1 BELIEVE IN MOMENTUM ANNUAL REPORT 2017 2 3 CONTENTS 4 CORPORATE POLICY 7 HIGHLIGHTS OF THE YEAR 8 MESSAGE TO SHAREHOLDERS 14 FINANCIAL PERFORMANCE 20 OPERATIONAL HIGHLIGHTS 36 CORPORATE GOVERNANCE 67 RISK AND CAPITAL MANAGEMENT 126 CORPORATE SOCIAL RESPONSIBILITY 132 BELIEVE: THE CAMPAIGN 136 BOARD OF DIRECTORS AND SENIOR MANAGEMENT 164 FINANCIAL STATEMENTS 4 VISION To be the most admired and trusted profitable financial services group providing and adapting to customers’ changing needs - for every Filipino worldwide - through innovative products, excellent service and a highly motivated, committed and impassioned team. MISSION We are a leading universal bank, providing quality Integrated Financial Services that best meet our clients’ needs. We are committed to conducting our business with utmost integrity, excellence, and commitment as responsible corporate citizens; and, providing professional growth opportunities to develop a talented base of officers and employees, and achieving the best returns for our stockholders. The RCBC Vision and Mission Statements The RCBC Vision and Mission statements embodies the aspirations of the Bank and what it would like to accomplish in the mid-term or long-term future. It is intended to serve as a guide for choosing current and future courses of action. It is a written declaration of RCBC’s core purpose and focus, a line encapsulating RCBC’s vision not for itself, but for the people it serves. CORPORATE POLICY 5 The RCBC Brand This message ultimately found its expression in the tagline “We believe in you,” a line encapsulating The Blue Hexagon is the corporate logo of the RCBC’s vision not for itself, but for the people it Yuchengco Group of Companies, of which RCBC serves. It became a clear message that this is not is the financial servicing arm of the conglomerate. about the Bank, but what the Bank can do for you, It was conceived with synergy in mind. Its it is rooted in a unique insight about what makes six interlocking trapezoidal fields represent strong relationships. About how, working together the conglomerate’s founding businesses: life with its clients, the Bank can be a strong partner in insurance, non-life insurance, banking and finance, creating possibilities with them through its line-up investments, transportation and communication, of financial products and services. and manufacturing and construction. The design gives the impression of a dynamo spinning on its “We Believe In You” is a statement inspired by hub—dynamic and ever-moving. The hexagon is hours and hours of talking to customers, and viewed as a celestial sphere that radiates power, listening to their needs. It amplifies the importance energy, and productivity. that the Bank has put in building great customer relationships. It understands that every Filipino For the past 56 years, RCBC has proudly used the works hard in order to achieve their dreams. It is Blue Hexagon to symbolize its union with the YGC RCBC’s commitment that it will be there to provide conglomerate. However, the Bank recognizes that its clients with the right financial tools to help them it needs to be a dynamic brand that will resonate achieve their dreams. not just with its traditional corporate clients, but with the retail consumers as well. Thus, in 2017, The RCBC Business Model RCBC embarked on a brand refresh. RCBC offers a wide range of financial services to The new RCBC is anchored on the mission to both corporate and retail customers. The main maintain and further strengthen the Bank’s source of funding of the Bank is from Customer relevance among Filipino depositors amidst Deposits accounting for 70.11% of the Total the changing banking landscape and shifting Resources. This is supported by Other Borrowings dynamics. This is the Bank’s way to refresh and at 17.80% of Total Resources and Capital at 12.10% reenergize its services to serve its loyal customers of Total Resources. The Bank’s main source of who have stood with them for all these years. At revenue is from its Lending business, Loans account the same time, this was also RCBC’s way to expand for 63.94% of Total Resources. The Bank lends its presence and reach among the younger Filipino to Corporations and Individuals. The Bank also depositors. earns other income from other financial services and activities through by charging Fees and or Having built a solid foundation of service and trust earning commissions. The bank may also