103.1 79.16% Gross Operating Income 738.6 345 53.29% Operating Expenses 331.1 296.1 10.57% Provision for Impairment Losses -301.1 -2.3 99.24% Net Profit 70.5 21.8 69.08%

Selected Balance Sheet Data Liquid Assets 2,318.50 2,441.20 -5.29% Loans and Other Receivables 3,930.10 3,816.80 2.88% Total Assets 7,966.10 7,119.30 10.63% Deposits 6,534.90 5,955.90 8.86% Total Equity 1,186.20 1,113.80 6.10%

Selected Ratios Return on Average Equity 6.10% 2.10% 65.57% Return on Average Assets 9.00% 3.00% 66.67% Tier 1 Capital Ratio 16.34% 16.23% 0.67% Capital Adequacy Ratio 16.80% 16.70% 0.60%

Others Headcount Officers 123 117 4.88% Staff 115 103 10.43%

OPERATIONAL HIGHLIGHTS

ß Cost-Cutting Measures: V Winding down of Trust and Investment Group V Reduced 1 armored car and changed security agency V Revised policy on overtime hours which limits overtime hours to 10 hours per month

ß I.T. Projects Launched: V Check Truncation System – April 2017 V EMV Conversion – May 2017 V Central Liabilities Activation – May 2017 V Collections Interface – July 2017 V AMLA Phase 1 – August 2017

ß Corporate Governance Efforts: V In June 2017, Malayan Bank registered with the Data Privacy Commission in compliance with the RA 10173 Data Privacy Act of 2012 requirements. V Complied with the required capital prescribed under BSP circular 854 and required loan loss provisions.

MARKETING HIGHLIGHTS

Below is the Bank’s industry standing and financial highlights for the year 2017:

ö Out of 65 savings banks in the country, Malayan Bank is: #19 in terms of asset size #19 in terms of loan portfolio #18 in terms of capital #18 in terms of deposits

ö Out of 54 stand-alone savings banks in the country, Malayan Bank is: #9 in terms of asset size #10 in terms of loan portfolio #9 in terms of capital #8 in terms of deposits

In terms of ROE, the Bank currently ranks #21. The Bank’s aim is to be among the Top 10 savings banks in the country (in terms of asset size) by the year 2020. The Bank also aims to be among the Top 20 savings banks in the country (in terms of ROE) by the year 2020.

Currently, the Bank has 84% high cost deposit and 16% low cost deposit. The deposit mix in year 2017 is better than the deposit mix in the previous years, where almost 90% of the Bank’s deposit consisted of high cost placements. The aim is to improve the deposit mix to 75% high cost, 25% low cost for the year 2018.

Deposits Count ADB OB PESO CASA 25,179 1,027,081,386 993,960,900 2017 Deposits ADB FC SA PESO TD 2,936 4,401,529,513 5,200,401,428 0% FC SA 403 20,729,703 20,836,926 FC TD PESO 6% FC TD 338 338,191,398 319,750,277 CASA Total 28,856 5,787,531,999 6,534,949,531 18%

PESO TD 76%

The chart below shows the year-end loan level of the Bank as of December 2017:

Loan Type Dec-17 Product Mix YE 2017 Loan Portfolio Corporate 817,194,809 20.48% Bus 1,468,679,401 36.80% CTS Personal Microfinance 2% 0% Motorcycle 41,693,760 1.04% 2% Jewelry 45,500,639 1.14% Housing 369,864,050 9.27% SME 5% Auto 641,898,086 16.09% Agri 6% Corporate Agri 230,543,313 5.78% 21% SME 203,889,746 5.11%

CTS 72,049,605 1.81% Auto Personal 86,732,051 2.17% 16% Microfinance 12,565,867 0.31% Total 3,990,611,328 100.00% Bus Housing 37% 9%

Jewelry 1% Motorcycle 1%

Below are the financial highlights for the year ending December 2017 and the targets set for the year 2018.

(in millions) YE 2014 YE 2015 YE 2016 YE 2017 Plan 2018 Total Resources 6,252.2 7,072.3 7,199.3 7,966.1 8,150.4 Total Capital Funds 980.4 995.6 1,113.8 1,186.2 1,205.6 Total Deposit 5,133.1 5,899.1 5,955.9 6,534.9 6,768.3 Loans and Other Receivables 3,787.7 3,716.1 3,816.8 3,930.2 4,725.0 Net Interest Income 244.2 210.4 241.9 243.8 313.4 Other Income 68.9 68.9 103.2 494.9 410.0 Expenses (294.2) (275.9) (296.1) (331.2) (347.0) Net Income 7.2 11.4 21.8 70.5 80.0

CORPORATE SOCIAL RESPONSIBILITY

Malayan Bank is committed to helping make better the lives of the Filipino community. We hope to set a good example to other savings banks by promoting corporate social responsibility.

Our employees make a difference in the community through volunteer work.

We have developed partnerships with orphanages such as House of Refuge, Hapag –

Asa, Don Bosco Tuloy Foundation, and Tahan – Tahanan.

Each year, our employees spend several hours in these orphanages to serve meals to the children, donate food and toiletries, and play games with them.

Malayan Bank is able to mobilize its entire team to participate in all of its CSR activities. The Bank is proud of the strong spirit of volunteerism among Malayan Bankers.

The Bank will continue to help the underprivileged through its CSR activities.

In year 2017, Malayan Bank also supported The Roman Catholic Bishop of Kalookan and San Bartolome Parish Church. The Bank participated in the annual gift-giving program for orphans and street children. The Bank also contributed to the construction fund of the church situated near our Malabon branch.

STOCKHOLDERS and

ORGANIZATIONAL STRUCTURE

MALAYAN BANK, SAVINGS AND MORTGAGE BANK LIST OF STOCKHOLDERS AND THEIR STOCKHOLDINGS AS OF DECEMBER 31, 2017

PERCENTAGE

NAME OF STOCKHOLDERS NATIONALITY OF

STOCKHOLDINGS VOTING Majalco, Inc. Filipino 31.85% LINQ Information Entertainment Quadrant Corp. Filipino 26.94% Majent Management & Development Corp. Filipino 12.57% Telequip ICT Inc. Filipino 10.00% FLG Management & Development Corp.* Filipino 8.61% William Carlos Uy Filipino 6.43% DAO Investment & Management Corp. Filipino 3.60% Total Voting 100.00%

Non Voting Not Applicable

GRAND TOTAL 100.00%

RISK MANAGEMENT

Overall Risk Management Policy

The effective management of liquidity and risks is the essence of banking. The overall risk management policy is to ensure that risks taken are within the Bank’s risk appetite, which is annually evaluated considering earnings target, capital adequacy, regulatory standards, strategic initiatives and direction set by the Board of Directors (BOD). The bank’s risk management practices involve risk identification, measurement, monitoring and control through established processes, independent checks and balances, written policies and guidelines, formal authority limits, and quantitative modeling techniques.

The Bank recognizes that risk management is the responsibility of the entire organization. It is the goal of the Bank to create a strong culture of risk awareness supported by risk education as a continuing endeavor. All business units are mandated to manage risks relevant to their own operations. Accordingly, performance metrics of business units and individual employees are linked to risk.

RISK APPETITE AND STRATEGY

The risk appetite statement approved by the BOD is an expression of the amount of risks the Bank is willing to accept related to its capability and business strategy.

