Annual Stockholders’ Meeting Chairman’s Message April 18, 2015 The world economy continues to grow at 3 % for 2015 but remains fragile with Europe, China, Japan and South America needing government stimulus programs to boost their economies. The US is having a strong growth, after years of heavy government support, and is expected to increase interest rates by the 2nd half of 2015. Russia is being isolated due to the Ukraine conflict and the weakening of commodity prices is making the situation even worse. The good news is that Asia continues to perform well. The Philippines remains one of the best performing economies in the world. Economic growth for 2015 is expected at 6%. The reduction of fuel costs further improves the Philippine economy, minimizes the impact of inflation, and provides flexibility for the BSP on monetary policies. The Philippines does have problems which are well known and will take years, if not a decade, to solve. The most important issue is poverty and implementing “inclusive” growth. Another major challenge is the impact of natural disasters, such as typhoons, floods, and earthquakes, and the mitigating measures. The Philippines has the opportunity to be a developed country in 20 years if the proper infrastructure and legislation are implemented thereby resulting in a sustainable and inclusive growth. ASEAN economic integration will have a positive impact on the overall economy of the Philippines. However, there are sectors which will be adversely affected, such as manufacturing and agriculture, and we hope the Philippine government will provide assistance to these sectors. Philippine banking is expected to continue to perform well but needs to face the challenges of competing with international banks and local competitors, both formal and informal. Fortunately, BSP is aware of the risks with large leveraged banks and is now implementing capitalization requirements and leveraged ratios to avoid any systemic risks. The BSP is consistent with the overall risk management policies of the US Federal Reserve and the Bank of England. Philippine banking customers are also becoming analytical on which banks are actually stronger and not basing their banking decision on size. FCB had a very good year and has become stronger with better capitalization and profitability ratios in comparison to the top Philippine and international banks. FCB continues to maintain its unique trilateral relationship between its customers, employees, and shareholders. FCB is expected to continue to 1 perform better than the industry, even when the ASEAN banks start to enter the Philippine market. Success is a non-stop process with a need for continuous improvement and hard work. FCB has been very successful due to the team effort and of each member performing his/her role. We expect a seamless transition and an even better performance for FCB with the new management team taking the realm. Each executive has excellent credentials and a proven track record of performance. We express our appreciation to the Lord for all the blessings and for giving us an opportunity to be a blessing to others. Respectfully yours, Richard Uy Chairman 2 President’s Report 2014: 32 years of Solid and Sustained Growth The year 2014 marks another year of continuous and sustained growth of the bank despite the reduction of profitability of the entire banking system. FCB posted an increase of NPAIT of 21.83% while the whole banking system posted a negative NPAIT growth of 8.17%. Even with the intense competition for both deposit and loans posed by both banks and non-banks, FCB continues to outperform the banking system in such major financial indicators as Capital Adequacy Ratio, Return on Equity and Return on Assets. The achievements we report for 2014 are the result of long term decisions, chosen deliberately and carried out judiciously. Our branching strategy, our product development, our recruitment and continuous training anchored on meritocracy, continue to give FCB the sustained productivity, wide area reach, organizational capacity and financial strength. The bank is a process of continuous improvement and the FCB of tomorrow is taking shape before your eyes today, but it has its beginnings in yesterday’s dreams and aspirations and will continue to evolve and improve for the better specially with the deliberate and methodical transition process being implemented. As in a championship marathon relay, the transition is very smooth and seamless and is guaranteed to gather further strength, momentum and velocity with the young average age of our executive and management team who have already proven individually and collectively their track record of achievement. FCB’s management focused on its continuing core mandate of efficiently serving and