CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousand Pesos, Except Per Share Amounts) December 31 2016 2015 (As Restated) RESULTS OF OPERATIONS Gross Income 37,776,165 32,010,584 Total Expenses 30,590,579 25,698,989 Net Income 7,185,586 6,311,595 FINANCIAL CONDITION Total Assets 753,765,110 679,687,737 Loans and Receivables 428,027,471 365,725,146 Total Liabilities 643,824,204 574,931,876 Deposit Liabilities 570,503,387 485,937,181 Total Equity 109,940,906 104,755,861 PER SHARE1/ Basic/Diluted Earnings Per Share 5.72 4.89 Book Value Per Share 85.88 81.48 1/ attributable to equity holders of the Parent Company KEY FINANCIAL HIGHLIGHTS (Amounts in Billion Pesos) NET INCOME TOTAL ASSETS DEPOSIT LIABILITIES 753.8 570.5 7.2 679.7 485.9 6.3 625.4 447.6 5.5 2014 2015 2016 2014 2015 2016 2014 2015 2016 BOOK VALUE PER TOTAL EQUITY GROSS INCOME SHARE 109.9 37.8 85.88 104.8 81.48 99.1 30.4 32.0 74.77 2014 2015 2016 2014 2015 2016 2014 2015 2016 ANNUAL REPORT 2016 • PNB 1 CORPORATE OBJECTIVE By continually providing the best customer experience to generations of Filipinos here and abroad, PNB aims to be among the top 3 in the various markets that it chooses to compete in. MISSION STATEMENT We are a leading, dynamic Filipino financial services group with a global presence committed to delivering a whole range of quality products and services that will create value and enrich the lives of our customers, employees, shareholders and the communities we serve. VISION To be the most admired financial services organization in the country in terms of: • Financial performance – rank #1 or #2 in its businesses in terms of return on equity • Innovativeness – in products, services, distribution and the use of cutting-edge technology • Customer perception o The preferred financial services provider o The customer-centered organization with a passion for service excellence • Social responsibility – the employer of choice, a good corporate citizen and partner in nation- building • Long-term vision – developing competitive advantage on a sustained basis by anticipating changes in customer’s preferences and in the manner of doing business 2 PNB • ANNUAL REPORT 2016 ANNUAL REPORT 2016 • PNB 3 MESSAGE TO SHAREHOLDERS ECONOMIC OVERVIEW The Philippines sustained its strong economic performance in 2016 with a Gross Domestic Product (GDP) growth of 6.8%, attaining the The Philippine banking system upper end of the National Government’s target range of 6.0% to 7.0% for the year. With sustained economic momentum, the Philippines remained sound and resilient in 2016, continued to be one of the fastest-growing economies in Asia, aided by adequate capitalization, a surpassing Malaysia (4.5%), Indonesia (4.9%), and Vietnam (6.2%). strong regulatory framework and Domestic demand continued to fuel growth with robust consumer spending, hefty increase in investments and higher government good corporate governance that expenditures. On the supply side, the economic expansion was driven by the industry sector, boosted by the upsurge in construction, gains positioned the industry on a sustained in manufacturing and increase in utilities. Likewise, the services sector path of growth and profitability. Total posted higher growth led by real estate, finance, and trade. The heightened economic activity led to additional job creation, bringing resources of banks amounted to P13.9 unemployment rate down to 4.7% from 5.6% a year ago. trillion as of end-December 2016, up by Strong economic fundamentals continued to underpin the growth during the year. Inflation remained benign, averaging at 1.8% in 11.8% from year-ago level. 2016, slightly higher than the 1.4% average in 2015 as prices of some food items went up due to adverse weather conditions that disrupted production and distribution. Market interest rates remained The Philippine banking system remained sound and resilient in 2016, aligned with the policy rates set by the Bangko Sentral ng Pilipinas aided by adequate capitalization, a strong regulatory framework (BSP). Market uncertainties on the timing of the US Fed rate hike also and good corporate governance that positioned the industry on a contributed to the upward adjustment in interest rates. The pick-up sustained path of growth and profitability. Total resources of banks in interest rates was tempered by adequate domestic liquidity with amounted to P13.9 trillion as of end-December 2016, up by 11.8% money supply rising by 12.7% year-on-year by end-December 2016 from year-ago level. Aggregate deposits of banks showed a steady to P9.5 trillion. The peso weakened against the US dollar by 4.3% growth at 12.6% to settle at P8.2 trillion. Although bank lending with a dollar rate average of US$47.49 in 2016. This was due to accelerated by 17.3% against year-ago level, asset quality improved uncertainties in the global market on the timing and impact of US as gross