“The Malayan Bank Savings and Mortgage Bank (MBSMB) shall maintain its position as one of the country's top twenty (20) Savings Banks. In pursuit of this, it shall continue to provide financial support to its clients, especially consumer clients and micro, small, and medium enterprises, in need of financial assistance. It shall cultivate a work environment conducive to the growth and development of all its employees. It shall commit to protect the interest of all its stakeholders and ensure that expectations of its stockholders are met.

MBSMB shall continue to operate within its area of core competencies while pursuing a balance among its business goals of Good Customer Service and Institutional Viability. MBSMB puts high premium on the critical role of good governance and improved risk management system in facilitating higher operational efficiencies and better financial performance in order for the Bank to achieve its institutional goals. Lastly, the Bank shall always operate within the bounds of both internal and external regulations and shall maintain zero tolerance for fraudulent activities by any of its officers and staff.”

Risk shall be managed to ensure an acceptable quality of risk asset portfolio that minimizes losses taking into consideration the goal of overall sustainability while maintaining a Capital Adequacy Ratio (CAR) benchmark of 12%. Capital shall be continuously and vigorously preserved by maintaining acceptable average annual earnings large enough for stockholder’s return to be competitive with risk free investments. Corporate governance policies and practices shall be implemented and enforced through the establishment of effective monitoring mechanisms.

Transaction processing shall continuously be improved for client satisfaction, efficiency of services and accuracy of results. New products, services and program shall only be implemented where the Bank possesses expertise, infrastructure and capability to facilitate effective and proactive risk management. Sufficiently skilled and experienced personnel shall be employed to continuously enhance capabilities and develop strategic and functional competencies.

The major risks inherent to the Bank’s operations are credit, market and operational. Other attendant risks include interest rate risk in the banking book and liquidity risks.

Credit Risk is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfil its financial obligations in a timely manner.

It is the Bank's objective to maximize the return on capital by maintaining a credit risk exposure within defined parameters including asset quality and portfolio mix, among others. In furtherance of this objective, the Bank observes the following:

• Limits are set on the amount of credit risk that the Bank is willing to take for customers and counterparties, and exposures are monitored against such credit limits. • The Bank also observes related regulatory limits such as the single borrower’s limit (SBL) and directors, officers, stockholders and related interests (DOSRI) ceiling, among others. • For consumer loans, the Bank utilizes credit scoring models (CSM) to determine and analyze the level of exposure to credit risk of each loan applicant. The scorecards were internally developed based on existing risk acceptance criteria. The Bank intends to regularly validate these models and enhance the scorecards using statistical analysis. • For non-consumer loan borrowers, the Bank has developed a borrower risk rating system (BRR) which involves the categorization of each borrower based on credit analysis into a series of graduated categories of increasing risk. The BRR utilizes both quantitative and qualitative attributes to determine the appropriate risk rating for each borrower. As in the CSM, the BRR shall be subjected to statistical validation and periodic calibration. • Past due and nonperforming loan (NPL) ratios are also used to measure and monitor the quality of the loan portfolio. • Ongoing enhanced implementation of account quality review (AQR) on commercial loans, and Portfolio Quality Review (PQR) on consumer loans to proactively monitor risk.

Market Risk is the risk to earnings or capital arising from changes in the value of a portfolio of financial assets . It is the exposure to the uncertain market value of a portfolio due to price fluctuations. This risk arises from buying and selling activities and position-taking in bonds and foreign exchange.

The Bank aims to identify, measure, and control market risk. The Bank sets market limits based on macro-economic conditions and business targets, among others. The limits are intended to prevent over-trading and curb limit financial loss arising from the Bank’s exposure to market risk. The BOD have approved Positions Limits, Loss Alert and Stop Loss Limits. To monitor market risk, the Bank uses the following tools:

a. Weighted Average Modified Duration. The value derived is an indicator of the portfolio’s sensitivity to changes in interest rates.

b. Value-at-Risk. VaR is a measure of earnings volatility for marked-to-market portfolios. The VaR provides a statistical estimate of the potential loss of value of a marked-to-market portfolio due to price fluctuations in a specified period of time within a given probability of occurrence. The Bank uses the historical simulation method in estimating VaR.

Interest Rate Risk (Banking Book) is the risk posed by adverse movements in interest rates that cause a mismatch between the rates banks set on customer loans and on deposits. It is the current and prospective risk to earnings or capital arising from the movements in interest rates. The Bank’s lending activities, taking deposits with different maturities and interest rates and investing in a portfolio of fixed income securities expose it to interest rate risk.

The Bank utilizes a repricing gap analysis as a tool to proactively measure, control and monitor likely earnings volatility on the banking book due to changes in interest rates. The analysis is created by stratifying the Bank’s assets and liabilities into time bands according to each instrument’s remaining term to next repricing.

Liquidity Risk is the current and prospective loss arising from the Bank’s inability to meet its obligations when they come due without incurring unacceptable losses. It includes the inability to manage unplanned decreases or changes in funding sources. This usually occurs due to the inability to convert assets to cash quickly and with minimal loss in value.

The Bank uses maximum cumulative outflow (MCO) and liquidity ratios to identify, measure, and control liquidity risks inherent in its assets and liability profile. The analysis is created by stratifying the Bank’s assets and liabilities into time bands according to each instrument’s remaining term to maturity. By 2018, the bank will commence monitoring of the Minimum Liquidity Ratio (MLR) in compliance with BSP Circular 996.

To ensure proper identification of liquidity risk exposures, the Bank regularly monitors the liquidity risk and updates its contingency plan if necessary. The adequacy of its financial resources is then assessed and actions to be taken in the event of an unexpected situation are also identified.

Operational Risk and IT Risk

Operational Risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events. Information security and technology risk is any risk related to information technology. Technology is the great enabler, but it also presents pervasive, potentially high-impact risk in the form of data theft, compromised accounts, destroyed files, or disabled or degraded systems. Additionally, technology may become obsolete, disrupted or uncompetitive.

To systematically identify causes of failures in the Bank’s day-to-day operations, assess the potential loss and implement appropriate action to avoid or minimize the impact of such loss, the Bank uses the Operational Risk Management (ORM) Framework which is supported by various tools and methodologies to identify, assess, control, mitigate and monitor the operational risks that affect the Bank. RCSA (Risk Control and Self-Assessment, KRI (Key Risk Indicators) and LED (Loss Events Database) are being redesigned and will be employed as tools to identify high risk areas, loss drivers and trends which could be the basis of priority for operational risk management in order to prevent material failures. Similarly, the Bank is also redesigning the ISRA (Information Security Risk Assessment) as a tool to determine value of information assets and assess the threats and vulnerabilities to information assets.

The Bank has a Business Continuity Plan (BCP) where the primary objective is to have the capability and assure the level of preparedness needed to restore business processes in the event of a major disruption. The program includes the development of appropriate recovery procedures, facilities, contingency measures, communication, and mobilization plans across the organization. A component of the program is the Business Impact Analysis (BIA) which is necessary to identify critical business process, mission critical systems and resource dependencies. To avert any possible future business disruptions brought about by IT systems breakdown due to any possible man-made or natural disasters, an IT Disaster Recovery drill is conducted to test the connectivity and readiness of the installed systems and hardware at the Back-up / Alternate site.

The Senior Management and the BOD are regularly informed on all risk areas affecting the Bank to be able to make the appropriate decisions in terms of priority and focus. Likewise, breaches in limits are properly identified, reported to Senior Management and Board of Directors (BOD) on a timely basis, and preventive measures and/or corrective actions are taken.