earn through the years, these became the cornerstones Trading Income from proprietary trading activities in making the RCBC brand meaningful to Net Interest Income accounts for 71.74% of Total consumers in the financial services sector. Bringing Operating Income, while Other income covers for to life messages on customer service became 28.26% of balance. The bank delivers the financial central to the Bank’s campaign, anchoring it in the products and services through different channels reality that client relationships are at the heart of such as its 508 branches and 1,562 ATMs all over the RCBC brand. the country. The customers can also avail of the Bank’s products and services through the internet and mobile IOS and android application. 6 HIGHLIGHTS OF THE YEAR Highlights of the Year Consolidated Parent Bank (Solo) 2017 2016 2017 2016 Profitability for the year in million pesos except ratios and net earnings per share Total Net lnterest Income 18,021 15,707 12,395 10,563 Total Non-lnterest Income 7,100 7,114 6,887 6,496 Total Non-interest Expenses 17,815 17,355 13,113 12,674 Pre-provision profit 7,306 5,466 6,169 4,385 Allowance for credit losses 2,155 1,770 1,164 856 Net Income 4,310 3,870 4,308 3,868 Selected Balance Sheet Data in million pesos Liquid assets1/ 110,773 133,472 89,994 108,501 Gross Loans and receivables 362,236 313,578 270,733 233,234 Total Resources 553,988 521,193 441,576 417,782 Deposits 388,412 353,077 288,667 260,165 Net Worth 67,027 62,133 66,929 62,037 Selected Ratios Return on equity 6.72% 6.42% 6.74% 6.43% Return on assets 0.82% 0.77% 1.02% 0.93% CET l capital ratio 12.45% 12.89% 11.75% 12.30% Tier 1 12.45% 12.89% 11.75% 12.30% CAR 15.46% 16.16% 15.33% 16.23% Per common share data Net Income per share: Basic 3.08 2.76 3.08 2.76 Diluted 3.08 2.76 3.08 2.76 Book value 47.86 44.74 40.41 38.79 Others Cash dividends declared (in Php Mn) 773 1,008 773 1,008 Head count 6,773 6,473 4,455 4,239 Officers 3,992 3,736 2,677 2,499 Staff 2,781 2,737 1,778 1,740 1/- COCI, Due BSP, Due from other banks, FVPL, AFS, Interbank loans HIGHLIGHTS OF THE YEAR 7 TOTAL RESOURCES (in billion pesos) NET LOANS (in billion pesos) 600 400 550 350 500 300 450 250 400 200 521.20 516.10 553.99 354.24 350 150 299.12 306.17 261.57 421.87 457.91 237.96 300 100 250 50 200 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 TOTAL DEPOSITS (in billion pesos) NET WORTH (in billion pesos) 400 70 350 60 300 50 250 40 353.08 200 342.36 388.41 30 58.13 62.13 67.03 297.85 315.76 53.13 150 20 44.81 50 10 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 NET INCOME (in billion pesos) DISTRIBUTION NETWORK 7 1600 6 1400 ATMs 1200 5 1000 4 800 3 1,488 1,562 5.33 5.13 600 1,342 1,150 1,202 2 4.41 3.87 4.31 400 508 1 200 435 449 456 481 BRANCHES 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 8 Message to our Shareholders “We are on a path of transformation. RCBC has only become stronger over time. The organization has developed an ability to stay resilient even with the increasing complexity and risks of markets, more banking regulation, and tough competition.” HELEN Y. DEE Chairperson MESSAGE TO OUR SHAREHOLDERS 9 Dear Fellow Shareholders, Return on Assets at 0.82%. The strategy of building on our core business led to a growth in Net Interest The Bank’s performance in 2017 reflects the hard Income of 14.73%, coming mainly from the growth work and commitment of the organization to in the loan portfolio of our key select markets. build an even stronger bank than before. RCBC Loans to the Small and Medium Enterprise (SME) is an institution with more than just a record of Segment grew by 18% while loans to the consumer financial strength and resilience, but a legacy of segment, which includes mortgage loans, integrity and value. We are proud of what we have automobile loans, and credit cards, increased by accomplished and equally excited about what is 15%. The Bank continues to serve its corporate about to come. Allow us to share with you the key clients by providing working capital and project highlights and challenges of 2017 and how your financing, resulting in a 12% increase in corporate bank and its people made it another milestone loans. Our goal is to grow the portfolio with careful year. attention to the select market segments and deepen overall business relationships. This has The Financial Performance of 2017 kept our Net Interest Margin at 4.25%, among the highest in our peer circle.