2017 annual report · jesus g. tabora nicolas r. tabora chairman president. 2017 annual report...

2017 ANNUAL REPORT

03 Corporate Profile04 Vision, Mission05 Business Model06 Financial Highlights07 Report to Stockholders09 Risk Management Framework16 AML Governance17 Corporate Governance19 Board of Directors30 Organizational Structure37 Stockholders38 Products and Services39 Banking Units40 Audited Financial Statements92 Capital Adequacy

2017 ANNUAL REPORT

Annual Report 2017 | Page 1 of 106

Rural Bank of Rosario (L.U.), Inc.

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RURALBANKOFROSARIOANGBANGKOPARASAINYO.

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The Rural Bank of Rosario (LU), Inc. was registered with the Securities andExchange Commission (SEC) under registration number 3761 and wasincorporated on February 21, 1969. The bank is organized under Republic Act(R.A.) No. 7353, otherwise known as the Rural Banks Act of 1992. The bankobtained its rural bank license from the Bangko Sentral ng Pilipinas (BSP) onMarch 13, 1969 and started its operation on March 22, 1969. The bank is engagedin rural banking services primarily to carry business of extending rural credit tosmall farmers and tenants to deserving rural industries or enterprises; and tohave an exercise all authority and powers to perform all acts and transacts allbusiness which may legally be had done by rural bank organize under and inaccordance with the Rural Bank’s Act. The bank transacts all business which maylegally exist or be amended and to have all other things thereto necessary andproper in connection with said purposes within such authority as may bedetermined by the Monetary Board of Bangko Sentral ng Pilipinas.

The RURAL BANK OF ROSARIO (LA UNION), INC. Board of Directors is composed ofseven (7) members; one (1) of them is an Independent Director.

The Bank’s principal place of business is located at National Highway, PoblacionEast, Rosario, La Union with extension office located at Rosario Public Market,Subusub, Rosario, La Union. It has five (5) branches which are located at Sto.Tomas, La Union, San Fabian, Sison, Pozorrubio and Binalonan Pangasinan. Thebank also have four (4) on site automated tellering machines located in the mainoffice in Rosario, La Union, Sto. Tomas Branch, San Fabian Branch and PozorrubioBranch.

With the support and guidance of its regulatory bodies, RBR aims to provide moreinnovative and convenient banking solutions to its growing customer base.

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To be a leading financial institution in Northern Luzon and a dependable partner inthe countryside development by 2020.

We will provide the best to the community with the highest degree of

and unparalleled .

We will be the catalyst of economic development offering a wide range of bankingproducts and innovative services through the concerted efforts of the dynamicfamily of the Rural Bank of Rosario as guided by the Lord Almighty.

Our Vision and Mission serve as the guiding path of the Bank in continuously providing the people ofNorth Luzon the best services it can give.

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The Bank’s growth path is embedded in its PLANS AND STRATEGIES. The RBR’s maingoal is to achieve a solid financial position by the end of 2018. To achieve its goal,the Bank is embattled to generate the net operational income of Php6.2M throughlending at least Php206M and to accept deposits in the amount of Php514M.

The target market of the Bank is the farmers from the Agricultural sector; thebusiness owners of small and medium enterprise and operators of transportationfrom the Commercial Sector; the manufacturers of hollow blocks, furniture andwelding shop including the rice millers from the Industrial sector; the bank alsooffers various loan products to private and government employees including theOFW’s and the pensioners; the bank also caters loans to barangay officials and RBRofficers and employees.

The Bank formulated various strategies to achieve these goals. Some of thestrategies are obtaining a master list copy of farmers, tenants and farm ownersfrom the Municipal Agricultures Office and will coordinate / conduct a scheduledmeeting with them to introduce the product of the Bank. The Bank will alsocontinue to distribute flyers and keep on posting an advertisement of the productto different Municipalities and public places.

Another strategy of the bank is to obtain an updated list of businesses with goodstanding record within the area of operations including the list of activetransportation operators to introduce the product of the bank that suits theirneeds in terms of financial assistance.

The Board and Senior Management will monitor the accomplishments and actionplans taken of all offices to ensure that all plans and strategies are implemented.

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FINANCIAL SUMMARY 2017 2016

ProfitabilityTOTAL INTEREST INCOME 27,072,657 22,578,605TOTAL NON-INTEREST INCOME 11,233,308 10,134,901TOTAL NON-INTEREST EXPENSE 30,249,643 26,577,968PRE-PROVISION PROFITALLOWANCE FOR CREDIT LOSSES 1,719,082 1,771,121NET INCOME 4,584,612 2,947,043Selected Balance Sheet DataLIQUID ASSETS 375,512,982 334,874,776GROSS LOANS 182,251,605 166,778,735TOTAL ASSETS 576,034,839 517,705,381DEPOSITS 495,596,044 444,920,886TOTAL EQUITY 58,058,854 52,171,881Selected RatiosRETURN ON EQUITY 7.09% 5.53%RETURN ON ASSETS 0.82% 0.59%OthersOFFICERS 15 15STAFF 40 42

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REPORT TO STOCKHOLDERS

We would like to take this opportunity to express our deepest appreciation to our CLIENTS whohave trusted and continually patronized us, to our EMPLOYEES who have wholeheartedly giventhe best service to everyone and to our STOCKHOLDERS who unwaveringly supportedMANAGEMENT over the past years, as we continually embark on our journey as a leadingfinancial institution in Northern Luzon.

The past year has been a fulfilling and successful undertaking for the Rural Bank of Rosario (LaUnion), Inc. as we continually feel very proud of our achievements in taking our financialinstitution to a new level.

We are glad to share with you some very important strength of our Bank’s operations as ofDecember 2017.

Total Resources grew by 11.27% to Php576 million compared to previous year 2016,backed by continued growth in Deposits.

Total Deposit increased by 11.39% to Php495 million from Php444 million last year2016.

Total Loans rose to Php182.25 million, an increase of Php15.47 million compared toprevious year 2016.

Net Income reached Php4.47 million, a substantial increase over 2016.

The Bank’s Financial Performance demonstrated resilience amid a challenging businessenvironment and in spite of the presence of a variety of competitors.

Given all these challenges, we undertook initiatives to raise brand awareness and sustainedgrowth metrics through sustained marketing of LOANS and innovative new products such asAgricultural Loans and other services.

Our journey is about improving lives through lending activities, creating jobs and to promotefinancial inclusion that will enable Filipinos, especially the unserved and underserved ruralareas to receive and make payments as well as have a facility for store of value through ourdeposit products.

In pursuit of Good Governance, we continue to conduct several trainings and seminars toenhance our personnel capabilities through the Basic Rural Banking Course (BRBC),Management Training and Development Programs (MTP and MDP) and participating inrelevant trainings mostly conducted by the RBAP Foundation and other learning institutions.We also awarded the most outstanding employee award to recognize the efforts and initiativesof our executives and staff.

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We would like to acknowledge the dedication of our 55 personnel and thank them for theirefforts in working toward the Bank’s success and our clients for their continued trust andpatronage, the hallmark of our operations.

Jesus G. Tabora Nicolas R. TaboraChairman President

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The Bank is exposed to a variety of financial risk arising from its business activities. It enters intofinancial instrument contracts, which consist of AFS financial assets, HTM investments, loans andreceivables, and financial liabilities such as deposits and bills payable to finance the Bank’s operations.The main types of risk to which the Bank is exposed includes credit risk, liquidity risk, market/investmentrisk, interest rate risk, operations risk, legal risk, reputational risk and regulatory/compliance risk.

The effective management of risk has always been a fundamental element of Rural Bank of Rosario (LU),Inc. As a result, sound risk management is a reflection of the effectiveness of the Board and SeniorManagement in administering its portfolio of products, activities, processes and systems.

The Board of Directors created the Audit Committee to oversee the development of risk managementprogram of the Bank. The AC is responsible to closely monitor the system of limits to discretionaryauthority that the Board delegates to the management and ensures that the system remains effective.AC ensures that the limits are observed and that immediate corrective actions are taken whenever limitsare breached.

CREDIT RISK

Arises from the borrower’s failure to pay interest and/or loan principal at maturity date. The Bank isexposed to this risk for various financial instruments arising from granting loans and receivables tocustomers, including related parties.

The Bank’s credit risk strategy is to identify and ensure that the bank’s plan to grant credit based onvarious client segments and products, economic sectors, geographical location, currency and maturity.Ensures that the target market within each lending segment and highly diversified among the number ofindustries. In addition, credit / lending activity is not fully concentrated in a specific industry. The Bankalso considers the pricing strategy. The Bank also conducts an in-depth understanding of the client’sbusiness and their capabilities.

The senior management of the bank develops and establishes credit policies and credit administrationprocedures as a part of the overall credit risk management framework and gets those approved from

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Board. Such policies and procedures shall provide guidance to the concerned employees on varioustypes of lending such as but not limited to loans to MSME, Agri-Agra, Consumer loans, etc.;

The senior management of the bank develops and establishes credit policies and credit administrationprocedures such as:

- Detailed and formalized credit evaluation and appraisal process;- Credit approval authority at various hierarchy levels (i.e., BOD, CREDITCOM & Branch

Head/Branch Operations) for approving exceptions;- Risk identification, measurement, monitoring and control;- Risk acceptance criteria;- Credit origination and credit administration and loan documentation procedures;- Roles and responsibilities of units/staff involved in origination and management of credit;- Guidelines on management of problem loans.

The Bank adopts the Borrowers Risk Rating System (BRRS) and Cash Flow Analysis (CFA), which is asummary of the Bank’s individual credit exposure. This rating system categorized all credits into variousclasses on the basis of underlying credit quality. A well-structured credit rating framework is animportant tool for monitoring and controlling risk inherent in individual credits as well as in creditportfolios of a bank or a business line. The importance of BRRS framework becomes more eminent dueto the fact that historically major losses to banks stemmed from default in loan portfolios.

An internal rating framework would facilitate the Bank in a number of ways, such as:

- Credit selection- Amount of exposure- Tenure and price of facility- Frequency or intensity of monitoring- Analysis of migration of deteriorating credits and more accurate computation of future loan

loss provision- Deciding the level of Approving authority of loan.

CREDIT MANUAL INCORPORATING THE 7 Cs of Credit:

1. Character2. Capacity3. Capital4. Collateral

5. Conditions6. Cash Flow7. Commitment

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LIQUIDITY RISK

Arises from the failure to meet maturing obligations due to mismatch in cash flows and incidence of highpast due loans which may put pressure on the bank’s liquidity position.

BOD and Senior Management availed credit lines from major financial institutions through rediscountingfacilities to manage the liquidity position of the bank. The Management is not totally reliant on depositliabilities but also on the establishment of credit lines with financial institutions offering lower interestrates

Cash and Accounting Department together with the Bank management always maintain and monitorthe following:

List of maturing obligations such as time deposits, bills payable, etc.; and Weekly Report on Required and Available Reserves (WRRAR) if properly complied with.

Bank is fortified to promote their CASA deposit liabilities rather than Time Deposits to limit the exposureto large withdrawals from big/large time deposits. Strong internal control maintained by the Bank toallow the flow of collections from credit exposures and maintenance of funds from investments andbank deposit. The cash department and accounting department maintains, monitor and stress test itscash flow analysis/projection.

The accuracy of MIS reports and Daily Cash Position Report is vital to monitor the liquidity position ofthe bank. Cash department monitors daily the availability of sources of funds aside from deposit.Maturity Matching report and IBODI Management is also included in the monitoring activity of the CashDepartment together with the accounting department and the management.

MARKET AND INVESTMENT RISK

This is defined as the risk to earnings or capital arising from the possible deterioration in value ofacquired assets and decline in value of investments in equities and debt instruments.

These risks may arise from the following:

a. Risk that issuer may not be able to meet obligations promptlyb. Risk of decline in value of investments due to investment decisions which fail to take into

account

Marketability in investment instrument. If a bank cannot wait to hold on investment untilmaturity, there must be/may be buyers in the market willing to pay at a price that is close tobank’s acquisition cost so that the bank will not incur a loss

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Diversification of investment outlets Maturity and rate or return Type of issuer (to ensure payment on maturity) BSP regulations on limits and ceilings.

There are some mitigating factors for market and investment risk which includes the major investmentto any financial institution must be approved by the BOD and it shall be the responsibility of the seniormanagement & cash department to assess and identify the capabilities and stability of the financialinstitution before they recommend to the top management and BOD of where to invest the funds of theBank. This also includes the proper monitoring of maturing obligations be considered before aninvestment shall be made. Senior management & Cash Department also determines the benefits to bederived from investments, whether it could be used to increase the Risk-Based Capital Adequacy Ratioof the Bank.

INTEREST RATE RISK

This is the risk to earnings or capital arising from mismatches of the timing within which interest rateson assets and liabilities can be changed.

To be able to mitigate the risk, the Senior Management & Branch operations are responsible for surveyof interest rate to various banks. The accuracy of the MIS reports is also being implemented includinginterest rate and maturity matching report.

OPERATIONS RISK

Arising from the result of weakness in organizational structure, poor oversight functions of the Board ofDirectors and Senior Management, hiring policies, weak internal control system, and inadequatemanagement information system.

The objective of operational risk management is the same for credit, market and liquidity risks, and thatis to find out the extent of the financial institution’s operational risk exposure; to understand whatdrives it, to allocate capital against it and identify trends internally and externally that would helppredicting it. The management of specific operations risks is not a new practice, it has always beenimportant for banks to try to prevent fraud, maintain the integrity of internal controls, and reduce errorsin transactions processing, and so on. However, what is relatively new is the view of operational riskmanagement as a comprehensive practice comparable to the management of credit and market risks inprinciples. Failure to understand and manage operational risk, which is present in virtually all bankingtransactions and activities, may greatly increase the likelihood that some risks will go unrecognized anduncontrolled.

Ultimate accountability for operational risk management rests with the board, and the level of risk thatthe organization accepts, together with the basis for managing those risks is driven by those chargedwith overall responsibility for running the business;

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The board and top management should ensure that there is an effective, integrated operational riskmanagement framework. This should incorporate a clearly defined organization structure, with definedroles and responsibilities for all aspects of operational risk management/monitoring and appropriatetools that support the identification, assessment, control and reporting of key risks;

Operational risk policies and procedures that clearly define the way in which all aspects of operationalrisk are managed should be documented and communicated. These operational risk managementpolicies and procedures should be aligned to the overall business strategy and should support thecontinuous improvement to risk management;

All business and support functions should be an integral part of the overall operational risk managementframework in order to enable the institution to manage effectively the key operational risks facing theinstitution;

Like management should establish processes for the identification, assessment, mitigation, monitoringand reporting of operational risk that are appropriate to the needs of the institution, easy to implement,operate consistently over time and support an organization view of operational risks and materialfailures.

Senior management should transform the strategic direction given by the board through operational riskmanagement policy. Although the Board may delegate the management of this process, it must ensurethat its requirements are being executed. The policy should include:

The strategy given by the board of the bank; The system and procedures to institute effective operational risk management framework; The structure of operational risk management function and the roles and responsibilities of

individuals involved.