THE RISK GOVERNANCE STRUCTURE

Risk Management is a responsibility that rests on every member of the organization and begins at the topmost echelon. The BOD draws up its Risk Oversight Charter and its Risk Appetite Statement and cascades the principles to the various units of the Bank through its Risk Oversight Committee (ROC).

The Bank employs a Top to Bottom Approach with the BOD as the highest oversight body and ultimately responsible for the effectiveness of risk management activities across the Bank. The Bank instituted three (3) lines of defense to effectively manage risk. The first line of defense is the conduct of risk management on a Transactional Level, wherein business and support units must understand their roles and responsibilities with regard to transaction processing, follow policies and processes and apply internal controls and other risk responses to treat the risks associated with those transactions. The second line of defense is on a Portfolio Level wherein audit, compliance and risk functions perform audit, risk analysis, control, management reporting and policy review. The third line of defense led is at a Strategic Level led by the BOD which involves oversight as well as risk policy formulation and approval.

Under the functional supervision of the ROC, the Risk Management Department (RMD) is headed by a Chief Risk Officer (CRO) who is primarily responsible for the promulgation and setting up, dissemination and implementation of risk management initiatives, as he spearheads the development and execution of risk management systems and processes.

THE RISK OVERSIGHT COMMITTEE (ROC)

The ROC is a Board – level committee composed of three (3) Board members who possess a range of expertise as well as adequate knowledge of the Bank’s risk exposures. The ROC conducts oversight on all matters pertaining to risk management, including the development of risk strategies, policies, guidelines and procedures to ensure that the Bank’s risk exposure is timely recognized and that risk mitigation measures are adequate and in place. It establishes, oversees and monitors the Bank’s Risk Appetite, through the (RMD), tolerance bandwidth and a system of authority limits delegated to Senior Management and immediately gives directives for appropriate corrective actions when limit breaches occur.

AML Governance and Culture / Money Laundering (ML) / Terrorist Financing (TF) Risk Management Framework

Malayan Bank has a robust compliance system focused on the enforcement of the Anti-Money Laundering Act (AMLA), Money Laundering and Terrorist Financing Prevention Program (MLPP), Compliance Manual, Corporate Governance Manual, Code of Conduct, and other regulatory requirements.

The Bank has articulated in its MLPP the regulatory issuances such as guidelines and circulars on anti-money laundering (AML) and combating the financing of terrorism (CFT) [i.e. BSP Circular

No. 706 Series of 2011] in order to effectively implement the provisions of Republic Act No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001" (AMLA), as amended by R.A. Nos. 9194, 10167, 10365, and its Implementing Rules and Regulations (IRR) / Revised lmplementing Rules and Regulations (RIRR), as well as R.A. No. 10168 or The Terrorism Financing Prevention and Suppression Act of 2012, and its lmplementing Rules and Regulations (lRR).

The Bank’s Compliance Department is responsible for overseeing, coordinating, monitoring and ensuring compliance with existing laws, rules and regulations through the implementation of its compliance system in accordance with the requirements of the Bangko Sentral ng Pilipinas (BSP) and other regulatory agencies which include, among others, the identification and control of compliance risks, prudential reporting as well as compliance training.

The Bank adheres to, among others, the KYC rules and customer due diligence requirements of the law and regulations from the start of customer relationship until its termination. Furthermore, the Bank takes note of bulletins and watch lists of individuals and entities engaged in illegal activities or terrorist related activities. The Anti-Money Laundering Council (AMLC), and other international entities or organizations such as the Financial Action Task Force (FATF), Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury, and other agencies or organizations duly competent and recognized to create public watch lists.

The Bank’s Corporate Governance Committee (CGC) exercises oversight functions on the Bank’s adherence to rules and regulations especially those issued by the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC), Philippine Deposit Insurance Corporation (PDIC), Anti-Money Laundering Council (AMLC), and other regulatory bodies and agencies. The CGC also conducts oversight functions over the Bank’s Anti-Money Laundering Management Committee (AMLMC) and the Anti-Money Laundering Evaluation Committee (AMLEC) through regular reporting of matters taken during its meetings. The AMLMC / AMLEC review and decide on the disposition of AML/CFT issues referred by branches/business units (BUs).

The Bank provides AML orientation to newly hired employees and formal training/ refresher courses to its existing officers and personnel. The Human Resources Development Department (HRDD) and Compliance Department in coordination with IT Department is in process of developing a Compliance and AML eLearning system with the aim of providing every officer and personnel easy intranet access to gauged his/her knowledge to further strengthen the Bank’s adherence to AMLA, applicable laws, rules and regulations and internal policies. Moreover, the Bank has acquired an AML System to improve its monitoring and reporting tools.

The Compliance Department coordinates with regulators on their examinations and reports significant compliance issues and regulatory findings to Senior Management, Corporate Governance Committee, and the Board. The department is headed by a Chief Compliance Officer (CCO) who was appointed by the Board and approved by BSP/ Monetary Board. The CCO reports directly to the Corporate Governance Committee.

CORPORATE GOVERNANCE

Overall corporate governance structure and practices

Malayan Bank believes that the key to successful implementation of its Vision and Mission depends on having a good name and reputation in the business community. Thus, the Bank’s business and operations will be conducted in accordance with the aligned regulations and best practices that promote good corporate governance.

The Bank is guided by the Bangko Sentral ng Pilipinas’ Guidelines in Strengthening Corporate Governance in BSP Supervised Financial Institutions under BSP Circular No. 749, as amended by BSP Circulars Nos. 757 and 769 and relevant provisions of the Revised Code of Corporate Governance of the Securities and Exchange Commission (SEC). The provisions of aforementioned circulars and memoranda are articulated in the revised Corporate Governance Manual and through a cascade program, the Manual is being implemented in the entire organization of the Bank, not only for statutory and regulatory compliance but to institutionalize best practices.

Selection Process for the Board and Senior Management

The Corporate Governance Committee evaluates the suitability of individual board members and senior officers, taking into account the relevant qualifications of the candidate nominated for election, such as physical and mental fitness, educational and professional background, personal track record, diversity of related experience/training, commitment to contribute, willingness to serve, and interest to remain engaged and involved. For the reelection of incumbent directors, the Corporate Governance Committee also consider the results of the most recent self- assessment of the Board, the director’s attendance record in meetings, participation of in Board activities and overall contribution to the functioning of the Board.

The Board approves the appointment of senior officers and election of directors to fill-up any vacancy.

Board’s overall responsibility

The Board oversees the Bank’s overall governance framework, approves and oversees the implementation of strategies to achieve objectives, monitors managements’ performance against set targets and ensures appropriate controls and systems of checks and balances are in place and operating effectively. It leads in establishing the tone of good governance from the top and in setting corporate values, codes of conduct and other standards of appropriate behavior for itself, the senior management and other employees. It is primarily responsible for approving and overseeing the implementation of the Bank’s risk strategy, corporate governance and corporate values. The Board ensures expeditious resolution of compliance issues and consistent adoption of corporate governance policies and systems.