non-performing loan (NPL) ratios recovered slightly to 1.96% monetary policy path on global liquidity; geopolitical tensions; and from last year’s 2.15%. Loan exposure was sufficiently covered, divergent economic growth across economies. The peso was also with NPL coverage ratio of 119.4% during the year. The banking weighed down by political rhetorics associated with the elections in industry continued to be well-capitalized as the capital adequacy ratio the Philippines and the US in 2016. remained way above the 10% regulatory threshold of the BSP and the 8% minimum requirement by international standards. Local stocks trended downward with the Philippine Stock Exchange index (PSEi) closing the year at 6,840.64, lower by 1.6% from the end-2015 level of 6,952.08 as investors remained cautious on uncertainties in the global and local markets. SUSTAINING HEALTHY FINANCIALS With the robust economic growth behind it, Philippine National Bank External headwinds persisted in 2016, resulting in the country’s (PNB) concluded 2016 with a net income of Php7.2 billion, up 14% balance of payments position turning into a deficit of US$420 million, over last year’s Php6.3 billion. The growth in net income was driven a reversal of the US$2.6 billion surplus recorded a year ago. The by a steady improvement in its core income, supplemented by non- deficit was due largely to the higher gap in trade-in-goods as imports recurring revenues. outpaced exports, combined with lower net receipts of services and primary income. As of end-2016, gross international reserves (GIR) The Bank’s net interest income of Php19.6 billion accounted for nearly remained almost flat at US$80.69 billion, adequate to cover 8.9 two-thirds of total operating income, which grew by 18% to Php31.2 months’ worth of imports of goods and payments of services and billion in 2016. Meanwhile, net interest margin was maintained at primary income. 3.2%, despite the decline in asset yields, as this was compensated by 4 PNB • ANNUAL REPORT 2016 ANNUAL REPORT 2016 • PNB 5 MESSAGE TO SHAREHOLDERS the 12% growth in low-cost deposits combined with the redemption stable funding and liquidity profiles as it potentially gains market Php167.2 million generated during the previous year. It also reported of its Php6.5 billion Lower Tier 2 Unsecured Subordinated Notes in share amidst continued economic improvement and proactive notable improvements in total loan portfolio which was up 64% to June 2016. regulatory oversight. In addition, Fitch Ratings raised PNB’s Long-Term Php30.7 billion. To mark its presence in the consumer banking space, Issuer Default Rating from BB to BB+ and its Viability Rating from ‘bb’ In 2016, a new tagline for PNB, PNBSB introduced innovative and rate competitive products as well as The strong performance during the year was also attributed to the to ‘bb+’ and maintained its stable outlook. “You First”, was born. The tagline launched aggressive promotions throughout the year. We also formed double-digit growth of the Bank’s non-interest income mainly due a partnership with technology firm, Voyager Innovations, Inc., making to net gains from sale of foreclosed assets which increased by 57%. strengthens the Bank’s customer- it easier for our customers to apply for loans through their personal Trading and foreign exchange gains registered a 61% increase year- TRANSFORMING IN EXCELLENCE centric service orientation by crafting devices. on-year, as the Bank benefited from growth in transaction volumes We continued to execute business plans effectively in 2016. Through and favorable market conditions. personalized financial solutions that our Retail Banking Sector, we provided basic deposit-taking functions BEYOND A CENTURY as well as accelerated cross-selling of our products. The sector further support our customers in reaching their Miscellaneous income was higher due to the one-time gain from strengthened relationships with existing and new customers to grow PNB was founded in July 22, 1916 with the goal of supporting the the sale of PNB’s 51% stake in its life insurance subsidiary, PNB Life deposit base by double-digit. goals. Having pioneered many industry country’s agricultural industry. A hundred years later, PNB is now one Insurance, Inc., to Allianz SE, one of the leading global financial of the largest private universal banks in the country offering financial services companies. Our strategic partnership with Allianz SE includes innovations, the Bank is continuously To fully utilize the digital banking platform, we initiated the shift to services to all sectors of the economy. We commemorated our a 15-year bancassurance agreement, allowing us to expand our a new core banking system that will allow us to implement top-of- introducing more banking “firsts” to centennial anniversary with the theme, “A Century of Excellence”, portfolio of financial solutions for our customers.