The policy should establish a process to ensure that any new or changed activity, such as new productsor systems conversions will be evaluated for operational risk prior to going online. It should be approvedby the board and documented. The management should ensure that it is communicated and understoodthroughout in the institution. The management also needs to place proper monitoring and controlprocess in order to have effective implementation of the policy.

Bank’s should identify and assess the operational risk inherent in all material products, activities,process and systems and its vulnerability to theses risk. Banks should also ensure that before newproducts and services are introduced or undertaken, the operational risk inherent in them is subject toadequate assessment procedures. While a number of techniques are evolving, operating risk remainsthe most difficult risk category to quantify. It would not be feasible at the moment to expect banks todevelop such measures. However, the banks could systematically tract and record frequency, severityand other information on individual loss events. Such a data could provide meaningful information forassessing the bank’s exposure to operational risk and developing a policy to mitigate/control that risk.

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Top management should establish a program to: Monitor assessment of the exposure to all types of operational risk faced by the Bank; Assess the quality and appropriateness of mitigating action, including the extent to which

identifiable risks can be transferred outside the institution.

Written policies and procedures in all aspect of the operations are very much essential to mitigate theexposure to operational risk. These should be manualized and need to be reinforced through a strongcontrol culture that promotes sound risk management practices. Banks should assess the feasibility ofalternative risk limitation and control strategies and should adjust their operational risk profile usingappropriate strategies, in light of their overall risk appetite and profile. To be effective, control activitiesshould be an integral part of the regular activities of a Bank.

Bank in place the following Manuals to ensure its ability to operate as going concern and ensure thatadequate controls and systems to identify and address problems before they become major concerns.

MITIGATING OPERATIONS RISK

Manual of Operations Deposit Manual Loan Operations Manual Accounting Manual Branch Banking Operation Manual Credit Risk Manual Risk Management Manual IA Manual Compliance Manual Security Manual Business Continuity Plan Contingency Funding Plan Employees Manual Succession Plan MLPP

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LEGAL RISK

This is the risk to earnings or capital that may arise as a result of unenforceable contracts, lawsuits, oradverse judgments.

The risk may arise from the following:

1. Possibility that contracts are not legally enforceable due to Failure to carefully review all contracts entered into by bank Breach of contract terms and conditions

2. Protracted court cases

The daily operations of the Bank always prove to be the most fertile ground for legal input. Anabundance of legal consequences can be found in the cash operations, accounting, credit and collection,appraisal, etc., Each area should have their own manuals, must be independent from each other andshould be very much aware of the legal consequences of their actions should they deviate from theoperating procedures of the Bank. Accuracy and enforceability of forms, contracts and MOA’s

REPUTATIONAL RISK

This is the risk arises from negative / adverse public opinion. Reputation risk is the threat to meetingexpectations that in turn precipitates a crisis. It is created when expectations are poorly managed andexceed capabilities, or when the Bank simply fails to execute. Negative media coverage is often blamedon marketing, but the internet now extends exposure far beyond the reach of marketing activities.Almost everything a company does, overtly or covertly, is a public form of communication. Anystakeholder with access to a keyboard and the internet can be a self-appointed investigative journalist.

A reputation crisis occurs when stakeholders change their expectations and behaviors. Customers stopdepositing their money, employees leave, loan borrowers lose interest in the products and services ofthe Bank, regulators and other partners withdraw their accreditation to the Bank, litigators andreporters inevitably pile on. Adding insult to injury, culpability and public opprobrium land on directorsand officers. For them, the stain of a reputation crisis can be personal and permanent.

Managing expectations is all about governance, operations and risk management—the blocking andtackling of running a business. Clearly, there can be perverse brilliance in a business strategy of settingexpectations very low. Less obvious, however, is the fact that public relations efforts to pump upexpectations or spin a story can backfire terribly if the campaign is not supported by operationalrealities. The BOD and Senior Management quickly analyze gaps in enterprise-level controls,

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conceptualize an ideal state and implement a roadmap to reduce reputation risk. Better expectationmanagement and operational controls are enabled by quantitative reputational controls, historicreviews of financials and related tools. These can help define the value at risk associated withreputational volatility and stakeholder expectations. Also, training for employees on how to answer /react to questions from the public is significant.

REGULATORY / COMPLIANCE RISK

The risk of legal or regulatory sanctions, financial loss, or loss to reputation a bank may suffer as a resultof its failure to comply with all applicable laws, regulations, and codes of conduct and standards of goodpractice.

Regulators and governments are issuing newer regulations to avoid future crises and cracking the whipdown on banking organizations that do not conform. As a result, the average business today isconfronted with a plethora of cross-industry regulations, each consisting of hundreds of requirementsand rules. Dealing with these requirements in a traditional manner is no longer cost-effective orefficient. It requires a renewed business model that analyzes compliance requirements, prioritizes theirimportance to the business, applies the appropriate control and monitors the system consistently. Therisk exposes the bank and its directors and officers to fines, monetary penalties and administrativesanctions.

Compliance risk, which is often overlooked as it blends into operational risk and transaction processing,is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules &regulations, code of conduct, customer relationship rules or ethical standards. It encompasses all laws,as well as prudent ethical standards and contractual obligations. Compliance risk also arises in situationswhere the laws or rules governing certain bank products or activities of the bank's clients may beambiguous or untested. Compliance risk, also referred to as integrity risk sometimes, exposes theorganization to legal penalties, payment of damages, limitation of business opportunities, diminishedreputation, lessened expansion potential and the voiding of contracts.

To strengthen its compliance risk program, the banks need an efficient solution for conductingcompliance processes, identifying & assessing risks, implementing & monitoring controls andmitigating/eliminating the gaps across its vast operations.

Managing compliance risk has become a core skill that every bank must have in today’s highly regulatedindustry and a consolidated-or "enterprise-wide"-approach to compliance risk management has become"mission critical" for rural banking organizations.

ANTI-MONEY LAUNDERING

While striving to sustain economic development and poverty alleviation through, among others,corporate governance and public office transparency, the Philippines realized the need to contribute its

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share and play a vital role in the global fight against money laundering. The government thus recognizedthe compelling need to enact a responsive anti-money laundering legislation in order to establish andstrengthen an anti-money laundering regime in the country. The anti-money laundering law is expectedto strengthen the country’s financial institutions, increase investors’ confidence and eventually ensurethat the Philippines is not used as a site to launder dirty money to finance terrorists or legitimizeorganize crime fronts.

By the authority vested to the Bangko Sentral ng Pilipinas to issue guidelines and circulars on anti-money laundering (AML) and combating the financing of terrorism (CFT), in order to effectivelyimplement the provisions of Republic Act (R.A.) No. 9160, otherwise known as the "Anti-MoneyLaundering Act of 2001" (AMLA), as amended by R.A. Nos. 9194, 10167 and 10365, as provided underRule 18 of the Revised Implementing Rules and Regulations (RIRR) of the AMLA, as amended, as well asR.A. No. 10168 or The Terrorism Financing Prevention and Suppression Act of 2012, as provided underRule 27 of its Implementing Rules and Regulations (IRR), the Monetary Board, in its Resolution No. 334dated 23 February 2017, approved the amendments to Part Eight or the Anti-Money LaunderingRegulations of the Manual of Regulations for Banks (MORB).

The Rural Bank of Rosario (La Union), Inc. adopts the policies of the State to (a) protect the integrity andconfidentiality of bank accounts and ensure that the Philippines, in general, and the Rural Bank, inparticular, shall not be used, respectively, as a money laundering site and conduit for the proceeds of anunlawful activity as herein defined; and (b) to protect life, liberty and property from acts of terrorismand to condemn terrorism and those who support and finance it and reinforce the fight againstterrorism by criminalizing the financing of terrorism and related offenses. The Bank revised its Anti-Money Laundering Program and adopts the newly issued BSP Circular No. 950 dated 15 March 2017.

It is the policy of the Rural Bank of Rosario (La Union), Inc. to actively promote and pursue corporategovernance reforms and to consciously observe principles of accountability and transparency with theutmost degree of professionalism and effectiveness. The Board of Directors of RBR adopts the Manual ofCorporate Governance to steer the corporate organization toward excellence and competitiveness,locally and globally, thus enabling it to be a valuable partner of the government in nationaldevelopment. The Bank adopted the BSP Circular 969 that was issued on 22 August 2017 otherwiseknown as the Enhanced Corporate Governance Guidelines for BSP-SFI.

The powers and functions of RBR are exercised by the Board of Directors. The Board is the policy makingbody and is primarily responsible for good governance in RBR. Corollary to this main responsibility, theBoard shall chart the corporate strategy and set guidelines for accomplishment of corporate objectives,as well as provide an independent check on management.

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The responsibilities of Board are provided in its By-Laws and other relevant legislation, rules andregulations.

The business affairs of the bank is being conducted under the supervision and control of the Board ofnot less than five (5) nor more than eleven (11) directors which at all times be odd numbers. The holdersof common stock entitled to vote elects such directors in the manner provided in the Section 31 of Act1459 as amended (Corporation Law) whose qualifications is subject to the approval of the MonetaryBoard of the Central Bank of the Philippines. Only Filipino citizens are eligible for election to the Board.No individual is eligible to become or be a director if he is or becomes a candidate for or holder of anypublic office.

The executive officers of the Bank are the President, Vice-President, Secretaries, Bank Manager,Assistant Managers, Branch Heads and Cashiers who was elected by a majority vote of the entiremembership of the Board of Directors at its first meeting held after the annual stockholders meeting,and at such other times during the year as may be required to fill vacancies. The position of Secretaryand Cashier may be combined in one person.

The President is the Chief Executive Officer of the Bank. The primary role is to see to it that all ordersand resolutions of the Board of Directors, all orders of the Monetary Board of the Central Bank of thePhilippines, and all rules and regulations governing Rural Banks are carried into effect, and exercisessuch other powers and perform such other duties as are prescribed for the Office of the President in theby-laws. The Vice-President exercises the powers, authority and duties of the President during theabsence or inability to act of the latter.

The Secretary provides for the keeping of the records of the Bank and has the custody of the seal of thecorporation. The Secretary, in addition, exercise such other powers and perform such other duties as areprescribed for the Office of the Secretary and all other duties usually pertaining to that office, and suchother duties as may be prescribed from time to time by the Board of Directors.

Bank Manager/Assistant Managers/Branch Heads.- The Board of Directors shall provide for the positionof a Bank Manager/Assistant Managers/Branch Heads who shall have, subject to the control of theBoard of Directors, general management of the business affairs of the Bank.

A Compliance Officer is to oversee and coordinate the implementation of the compliance system. Hisresponsibility includes the identification, monitoring and controlling of compliance risk. Theappointment/designation of a compliance officer requires prior approval of the Monetary Board. Thebio-data of the proposed compliance officer is submitted to the appropriate department of the SES. Thecompliance officer has the skills and expertise to provide appropriate guidance and direction to the bankon the development, implementation and maintenance of the compliance program.

The Audit Committee assists the board in fulfilling its corporate governance responsibilities and ensuresthe board’s effectiveness and due observance of corporate governance principles and guidelines. The

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audit committee is composed of members of the board of directors; one is the independent director,including the Chairman.

Name Type of Directorship Number of yearsserved as Director

Number ofShares

Percentage ofshares

JESUS G. TABORA Executive Director 48 21,233 6.34%

NICOLAS R. TABORA Executive Director 29 8,088 2.41%

MARIANITA P. LADIA Non-executive Dir. 48 20,035 5.98%

SUSAN T. GUEVARA Executive Director 4 2,266 0.68%

CNTHIA BARBARA T. TUASON Non-executive Dir. 17 7,000 2.09%

NICHOLO ANDRE K. TABORA Non-executive Dir. 3 393 0.12%

ELVIRA E. BARROGA Independent Dir. 8 months 68 0.02%

A director shall have the following minimum qualifications enumerated in Subsec. X142.3 of BSPCircular 969:

1. He must be fit and proper for the position of a director. In determining whether a person is fitand proper for the position of a director, the following matters must be considered: integrity/ probity, physical / mental fitness; relevant education/financial literacy / training; possession ofcompetencies relevant to the job, such as knowledge and experience, skills, diligence andindependence of mind; and sufficiency of time to fully carry out responsibilities.

In assessing a director's integrity/probity, consideration shall be given to the director'smarket reputation, observed conduct and behavior, as well as his ability to continuouslycomply with company policies and applicable laws and regulations, including market conductrules, and the relevant requirements and standards of any regulatory body, professionalbody, clearing house or exchange, or government and any of its instrumentalities/agencies.

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An elected director has the burden to prove that he possesses all the foregoing minimumqualifications and none of the cases mentioned under Subsection X150.1. A director shall submitto the Bangko Sentral the required certifications and other documentary proof of suchqualifications using the Appendix 98 as guide within twenty (20) banking days from the dateof election. Non· submission of complete documentary requirements or their equivalent withinthe prescribed period shall be construed as his failure to establish his qualifications forthe position and results in his removal from the board of directors.

The Bangko Sentral shall also consider its own records in determining the qualifications of adirector.

The members of the board of directors shall possess the foregoing qualifications in addition tothose required or prescribed under R.A. No. 8791 and other applicable laws and regulations.

2. He must have attended a seminar on corporate governance for board of directors. A directorshall submit to the Bangko Sentral a certification of compliance with the Bangko Sentral-prescribed syllabus on corporate governance for first time directors and documentary proof ofsuch compliance: Provided, That the following persons are exempted from complying with theaforementioned requirement:

a. Filipino citizens with recognized stature, influence and reputation in the banking communityand whose business practices stand as testimonies to good corporate governance;

b. Distinguished Filipino and foreign nationals who served as senior officials in central banksand/or financial regulatory agencies, including former Monetary Board members; or

c. Former Chief Justices and Associate Justices of the Philippine Supreme Court:

Provided, further, that this exemption shall not apply to the annual training requirements forthe members of the board of directors.

Independent and non-executive directors

In selecting independent and non-executive directors, the number and types of entities where thecandidate is likewise elected as such, shall be considered to ensure that he will be able to devotesufficient time to effectively carry out his duties and responsibilities. In this regard, the following shallapply:

1. A non-executive director may concurrently serve as director in a maximum of five (5) publiclylisted companies. In applying this provision to concurrent directorship in entities within aconglomerate, each entity where the non- executive director is concurrently serving asdirector shall be separately considered in assessing compliance with this requirement; and

2. An independent director of a BSFI 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

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independent director in the same BSFI, but may continue to serve as regular director. The nine(9) year maximum cumulative term for independent directors shall be reckoned from 2012.

Members of the board of directors shall not be appointed as Corporate Secretary or Chief ComplianceOfficer.

Chairperson of the board of directors.