Description of the major role and contribution of the Chairman of the Board a. Role As Chairman of the Board, provide fresh and meaningful ideas to the Board discussions and decision making; p rovide leadership in the Board of Directors by

ensuring effective functioning of the Board, including maintaining a relationship of trust with Board members; ensure that the Board takes an informed decision thru a sound decision making process, encourage and promote critical discussions, ensure dissenting views are expressed and fully considered; ensure that the meetings of the Board of Directors are held in accordance with the By-Laws of the Bank; oversee the preparation of the agenda of the meeting of the Board of Directors in coordination with the Corporate Secretary, taking into account the suggestions of the Directors, the Bank President, and other members of the Senior Management; and maintain effective lines of communication and information between the Board of Directors and Senior Management of the Bank.

b. Contribution

The Chairman presides all stockholders’ meeting; review and approve minutes of all its previous meetings prior to presentation to the stockholders for approval; manage the Board by: providing leadership to the board; preside all its meetings; r eview and approve minutes of its previous meetings prior to presentation to the Board for approval; manage the directors and Board performance; facilitate communication among Directors; develop a more effective Board by: working with the members of the Corporate Governance Committee, plan Board and committee composition, recruit directors and plan for succession; participate in the Board evaluation process and provide constructive feedback and advice; review and approve requests for continuing education of the Board to improve their skills and competencies; and work with Management through: support and influence strategy; with the assistance of the Corporate Governance Committee, lead the Board in evaluating the performance of the President; provide advice and counsel to the President. Board Composition

The board of directors determines the appropriate number of its members commensurate to the size and complexity of the Bank's operations. The members of the board of directors shall be selected from a broad pool of qualified candidates. Details of board composition is shown below:

State No. of No. of Shares Principal Years Shares Held Held/Total Stockholder Served as (Direct/ Outstanding # Director's Name Type* Represented Director Indirect) Shares (%) Jose Mario C. 1 Buñag ID - 9 1 0.00% 2 John Carlos Uy NED - 1 1 0.00% 3 George J. Martirez ED Majalco, Inc. 21 44 0.00% 4 William Carlos Uy ED - 21 651,464 6.43% Reynold Y. 5 Gerongay ED - 2 1 0.00% 6 Jaime J. Martirez ED Majalco, Inc 21 44 0.00%

Majent Joel Marcelo G. Management and 7 Jimenez ED Development Corp. 16 1 0.00% LINQ Information Emmanuel M. De Entertainment 8 Ocampo NED Quadrant 1 1 0.00% 9 Lydia P. Samonte NED LINQ 9 1 0.00% 10 Manuel R. Chanco NED LINQ 6 1 0.00% 11 James Gerard Ong NED - 5 1 0.00% 12 Harry G. Liu ID - 3 1 0.00% 13 Josue N. Bellosillo ID - 2 1 0.00% 14. Cesar T. Duque NED - 1 1 0.00% *Executive ( ED ), Non-Executive ( NED ), Independent ( ID )

List of Board-Level Committees including Membership and Function

1. Executive Committee. This Committee acts on behalf of the Board as the main approving body for Bank exposures particularly approval/confirmation of credit proposals, investments, disposal of acquired assets and other matter(s) which would need immediate attention and approval of the Board.

Composition Attendance % George J. Martirez Reynold Y. Gerongay William Carlos Uy No Meeting Jaime J. Martirez Joel Marcelo G. Jimenez

2. Audit Committee. The Committee provides oversight on the Bank’s financial reporting policies, practices and control, and internal and external audit functions. It shall be responsible for the setting up of the Internal Audit Department IAD) and for the appointment of the Internal Auditor as well as the external auditor who shall both report directly to the Audit Committee. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. The Audit Committee shall review and approve the audit scope and frequency. It shall receive key audit reports and ensure that Senior Management is taking necessary corrective actions in a timely manner to address the weaknesses, non-compliance with polices, laws and regulations and other issues identified by the auditors.

Composition Meeting % Attendance Jose Mario C. Buñag 8/8 100 Harry G. Liu 8/8 100 John Carlos Uy 3/5 60

3. Risk Oversight Committee . The Risk Oversight Committee is primarily responsible for:

1. Fulfilling statutory, fiduciary and regulatory responsibilities. 2. Assisting the Board of Directors in defining the Risk Appetite of the Bank. 3. Ensuring alignment of risk management objectives with the overall business strategies and performance goals. 4. Overseeing the development of the risk management programs of the Bank and its Trust Investment Unit which shall include the following: a. Oversight of management functions and approval of proposals regarding the Bank’s policies, procedures and best practices relative to credit, asset and liability management, market and business operational risks. b. Ensuring compliance to written policies and procedures relating to the management of risks throughout the Bank. 5. Developing a continuing education program to enhance its members’ understanding of relevant regulatory and banking industry issues.

Composition Meeting % Attendance Jose Mario C. Buñag 5/5 100 Manuel R. Chanco 8/8 100 Harry G. Liu 8/8 100

4. Corporate Governance Committee

The Corporate Governance Committee (CGC) is primarily tasked to assist the Board in formulating the policies and oversee the implementation of the corporate governance practices of the Bank as well as its subsidiaries and affiliates (if there is any). The Committee provides oversight on the Bank’s Compliance Department’s activities relative to Compliance Function and Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) as well as other activities which need immediate attention/approval of the Board. The CGC shall serve as the primary source for the Board to study, evaluate and make recommendations about its structure, charter, policies and practices and committees and to address issues of corporate governance.

The Corporate Governance Committee shall be composed of at least three (3) members of the Board of Directors, two (2) of whom, shall be independent director, including the chairperson.

Composition Meeting % Attendance Jose Mario C. Buñag 5/5 100 William Carlos Uy 8/8 100 Harry G. Liu 8/8 100

5. Related Party Transactions Committee

The Related Party Transactions Committee (RPTC) assists the Board in overseeing the conduct of all Related Party Transactions to protect the interests of the Bank and its stakeholders in accordance with regulatory requirements.

Composition Meeting % Attendance Jose Mario C. Buñag 4/4 100 Josue N. Bellosillo 7/7 100 Harry G. Liu 7/7 100

Directors' Attendance at Board Meetings:

The Board of Directors shall meet at least once every quarter and will hold additional meetings as may be necessary. Discussions and deliberations during Board meetings are open and independent views are given due respect and consideration. The Board held nine (9) meetings from January 2017 to December 2017.

Presented hereunder is a summary of Board of Directors attendance to its regular meeting for the calendar year January 1, 2017 to December 31, 2017:

Attendance to Board Name of Director Meetings Attendance % Jose Mario C. Buñag 9/9 100 John Carlos Uy 7/9 77.78 George J. Martirez 9/9 100 William Carlos Uy 9/9 100 Reynold Y. Gerongay 9/9 100 Joel Marcelo G. Jimenez 5/9 55.56 Jaime J. Martirez 8/9 88.89 Manuel R. Chanco 8/9 88.89 Emmanuel M. De Ocampo 8/9 88.89 Lydia P. Samonte 8/9 88.89 James Gerard A. Ong 8/9 88.89 Josue N. Bellosillo 9/9 100 Harry G. Liu 8/9 88.89 Cesar T. Duque 6/9 66.67

Changes in the Board of Directors

Presented below are the changes in the composition of the Board of Directors that happened during the period: January to December 2017

# Name Position Date of Cessation Reason 1 Felipe L. Gozon Executive Director February 2, 2017 Resignation J. Ferdinand B. De 2 Luzuriaga Non -Executive Director February 1, 2017 Resignation

List of Executive Officers/Senior Management

George J. Martirez , 65, Filipino, Vice-Chairman of the Board of Directors and Chief Executive Officer since 1996. Concurrently, he serves as the Vice President of Majalco Inc., and Director of Unicapital Inc., Majalco Finance & Investment, Inc., and Chamber of Thrift Banks. He previously served as President of Malayan Bank from 1998 to 2015, and as its Treasurer from 1996 to 1998.

