COVER SHEET A S 0 9 6 - 0 0 5 5 5 5 S.E.C. Registration Number P H I L I P P I N E N A T I O N A L B A N K Company’s Full Name) 8 t h F l o o r P N B F i n a n c i a l C e n t e r M a c a p a g a l B l v d . , P a s a y C i t y (Business Address: No. Street City/Town/ Province) JAMES PATRICK Q. BONUS 891-60-40 Contact Person Company Telephone Number 1 2 3 1 17 - A Month Day FORM TYPE Month Day Fiscal Year Annual Meeting Secondary License Type, If Applicable Dept. Requiring this Doc. Amended Articles Number/Section Total amount of Borrowings Total No. of Stockholders Domestic Foreign ----------------------------------------------------------------------------------------------------------------------------------------------------------- To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier S T A M P S Remarks = pls. use black ink for scanning purposes 1 SEC Number AS096 -005555 File Number PHILIPPINE NATIONAL BANK AND SUBSIDIARIES (Company’s Full Name) Pres. Diosdado P. Macapagal Boulevard, Pasay City (Company’s Full Address) 891-6040 to 70 (Telephone Number) (Calendar Year Ended) SEC FORM 17-A REPORT Form Type (Amendment Designation (if applicable) December 31, 2018 Period Ended Date LISTED (Secondary License Type and File Number) 2 SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-A ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended December 31, 2018 2. SEC ID No. AS096-005555 3. BIR Tax Identification No. 000-188-209 4. Exact name of issuer as specified in its charter: Philippine National Bank 5. Philippines 6. (SEC Use Only) Province, Country or other jurisdiction of Industry Classification Code: Incorporation or organization 7. PNB Financial Center, Pres. Diosdado P. Macapagal Blvd, Pasay City 1300 Address of principal office Postal Code 8. (632)/891-60-40 up to 70 _ Issuer’s telephone number, including area code 9. N/A . Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 8 and 12 of the SRC or Sections 4 and 8 of the RSA Title of Each Class Number of Shares Issued Common Stock, P40 par value 1,249,139,678 shares 11. Are any or all of these securities listed on a Stock Exchange. Yes [ 3 ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common Stock 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the RSA and RSA Rule 11 (a) – 1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such report) Yes [ 3 ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days Yes [ 3 ] No [ ] 13. Aggregate market value of the voting stock held by non-affiliates: P53,400,721,234.50* *1,249,139,678 common shares @ P42.75 trading price of PNB shares as of December 28, 2018 3 PHILIPPINE NATIONAL BANK SEC FORM 17-A ANNUAL REPORT TABLE OF CONTENTS PART I – BUSINESS AND GENERAL INFORMATION Item 1 – Business 5 Item 2 – Properties 30 Item 3 – Legal Proceedings 30 Item 4 – Submission of Matters to a Vote of Security Holders 30 PART II – OPERATIONAL AND FINANCIAL INFORMATION Item 5 – Market for Issuer’s Common Equity and Related Stockholder 31 Matters Item 6 – Management’s Discussion and Analysis 33 Item 7 – Financial Statements 43 Item 8 – Information on Independent Accountant and Changes 44 in/disagreements with Accountants on Accounting / Financial Disclosure PART III – CONTROL AND COMPENSATION INFORMATION Item 9 – Directors and Executive Officers 46 Item 10 – Executive Compensation 69 Item 10A – Remuneration Policy 71 Item 11 – Security Ownership 72 Item 12 – Certain Relationships and Related Transactions 78 PART IV – CORPORATE GOVERNANCE 79 PART V – SUSTAINABILITY PROGRAM 95 PART VI – EXHIBITS AND SCHEDULES 108 PART VII – BSP ANNUAL REPORT ASSESSMENT 114 CHECKLIST 4 PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business A. Business Development The Philippine National Bank (PNB or the “Bank”), the country’s first universal bank, is the fourth largest private local commercial bank in terms of assets. The Bank provides a full range of banking and other financial services to corporate, middle-market, and retail customers, the National Government (NG), local government units (LGUs) and government-owned and controlled corporations (GOCCs), as well as various government agencies. The Bank’s principal commercial banking activities include deposit-taking, lending, bills discounting, foreign exchange dealing, investment banking, fund transfers/remittance servicing and a full range of retail banking and trust services. The Bank was established as a government-owned banking institution on July 22, 1916. As an instrument of economic development, the Bank led the industry through the years with its agricultural