To promote checks and balances, the Chairperson of the board of directors shall be a non-executivedirector or an independent director, and must not have served as CEO of the BSFI within the past three(3) years. The positions of Chairperson and CEO shall not be held by one person. In exceptional caseswhere the position of Chairperson of the board of directors and CEO is allowed to be held by one (1)person as approved by the Monetary Board, a lead independent director shall be appointed.

For this purpose, the board of directors shall define the responsibilities of the lead independent director,which shall be documented in the corporate governance manual. The board of directors shall ensurethat the lead independent director functions in an environment that allows him to effectively challengethe CEO as circumstances may warrant. The lead independent director shall perform a more enhancedfunction over the other independent directors and shall: (1) lead the independent directors at boardof directors meetings in raising queries and pursuing matters; and (2) lead meetings of independentdirectors, without the presence of the executive directors.

In the case of the Rural Bank of Rosario (La Union), Inc., the Bank is categorized as simple or non-complex Bank. Only Audit Committee is required by the Bangko Sentral Pilipinas.

The BOD created Audit Committee to assist the Board in fulfilling its corporate governanceresponsibilities and ensures the Board’s effectiveness and due observance of corporate principles andguidelines.

Audit Committee

Chairman: Elvira E. Barroga (Independent Director)Members: Cynthia Barbara T. Tuason & Nicholo Andre K. Tabora

The audit committee is composed of three (3) members of the board of directors, who are non-executive directors; the Chairperson is the independent director.

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The audit committee shall have accounting, auditing, or related financial management expertise orexperience commensurate with the size, complexity of operations and risk profile of the BSFI. It shallhave access to independent experts to assist them in carrying out its responsibilities. The AC shall:

1. Oversee the financial reporting framework. The committee shall oversee the financial reportingprocess, practices, and controls. It shall ensure that the reporting framework enables thegeneration and preparation of accurate and comprehensive information and reports.

2. Monitor and evaluate the adequacy and effectiveness of the internal control system. Thecommittee shall oversee the implementation of internal control policies and activities. It shallalso ensure that periodic assessment of the internal control system is conducted to identify theweaknesses and evaluate its robustness considering the Bank’s risk profile and strategicdirection.

3. Oversee the internal audit function. The committee shall be responsible for theappointment/selection, remuneration, and dismissal of internal auditor. It shall review andapprove the audit scope and frequency. The committee shall ensure that the scope covers thereview of the effectiveness of the Bank’s internal controls, including financial, operationaland compliance controls, and risk management system. The committee shall functionally meetwith the head of internal audit and such meetings shall be duly minuted and adequatelydocumented. In this regard, the audit committee shall review and approve the performance andcompensation of the head of internal audit, and budget of the internal audit function.

4. Oversee the external audit function. The committee shall be responsible for the appointment,fees, and replacement of external auditor. It shall review and approve the engagement contractand ensure that the scope of audit likewise cover areas specifically prescribed by the BangkoSentral and other regulators.

5. Oversee implementation of corrective actions. The committee shall receive key audit reports,and ensure that senior management is taking necessary corrective actions in a timelymanner to address the weaknesses, non-compliance with policies, laws, and regulations andother issues identified by auditors and other control functions.

6. Investigate significant issues/concerns raised. The committee shall have explicit authority toinvestigate any matter within its terms of reference, have full access to and cooperation bymanagement, and have full discretion to invite any director or executive officer to attend itsmeetings.

7. Establish whistleblowing mechanism. The committee shall establish and maintain mechanismsby which officers and staff shall, in confidence, raise concerns about possible improprieties ormalpractices in matters of financial reporting, internal control, auditing or other issues topersons or entities that have the power to take corrective action. It shall ensure thatarrangements are in place for the independent investigation, appropriate follow-up action, andsubsequent resolution of complaints.

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Name of Directors BoardNumber of Meetings

Audit CommitteeNumber of Meetings

Attended % Attended %1. Jesus G. Tabora 25 100% n/a n/a2. Nicolas R. Tabora 25 100% n/a n/a3. Marianita P. Ladia 25 100% n/a n/a4. Nicholo Andre K. Tabora 25 100% 25 100%5. Susan T. Guevara 20 80% n/a n/a6. Cynthia Barbara T. Tuason 20 80% 20 80%7. Elvira E. Barroga 24 96% 24 96%

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ENGR. JESUS G. TABORA Chairman of the BoardNICOLAS R. TABORA President / CEOSUSAN T. GUEVARA Special Assistant to the PresidentVIRGINIA D. BASCO General ManagerRUSSELL CHARLES A. ANDRES Acting Compliance Officer IELLEN JOY O. BARUC Acting Internal Auditor IROCHELLE R. CASTRO Senior Bookkeeper / Head, Accounting DepartmentROGELIO S. SIMSIMAN Loan Officer / Head, Loans DepartmentMARIA LUISA F. DULAY Cashier / Head, Customer Service DepartmentSHIRLEY S. BASADRE Branch Banking Department Head / Branch Head, Sto. TomasANGELITO B. GABRILLO Branch Head, San FabianBUTCH L. MANALAYSAY Acting Branch Head, SisonRICHARD R. MURAO Branch Head, PozorrubioEMMALYN G. BRAGA Branch Head, BinalonanERLINDA E. RAMOS Human Resource Officer

The Board conducts self-assessment and peer assessment during Board meetings, evaluates anddiscusses the lowest rating. Senior Management is assessed in their individual capacity and all Officersand employees of the Bank on a regular basis. The results of the assessment are documented andanalyzed and facilitates for the effective performance of functions.

The Bank has a Basic Rural Banking Course (BRBC) seminar for all new employees of the Bank. Asidefrom the BRBC, the Bank has also a Management Training & Development Program, to train extensivelythe personnel in various Departments in order to prepare them to equally similar job/tasks and/or toassume a higher position.

The said trainings will give opportunities to all personnel to assume a higher position and/or vacancies inany of the Senior Officer level. The maximum duration of the program is 40 working days.

2017 ANNUAL REPORT


With regards to the Directors, the Chairman of the Board ensures the conduct of proper orientation forfirst time director and provides training opportunities for all directors.

The Rural Bank of Rosario (L.U.) Inc. Retirement Manual was established and amended by virtue ofBoard Resolution No. 2016-128 dated September 29, 2016 in order to provide and anticipate thefinancial requirements of retiring employees.

In line with the Retirement Manual, a Succession Plan was established by virtue of Board ResolutionNumber 2017-131 dated October 12, 2017.

Succession Plan was established and amended for in the absence of any of the personnel in the HeadOffice and/or Branches, the Human Resource Officer shall appoint a reliever from the Head Office andall pending matters or duties shall be endorsed to the respective Department Heads or Branch Heads.

The Rural Bank of Rosario (L.U.) Inc. recognizes the need to strengthen its policy on related-partytransaction and other similar situations so as to prevent or mitigate abusive transactions with relatedparties and avoid risks of conflict of interest.

This is also in conformity with Rural Bank of Rosario (L.U.), Inc. adherence to the highest principles ofgood governance as the bank subscribes to the philosophy of integrity, accountability and transparencyin doing business.

The policy is intended to ensure that every Related Party Transaction in conducted in a manner that willprotect the Bank from conflict of interest which may arise between the Bank and its Related Parties; and

Ensure proper review, approval, ratification and disclosure of transactions between the Bank and any ofits Related Party/ ies as required in compliance with legal and regulatory requirements.

Related Parties shall cover the Bank’s Directors, Officers, Stockholders and Related Interests (DOSRI),and their close family members, as well as corresponding persons in affiliated companies. This shall alsoinclude such other person/juridical entity whose interest may pose potential conflict with the intereston the financial institution (FI)

Close Family Member persons related to the bank’s Directors, Officers and Stockholders (DOS) withinthe second degree of consanguinity or affinity, legitimate or common-law. These shall include the

2017 ANNUAL REPORT


spouse, parent, child, brother, sister, grandparents, grandchild, parent-in-law, son/daughter-in-law,brother-/sister-in-law, grandparent-in-law of the FI’s DOS.

Material RPTs includes any financial transaction, arrangement or relationship in which the aggregateamount involved will or may exceed P5,000,000.00 in any year where a Related Party has or will havedirect or indirect material interest.

The Rural Bank of Rosario (L.U.) Inc. has an approved RPT policy under Board Resolution Number 2017-132 dated October 24, 2017.

The Bank has a Board approved Compliance Program and Internal Audit Plan/Program wherein theduties and responsibilities of Internal Audit and Compliance were defined. It also includes reviewprocess of the Board to ensure effectiveness and adequacy of Internal Control system.

Compliance ProgramBanking by its nature entails taking a wide array of risks. Risks are exposure to possible loss or injury thatmay affect capital and earnings. Nearly all transactions entered into by the bank involves risks. However,risk may also arise from action of bank or failure to comply with relevant laws, rules and regulationsissued by regulatory/supervisory bodies. The success of the bank is largely dependent on the ability ofits directors and officers to prudently manage risks. Compliance System designed specifically to identifyand mitigate Business Risk.

The Bangko Sentral ng Pilipinas (BSP) actively promotes the safety and soundness of the Philippinebanking system through an enabling policy and oversight environment. Such an environment isgoverned by the high standards and accepted practices of good corporate governance as collectivelydefined by the BSP and its supervised institutions. Pursuant to BSP Circulars No. 747, a ComplianceProgram/System is put in place and adopted by the RURAL BANK OF ROSARIO (LA UNION), INC. toprovide appropriate guidance and directions to the directors, officers, senior management and allpersonnel.

Reasonable steps to respond appropriately to the offense & to prevent further similar offenses –including any necessary modifications to its internal policies and procedures to prevent & detectviolations of law.

To mirror the level of awareness/knowledge on regulatory matters on specific complianceconcerns

Questions are based on frequency of formal & informal citations by the BSP Fines and penalties assessed for specific violations

2017 ANNUAL REPORT


Results are submitted to the Board thru Audit Committee the Compliance Risk Assessment withcopies to Senior Management

Audit Plan/ProgramAn Audit Plan uses an audit risk model to quantify the risk rating of each audit unit. Audits will bescheduled by priority. This represents a departure from past practice which was based on less formaljudgment of risk and more on the passage of time since the last audit.

The Internal Audit Program shall define the policies and procedures that govern the conduct of internalauditing. It shall describe the underlying principles, policies, standards, procedures and processes in theperformance of internal audit activity by Internal Audit Department. The Attributes and PerformanceStandards of International Standards for the Professional Practice of Internal Auditing have beenconsidered in the Internal Audit Program.

The objective of a risk model is to optimize the assignment of audit resources through a comprehensiveunderstanding of the audit universe and the risks associated with each universe item. Defining an audituniverse is the first prerequisite to risk ranking. The audit universe to which the risk assessment will beapplied will be determined by the Internal Auditor. The determination of the audit universe will bebased on his knowledge of the company strategic plan and company operations, a review oforganization charts and function and responsibility statements of all company organizations (branches,office, units or sections ), and discussions with responsible management personnel.

Audit approaches or methodology is the framework or outline of a process which provides guidance andcontrol to help ensure the audit objectives are achieved.

The Internal Audit will consist of review of documents, interviews with key employees, and review ofwritten policies and procedures, inspections, data analysis, review of accounting entries and the usageof applicable audit tools. The audit will consist of the components described below. The phases arelisted in sequential order and should provide an overview of the sequencing of the proposedengagement.

As the audit progresses, the Internal Auditor/Staff shall provide draft report containing the initialfindings/observations in one or more risk areas. We expect that the branch/unit will respond quickly aspossible. Our team will compile all draft reports to branch/unit management during exit conference.

The final audit report is prepared based on the results of the exit conference. The auditee’s response toeach recommendation is also incorporated in the final report if it is available within a reasonable timeperiod following the discussion of the draft meeting. Confidential copies of the final report aredistributed to the head of office of the area audited and the Office of the President. The IA will presentthe final audit report to the Board thru Audit Committee.

2017 ANNUAL REPORT


One of the primary responsibilities of professional auditors is to determine that the auditee takescorrective action or recommendations. This applies in all cases except where “senior management hasaccepted the risk of not taking action.”

Being an integral part of the internal audit process, follow-up should be scheduled along with the othersteps necessary to perform the audit. However, specific follow-up activity depends on the results of theaudit and can be carried out at the time the report draft is reviewed with concerned managementpersonnel or after the issuance of the report.

Rural Bank of Rosario recognizes the importance of customer protection in its financial dealings withclients. It fully supports the policy of the State to protect the interest of the consumers, promote theirwelfare and to establish standards of conduct for the banking industry. Further, the Bank believes tothe principle that the consumer is the driver of business; no business can survive without the patronageof consumers.

In this view, Rural Bank of Rosario has come up with its financial customer protection framework inorder to embolden the basic financial rights of its customers and establish standards of conduct ofbusiness between the clients and the Bank and its personnel.

For the past forty nine (49) years since its humble beginning, Rural Bank of Rosario has shown so muchconcern and fairness to its clients whether small or big. It treats clients with utmost courtesy andcommitted to maintain their respect, trust and confidence.

The Board of Directors (BOD) has the ultimate responsibility for the level of customer risk assumed byRural Bank of Rosario. Accordingly, the Board approves the Bank’s overall business strategies andsignificant policies, including those related to managing and taking customer risks.

The Board of Directors takes steps to develop an appropriate understanding of the customer risks theBank faces through briefings from auditors and experts external to the organization.

The Board of Directors is responsible for developing and maintaining a sound Customer Protection RiskManagement System that is integrated into the over-all framework for the entire product and servicelife-cycle.

Senior management is responsible for implementing a program to manage the customer compliancerisks associated with the Bank’s business model, including ensuring compliance with laws andregulations on both a long-term and a day-to-day basis. Accordingly, management should be fullyinvolved in its activities and possess sufficient knowledge of all major products to ensure that

2017 ANNUAL REPORT


appropriate risk controls are in place and that accountability and lines of authority are clearlydelineated.

Senior management also is responsible for establishing and communicating a strong awareness of, andneed for, effective customer protection risk controls and high ethical standards.

The Board of Directors and Senior Management periodically review the effectiveness of the CustomerProtection Risk Management System (CPRMS) including how findings are reported and whether theaudit mechanism in place enables adequate oversight.

The Board and Senior Management anticipate and respond to customer protection risks that may arisefrom changes in the Bank’s competitive environment and to risks associated with new or changingregulatory or legal requirements.

Rural Bank of Rosario follows key protection principles in building up its good relations to its clients.Each principle is embedded in its operations, such as; credit extension, deposit taking and other bankingactivities involving the participation of its clients. The Bank ensures that the principles are carried outeffectively and efficiently by its employees through proper and regular orientation of bank policies andprocedures.

2017 ANNUAL REPORT


Organizational Structure

2017 ANNUAL REPORT


Board of Directors

FRONT SEAT: LEFT – MS. MARIANITA P. LADIA & ENGR. JESUS G. TABORASTANDING: L-R – NICOLO ANDRE K. TABORA, ELVIRA E. BARROGA, CYNTHIA BARBARA T.