managing the trilateral relationship between the various needs of our human resources, clients and the stockholders, to better serve the community and the environment we operate. We make it our goal to introduce interventions that creates purchasing power of the people in the community and support the need of the micro, small and medium enterprises in the areas where we operate. FCB continues to invest in human resource development, information and communication technology modernization and upgrading of products and services to meet the needs of the community. These have enabled the bank to maximize market share in our areas of operation. We continue to live by our commitment as a responsible corporate citizen conscious of our social responsibility to the community by increasing its 3 investments on people and community, particularly in the field of health, education, and livelihood. Its investments in people and the communities have created areas of opportunity in bringing together the interest of the bank and the communities. FINANCIAL HIGHLIGHTS Despite the continuing global economic uncertainties, peace and order problems, and natural disasters, the Philippine economy made a lot of economic progress. With these backdrops, FCB has continued to perform far better than the industry and has attained increases in revenues, net income, and growth in assets and loans. The bank’s financial results continue to be better than industry averages in the Philippine banking system, as shown in the financial highlights below: For the year 2014 2013 Revenues P1,436,839,470 P1,224,024,624 Net Income P391,838,284 P321,632,447 Earnings per Common Share P132 P208 Return on Average Assets 3.53% 3.27% Return on Average Equity 14.76% 16.01% Net Interest Margin 10.73% 9.57% Risk-based Capital Adequacy Ratio 25.59% 24.20% At the end 2014 2013 Total Assets P13,116,102,109 P10,581,851,609 Total Loans (net) P8,185,559,680 P6,336,145,165 Total Deposits P7,929,963,480 P6,510,870,331 Total Shareholders’ Equity P2,892,817,248 P2,271,000,260 Book Value per Common Share P849.53 P1,466.30 Common Shares Issued and Outstanding 3,396,192 1,544,752 ASSETS As of end of December 2014, the bank’s total Assets reached P 13.116 billion, registering an increase of P2.534 billion, or 23.95 percent. Loans and Discounts, Held to Maturity Investments and Due from Bangko Sentral ng Pilipinas accounted for 83.45% of total assets. The rest came from increases in Cash and Other Cash Items; Due from Other Banks; Sales Contract Receivable; Bank Premises; Computer Software; Deferred Tax Assets and Other Assets. 4 Table 1. Comparative Assets of the Bank, 2014 and 2013. December 31 Increase/Decrease ASSETS 2014 2013 Amount % Cash and Other Cash Items P581,322,504 P480,358,004 P100,964,500 21.02% Due from BSP 2,754,116,039 1,953,563,397 800,552,642 40.98% Due from Other Banks 451,263,868 638,482,188 -187,218,320 -29.32% Loans & Disc (net) 8,185,559,680 6,336,145,165 1,849,414,515 29.19% Held to Maturity Investments 6,017,121 7,076,736 -1,059,615 -14.97% Bank Premises, Furniture & Fixtures 528,525,068 512,963,110 15,561,958 3.03% and Equipment Investment Properties (net) 224,981,252 230,640,609 -5,659,357 -2.45% Sales Contracts Receivable (net) 36,942,687 55,435,737 -18,493,050 -33.36% Computer Software -net 10,058,177 12,399,050 -2,340,873 -18.88% Deferred Tax 151,132,568 137,175,349 13,957,219 10.17% Assets Other Assets -net 186,183,145 217,612,264 -31,429,119 -14.44% Total Assets P13,116,102,109 P10,581,851,609 2,534,250,500 23.95% CASH AND OTHER CASH ITEMS DUE FROM BSP AND OTHER BANKS Cash and other Cash Items increased by P101 million, or 21 percent, over the balance in 2013 due to higher level of cash requirement at year-end. Due from BSP went up to P2.7 billion or an increase of P800 million or 40.98% over the balance of the same period in the previous year as part of efficiently managing the liquid funds mix to best serve the need of the bank. Due from other banks went down by 29.32% or P187 million over its balance in the previous year as part of efficient cash management system. LOANS The bank posted a significant increase in its Loan Investments. The growth in loan investments was P1.849 billion compared to the previous year. Total loan investments reached P8.185 billion, from P6.336 billion in the previous year. Customer acceptability of FCB credit products continues to be sustained. Loan investments were evenly distributed to agriculture, wholesale and retail trade, manufacturing, consumer and real estate. The rest of the loan investments were in education, services and utilities. 5 The loan investments were spread widely to 129,537 loan borrowers and were distributed to the agriculture sector, the consumer markets and small and medium enterprises in the countryside.