George received his Bachelor of Science in Economics from De La Salle University, and his Master in Business Administration from University of the Philippines.

Reynold Y. Gerongay , 62, Filipino, President and Chief Operating Officer since July 2015. He served as Chairman of the Board for Value Max Finance Corporation. He spent 15 years as President, CEO, and Director of Robinsons Bank, from 1999 to 2011 (as Robinsons Savings Bank) and from 2011 to 2014 (as Robinsons Bank Corporation). He also served as Vice-Chairman and Director of Legaspi Savings Bank from 2012 to 2014, and as President of Security Savings Bank, and Security Finance Corporation, from 1997 to 1998. Prior to this, he spent 20 years with United Coconut Planters Bank, with his last held position as Vice President and Division Head of the Consumer Finance Division, and as concurrent Acting President and Director of UCPB Savings Bank.

Rey graduated with a Bachelor of Science in Accounting from Holy Cross College of Digos in Davao, where he was a recipient of a Gold Medal for Academic Excellence, and received his Master in Business Administration from De La Salle University. In addition to this, he completed the Advance Bank Management Program from Asian Institute of Management, where he received a Superior Academic Performance Award, and also received formal training from the Gemological Institute of America.

Philip S. Madrigal , 61, Filipino, Executive Vice President and Operations Segment Head. He was hired on January 1998. He previously held various positions in the bank. He was former Branch Banking Group Head, Loan Operations Group Head, Treasury Head, and Compliance Head. Prior to this, he served as Senior Branch Manager of Philippine Bank of Communications from 1997 to 1999. He also served as Branch Manager of Prudential Bank from 1995 to 1997.

Philip graduated with a Bachelor of Science in Accounting from Luzon College, Dagupan, Pangasinan, and is a Certified Public Accountant.

Dennis I. Paredes , 62, Filipino, Senior Vice President and Branch Banking Group Head since July 2016. He was previously a Director of Bancnet and Legazpi Savings Bank. He was also a former Retail Banking Group Head of Robinsons Bank Corporation from 2008 to 2016. Prior to this, he served as Branch Manager of ABN AMRO, Great Pacific Savings Bank, BA Savings Bank, and UCPB Savings Bank. He was also a member of the Conversion Task Force of BA Finance Corporation.

Dennis graduated with a Bachelor of Arts in Economics from University of Santo Tomas. He received his post-graduate degree of Masters in Business Administration from Ateneo Graduate School of Business.

Anna Liza M. Siapno , 40, Filipino, Senior Vice President and Chief Marketing Officer. She was hired on April 2006. She was a former Brand Manager of the Fragrance Division of Luxasia Philippines wherein she handled branding, corporate communications, product promotions, and events. She also served as Affinity Marketing Manager of Ayala Aon Insurance Brokerage handling marketing. Before that, she was a Customer Service Officer of Citibank Philippines.

Anna graduated with a Bachelor of Science degree in Legal Management from Ateneo de Manila University. She received her post-graduate degree of Masters in Business Administration from Ateneo Graduate School of Business.

German Jeremy E. Pampolina III , 46, Filipino, Senior Vice President and Treasurer since January 2016. He was previously the Chief Dealer of Robinsons Bank Corporation wherein he handled FX, FCDU, and Foreign Exchange Desk. He was also the former FX Head of Sterling Bank and Treasury Marketing Head of Chinatrust Commercial Bank.

Jeremy graduated with a Bachelor of Arts in Psychology from University of Santo Tomas. Afterwards, he took Bachelor of Science in Business Management from Pamantasan ng Lungsod ng Maynila. He received his post-graduate degree of Masters in Business Administration also from Pamantasan ng Lungsod ng Maynila.

Nathaniel P. Delos Reyes , 49, Filipino, First Vice President and Comptroller since October 2016. He previously held various positions at Robinsons Bank Corporation. He was Loans and Discounts Group Head from 2015 to 2016, Deputy Comptroller from 2010 to 2012 and Accounting Head from 1997 to 2009. Prior to this, he served as Reconciliation Head of AsianBank.

Bong graduated with a Bachelor of Science in Commerce major in Accounting from University of Mindanao. He obtained his post-graduate degree of Masters in Business Administration from De La Salle University – Dasmariñas.

Rizalino Rhett Q. Holganza , 40, Filipino, First Vice President and Chief Credit Officer since June 2016. He was previously the Collection and Asset Recovery Unit Head of Robinsons Bank Corporation, the National Credit and Collections Manager of Unistar Credit and Finance, the Collections Recovery Manager of Banco De Oro, the Collections Remedial Manager of GE Money Bank, the Back-end Collections Leader of Banco De Oro, and the Recovery Officer of Citibank NA.

Rhett graduated with a Bachelor of Arts in Political Science from De La Salle University.

James D. Chua , 48, Filipino, First Vice President and Chief Risk Officer of the Bank. He was hired on February 2018. Prior to joining the Bank, he held various positions at Robinsons Bank

Corporation, where he worked for over 20 years. He was Operations Group Head from 2015 to 2018, Electronic Banking Group Head from 2006 to 2015, Corplan Officer from 1998 to 2006 and Marketing Service Support Officer from 1997 to 1998. He was concurrently appointed Officer-in- Charge of Loans and Discounts Group in 2017 and the Information Technology Group from 2004 to 2005 and in 2009. He also spent several years with China Bank and the Bank of the Philippine Islands as branch officer and account officer. Prior to joining the banking industry, he also worked as actuarial valuation assistant for Grepalife. He is a part-time lecturer-practitioner at San Sebastian College-Recoletos, where he handles banking and financial management subjects. He was formerly a part-time lecturer at the University of the East Graduate School where he taught management science for MBA students.

James graduated Magna Cum Laude from the University of Santo Tomas with a degree in Bachelor of Science in Mathematics Major in Actuarial Science. He obtained his post graduate degree in Master of Science in Commerce Major in Finance from the University of Santo Tomas, where he also earned the distinction Magna Cum Laude. He is a PhD Commerce candidate at the University of Santo Tomas, pending completion of his dissertation.

Raul B. Cirio , 58, Filipino, Vice President and Chief Internal Auditor since August 2017. He previously held various positions in the bank. He was the Chief Compliance Officer from 2015 to 2017, the Chief Risk Officer from 2014 to 2015, the Audit Head from 2013 to 2014, the Branch Banking Group – Operations Head from 2008 to 2012. Prior to joining the bank, he also served as Branch Manager and Audit Examiner of BPI and Prudential Bank.

Raul graduated with a Bachelor of Science in Commerce major in Accounting from Adamson University, Manila, and is a Certified Public Accountant.

Redentor S. Sirug , 43, Filipino, Vice President and Chief Compliance Officer since November 2017. He was the former Chief Compliance Officer of Northpoint Development Bank, Inc. and Assistant Compliance Officer in Bank of Makati. He was also a former regulator-central banker with over ten (10) years of experience in bank supervision and examination. He was also a former staff auditor in SGV & Co. CPAs. He once joined Holy Angel University and San Sebastian College-Recoletos, Manila as practitioner-lecturer and lecturer-instructor, respectively, where he handled higher accounting and review subjects.