TUASON, SUSAN T. GUEVARA AND NICOLAS R. TABORA

ENGR. JESUS G. TABORA CHAIRMAN OF THE BOARD

MS. MARIANITA P. LADIA VICE-CHAIRMAN OF THE BODMR. NICOLAS R. TABORA PRESIDENT/CEOCYNTHIA BARBARA T. TUASON DIRECTOR

SUSAN T. GUEVARA DIRECTOR

NICOLO ANDRE K. TABORA DIRECTOR

ELVIRA E. BARROGA INDEPENDENT DIRECTOR

2017 ANNUAL REPORT


Audit & Compliance Committee

LEFT TO RIGHT – NICOLO ANDRE K. TABORA, CYNTHIA BARBARA T. TUASON, ELVIRA E. BARROGA,ELLEN JOY O. BARUC AND RUSSELL CHARLES A. ANDRES

ELVIRA E. BARROGA CHAIRWOMAN

CYNTHIA BARBARA T. TUASON MEMBERNICOLO ANDRE K. TABORA MEMBERELLEN JOY O. BARUC INTERNAL AUDITORRUSSELL CHARLES A. ANDRES COMPLIANCE OFFICER

2017 ANNUAL REPORT


Credit Committee

LEFT TO RIGHT – MRS. VIRGINIA D. BASCO, NICOLAS R. TABORA, MARIANITA P. LADIA ANDSHIRLEY S. BASADRE

MARIANITA P. LADIA CHAIRWOMAN

NICOLAS R. TABORA MEMBER

VIRGINIA D. BASCO MEMBER

SHIRLEY S. BASADRE SECRETARY

2017 ANNUAL REPORT


Personnel Committee

LEFT TO RIGHT – HAYDEE BERNADETTE D. HIPOLITO, VIRGINIA D. BASCO, CYNTHIA BARBARA T.TUASON, MARIANITA P. LADIA AND ERLINDA E. RAMOS

CYNTHIA BARBARA T. TUASON CHAIRWOMANMARIANITA P. LADIA MEMBER

VIRGINIA D. BASCO MEMBER

ERLINDA E. RAMOS MEMBER

HAYDEE BERNADETTE D. HIPOLITO SECRETARY

2017 ANNUAL REPORT


Key Officers

LEFT TO RIGHT – ROGELIO S. SIMSIMAN, MARIA LUISA F. DULAY, ERLINDA E. RAMOS, SHIRLEY S.BASADRE, NICOLAS R. TABORA, VIRGINIA D. BASCO, ROCHELLE C. LOPEZ, ELLENJOY O. BARUC AND RUSSELL CHARLES A. ANDRES

NICOLAS R. TABORA PRESIDENT/CEOVIRGINIA D. BASCO GENERAL MANAGER

SHIRLEY S. BASADRE BRANCH BANKING HEAD

ROGELIO S. SIMSIMAN LOAN SUPERVISOR

ROCHELLE C. LOPEZ ACCOUNTING DEPT. HEAD

MARIA LUISA F. DULAY CASH DEPARTMENT HEAD

ELLEN JOY O. BARUC INTERNAL AUDITOR

RUSSELL CHARLES A. ANDRES COMPLIANCE OFFICER

ERLINDA E. RAMOS HR OFFICER

2017 ANNUAL REPORT


Branch Heads

LEFT TO RIGHT – RICHARD R. MURAO, EMMALYN G. BRAGA, SHIRLEY S. BASADRE, ROSANNA G.TAYAG AND ANGELITO B. GABRILLO

SHIRLEY S. BASADRE STO. TOMAS BRANCHANGELITO B. GABRILLO SAN FABIAN BRANCH

ROSANNA G. TAYAG SISON BRANCH

RICHARD R. MURAO POZORRUBIO BRANCH

EMMALYN G. BRAGA BINALONAN BRANCH

2017 ANNUAL REPORT


Stockholders

Stockholder Paid-upPercentage

Nationality

TABORA FAMILY 44.78% FILIPINONARCELLES FAMILY 12.97% FILIPINOARCEBAL FAMILY 8.65% FILIPINOFLORES FAMILY 2.96% FILIPINOLADIA FAMILY 10.22% FILIPINOBASCO FAMILY 1.02% FILIPINOSAPITULA/ORDENANTE FAMILY 2.42% FILIPINOEMPLOYEES 0.64% FILIPINONON-EMPLOYEES 6.09% FILIPINO

2017 ANNUAL REPORT


Products and Services

The Rural Bank of Rosario (La Union), Inc. has a website wherein the list ofProducts and Services are posted including the foreclosed properties for sale.

The official website of the Bank is accessible at www.ruralbankofrosario.com .

Agricultural Loan Commercial Loan Industrial Loan Housing Loan Medium Term Loan Salary Loan (DepEd Employee) Motor Vehicle Financing SSS Pensioners Loan GSIS Pensioners Loan PVAO Pensioners Loan Tricycle Loan

Savings Deposit Time Deposit Demand Deposit (Current Account) Check Plus (Current Acct. with Interest) Special Savings (SSA) SSS Pensions/Payments Petnet Western Union Money Transfer-The fastest way

to send & receive money Gcash Money Transfer (Cash-in, Cash-out, GCASH

Remittance) ATM Services (Megalink, Bancnet, Expressnet,

Mastercard, Visa Card)

Micro insurance

2017 ANNUAL REPORT


Banking Units

OFFICE / BRANCHES ADDRESSHead Office McArthur Highway, Poblacion East, Rosario, La UnionExtension Office New Public Market, Subusub, Rosario, La UnionSto. Tomas Branch Damortis, Sto. Tomas, La UnionSan Fabian Branch Rizal St., San Fabian, PangasinanSison Branch Paldit, Sison, PangasinanPozorrubio Branch Caballero St., Poblacion, Pozorrubio, PangasinanBinalonan Branch Patrom Bldg., McKinley St., Binalonan, Pangasinan

STO. TOMAS

SAN FABIAN

SISON

BINALONAN

HEAD OFFICE

POZORRUBIO

2017 ANNUAL REPORT


AUDITEDFINANCIALSTATEMENTS

•

Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs 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.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

We conducted our audit in accordance with Philippine Standards on Auditing (PSAs)_ Our responsibilities under those standards are further described in the Auditor's Responsibilityfor the Audit of Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the Philippines, the Code of Ethics for Professional Accountants in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believed that the audit evidence we have obtained is sufficientjand appropriate to provide a basis for our opinion

Basis for Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2017, and its financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards (PFRSs)

We have audited the financial statements of Rural Bank of Rosario (La Union), Inc., which comprise the Statement of Financial Position as\at December 31, 2017 and the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

Gentlemen:

The Stockholders and the Board of Directors Rural Bank of Rosario (La Union), Inc., Poblacion East, Rosario, La Union

Opinion

Independent }f_ucfitor's <J{eport

LAMBERTO D. AN Certified Public Accountant 79 4'11 Fortune Village 5, Vslenzuela City Tel. No.(02) 44{}-5315; Mobile No. (02) 510-4164; (0927) 6512686 Email : lamb [email protected] Tax & Management Consultant* Auditor* Accountant

1

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• • • • •

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exist related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that material uncertainty exists, We are required to draw attention in auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company's to cease to continue as a going concern . •

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • •

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. •

•• • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. •

• Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: •

• Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists . • Auditor's Responsibilities for the Audit of the Financial Statements • Those charged with governance are responsible for overseeing the Company's financial reporting process . • 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 .

• I -- • • 2

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Valenzuela City March 08, 2018

Issued at Valenzuela City on Jan 4, 2018 TIN 13 5-941-825 BOA Cert. of Accreditation No. 3460

Until December 31, 2018 BSP Accreditation March 27, 2015 to March 27, 2018 BIR Accreditation No. 05-005020-1-2017

June 15, 2017 to June 15, 2020

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as whole. The supplementary information on taxes and licenses in Note 25 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Rural Bank of Rosario (La Union), Inc., The information has been subjected to the auditing procedures applied in my audit of the basic financial statements. In my opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit

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RURAL BANK OF ROSARIO (LA UNION), INC.Poblacion East, Rosario La Union

STATEMENT OF FINANCIAL POSITIONAs of December 31, 2017 and 2016(Amount in Philippine Pesos)

Notes 2017 2016

ASSETSCash and Cash Equivalents 5 12,869,185 12,929,410Due from Bangko Sentral Ng Pilipinas 6 16,291,730 14,556,847Due from other banks 7 209,361,372 208,555,255Loans and receivables 8 172,333,334 154,808,284Held to maturity investments 9 137,005,696 98,848,264Bank premises, furniture, fixtures and equipments 10 11,804,050 11,747,782Investment property (ROPA) 11 14,410,964 13,949,942Deferred tax assets 12 6,296 -Other assets 13 1,952,213 2,309,597

TOTAL ASSETS 576,034,839 517,705,381

LIABILITIES AND EQUITY

LIABILITIESDeposit liabilities 14 495,596,044 444,920,886Bills payable 15 1,281,000 2,418,050Income tax payable 17 - 472,257Other liabilities 16 21,098,941 17,722,305

TOTAL LIABILITIES 517,975,985 465,533,499

EQUITYShare capital 18 30,064,700 28,970,200Additional paid-in Capital 18 525,601 525,601Retained Earnings 27,468,553 22,676,080TOTAL EQUITY 58,058,854 52,171,881

TOTAL LIABILITIES AND EQUITY 576,034,839 517,705,381

See Accompanying Notes to Financial Statements

4

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STATEMENT OF COMPREHENSIVE INCOME

For the years ended December 31, 2017 and 2016(Amount in Philippine Pesos)

Note 2017 2016

Interest Income 19 27,072,657 22,578,605

Interest Expense 20 2,087,692 2,225,492

GROSS PROFIT 24,984,964 20,353,113

Non-Interest Income 21 11,233,308 10,134,901

Non-Interest Expense 22 30,249,643 26,577,967

PROFIT BEFORE TAX 5,968,630 3,910,047

Income Tax Expense 24 1,384,018 963,004

PROFIT FOR THE YEAR 4,584,612 2,947,043

Other Comprehensive Income - -

COMPREHENSIVE INCOME FOR THE YEAR 4,584,612 2,947,043

EARNINGS PER SHARE 28 15.25 9.70

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STATEMENT OF CASH FLOWSFor the years ended December 31, 2017 and 2016(Amount in Philippine Pesos)

Notes 2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

PROFIT BEFORE TAX 5,968,630 3,910,047Adjustments to reconcile net income

to net cash provided by operating activities: Depreciation 22 1,437,639 1,630,754 Impairment Loss 22 1,902 26,717 Provision for credit losses on loans and receivables 22 1,717,181 1,771,120 Adjustments on surplus and undivided profits 27 207,860 (223,023) Changes in operating assets and liabilities: Decrease (Increase) in:

Due from Bangko Sentral Ng Pilipinas 6 (1,734,883) (2,332,363)Due from other banks 7 (806,117) (30,306,351)Loans and receivables 8 (19,242,231.28) (19,615,322)Investment property (ROPA) 11 (462,923.68) (6,544,283)Deferred tax assets 12 (6,296) -Other assets 13 357,384 (484,098)

Increase (Decrease) in:Deposit liabilities 14 50,675,158 75,606,159Other liabilities 16 3,376,635 5,918,781Cash generated from operations 41,489,939 29,358,138Tax paid 24 (1,856,275) (641,579)

39,633,663 28,716,559CASH FLOWS FROM INVESTING ACTIVITIES Increase (Decrease) in:

Bank premises, furniture, fixtures and equipments 10 (1,493,907) (1,814,308)Held to maturity investments 9 (38,157,432) (29,576,876)NET CASH FROM INVESTING ACTIVITIES (39,651,339) (31,391,184)

CASH FLOWS FROM FINANCING ACTIVITIESBills payable 15 (1,137,050) 232,292Declaration of Stock dividends 18 - (1,991,656)Capital share 18 1,094,500 2,461,000NET CASH FROM FINANCING ACTIVITIES (42,550) 701,636

NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (60,226) (1,972,989)

CASH BALANCE AT BEGINNING OF YEAR 5 12,929,410 14,902,399

CASH BALANCE AT END OF YEAR 5 12,869,185 12,929,410See Accompanying Notes to Financial Statements

NET CASH FROM OPERATING ACTIVITIES

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STATEMENT OF CHANGES IN EQUITYFor the years ended December 31, 2017 and 2016(Amount in Philippine Pesos)

Preferred Common Free Reserve

Balance at 31 December 2015 26,509,200 525,601 21,900,917 42,800 48,978,518

Profit after tax for the year ended December 31, 2016 2,947,043 2,947,043Additional Capital Stock Common/Declaration of stock dividends 2,461,000 (1,991,656) 469,344Summary of Adjustment and charges (Note 27) (223,023) - (223,023)Balance at 31 December 2016 28,970,200 525,601 22,633,280 42,800 52,171,882

Profit after tax for the year ended December 31, 2017 4,584,612 4,584,612Additional Capital Stock Common 1,094,500 1,094,500Summary of Adjustment and charges (Note 27) 207,860 207,860Balance at 31 December 2017 30,064,700 525,601 27,425,753 42,800 58,058,854


Share Capital Retained EarningsTotal

Paid-in-Capital

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NOTES TO FINANCIAL STATEMENTS

For the years ended December 31, 2017 and 2016(Amount in Philippine Pesos)

Note 1 - Company Information

1.1 Incorporation and Operations

1.2 Approval for Issuance of Audited Financial Statements

Note 2 - Significant Accounting Policies

2.1 Basis of Preparation of Financial Statements

a) Statements of Compliance with Philippine Financial Reporting Standards


The Rural Bank of Rosario (L.U.), Inc. was registered with the Securities and Exchange Commission (SEC) underregistration number 3761 and was incorporated on February 21, 1969. The bank is organized under Republic Act (R.A.)No. 7353, otherwise known as the Rural Banks Act of 1992. The bank obtained its rural bank license from the BangkoSentral ng Pilipinas (BSP) on March 13, 1969 and started its operation on March 22, 1969. The bank is engaged in ruralbanking services primarily to carry business of extendng rural credit to small farmers and tenants to deserving ruralindustries or enterprises; and to have and exercise all authority and powers to perform all acts and transacts all businesswhich may legally be had and done by rural bank organized under and in accordance with the Rural Bank's Act. The banktransacts all business which may legally exist or be amended and to have all other things thereto necessary and proper inconnection with said purposes within such authority as may be determined by the Monetary Board of Bangko Sentral ngPilipinas.

The bank's principal place of business is located at Poblacion East, Rosario, La Union. It has five (5) branches which arelocated at Sison, Binalonan, San Fabian, Pozorrubio Pangasinan and Sto. Tomas, La Union . The bank also have four (4)on site automated tellering machines located in the main office in Rosario, La Union, Pozorrubio Branch, Sto. TomasBranch and Binalonan Branch.