modernization program and trade finance support for the country’s agricultural exports. It pioneered efforts in the Overseas Filipino Workers (OFW) remittance business, as well as introduced many innovations such as Bank on Wheels, computerized banking, ATM banking, mobile money changing, domestic traveler’s checks, and electronic filing and payment system for large taxpayers. Among local banks, PNB has the widest overseas office network and one of the largest domestic branch networks. From early 2000 to 2007, through a series of equity transactions that led to the current ownership structure, the Bank was privatized. The original Plan of Merger was approved on June 24, 2008 by the affirmative vote of the Bank and Allied Banking Corporation (ABC)’s respective shareholders. These represented at least two-thirds of the outstanding capital stock of both banks. The amended terms of the Plan of Merger were approved on March 6, 2012 by the respective shareholders of the Bank and ABC, representing at least two-thirds of the outstanding capital stock of both banks. On February 9, 2013, the Bank concluded its planned merger with ABC as approved and confirmed by the Board of Directors of the Bank and of ABC on January 22 and January 23, 2013, respectively. In April 2018, PNB successfully issued US$300 million worth of 5-Year Fixed Rate Senior Notes out of its US$1 billion Medium Term Note (MTN) Program in Singapore and Hong Kong. This marked the first time that PNB tapped the international bond market for medium term dollar funding. Orders for the offering reached approximately $1.2 billion at its peak, equivalent to 4X oversubscription. The high demand for the initial issue is a testament to the international investors' strong confidence in PNB. Pending regulatory and other necessary approvals, PNB will fully integrate its wholly-owned thrift bank subsidiary, PNB Savings Bank (PNBSB), into the parent bank through the acquisition of its assets and by the assumption of its liabilities in exchange for cash. The PNB Board of Directors (BOD) approved of the integration last September 28, 2018 while the PNB Savings Bank BOD approved the same last October 10, 2018. Once the integration is fully rolled out, PNB would be able to deliver a more efficient banking experience and will be able to serve a wider customer base whereas customers of PNBSB will have access to PNB's diverse portfolio of financial solutions. The consumer lending business, currently operated through PNBSB, will also benefit from PNB's ability to efficiently raise low cost of funds. Recognizing the consistent improvement in PNB’s credit profile, Fitch Ratings affirmed in November 2018 PNB’s long-term Issuer Default Rating at BB+. Likewise, Moody’s affirmed in December 2018 the Bank’s foreign currency and local currency deposit ratings at Baa2/P-2, two notches above investment grade. The upgrade reflects the improvement in financial profile since PNB’s merger with ABC. 5 In affirmation of the Bank’s well-managed operations, PNB received awards from the BSP and other international award-giving bodies. In the 2017 BSP Stakeholders’ Ceremony, PNB was recognized as the Outstanding PhilPass REMIT Participant. PNB was also recognized in a ceremony held last July 31, 2018 by the Institute of Corporate Directors (ICD) as amongst the top performing publicly- listed companies that ranked high under the ASEAN Corporate Governance Scorecard (ACGS). Out of 245 companies assessed, PNB is among the 21 publicly-listed companies that scored 90 points and above. PNB was also among the top 5 in the financial sector recognized for exemplary corporate governance practices. PNB received two awards from the Asian Banking & Finance Retail Banking Awards 2017, “Digital Banking Initiative of the Year” for the PNB Mobile Banking App and “New Consumer Lending Product of the Year” for PNBSB Smart Salary Loan Program. Last July 12, 2018, PNBSB received two awards from the Asian Banking & Finance Retail Banking Awards 2017. These are “Consumer Finance Product of the Year – Philippines” for its Smart Personal Loan with Double Coverage product and “Service Innovation of the Year – Philippines” for its Smart Auto Loan and Home Loan Plus (Value-added Services). On October 5, 2018, PNBSB’s Smart Personal Loan won the Consumer Finance Product of the Year, from the Asian Banker Philippine Country Awards 2018. The following presents the Bank’s significant subsidiaries: Domestic Subsidiaries: PNB Savings Bank A wholly-owned thrift bank subsidiary, formerly known as Allied (PNBSB) Savings Bank.