Red holds a port-graduate degree of Masters in Business Administration from San Sebastian College-Recoletos (SSC-R), Manila and a Bachelor of Science in Accountancy degree from Polytechnic University of the Philippines. He is a CPA with 9th place in the CPA board examinations. He has also earned some units in Bachelor of Laws. He has attended numerous seminars/trainings related to central banking, compliance, anti-money laundering, corporate governance, risk management, accounting/auditing and leadership. He holds a special Certification Course in Strategic Compliance for the Banking Industry from De La Salle University (DLSU) and Association of Bank Compliance Officers in the Philippines (ABCOMP).

Cherry Ann R. Cruz , 59, Filipino, Vice President and Systems and Methods Head since February 2018. She previously held various positions at Land Bank of the Philippines. She was Head of Anti-Money Laundering Unit from 2012 to 2014, Head of Business Risk Management Department from 2003 to 2011, Branch Manager of various branches from 1993 to 2003, Bank Examiner / Audit Supervisor of Management and Operations Audit Department from 1980 to 1993 and Accountant / Head of Reconciliation from 1979 to 1980.

Cherry graduated with a Bachelor of Science in Commerce major in Accounting from University of Santo Tomas. She obtained her post-graduate degree of Masters in Business Administration from College of the Holy Spirit. She has also earned a Diploma in Business Development from Concordia International College in Vancouver, Canada. She is also a Certified Public Accountant and a Certified Business Continuity Professional.

Anastacia C. Regnim , 46, Filipino, Vice President and Account Management Group Head since May 2016. Concurrently, she is also the Head of Corporate and SME Loans. She also served as Business Development Department Head, Branch Expansion Team consultant, Branch Banking Group – Special Projects Unit Head, and Microfinance Department Head. Prior to joining the Bank, she served as Branch Manager, Acting Branch Banking Group Head, Senior Accountant, and Branch Operations Officer of Centennial Savings Bank. She was also the Collection Supervisor and Acting Loans Officer of Prime Savings Bank.

Tess graduated with a degree in Bachelor of Science in Commerce major in Accounting from Canossa College, San Pablo City. She is currently taking up her post-graduate degree of Masters in Management major in Business Management from University of the Philippines Manila.

Leonisa V. Cura , 52, Filipino, Vice President and Credit Cycle Department Head since April 2017. She previously served as Assistant Vice President for Consumer Loans of Unistar Credit and Finance Corporation. She was also a former Branch Manager of United Coconut Planters Bank.

Nisa graduated with a degree in Bachelor of Science in Commerce major in Economics from College of the Holy Spirit.

John Walvine C. Rata , 39, Filipino, Senior Assistant Vice President and Information Technology Group Head since January 2016. He previously served as Deputy for Technology Driven Project under Project Management Office, Office of the President and CEO of East West Banking Corporation. He was also a former Offshore Project Manager for Finance work streams servicing London, US and Singapore business partners of Deutsche Knowledge Services of Deutsche Bank. Prior to this, he was a former IT Project Manager for Lending and Corporate services business line of Chinatrust Commercial Bank and IT Project Manager and System Analyst for Loans, Inter-Office and Cash Management business line of Asia United Bank.

Walvine graduated with a degree in Bachelor of Science in Computer Science with Specialization in Software Technology from De La Salle University.

Michael Gerard N. Martirez , 38, Filipino, Assistant Vice President and Special Asset Management Unit Head. He was hired on January 2012. Prior to joining the banking industry, he spent 6 years with Ayala Land – Alveo as Sales Team Leader. He also served as Senior Research Analyst of Thompson Reuters Financial.

Mike graduated with a degree in Bachelor of Science in Entrepreneurial Management from University of Asia and the Pacific. He obtained his post-graduate degree of Masters in Business Administration from Asian Institute of Management.

Gerardo V. Malig , 59, Filipino, Assistant Vice President and Chief Security Officer since August 2017. He served as Chief Security Officer and Administration Head for the following banks, Robinsons Bank Corporation, Legazpi Savings Bank, GE Money Bank, Export and Industry Bank, Banco De Oro, Dao Heng Bank and United Coconut Planters Bank. Prior to this, he was the former Administration Head / Accountant of SAE Company.

Gerry graduated with a degree in Bachelor of Science in Commerce major in Accounting from Polytechnic University of the Philippines.

Martha Cecilia M. Singson , 25, Filipino, Manager and Head of Human Resources Development Department & concurrent Head of Employee Development, Training, and Retention of the Bank. She joined the Bank in February 2016. Prior to this, she was connected with Robinsons Bank Corporation, where she started as a Learning and Development Specialist in 2013, and was promoted to the Human Resource Management Officer in 2014.

Mai graduated from De La Salle University as Summa Cum Laude, with a degree of Bachelor of Arts major in Psychology. She is presently a full scholar pursuing a post-graduate degree in Master of Science in Clinical Psychology at De La Salle University.

Angela Diane Q. Alegarbes , 24, Filipino, Assistant Manager and Corporate Planning Officer of Corporate Planning Unit of the Bank. She joined the Bank in October 2016. Prior to joining the Bank, she served as Corporate Planning Analyst of Robinsons Bank Corporation from 2013 to 2016.

Angela graduated Cum Laude from Far Eastern University with a degree in Bachelor of Science in Business Administration major in Financial Management.

Atty. Maryrose O. Toledo , 27, Filipino, Assistant Manager and Legal Department Head of the Bank since July 2017. She served as Asset, Recovery and Litigation Officer of the Bank from February to June 2017.

Atty. Mia graduated with a degree in Bachelor of Arts Political Science from University of the Philippines, Manila. She received her Bachelor of Laws from Arellano University School of Law.

Performance Assessment Program

Malayan Bank implements a self-rating system that can measure the performance of the Board of Directors (BOD), Board-level committees, individual directors, and senior management in accordance with the criteria defined in the Corporate Governance Manual. The objective of this assessment is to ensure that directors are aware of the level of their performance of respective roles, functions and responsibilities as individual members and as part of the collegial Board. It assists them in determining their strengths and weaknesses and enable them to formulate ways to resolve concerns, if there is any.

The Compliance Department presents the duly accomplished Board of Directors Evaluation Forms and Director Evaluation Forms to the Corporate Governance Committee (CGC), which in turn, endorses the same for approval of the Board. The self-evaluation lets the members of the Board to assess themselves as a collegial body and individually. The said form contains varying statements based on the role, functions and responsibilities of the Board which are defined in the Bank’s Corporate Governance Manual.

The CGC oversees the conduct of self-evaluation of the Board, its Board-level committees, senior management and individual director, which is conducted annually with the results discussed by the CGC prior to its submission to the Board.

Orientation and Education Program

All new directors joining the Board are required to undergo an orientation program. This is intended to familiarize the new directors on their statutory/fiduciary roles and responsibilities in the Board and Committees. The Corporate Governance Committee makes recommendations to the Board regarding the continuing education of directors.