The Board of Directors (BOD) of RURAL BANK OF ROSARIO (L.U.), INC. has reviewed, approved and authorizedthe issuance of the accompanying financial statements for the year ended December 31, 2017 (including thecomparative figures for the year ended December 31, 2016) on March 08, 2018.

A summary of more significant policies and practices of the bank are set forth below to facilitate the understanding ofdata presented in the financial statements.

The financial statements of the bank have been prepared using the accrual basis of accounting and in accordance withthe Philippine Financial Reporting Standards (PFRS). The term PFRS includes applicable PFRS, Philippine AccountingStandards (PAS) and interpretations which were approved by the Financial Reporting Standards Council (FRSC) from thepronouncements issued by the International Accounting Standards Boards also, the bank adopted the new FinancialReporting Package (FRP) prescribed by the Bangko Sentral Ng Pilipinas as per BSP Circular 512 dated February 03,2006. and adopted by SEC.

The RURAL BANK OF ROSARIO (LA UNON), Inc. Board of Directors is composed of Seven (7) members; one (1) of them is anIndependent Director.

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c) Currency of Presentation

2.2 Adoption of Accounting and Reporting Standards

The bank qualifies as a non-publicly entity under the Philippine Accounting Standard 101 (PAS 101) - FinancialReporting Standards for Non-publicly Accountable Entities (NPAE). PAS 101 provides temporary relief to qualifiedsmall and medium entities iin the application of new Philippine Accounting Standards (PAS) and Philippine FinancialReporting Standards (PFRS) that became effective in 2005. Under this standard, a qualifying entity is allowed not toapply in its general purpose financial statements in t new PAS and PFRS but may still choose to apply any or all of thenew PFRS that become effective in 2007. PAS 101 shall be effective until 2010.

b) Presentation of Financial Statements

The accompanying financial statements have been prepared on a going concern basis, which contemplate the realizationof assets and settlement of liabilities in the normal course of business.

Unless otherwise stated, all amounts are expressed in Philippine Pesos (Php), the domestic currency. All financialinformation presented in Philippine Peso has been rounded-off to the nearest peso.

PAS 1, “Presentation of Financial Statements,” prescribes the basis for presentation of general purpose financialstatements to ensure comparability both with the entity's financial statements of previous periods and with the financialstatements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines fortheir structure and minimum requirements for their content.

PAS 7, "Statement of Cash Flows", the objective is to require the provision of information about the historical changes incash and cash equivalents of an entity by means of a cash flow statement which clarifies cash flows during the periodfrom operating, investing and financing activities.

PAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors,” prescribes the criteria for selecting andchanging accounting policies, together with the accounting treatment and disclosure of changes in accounting policies,changes in accounting estimates and correction of errors. It is intended to enhance the relevance and reliability of anentity's financial statements, and the compatibility of those financial statements over time and with the financial statementof other entities.

PAS 10, “Events After the Reporting Period,” prescribes when an entity should adjust its financial statements for eventsafter the reporting period and the disclosures that an entity should give about the date when the financial statements wereauthorized for issue and about events after the reporting period.

PAS 12, "Income taxes", the objective of the standard is to prescribe the accounting treatment for income taxes.

PAS 16, “Property, Plant and Equipment,” prescribes the accounting treatment for property, plant and equipment so thatusers of the financial statements can discern information about an entity's investment in its property, plant and equipmentand the change in such investments.

PAS 17, “Leases,” prescribes the appropriate accounting policies and disclosures to apply in relation to leases.

PAS 18. "Revenue" identifies the circumstances in which these criteria will be met and, therefore, revenue will berecognized. It also provides practical guidance on the application of those criteria.

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Change in Accounting Policy

PAS 19, “Employee Benefits,” the objective is to prescribe the accounting and disclosure for employee benefits. Thestandard requires an entity to recognize a liability when an employee has provided service in exchange for employeebenefits to be paid in the future and an expense when an entity consumes the economic benefit arising from serviceprovided by an employee in exchange for employee benefits.

PAS 24, “Related Party Disclosures,” ensures that an entity's financial statements contain the disclosures necessary todraw attention to the possibility that is financial position and profit or loss may have been affected by the existence ofrelated parties and by the transaction and outstanding balances with such parties.

PAS 32, “Financial Instruments: Presentation,” the objective of this standard is to establish principles for presentingfinancial instruments as liabilities or equity and for offsetting financial assets and financial liabilities.

PAS 33, "Earnings Per Share", the objective of this standard is to prescribe principles for the determination andpresentation of earnings per share, so as to improve performance comparisons between entities in the same reportingperiod and between different reporting periods for the same entity.

PAS 36, “Impairment of Assets”, the objective is to prescribe the procedures that an entity applies to ensure that is assetsare carried at no more than their recoverable amount.

PAS 37, "Provisions, Contingent Liabilities and Contingent Assets", the objective is to ensure that appropriate recognitioncriteria and measurements bases are applied to provisions, contingent liabilities and contingent assets and that sufficientinformation is disclosed in the notes to enable users to understand their nature, timing and amount.

PAS 39, "Financial Instruments: Recognition and Measurement", to provide additional guidance on selected matters suchas derecognition, when financial assets and financial liabilities may be measured at fair value, how to assess impairmentand how to determine fair value.

PFRS 7, "Financial Instruments: Disclosures", to require entities to provide disclosures in their financial statements thatenable users to evaluate the significance of financial instruments and the nature and extent of risks arising from it.

Bangko Sentral ng Pilipinas issued BSP Circular No. 761 series of 2012 providing guidelines on the adoption of PFRS 9(2010) on 01 January 2015. The bank has adopted PFRS 9: Financial Instruments (2010) with a date of initial applicationof 01 January 2015 but did not have any significant effect on the Bank's financial statements.

PFRS 5, "Non-current Assets Held for Sale and Discontinued Operations", The objective of this PFRS is to specify theaccounting for assets held for sale, and the presentation and disclosure of discontinued operations. In particular, the PFRSrequires: (a) assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amountand fair value less costs to sell, and depreciation on such assets to cease; and (b) assets that meet the criteria to beclassified as held for sale to be presented separately in the statement of financial position and the results of discontinuedoperations to be presented separately in the statement of comprehensive income.

PFRS 9, "Financial Instruments: Recognition and Measurement", this sets out the requirements for recognizing andmeasuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This Standardreplaces PAS 39 Financial Instruments: Recognition and Measurement.

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Financial assets measured at amortized cost

•

•

The bank initially recognizes financial assets on the trade date at the which the bank becomes an contractual party to thecontractual provisions of the instrument.

Financial assets are initially measured at fair value. If the financial asset is not subsequently measured at fair valuethrough profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset'sacquisition or origination. The bank subsequently measures financial assets at either at amortized cost or fair value.

Philippine Financial Reporting Standards (PFRS) are patterned after the revised International Financial ReportingStandards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board(IASB).

Furthermore, the International Accounting Standards Board (IASB) completed the final element of its comprehensiveresponse to the financial crisis with the publication of IFRS 9 Financial Instruments in July 2014. The July 2014publication represents the final version of the Standard, replaces earlier versions of IFRS 9 and completes the IASB’sproject to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periodsbeginning on or after 1 January 2018. This final version of the standard has yet to be adopted by the BSP as part of itsrules and regulations on financial reporting.

Financial Assets

The bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfersthe rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards ofownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retainedby the bank is recognized as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, andonly when, the bank has a legal right to offset the amounts and intends either to settle them in a net basis or to realize theasset and settle the liability simultaneously.

A financial asset is subsequently measured at amortized cost using the effective interest method and net of anyimpairment loss, if:

the asset is held within a business model with an objective to hold assets in order to collectcontractual cash flows; andthe contractual terms of the financial asset give rise, on specified dates, to cash flows that aresolely payments of principal and interest.

On initial recognition, the bank classifies its financial assets as subsequently measured at either amortized cost or fairvalue, depending on its business model for managing the financial assets and the contractual cash flow characteristics ofthe financial assets. The classification of financial assets that the bank held at the date of initial application was based onthe facts and circumstances of the business model in which the financial assets were held at that date.

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Financial assets measured at fair value

Financial Liabilities

Cash and Cash Equivalents

The bank initially recognizes debt securities issued and subordinated liabilities on the date that they are originated.Financial liabilities for contingent consideration payable in a business combination are recognized at the acquisition date.All other financial liabilities are recognized initially on the trade date, which is the date that the bank becomes a party tothe contractual provisions on the instrument.

The bank's policy on impairment is the same as applied in its financial statements for the reporting period ended on 31December 2017 for loans receivable and held-to-maturity investments.

Financial assets other than those classified as financial assets measured at amortized cost are subsequently measured atfair value with all changes in fair value recognized in profit or loss.

However, for investments in equity instruments that are not held-for-trading, the bank may elect at initial recognition topresent gains and losses in onther comprehensive income. For instruments measured at fair value through othercomprehensive income, gains and losses are never reclassified to profit or loss and no impairments are recognized inprofit or loss. Dividends earned from such investments are recognized in profit or loss unless the dividends clearlyrepresent a repayment of part of the cost of the investment.

The bank derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

The bank classifies all other non-derivative financial liabilities into the amortized cost measurement category. Suchfinancial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent toinitial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.

Bank overdrafts that are repayable on demand and form an integral part of the bank's cash management are included as acomponent of cash and cash equivalents for the purpose of the statement of cash flows.

Cash includes cash on hand and in vault and checks and other cash items. Cash equivalents include highly liquidinvestments, if any, that are readily convertible to known amounts of cash with maturities of three months or less from thedate of acquisition and that are subject to an insignificant risk of change in value.

Due from Bangko Sentral ng PilipinasThis account represents deposit of the bank to the Bangko Sentral ng Pilipinas as part of its legal reserve requirement tosecure its deposit liabilities.

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not qouted in anactive market and with no intention of trading.

Loans and receivables shall be measured at amortized cost using the effective interest method. Loans and receivables arestated at the outstanding balance reduced by allowance for credit losses and impairment losses.

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Interest on non-supervised loans collected in advance (Unearned Income) is amortized to income over the term of theloans. Interest income on past due loans arising from discount amortization (and not from the contractual interest of theaccounts) shall be accrued. Interest on charges on supervised credits are recognized as income upon collection. Suchassets are carried at cost or amortized cost using the effective interest method. Gains and losses are recognized in thestatement of income when the loans and receivables are derecognized or impaired, as well as through the amortizationprocess.

Specific and general loan loss provision were determined and set-up after conducting a loans and other assets reviewclassification, through aging, analysis and other criteria and after considering the guidelines in the classification ofloans and the provisioning requirements for classified and unclassified loan accounts. After classifying loans as eithercurrent, past due or items in litigation the same are qualitively appraised and categorized. Loans and other creditaccommodations shall be grouped into the following classification:

1) Pass. These are loans and other credit accommodations that do not have a greater-than normal credit risk. The borrowerhas the apparent ability and willingness to satisfy obligations in full and therefore no loss in ultimate collection isanticipated.

2) Especially Mentioned (EM). These are loans and other credit accommodations that have potential weaknesses thatdeserve management’s close attention. If left uncorrected, these weaknesses may affect the repayment of the loan.

3) Substandard. These are loans and other credit accommodations that have well-defined weaknesses that may jeopardizerepayment/liquidation in full, either in respect of the business, cash flow or financial position, which may include adversetrends or developments that affect willingness or repayment ability of the borrower.

4) Doubtful. These are loans and other credit accommodations that exhibit more severe weaknesses than those classifiedas “Substandard”, whose characteristics on the basis of currently known facts, conditions and values make collection orliquidation highly improbable, however the exact amount remains undeterminable as yet. Classification as “Loss” isdeferred because of specific pending factors which strengthen the assets.

5) Loss. These are loans and other credit accommodations which are considered uncollectible or worthless and of suchlittle value that their continuance as bankable assets is not warranted although the loans may have some recovery orsalvage value. This shall be viewed as a transitional category for loans and other credit accommodations which have beenidentified as requiring write-off during the current reporting period even though partial recovery may be obtained in thefuture.

The allowance for credit losses is the estimated amount of losses in the Bank's loan portfolio based on management'sevaluation of the collectibility of the loans, after consideration of prevailing and anticipated economic conditionsprior loss experience and the evaluation made by the BSP. The BSP requires banks to observe certain criteria andguidelines based largely on the classification of loans in establishing allowance for credit losses.

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Sales Contract Receivables

20-25 years

3-5 years3-5 years

3-5 years

Refers to the amortized cost of assets acquired in settlement of loans through foreclosure or dation in payment andsubsequently sold on installment basis whereby the title to the said property is transferred to the buyers only upon fullpayment of the agreed selling price. This shall be recorded initially at the present value of the installment receivablediscounted at the imputed rate of interest. Discount shall be accreted over the life of the SCR by crediting interest incomeusing the effective interest method. Any difference between the present value of the SCR and the derecognized assetsshall be recognized in profit or loss at the date of sale in accordance with the provisions of PAS 18.

Held-to-maturity InvestmentsQuoted non-derivative financial assets with fixed or determinable payments and fixed maturity such as treasury bills areclassified as held-to-maturity when the bank has positive intention and ability to hold to maturity. Investments intended tobe held for an undefined period are not included in this classification. Other long-term investments that are intended to beheld-to-maturity, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount isinitially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interestmethod of any differences between the initially recognized amount and the maturity amount. This calculation includes allfees and points paid or received between parties to the contract that are an integral part of the effective interest rate,transaction cost and all other premiums and discounts. For investments carried at amortized cost, gains and losses arerecognized in the statements of income when investments are derecognized or impaired, as well as through theamortization process.

Bank Premises, Furniture, Fixtures and EquipmentProperties and equipment are initially measured at cost less any subsequent accumulated depreciation and amortization.The cost of an asset consists of its purchase price and costs directly attributable to bringing the asset to its workingcondition for its intended use.

Subsequent expenditures relating to an item of properties and equipment that have already been recognized are added tothe carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessedstandard of performance of the existing asset, will flow to the bank. All other subsequent expenditures are recognized asexpenses in the period in which those are incurred.

Major spare parts and stand-by equipment qualify as properties and equipment when the bank expects to use them duringmore than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with an itemof properties and equipment, they are accounted for as properties and equipment.

Estimated future dismantlement costs of items of properties and equipment arising from legal or constructive obligationsare recognized as part of properties and equipment and are measured at present value at the time when the obligation wasincurred.

Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:

Furniture and fixtures & equipmentTransportation equipments

Information and technologyLeasehold improvement

Building

5-10 years of the term of lease whichever is shorter

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Investment Properties

Deposit Liabilities

Bills Payable

Redeemable Preferred Shares

Other Liabilities

Equity

Stand-by equipment is depreciated from the date it is made available for use over the shorter of the life of the stand-byequipment or the life of the asset the stand-by equipment is part of while major spare parts are depreciated over the periodstarting when it is brought into service, continuing over the lesser of its useful life and the remaining expected useful lifeof the asset to which it relates.