In-house and external courses attended by Directors and Senior Management for the past three (3) years:

For the Board of Directors: 1. Corporate Governance Training Program conducted by ICD 2. Orientation Course on Corporate Governance conducted by ICD 3. Seminar on Anti-Money Laundering Law conducted by BSP and BAIPHIL 4. BSP Circular 706, as amended by BSP Circular 950, AMLA Law and AML Risk Rating System for Board of Directors conducted by BAIPHIL 5. Briefing on Pawnshop Regulations conducted by Bangko Sentral ng Pilipinas

For Senior Management: 1. BSP Circular 706, as amended by BSP Circular 950, AMLA Law and AML Risk Rating System for Board of Directors conducted by BAIPHIL 2. Counterfeit Detection on Peso and Dollar seminar conducted by Bangko Sentral Ng Pilipinas 3. Credit Analysis Seminar conducted by Ateneo De Manila University 4. CAMELS Rating Seminar (in-house) 5. Jewelry Appraisal Workshop (in-house) 6. Negotiable Instruments seminar (in-house) 7. Disaster Preparedness/Bank Security Seminar (in-house) 8. Training on Deposit Products (in-house) 9. Signature Verification and Fraud Detection Seminar (in-house) 10. Risk Awareness Seminar (in-house) 11. Bank Security Seminar (in-house) 12. Compliance Seminar (in-house) 13. Anti-Money Laundering Seminar (in-house)

Retirement and Succession Policy

Elected members of the Board serve for one-year term and until their successors are elected. An independent director of the Bank may only serve as such for a maximum cumulative term of nine (9) years. After which, the independent director shall be perpetually barred from serving as independent director of the Bank, but may continue to serve as regular director. The nine (9) year

39 maximum cumulative term for independent directors shall be reckoned from 2012. The Board, in coordination with the Corporate Governance Committee, ensure that the Bank has in place an appropriate and updated succession planning for key executives to address emergency in the event of extraordinary circumstances and ensure continuity of operations. The retirement age

Remuneration Policy

The levels of remuneration of the Bank shall be sufficient to attract and retain experienced and professional directors and officers needed to run the Bank successfully. A portion of executive directors’ remuneration may be structured so as to link rewards to corporate and individual performance.

The Bank may establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of individual directors and officers. However, no director shall be involved in deciding his or her own remuneration.

The Bank’s annual reports and information statements shall include a clear, concise and understandable disclosure of all fixed and variable compensation that may be paid, directly or indirectly, to its directors and top four (4) management officers during the preceding fiscal year.

Policies and Procedures on Related Party Transactions

Malayan Bank Savings and Mortgage Bank, Inc. (MBSMB), in compliance with legal and regulatory requirements, must ensure that related party transactions (RPTs) are conducted in a manner that is fair and at arm’s length standards consistent with the best interests of the Bank and its stakeholders. These transactions are made and entered into substantially on the same terms and conditions as transactions with other individuals and businesses of comparable risks. The Bank’s Related Party Transaction Policy, which was approved by the Board of Directors, sets forth the initiation, processing, review, approval, reporting and disclosure of transactions entered into by the Bank with Related Parties.

The table below shows the Bank’s significant related party transactions for the year 2017. Full disclosures of these transactions were made through reports with the appropriate regulatory agency. These related party transactions are confirmed by a majority of the Bank’s stockholders during the annual meeting of stockholders.

No. Counterparty Nature of Original Outstanding Aggregate Transaction Balance Balance Balance

1 Vienovo Omnibus Line P10,000,000.00 N/A N/A Philippines Inc. (Back-to- back) 2 Filremit Corp. DOSRI Loan P158,000,000.00 N/A N/A (Back-to- back)

Self-Assessment Function

The structure of the internal audit and compliance functions including its role, mandate/authority, and reporting process

Internal Audit Function

The internal audit function focuses on identifying and evaluating internal controls which are needed to protect against financial risk. It does through both financial and operational audits and will cover the controls in place to fulfill regulatory requirements. The audits will result in several recommendations which the internal audit function will then follow up with management of the business over time.

The Bank’s Internal Audit Department (IAD) is under the direct supervision of the Audit Committee. IAD is tasked to provide independent assessment of the adequacy and effectiveness of the Bank’s system of internal controls, risk management and governance processes of all units of the Bank. It has implemented the risk-based approach in auditing major areas of operations and prioritized their work based on assessment of risk exposures. It is manned by individuals with relevant qualifications and has unfettered access to the Audit Committee, Board and Senior Management. The Internal Audit Department Head reports directly to the Audit Committee which is responsible for the appointment and removal of the Internal Auditor.

Compliance Function

Compliance Functions is an independent function that identifies, assesses, advises on, monitors and reports on the Bank’s compliance risk, that is, the risk of legal or regulatory sanctions, material financial losses, or loss to reputation a bank may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and standards of good practice.

The review process adopted by the Board to ensure effectiveness and adequacy of the internal control system

The Board of Directors’ evaluation of the Bank’s internal control system found that these are generally effective and adequate across the Malayan Bank. The review process adopted by the Board include the following:

Review of Reports

The Board’s assessments are based on the information obtained from various reports submitted to members of the Board/ Audit Committee/ Risk Oversight Committee, as follows:

Internal Audit Department’s report on the results of regular or special examinations of branches /business units (BUs).

Risk Management Department’s report on the assessments of the Bank’s operational risk (i.e. proper setting of limits; information security policies; IT operations activities; and business continuity management activities).

External Auditor’s assessment of the Bank’s internal control system as stated in its 20__ Audited Financial Statements.

Board of Directors Evaluation Form

The Board’s assessment of Control Units: Audit Committee, Corporate Governance Committee and Risk Oversight Committee, using the Board of Directors Evaluation Form to rate the oversight on the Bank’s risk management and system of internal control.

Dividend Policy

Under the Bank’s Corporate Governance policy, s hareholders shall have the right to receive dividends subject to the discretion of the Board. Dividends shall be declared from the surplus or undivided profits of the Bank including stock dividends from paid-in surplus and at such amount and time that the Board may determine and in no case shall dividends reduce the paid-in surplus of the Bank. Declaration of dividends shall also be subject to the pertinent rules and regulations prescribed by BSP.

Consumer Protection Practices

The Bank is aware of the nature of its business that is filled with public interest, trust and confidence and which imposes a more challenging adherence to the basic principles and ethical business practices that govern the conduct of the Bank when dealing with financial consumers. It has in place Financial Consumer Protection Manual which sets the minimum standards of consumer protection in the areas of disclosure and transparency, protection of client information, fair treatment, effective recourse and financial education. These policies underscore that financial consumer protection is a fundamental part of the Bank’s corporate governance and culture. The Bank’s consumer protection policy provides assurance that consumer protection practices are embedded in the Bank’s business operations which address and prevent identified risks to the Bank and associated risk of financial harm or loss to its customers.

STATEMENT OF MANAGEMENT’S

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Malayan Bank Savings and Mortgage Bank, Inc. (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, 2017 and 2016, 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 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 Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company’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 or members.

BDO Roxas Cruz Tagle and Co., the independent auditor appointed by the stockholders, has audited the financial statements of the company in accordance with Philippine Standards on Auditing, and in its report to the stockholders or members, has expressed its opinion on the fairness of presentation upon completion of such audit.

Atty. Jose Mario C. Buñag Chairman of the Board

Reynold Y. Gerongay President and COO

William Carlos Uy Treasurer

FINANCIAL STATEMENTS

MALAYAN BANK SAVINGS AND MORTGAGE BANK, INC.

STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2017 AND 2016

Note 2017 2016

ASSETS

Cash and other cash items 7 P83,499,767 P70,816,948 Due from Bangko Sentral ng Pilipinas 8 597,966,253 886,306,834 Due from other banks 9 370,534,529 640,658,103 Interbank call loans receivable 10 686,947,106 512,800,615 Available -for -sale investments 12 579,750,623 330,713,331 Loans and other receivables, net 13 3,930,168,105 3,816,844,665 Investment in associate 14 13,430,875 11,496,751 Bank premises, furniture, fixtures and equipment, net 15 77,318,206 60,637,177 Assets held for sale 16 493,202,167 47,843,068 Investment properties, net 17 943,556,202 640,559,221 Deferred tax assets, net 26 48,474,720 80,454,425 Other assets 19 141,267,264 100,169,247 Total assets P7,966,115,817 P7,199,300,385

LIABILITIES AND EQUITY

Liabilities Deposit liabilities 20 P6,534,949,531 P5,955,906,112 Accrued interest, taxes and other expenses 21 78,070,181 43,336,431 Retirement liability 27 7,345,981 2,900,333 Other liabilities 22 159,549,476 83,339,451 Total liabilities 6,779,915,169 6,085,482,327

Equity 12,23,27 1,186,200,648 1,113,818,058

Total liabilities and equity P7,966,115,817 P7,199,300,385

(The notes on pages 1 to 72 are an integral part of these financial statements.)

MALAYAN BANK SAVINGS AND MORTGAGE BANK, INC.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Note 2017 2016

Interest income Loans and other receivables 13 P373,143,774 P346,195,869 Deposit with BSP and other banks 8,9,10 18,175,793 31,285,119 Investments 11,12 16,755,302 5,890,428 408,074,869 383,371,416 Interest expense Deposit liabilities 20 164,255,598 141,446,858 Net interest income 243,819,271 241,924,558 Provision for impairment losses 18 (301,116,466) (2,345,621) Net interest income (loss) after provision for impairment losses (57,297,195) 239,578,937 Other operating income, net 24 494,858,871 103,158,517 Other operating expenses 25 (331,193,357) (296,066,795) Income before income tax 106,368,319 46,670,659 Provision for income tax 26 Current 3,523,109 3,938,849 Deferred 32,314,924 20,978,231 35,838,033 24,917,080 Net income for the year 70,530,286 21,753,579

Other comprehensive income (loss), net Items that may be subsequently reclassified to profit or loss Net change in cumulative translation adjustment (63,661) 66,388 Change in net unrealized loss on available -for -sale investments 12 2,698,142 (7,804,842) Item that will not be reclassified to profit or loss Net change in actuarial gain on retirement liability 27 (782,177) (665,506) 1,852,304 (8,403,960) Net comprehensive income for the year P72,382,590 P13,349,619

(The notes on pages 1 to 72 are an integral part of these financial statements.)

MALAYAN BANK SAVINGS AND MORTGAGE BANK, INC. STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Accumulated other comprehensive income (loss), net Actuarial Net unrealized gain on loss on Share retirement available-for- Cumulative Share capital premium liability, net sale investments translation (Note 23) (Note 23) Surplus (Note 27) (Note 12) adjustment Total Total equity

Balance at January 1, 2016 P820,641,300 P44,624,300 P129,347,621 P2,270,052 (P1,310,289) (P645) P959,118 P995,572,339 Issuance of shares of stock 101,348,800 3,547,300 - - - - - 104,896,100 Net income for the year - - 21,753,579 - - - - 21,753,579 Net change in remeasurement gain on retirement liability - - - (665, 506 ) - - (665,506) (665,506) Change in remeasurement loss on available -for -sale investments - - - - (7,804,842) - (7,804,842) (7,804,842) Net change in cumulative translation adjustment - - - - - 66,388 66,388 66,388

Balance at December 31, 2016 921,990,100 48,171,600 151,101,200 1,604,546 (9,115,131) 65,743 (7,444,842) 1,113,818,058 Net income for the year - - 70,530,286 - - - - 70,530,286 Net change in remeasurement gain on retirement liability - - - (782,177) - - (782,177) (782,177) Change in remeasurement loss on available -for -sale investments - - - - 2,698,142 - 2,698,142 2,698,142 Net change in cumulative translation adjustment - - - - - (63,661) (63,661) (63,661) Balance at December 31, 2017 P921,990,100 P48,171,600 P221,631,486 P822,369 (P6,416,989) P2,082 (P5,592,538) P1,186,200,648

(The notes on pages 1 to 72 are an integral part of these financial statements.)

MALAYAN BANK SAVINGS AND MORTGAGE BANK, INC.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Note 2017 2016

Cash flows from operating activities Income before income tax P106,368,319 P46,670,659 Adjustments for: Provision for impairment losses 18 301,116,466 2,345,621 Depreciation and amortization 15,17,19, 25 25,515,406 25,565,035 Unrealized foreign exchange loss (gains), net 24 9,501,907 (1,827,317) Retirement benefit cost 25,27 3,328,252 4,409,423 Loss on disposal of assets held for sale 16 843,068 - Dividend income 12,24 - (3,688,800) Gain on disposal of furniture, fixtures and transportation equipment 15,24 (154,861) (111,571) Amortization of premium (Accretion of discount) on available -for -sale investments 12 (1,063,022) 23,482 Gain on disposal of available -for -sale investments 12,24 (1,786,895) (55,491) Income from investment in associate 14,24,29 (1,934,124) (1,449,013) Gain on disposal of investment properties 17,24 (5,169,727) (35,395,221) Unrealized gain on initial recognition of investment properties 17,24 (433,506,333) (5,391,921) Operating income before changes in operating assets and liabilities 3,058,456 31,094,886 Changes in operating assets and liabilities (Increase) Decrease in: Loans and other receivables (677,069,965) 55,665,688 Financial assets at fair value through profit or loss - 103,266,074 Other assets (42,914,115) (45,425,227) Increase (Decrease) in: Deposit liabilities 573,926,074 56,783,718 Accrued interest, taxes and other expenses 39,822,508 (59,753,927) Other liabilities 76,209,170 5,783,510 Cash used in operations (26,967,872) 147,414,722 Income taxes paid 26 (8,485,899) (2,209,038) Net cash provided by (used in) operating activities (35,453,771) 145,205,684

Cash flows from investing activities

Proceeds from disposal of available -for -sale investments 12 275,870,308 104,949,456

Proceeds from disposal of investment properties 17 13,506,678 11,096,195 Proceeds from disposal of furniture, fixtures

and transportation equipment 15 566,006 1,263,558

Proceeds from disposal of assets held for sale 16 - 41,000,000 Acquisition of bank premises, furniture, fixtures and equipment 15 (19,095,955) (19,512,091) Acquisition of investment properties 17 (83,471,292) (1,826,363) Acquisition of available -for -sale investments 12 (519,227,467) (378,411,336) Net cash used in investing activities (331,851,722) (241,440,581) Cash flows from financing activity

Proceeds from issuance of shares 23 - 104,896,100

Effect of exchange rate differences on cash and cash equivalents (4,329,352) (296,912)

Net increase (decrease) in cash and cash equivalents (371,634,845) 8,364,291

Cash and cash equivalents January 1 2,110,582,500 2,102,218,209 December 31 P1,738,947,655 P2,110,582,500

MALAYAN BANK SAVINGS AND MORTGAGE BANK, INC.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Note 2017 2016

Cash and cash equivalents consists of: Cash and other cash items 7 P83,499,767 P70,816,948 Due from Bangko Sentral ng Pilipinas 8 597,966,253 886,306,834 Due from other banks 9 370,534,529 640,658,103 Interbank call loans receivable 10 686,947,106 512,800,615 P1,738,947,655 P2,110,582,500

Operational cash flows from interest Interest received P395,922,800 P361,098,427 Interest paid 143,493,307 205,988,282

(The notes on pages 1 to 72 are an integral part of these financial statements.)