Real and other properties acquired (ROPA) in settlement of loans through foreclosure or dation in payment shall bebooked initially at the carrying amount of the loan (i.e., outstanding loan balance adjusted for any unamortized premiumor discount less allowance for probable losses computed based on PAS 39 provisioning requirements) plus bookedaccrued interest less allowance for probable losses plus transaction costs incurred upon acquisition (such as non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase of the acquiredreal estate property): Provided, That where the booked amount of ROPA exceeds the appraised value of the acquiredproperty, an allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall beset up: Provided, further, That if the carrying amount of ROPA exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP.

Other AssetsOther assets are recognized at cost. The account includes Deferred Charges, Servicing Assets, Accounts Receivable,Dividends Receivable, Deficiency Judgment Receivable, Sinking Fund, Prepaid Expenses, Sundry Debits, Petty CashFund, Stationery and Supplies on Hand, Deposits with Closed Banks/Banks in Liquidation and Others.

Deposits are measured at cost, which is a reflection of their fair values.

This refers to the amortized cost of obligations to the BSP, Interbank Loans Payable, Other Deposit Substitutes andOthers.

This refers to preferred shares issued which provides for redemption on a specific date. This shall be measured atamortized cost using the effective interest method.

Other liabilities are recognized upon incurrence of transaction/s wherein the Bank has an obligation to settle the same inthe future. The account includes accrued interest expense, acrrued taxes and other expenses and other payables.

The term Equity shall be synonymous to unimpaired capital and surplus, combined capital accounts and net worth andshall refer to the total of the unimpaired paid-in capital, surplus and undivided profits.

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Share Capital

Retained Earnings

Revenue Recognition

•

•

•

•

•

•

Share capital is determined using the nominal value of shares that have been issued and fully paid. The costs of acquiringbank’s own shares are shown as a deduction from equity attributable to the bank’s equity holders until the shares arecancelled or reissued. When such shares are subsequently sold or reissued, any consideration received, net of directlyattributable incremental transaction costs and the related income tax effects, is included in equity attributable to thebank’s equity holders.

Retained earnings include all current and prior period results as disclosed in the statement of income.

Revenue is recognized to the extent that is probable that the economic benefits will flow to the bank and revenue can bereliably measured. Revenue is measured at the fair value of the consideration received or receivable and representsamounts receivable for goods or services provided in the normal course of business. The following specific criteria mustalso be met before revenue is recognized:

Interest Income is recognized as the interest accrues (taking into account the effective yield on theasset).Rent income is recognized on a straight-line basis over the term of the lease.

Service charges and commissions are recognized on an accrual basis, when the service has beenprovided, unless collectibility is in doubt.

Gain on sale of acquired assets is recognized if transactions indicate that the full ownership istransferred to the acquireeMiscellaneous income comprise of processing fees, banking fees and insurance. These arerecognized on an accrual basis when the service has been provided, unless collectibility is indoubt.

Income from assets acquired are recognized on an accrual basis when the service has beenprovided, unless collectibility is in doubt.

Employee BenefitsShort-term BenefitsThe bank recognizes a liability net of amounts already paid and an expense for services rendered by employees during theaccounting period. Short-term benefits given by the bank to its employees include salaries and wages, social securitycontributions, short-term compensated absences, profit sharing and bonuses, non-monetary benefits.

Termination BenefitTermination benefits are payable when employment is terminated before the normal retirement date, or whenever anemployee accepts voluntary redundancy in exchange for these benefits. The bank recognizes termination benefits when itis demonstrably committed to either; terminating the employment of current employees according to a detailed formalplan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encouragevoluntary redundancy.

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Other Long-term Employee benefits

In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall beentitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year ofservice, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operationsof establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall beequivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. Afraction of at least six (6) months shall be considered one (1) whole year.

Post Employment Benefits

A defined contribution plan is a pension plan under which the bank pays fixed contributions into an independent entity.The bank has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. Thecontributions recognized in respect of defined contribution plans are expensed as they fall due. Liabilities and assets maybe recognized if underpayment or prepayment has occurred and are included in current liabilities or current assets as theyare normally of a short term nature. No defined contribution plan is set by the bank to pay fixed contribution into anindependent entity.

However, In the absence of a retirement plan in providing for retirement benefits of employees, an employee uponreaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsoryretirement age, who has served at least five (5) years, may retire and shall be entitled to retirement pay equivalent to atleast one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as onewhole year. Retirement benefits is recognized on an accural basis when such benefits has been incurred.

The Company provides for estimated retirement benefits costs required to be paid under RA 7641 to qualifyingemployees. The cost of defined retirement benefits, including those mandated under RA 7641 is determined using theaccrued benefits valuation method or projected benefit valuation method. Both methods require an actuarial valuationwhich the Company has not undertaken. Management believes, however, that the effect on the financial statements of thedifference between the retirement cost determined under the current method used by the Company and an acceptableactuarial valuation method is not significant. The determination of the Company’s obligation and cost for retirement andother retirement benefits which is based on RA 7641 is dependent on the length of stay of the qualifying employees andreaching the age of 60 upon retirement. Annually, retirement benefits are computed based on existing employees andthere is no assurance that the employee will still be with the Company at the age of retirement.

This benefit includes long-service leave, long-term disability, profit-sharing, bonuses and deferred compensation that arenot payable wholly within twelve months after the end of the period.

Related Parties

Parties are considered related if one party has control, joint control, significant influence over the other party in makingfinancial and operating decisions. The key management personnel of the bank and post-employment benefit plans for thebenefit of bank’s employees are also considered to be related parties.

Basic Earnings per ShareBasic earnings per share is calculated by dividing the net income for the year attributable to the common shareholders bythe weighted average number of common shares outstanding during the year, after considering the retroactive effectof stock dividend declaration, if any.

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Leases

Note 3 - Management Accounting Judgment and Estimates

Judgments

TaxationCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recoveredfrom or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that have been enactedor substantively enacted as at the balance sheet date.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generallyrecognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporarydifferences to the extent that it is probable that taxable profits will be available against which those deductible temporarydifferences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arisesfrom goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in atransaction that affects neither the taxable profit nor the accounting profit.

Leases are classified as finance leases whenever the terms of the lease transfer substantially the risks and rewards ofownersip of the leased asset to the Company. All other leases are classified as operating leases.

Rights to assets held under finance leases are recognized as assets of the Company at the fair value of the leased property(or, if lower, thepresent value of minimum lease payments) at the inception of the lease. The corresponding liability to thelessor is included in the statement of the financial position as a finance lease obligation. Lease payments are apportionedbetween finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are deducted in measuring profit or loss. Assets held under finance leases areincluded in property, plant and equipment, and depreciated and assessed for impairment losses in the same way as ownedassets.

Rental payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevantlease.

Events After the Reporting PeriodThe bank identifies subsequent events as events that occurred after the balance sheet date but before the date when thefinancial statements were authorized for issue. Any subsequent events that provide additional information about thebank’s financial position at the balance sheet date are reflected in the financial statements. Events that are not adjustingevents are disclosed in the notes to the financial statements when material.

The preparation of the bank’s financial statements in conformity with Financial Reporting Framework (in reference to thePFRS) requires management to make estimates and assumptions that affect the amounts reported in the bank’s financialstatements and acbanking notes. The estimates and assumptions used in the bank’s financial statements are based uponmanagement’s evaluation of relevant facts and circumstances as of the date of the bank’s financial statements. Actualresults could differ from such estimates, judgments and estimates are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to be reasonable under thecircumstances.

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Estimates

Estimating useful lives of properties and equipment

In the application of the bank’s accounting policies, management is required to make judgments, estimates andassumptions about the carrying amounts of assets and liabilities that are not easily apparent from other source. Theestimates and associated assumption are based on historical experience and other factors that are considered to berelevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognized in the period in which the estimate is revised if the revision affects only that period or in period of revision andfuture periods if the revision affects both current and future periods.

The following represents a summary of the significant estimates and judgments and related impact and associated risks inthe bank’s financial statements.

The useful lives of properties and equipment are estimated based on the period over which the assets are expected to beavailable for use. The estimated useful lives of properties and equipment are reviewed periodically and are updated ifexpectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legalor other limits on the use of the bank’s assets. In addition, the estimation of the useful lives of property, plant andequipment is based on bank’s collective assessment of industry practice, internal technical evaluation and experience withsimilar assets. It is possible, however, that future results of operations could be materially affected by changes inestimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for anyperiod would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives ofproperty, plant and equipment would increase the recognized operating expenses and decrease non-current assets.

Impairment on financial assets

The bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group offinancial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, thereis objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of theasset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of thefinancial asset or the group of financial assets that can be reliably estimated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis ofhistorical loss experience for assets with credit risk characteristics similar to those in the bank. Historical loss experienceis adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the periodon which the historical loss experience is based and to remove the effects of conditions in the historical period that do notexist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by thebank to reduce any differences between loss estimates and actual loss experience.

Impairment on non-financial assetsThe bank is required to perform an impairment review when certain impairment indicators are present. Purchaseaccounting requires extensive use of accounting estimates and judgment to allocate the purchase price to the fair marketvalues of the assets.

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Note 4- Financial Risk Management

The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation,acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financialbusiness, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore toachieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financialperformance.

The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits andcontrols, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. TheBank regularly reviews its risk management policies and systems to reflect changes in markets, products and emergingbest practice.

The Board provides written principles for overall risk management, as well as written policies covering specific areas,such , interest rate risk, credit risk, and financial risk. In addition, internal audit is responsible for the independent reviewof risk management and the control environment. The most important types of risks are credit risk, liquidity risk, marketrisk and other operational risks. Market risk includes currency risk, interest rate and other price risk.

Determining the fair value of non-financial assets, which require the determination of future cash flows expected to begenerated from the continued use and ultimate disposition of such assets, requires the bank to make estimates andassumptions that can materially affect the financial statements . Future events could cause the bank to conclude thatproperties and equipment, investments and intangible assets associated with an acquired business is impaired. Anyresulting impairment loss could have a material adverse impact on the financial condition and results of operations.

Estimating allowances for credit losses

The bank estimates the allowance for credit losses related to its receivables based on assessment of specific accountswhere the bank has information that certain customers are unable to meet their financial obligations. In these casesjudgment used was based on the best available facts and circumstances including but not limited to, the length ofrelationship with the customer and the customer’s current credit status based on third party credit reports and knownmarket factors. The bank used judgment to record specific reserves for customers against amounts due to reduce theexpected collectible amounts. These specific reserves are re-evaluated and adjusted as additional information receivedimpacts the amounts estimated.

The amounts and timing of recorded expenses for any period would differ if different judgments were made or differentestimates were utilized. An increase in the allowance for credit losses would increase the recognized operating expensesand decrease current assets.

Revenue and expense recognition

The bank’s revenue recognition policies require the use of estimates and assumptions that may affect the reportedamounts of revenues and receivables. Differences between the amounts initially recognized and actual settlements aretaken up in the accounts upon reconciliation. However, there is no assurance that such use of estimates may not result tomaterial adjustments in future periods.

Expenses are recognized in the statement of income upon utilization of the service or in the date they are incurred.Finance costs, if any, are reported on an accrual basis.

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4.1 Credit Risk

• Default risk : obligor fails to service debt obligations• Recovery risk : recovery post default is uncertain• Spread risk : credit quality of obligor changes leading to a fall in the value of the loan• Concentration risk : over exposure to an individual obligor, group or industry•

••••••

Impairment and provisioning policies

Credit risk is the possibility of losses associated with changes in the credit profile of borrowers or counterparties. Theselosses, associated with changes in portfolio value, could arise due to default or due to deterioration in credit quality.

Correlation risk : concentration based on common risk factors between different borrowers,industries or sectors which may lead to simultaneous default limits, diversification strategy, andits risk based pricing of loans and receivables based on its credit risk appetite and the size of itscapital.

The bank is exposed to financial risk through its financial assets and financial liabilities. The most important componentsof this financial risks are credit risk, liquidity risk and market risk.

Segmentation of the credit portfolio (in terms of risk but not size);Model Requirements (for risk assessments);Data requirements;Credit risk reporting requirements for regulatory / control and decision-making purposes atPolicy requirements for credit risk (credit process & practices, monitoring & portfolioAlign risk strategy & business strategy.

Risk limit control and mitigation policiesThe Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation toone borrower, or groups of borrowers, and industry segments. Such risks are monitored on a revolving basis and subjectto an annual or more frequent review, when considered necessary. Limits on the level of credit risk by industrysector are set out in the credit policy. Exposure to credit risk is also managed through regular analysis of the ability ofborrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limitswhere appropriate.

The Bank has adopted a Credit Impairment and Income Recognition Policy, whereby the impairment and provisioningpolicies are defined. The Bank assesses at each balance sheet date whether there is objective evidence that loans andreceivables are impaired. The criteria that the Bank uses to determine that there is objective evidence of animpairment loss include:

Credit risk measurement

The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank byfailing to discharge an obligation. Credit risk is the most important risk for the Bank’s business; management thereforecarefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans andreceivables. There is also credit risk in off-balance sheet financial instruments, such as loan commitments and guarantees.

The Bank has adopted the standardized measurement of credit risk. In this regard, the tasks under the credit risk unit areas under, among others:

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• Delinquency in contractual payments of principal or interest;• Cash flow difficulties experienced by the borrower;• Breach of loan covenants or conditions;• Initiation of bankruptcy proceedings;• Deterioration of the borrower’s competitive position; and• Deterioration in the value of collateral.

Maximum exposure to credit risk before collateral held2017 2016

Loans and receivables 172,333,334 154,808,284

Loan Commitments - -

Loans and receivables

The Bank’s concentration of credit as to industry follows:A. CLASSIFIED AS TO ECONOMIC ACTIVITY

AMOUNT PERCENT AMOUNT PERCENTAgriculture, Forestry & Fishing 14,198,446 7.96% 16,193,509 9.92%Manufacturing 5,869,975 3.29% 5,880,004 3.60%Construction 32,643,614 18.29% 31,104,750 19.05%

58,078,669 32.54% 47,149,378 28.88%Transportation and Storage - 0.00% - 0.00%Real Estate Activities 31,640,341 17.73% 31,458,092 19.27%

8,978,169 5.03% 7,039,066 4.31%Loans to Individuals for consumption purposes 27,064,448 24,441,091Total loans and receivables* 178,473,662 84.84% 163,265,889 85.03%Less: Allowance for credit losses-Specific 4,668,140 6,985,417 Allowance for credit losses-General 1,472,188 1,472,188Total loans and receivables, net 172,333,334 154,808,284

Wholesale & Retail Trade, Repair of MotorVehicles, Motorcycles

The BSP considers that concentration of credit exists when total loan exposure to a particular industry or economic sector exceeds30% of total loan portfolio. In 2017 the bank economic activity of Wholesale & Retail Trade, Repair of Motor Vehicles, Motorcyclesslightly exceeded the 30% mark exposure of 32.54% to total loan portfolio. As of 2016 the Bank is complied with this provision.

The Management believes that the allowance for impairment losses as required by BSP and that of in accordance with PFRS is notmaterially different.

Activities Households as Employers andUndiffirentiated Goods and Services

2017 2016

The above table represents a worse case scenario of credit risk exposure to the Bank at 31 December 2017 and 2016, without takingaccount of any collateral held or other credit enhancements attached. For on-balance sheet assets, the exposures set out above arebased on net carrying amounts as reported in the balance sheet. As shown above, the total maximum exposure is derived from loansand receivables.

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B. CLASSIFIED AS TO SECURITY BookedItems in Valuation

Current Past Due Litigation ReservesDOSRI 1,968,773 - - -Secured 1,688,831 - -

336,7381,352,092

Unsecured 279,942Non-DOSRI 159,862,346 15,097,732 1,544,811 4,668,140Secured 140,878,444 13,515,237 814,709 3,128,636

94,831,601 11,785,538 4 3,128,63646,046,842 1,729,698 814,705 -

Unsecured 18,983,903 1,582,495 730,102 1,539,504161,831,119 15,097,732 1,544,811 4,668,140

B. CLASSIFIED AS TO SECURITY BookedItems in Valuation

Current Past Due Litigation ReservesDOSRI 1,536,029 - - -Secured 1,419,574 - -

474,345945,229

Unsecured 116,455Non-DOSRI 147,426,051 11,347,759 2,956,050 6,985,417Secured 131,035,435 8,866,937 1,622,205 4,409,622

94,413,463 7,000,158 4 4,409,62236,621,972 1,866,778 1,622,201 -

Unsecured 16,390,617 2,480,822 1,333,845 2,575,795148,962,081 11,347,759 2,956,050 6,985,417

B(i)-DOSRI LOANS 2017 2016

Amount of DOSRI loans 1,968,773 1,536,029DOSRI to Total Loans 1.10% 0.94%Unsecured DOSRI to Total DOSRI 14.22% 7.58%Past due DOSRI to Total DOSRI 0% 0%Non-Performing DOSRI to Total DOSRI 0% 0%

Hold-out & other collateral

Real Estate Mortgage



Total Dosri & Non-Dosri

2016


2017


Total Dosri & Non-Dosri


DOSRI loans as of December 31, 2017 and 2016 are all current . There was an unsecured Dosri loans with outstanding

balance of P279,942.34 and 116,455.34 for the year 2017 and 2016 respectively. Percentage of DOSRI to total loans in

2017 and 2016 is 1.10% and 0.94%, respectively. The Unsecured DOSRI to total DOSRI is 14.22% and 7.58% for 2017

and 2016 respectively.


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C. CLASSIFIED AS TO TYPE OF LOANS BookedItems in Valuation

Current Past Due Litigation Reserve

1. Small and medium enterprises & other loans 149,468,917 13,486,355 1,319,944 3,647,654 a. Small and medium enterprises 53,851,735 3,636,735 590,200 1,094,793 b. Others 95,617,182 9,849,620 729,745 2,552,8612. Agrarian & Other Agri. Credit Loans 12,362,202 1,611,377 224,866 1,020,486 a. Agrarian reform loans - - - - b. Other agricultural credit 12,362,202 1,611,377 224,866 1,020,4863. Restructured Loans - - -

Total 161,831,119 15,097,732 1,544,811 4,668,140

C. CLASSIFIED AS TO TYPE OF LOANS BookedItems in Valuation

Current Past Due Litigation Reserve

1. Small and medium enterprises & other loans 135,088,314 9,693,952 2,290,115 5,105,166 a. Small and medium enterprises 43,637,083 2,413,795 1,098,499 1,731,023 b. Others 91,451,231 7,280,157 1,191,616 3,374,1422. Agrarian & Other Agri. Credit Loans 13,873,767 1,653,807 665,935 1,880,252 a. Agrarian reform loans - - - - b. Other agricultural credit 13,873,767 1,653,807 665,935 1,880,2523. Restructured Loans - - -

Total 148,962,081 11,347,759 2,956,050 6,985,417

D: CLASSIFIED AS TO INTEREST RATE 2017 20161. 5% and below - -2. Over 5% to 10% 58,149,934 48,505,6903. Over 10% to 15% 91,672,621 85,375,9904. Over 15% to 20% 28,333,634 29,005,5635. Over 20 to 25% 317,457 378,6466. Over 25% 16Total loans and receivables 178,473,662 163,265,889

E. CLASSIFIED AS TO TERMS 2017 20161. Within one year 32,475,659 33,951,5312. Beyond one year, within 5 years 71,827,613 46,964,9383. Beyond 5 years 74,170,390 82,349,420Total loans and receivables - - 178,473,662 163,265,889

2016

2017

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F: Classified as to type of borrower: 2017 2016Governmenta. Nationalb. Local Governmentc. Government Institutions and Agenciesd.Others (specify below)Private Residents of the Philippines 178,473,662 163,265,889a. Individuals 178,473,662 163,265,889b. Single Proprietorshipc. Partnership and Associationd. Cooperativee. Private Corporation - -Non-ResidentsTotal 178,473,662 163,265,889

F.1-Classified as to type of borrower: (Ratios) 2017 2016Government 0.00% 0.00%a. Nationalb. Local Governmentc. Government Institutions and Agenciesd.Others (specify below)Private Residents of the Philippines 100.00% 100.00%Individuals 100.00% 100.00%Single Proprietorship 0.00% 0.00%Partnership and Association 0.00% 0.00%d. Cooperativee. Private CorporationNon-ResidentsTotal 100.00% 100.00%

Contingencies and commitments

Allowance for credit losses

For secured loans and other credit accommodations:No. of daysunpaid31-180 days*181-365 daysOver 1 year – 5 yearsOver 5 years Loss

ClassificationSubstandard

Loans and other credit accommodations with unpaid principal and/or interest shall be classified and provided with

SubstandardDoubtful

Contingencies and commitments arising from off-balance sheet items include direct credit substitutes (e.g., export LCs confirmed,underwritten accounts unsold), transaction-related contingencies (e.g., performance bonds, bid bonds, standby LCs), short-term self-liquidating traderelated contingencies arising from the movement of goods (e.g., sight/usance domestic LCs, sight/usance importLCs), sale and repurchase agreements not recognized in the balance sheet; interest and foreign exchange rate related items; and othercommitments.

No amount of contingencies and commitments arising from off-balance sheet items and no amount of financial assets pledged ascollateral/security.

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For unsecured loans and other credit accommodations:No. of daysunpaid31-90 days91-120 days121-180 days181 days +

Loans Especially Mentioned are to be provided with 5% ACL.

4.1.2- General Loan Loss ProvisionGeneral Loan loss provison is computed as follows: (under existing BSP regulations)

2017 2016General loan Portfolio (excluding restructured loans) 182,251,605 166,778,736Less: Classified loans Loans especially mentioned 23,651,673 9,948,752 Substandard Secured 1,240,510 1,132,570 Substandard Unsecured 84,184 588,686 Doubtful 777,269 170,029 Loss 2,771,519 6,129,654Unclassified Loans 153,726,450 148,809,045Less: Loans considered non-risk 2,740,000 977,635Loan Portfolio, net of exclusions 150,986,450 147,831,410General Loan Loss Provision (1%) 1,509,864 1,478,314Additional (shortage)provision set by management (37,676) (6,126)Total General Loan Loss Provision 1,472,188 1,472,188

4.1.3- Specific Loan Loss Provision2017 2016

Unclassified (0%) - -Loans especially mentioned (5%) 1,182,584 497,438Substandard Secured (10%) 124,051 113,257Substandard Unsecured (25%) 21,046 147,172Doubtful (50%) 388,635 85,015Loss (100%) 2,771,519 6,129,654Total Specific Loan Loss Provision 4,487,835 6,972,534Management additional/(deduction) loan loss provision 180,305 12,883Total Specific Loan Loss Provision 4,668,140 6,985,417

4.2 Market Risks

LossDoubtful

ClassificationSubstandardSubstandard

Market risk is the risk of loss resulting from adverse movements in the value of financial instruments. It encompassesexposure to interest rates, foreign exchange rates, equity prices and commodity prices. Sound market risk managementpractices include the measurement and monitoring of market risk as well as the communication and enforcement of risklimits throughout the Bank’s trading businesses.

The Bank is exposed to market risk through its use of financial instruments and especially to interest rate risk and certainother price risks which result from both its operating and investing activities.

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Interest Rate Risk Management

4.3 Liquidity Risk Management

The liquidity policy of the Bank is to ensure that it:• can meet its financial obligations as they fall due in the normal course of business; and•

The Bank’s liquidity policy requires establishment and maintenance of three lines of defense:•

• Maintenance of a liquid assets portfolio; and• Maintenance of a diversified liability base.

Due Within 6months

Due Within 1 year Due beyond 1year to 5 years

Due beyond 5years

Deposit liabilities 495,596,044 - -Bills payable 1,281,000 - -Redeemable preferred shares 42,800 -Accrued interest expense on financial liabilities 335,968Other liabilities 21,098,941 -Income Tax payable - -Total 518,354,753 - - -

Due Within 6months

Due Within 1 year Due beyond 1year to 5 years

Due beyond 5years

Deposit liabilities 444,920,886 - -Bills payable 2,418,050 - -Redeemable preferred shares - 42,800Accrued interest expense on financial liabilities 377,531Other liabilities 17,722,305 -Income Tax payable 472,257 -Total 465,911,030 - - 42,800

4.4 Capital Risk Management

2017 Maturity analysis for financial liabilities affecting liquidity

Liquidity risk is defined within the Bank’s policy framework as ‘the risk that, at any time, the Bank does not havesufficient realizable financial assets to meet its financial obligations as they fall due’.

maintains an adequate stock of highly liquid assets to enable it to meet unexpected funding needsat short notice.

Cashflow management where the Bank creates a continuously maturing stream of assets andliabilities;

Interest rate risk results from mismatches between asset and liability positions which are subject to unfavourablemovements in interest rates with potentially adverse impact on margins, net interest income and economic value of abank’s assets, liabilities and shareholders’ value. Interest rate risk may be measured using methods which includesensitivity analysis and simulation modelling. The Bank has its Interest Rate Risk Policy in which risks limits are laiddown.

2016 Maturity analysis for financial liabilities affecting liquidity

The bank's objective when managing capital are to safeguard the ability to continue as a going concern in order to providereturns to shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain oradjust the capital structure, the bank can adjust the amount of dividends to be paid to shareholders, return capital toshareholders, issue new shares or sell assets to reduce debt.

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Composition of managed capital2017 2016

Share Capital 30,064,700 28,970,20030,064,700 28,970,200

Note 5 - Cash and Cash Equivalents

2017 2016Cash on hand and in vault 12,869,185 12,929,410Checks and other cash items - -TOTAL 12,869,185 12,929,410

Note 6 - Due from Bangko Sental Ng Pilipinas

2017 2016Due from Bangko Sentral ng Pilipinas 16,291,730 14,556,847

The operations of the bank is also subject to the regulatory requirements of SEC. Such regulations not only prescribeapproval and monitoring of activities but also impose certain restrictive provisions.

Capital adequacy and the use of regulatory capital are monitored quarterly the Bank’s management, employing techniquesbased on the guidelines developed by BSP as implemented by the Bank. The required information is submitted to BSPand filed by Bank on a quarterly basis.

The Bank is not subject to any externally imposed capital requirement except for the requirement subjected by SEC uponincorporation and by BSP in accordance with the MORB X106.1

In accordance with BSP Circulars 830 and 832 prescribed the 3% rate on the required reserves against deposit liabilities.As of December 31, 2017, the required reserves is amounted to P 15,598,711. The bank has complied with this provision.

Cash on hand represents actual cash in vault – local and foreign currencies, and those in the possession of the cashiers and the tellers

as of close of business on December 31, 2016, and Checks and Other Cash Items pertains to checks still in the possession of the

bank’s cashier/s that are awaiting deposits as of December 31, 2016.

The bank is subject to the inherent risk that the application of prescribed standards may conflict or differ from theapplication of regulations as prescribed from other regulatory bodies resulting to disparity of financial reports. Hence,there is a need to reconcile the disparity in a systematic and clear manner. The BOD ensures that management are updatedin relation to pronouncements made by concerned regulatory bodies.

However, in cases where there are differences between BSP regulations and PFRS/PAS as when more than one (1) optionare allowed or certain maximum or minimum limits are prescribed by the PFRS/PAS, the option or limit prescribed byBSP regulations shall be adopted by the bank.

4.5 Regulatory Framework

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Rate 2017 2016

Savings deposits 3% 11,460,552 9,869,842

Time Certificate of Deposits 3% 2,311,085 2,381,269

Demand Deposits 5% 1,827,074 1,827,525Required Reserves 15,598,711 14,078,637

Note 7- Due from Other Banks

2017 2016Due from other banks 209,361,372 208,555,255

Classified as to type of depositDEMAND SAVINGS DEPOSIT TIME DEPOSIT TOTAL

a) Resident Banks 37,088,374 16,619,754 140,058,130 193,766,257 (1) Ubs/KBs 37,016,340 16,619,754 107,209,827 160,845,920 (2) Other Banks 72,034 - 32,848,303 32,920,337b) Non-Resident Banks/OBUs - (1) OBUs - (2) Other Banks -b) Resident Banks-Clearing Account 15,595,114 - - 15,595,114 (1) Local Currency 15,595,114 - - 15,595,114 (2) Foreign CurrencyTOTAL 52,683,489 16,619,754 140,058,130 209,361,372

Additional Information:

A. Classified as to Original Term (1) Short Term (one year or less) 52,683,489 16,619,754 140,058,130 209,361,372 (2) Medium Term (>1 year to 5 years) (3) Long Term (>5 years)TOTAL 52,683,489 16,619,754 140,058,130 209,361,372

Classified as to type of depositDEMAND SAVINGS DEPOSIT TIME DEPOSIT TOTAL

a) Resident Banks 59,229,611 13,870,888 102,381,051 175,481,550 (1) Ubs/KBs 59,229,611 13,870,888 83,212,782 156,313,281 (2) Other Banks - 19,168,269 19,168,269b) Non-Resident Banks/OBUs - (1) OBUs - (2) Other Banks -b) Resident Banks-Clearing Account 33,073,705 - - 33,073,705 (1) Local Currency 33,073,705 - - 33,073,705 (2) Foreign CurrencyTOTAL 92,303,316 13,870,888 102,381,051 208,555,255

2016

2017

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Additional Information:

A. Classified as to Original Term (1) Short Term (one year or less) 92,303,316 13,870,888 102,381,051 208,555,255 (2) Medium Term (>1 year to 5 years) (3) Long Term (>5 years)TOTAL 92,303,316 13,870,888 102,381,051 208,555,255

Note 8- Loans and Receivables

Loans and Receivables summarized as follows:2017 2016

Total loans and receivables 178,473,662 163,265,889Less: Allowance for credit losses Specific loan loss provision 4,668,140 6,985,417 General loan loss provision 1,472,188 1,472,188Total loans and receivable 172,333,334 154,808,284

Note 9 - Held to Maturity Investments

2017 2016Bangko Sentral Ng Pilipinas 105,000 105,000Treasury Bills-Land Bank of the Philippines 13,773,935 13,613,429Treasury Bond- Government/Commercial Banks 118,126,761 85,129,835Debt securities-Other banks 5,000,000Treasury bond 137,005,696 98,848,264

This treasury bond was deposited to Bangko Sentral Ng Pilipinas, Land Bank of the Philippines and other Commercial Banks which

earned interest income at rate ranging from 1.40% to 4.625% and 1.40% to 3.58% in 2017 and 2016 respectively. Interest income

from Held-to-Maturity Investments amounted to P 135,005,696 and P98,848,264 in 2017 and 2016 respectively.

The amounts due from other banks are stated in the Statements of Financial Position at their face value. Income oninterest bearing deposits are credited to and included in the determination of Income in the Statements of ComprehensiveIncome.

This account is composed of Investments in Bonds and Bills issued by the Philippine government as well as those issuedby any of its agencies and instrumentalities and private institutions.

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Note 10- Bank Premises, Furniture, Fixtures and Equipment

The above account is composed of the following:

2017 Beginning EndingBalance Additions Disposal Balance

CostLand 5,952,149 5,952,149Bank premises-building 11,675,647 585,637 12,261,284Furniture and fixtures 6,339,916 419,550 (34,375) 6,793,841IT equipment 5,013,430 370,426 47,693 5,336,163Transportation equipment 4,218,088 49,700 753,596 3,514,192Leasehold Improvements 1,048,996 61,375 34,375 1,075,996

Total 34,248,226 1,486,688 766,915 34,933,625

Accumulated DepreciationBank premises-building 7,587,851 702,066 8,289,917Furniture and fixtures 5,895,338 282,057 6,177,395IT equipment 4,860,138 174,019 47,693 4,986,464Transportation equipment 3,113,079 266,632 753,594 2,626,116

Leasehold Improvements 1,044,038 5,644 1,049,682Total 22,500,444 1,430,418 801,287 23,129,575

Cost Accum. Depr'n. Net Book ValueLand 5,952,149 - 5,952,149Bank premises-building 12,261,284 8,289,917 3,971,367Furniture and fixtures 6,793,841 6,177,395 616,446IT equipment 5,336,163 4,986,464 349,698Transportation equipment 3,514,192 2,626,116 888,075

Leasehold Improvements 1,075,996 1,049,682 26,314

Net Book Value 34,933,625 23,129,575 11,804,050

2016 Beginning EndingBalance Additions Disposal Balance

CostLand 5,952,149 5,952,149Bank premises-building 11,672,848 2,799 11,675,647Furniture and fixtures 6,101,706 270,211 32,000 6,339,916IT equipment 4,869,862 218,411 74,843 5,013,430Transportation equipment 4,470,328 1,332,000 1,584,241 4,218,088Leasehold Improvements 1,048,996 1,048,996

Total 34,115,889 1,823,421 1,691,083 34,248,226

Accumulated DepreciationBank premises-building 6,887,766 700,085 7,587,851Furniture and fixtures 5,622,889 304,448 31,999 5,895,338IT equipment 4,617,441 333,208 90,510 4,860,138Transportation equipment 4,385,461 279,859 1,552,241 3,113,079

Leasehold Improvements 1,038,106 5,932 1,044,038Total 22,551,662 1,623,533 1,674,750 22,500,444

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Cost Accum. Depr'n. Net Book ValueLand 5,952,149 - 5,952,149Bank premises-building 11,675,647 7,587,851 4,087,796Furniture and fixtures 6,339,916 5,895,338 444,578IT equipment 5,013,430 4,860,138 153,292Transportation equipment 4,218,088 3,113,079 1,105,009

Leasehold Improvements 1,048,996 1,044,038 4,958

Net Book Value 34,248,226 22,500,444 11,747,782

10.1 Schedule of depreciation2017 2016

Bank premises-building 702,066 700,085Furniture and fixtures 282,057 304,448IT equipment 174,019 333,208Transportation equipment 266,632 279,859Leasehold improvements 5,644 5,932Total Depreciation 1,430,418 1,623,533

Note 11- Investment Property

11.1- Real and other properties acquired2017 2016

ROPA , beg. 15,750,632 8,881,804Add: Transferred from past due and litigation 1,503,966 8,878,738Add: Sale/Disposal (1,310,420) (2,009,911)ROPA, end 15,944,177 15,750,632Less : Allowance for losses (1,633,028) (1,631,127) Accumulated Depreciation (136,985) (169,563)Total ROPA, net Note 11.1.1 14,174,164 13,949,942

Sales Contract Receivable 2017 2016Sales Contract Receivable, beg 236,800 -Less: Unearned income - -Sales Contract Receivable, end Note 11.1.3 236,800 -Total investment properties 14,410,964 13,949,942

11.1.1- Aging of ROPA

Land Buildings Others TotalLess than 3 years 10,294,121 141,080 1 10,435,2023 - 5 years 843,490 - - 843,4905 - 10 years 2,005,997 15,230 2,021,22710 years up 844,239 30,006 874,245

Total 13,987,846 186,317 1 14,174,164

2017

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Land Buildings Others TotalLess than 3 years 10,359,557 - 1 10,359,5583 - 5 years 1,242,146 - - 1,242,1465 - 10 years 1,601,184 22,452 1,623,63610 years up 694,597 30,006 724,602

Total 13,897,483 52,458 1 13,949,942

Note 11.1.2

Note 11.1.3

Note 12 - Deferred tax assets

2017 2016Deferred tax asset , beg. -Add:Creditable tax on sale of assets aquired for the year 6,296 - Provision for credit losses - -Total 6,296 -Less: Income tax for the year Creditable tax applied -Balance 6,296 -

This account is a deductible from payment of deferred tax liability ( Normal Income Tax ).

Sales Contract Receivable (SCR) shall be recorded based on the present value of the installments receivables discountedat the imputed rate of interest. Discount shall be accreted over the life of the SCR by crediting interest income using theeffective interest method. Any difference between the present value of the SCR and the derecognized assets shall berecognized in profit or loss at the date of sale in accordance with the provisions of PAS 18 “Revenue” Provided,furthermore, That SCR shall be subject to impairment provision of PAS 39.

2016

Real and other properties acquired (ROPA) in settlement of loans through foreclosure or dation in payment shall bebooked initially at the carrying amount of the loan (i.e., outstanding loan balance adjusted for any unamortized premiumor discount less allowance for probable losses computed based on PAS 39 provisioning requirements) plus bookedaccrued interest less allowance for probable losses plus transaction costs incurred upon acquisition (such as non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase of the acquiredreal estate property): Provided, That where the booked amount of ROPA exceeds the appraised value of the acquiredproperty, an allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall beset up: Provided, further, That if the carrying amount of ROPA exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP.

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits , likepayment of creditable witholding tax, excess of minimum corporate income tax over the regular corporate income taxand unused net operating loss carryover ( NOLCO ).

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Note 13 - Other assets

13.1 Other current assets

Non-financial current assets

The above figure consists of the following:2017 2016

Petty cash fund - -Accounts receivable, net 217,051 1,118,665Prepaid expenses 400,947 344,395Stationery and supplies unissued - 227,884Shortages 3,726 -Sinking Fund Redeemable Preferred Stock 48,846Miscellaneous assets 348,939 105,440Total Non-financial current assets 1,019,509 1,796,384

Financial current assets

The above figure consists of the following:2017 2016

Accrued interest income on FA's 932,703 464,529Other Sinking fund - 48,684Miscellaneous assets - -Total financial current assets 932,703 513,213

Total Other Assets, (net) 1,952,213 2,309,597

Note 14 - Deposit Liabilities

Details of the deposit liabilities of the bank were as follows:

No. of Accounts Amount No. of Accounts Amount

Demand Deposit 259 36,541,482 269 36,550,504Savings deposit 11586 382,018,409 10421 328,994,744Time deposits 344 77,036,153 367 79,375,638Total 12,189 495,596,044 11,057 444,920,886

2017

The fair values of Other Assets have not been individually disclosed as, due to their short duration, management considersthe carrying amounts recognized in the statements of financial position to be reasonable approximation of their fairvalues.

2016

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No. of Accounts Demand Savings TimeClassification as to size P 5,000.00 and below 61-6106-0 204,378 7,501,598 - 5,000.01 to 10,000.00 50-1062-6 326,759 7,186,071 40,234 10,000.01 to 15,000.00 14-723-7 172,646 8,555,166 89,833 15,000.01 to 40,000.00 41-1564-15 1,077,778 39,207,744 376,067 40,000.01 to 60,000.00 16-601-36 783,252 29,123,492 1,897,805 60,000.01 to 80,000.00 12-336-19 828,261 23,039,892 1,265,213 80,000.01 to 100,000.00 6-234-20 541,102 20,725,654 1,880,882 100,000.01 to 150,000.00 11-389-79 1,333,923 46,289,957 9,030,537 150,000.01 to 200,000.00 12-164-21 2,023,083 27,964,530 3,541,952 200,000.01 to 250,000.00 3-134-38 673,791 29,307,051 8,328,843 250,000.01 t0 300,000.00 5-52-18 1,329,715 14,272,926 4,909,513 300,000.01 to 400,000.00 4-98-24 1,416,706 33,271,801 8,088,668 400,000.01 to 500,000.00 5-39-18 2,217,730 17,000,186 8,106,321 500,000.01 to 750,000.00 7-58-35 4,186,500 33,569,885 18,647,434 750,000.01 to 1,000,000.00 4-10-2 3,525,753 9,038,011 1,767,3141,000,000.01 to 1,500,000.00 5-9-3 5,363,275 9,841,032 3,408,191

1,500,000.01 to 2,000,000.00 1-3-1 1,917,532 4,999,982 1,509,329Over P 2,000,000.00 2-4-2 8,619,300 21,123,433 4,148,019

259-11586-344 36,541,482 382,018,409 77,036,153

No. of Accounts Demand Savings TimeClassification as to size P 5,000.00 and below 48-5530-0 132,298 6,940,013 - 5,000.01 to 10,000.00 52-1003-6 350,742 6,872,201 40,072 10,000.01 to 15,000.00 16-653-10 206,536 7,709,694 129,467 15,000.01 to 40,000.00 50-1388-15 1,247,242 34,451,089 382,962 40,000.01 to 60,000.00 21-544-39 979,881 26,442,184 2,094,165 60,000.01 to 80,000.00 13-302-21 882,684 20,716,244 1,397,334 80,000.01 to 100,000.00 4-209-30 382,691 18,444,585 2,812,667 100,000.01 to 150,000.00 16-306-75 1,986,957 36,476,112 8,573,180 150,000.01 to 200,000.00 10-159-32 1,693,133 27,513,973 5,513,455 200,000.01 to 250,000.00 6-85-39 1,269,461 18,692,761 8,472,412 250,000.01 t0 300,000.00 5-47-15 1,314,134 12,916,532 4,072,702 300,000.01 to 400,000.00 7-98-21 2,501,042 33,617,857 7,066,622 400,000.01 to 500,000.00 2-34-18 916,943 14,941,707 8,153,846 500,000.01 to 750,000.00 5-42-36 3,040,963 24,483,328 19,017,310 750,000.01 to 1,000,000.00 4-10-2 3,549,688 8,776,410 1,808,0111,000,000.01 to 1,500,000.00 5-7-6 5,634,532 7,783,883 6,825,223

1,500,000.01 to 2,000,000.00 3-1-2 5,177,938 1,961,099 3,016,208Over P 2,000,000.00 2-3-0 5,283,640 20,255,070 -

269-10,421-367 36,550,504 328,994,744 79,375,638

2016

2017

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Classification as to maturity and interest rate of time deposit

10% & below 10% to 14% 10% & below 10% to 14%Short term (one year or less) 75,632,093 77,971,578Medium term (>1 year to 5 years) 1,404,060 1,404,060Long Term (>5 years)Total 77,036,153 - 79,375,638 -

Note 15 - Bills payable

Classified as to term 2017 20161. Within one year 1,281,000 2,418,0502. Beyond one year, within 5 years3. Beyond 5 years - -Total 1,281,000 2,418,050

Note 16- Other Liabilities

16.1- Financial -Current Liabilities2017 2016

Accrued interest expense from financial liabilities 335,968 659,955

16.2- Financial Non-Current Liabilities2017 2016

Witholding tax payable 459,945 129,944SSS,Philhealth, EC Pag-ibig contributions payable 588,003 694,047Unearned Income 46,889 -Accounts payable 12,063,164 7,998,608Accrued expenses 267,596 -Dividends payable 283,016 283,872Overages 28,629 25,109Other taxes and licenses payable - 222,206Deferred tax liabilities 40,767 40,767Provisions and other post retirement benefit obligations 6,489,765 7,194,832Redeemable preferred share 42,800 42,800Sub-total 20,310,575 16,632,186

2017

This account represents all obligations of the bank to Landbank of the Philippines - San Fernando Branch in the form of

rediscounting notes which are secured by certain customer's promissory notes together with their respective collaterals.

Bills payable are all secured by real estate mortgage (titled properties). Interest rates is ranging from 5% to 5.5%.

2016

Management considers the carrying amounts recognized in the statements of financial position for accrued interest onfinancial liabilities to be reasonable approximation of their fair values due to their short duration.

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16.3 Other non-current liabilities2017 2016

Financial non-current liabilitiesDue to Philippine Deposit Insurance Corporation 452,398 430,165Total non-current liabilities 452,398 430,165

Total other liabilities 21,098,941 17,722,305

Note 17- Income Tax Payable

Regular Income Tax is computed as follows:2017 2016

Regular Income Tax Note 24 1,384,018 1,028,749Less: Payments Quarterly tax payments Note 17.1 1,390,314 556,492Income tax payable, end Note. 17.1 (6,296) 472,257

The bank is under regular income tax for the year 2016.

17.1The quarterly tax payments is as follows:Quarterly Payments 2017 20161st Quarter 402,865 220,2472nd Quarter 376,782 123,0613rd Quarter 610,667 213,183Total 1,390,314 556,492

Note 18 - Share Capital

The combined capital account consists of the following:Amount

2017 2016 2017 2016

Authorized SharesCommon Stock @ P100 385,000 385,000 38,500,000 38,500,000Preferred Stock @ P100 15,000 15,000 1,500,000 1,500,000Total 400,000 400,000 40,000,000 40,000,000

Paid up Capital-Common ShareCommon Stock @ P100 300,647 289,702 30,064,700 28,970,200Preferred Stock @ P100 15,000 - - -Total 315,647 289,702 30,064,700 28,970,200

Authorized capital stock was increased from 200,000 shares to 400,000 shares per Board Resolution 2013-60.That thecapital stock is divided into 385,000 shares of common stocks and 15,000 shares of preferred shares both @par valueof P100/share. The 30,064.700 common shares was subscribed and fully paid-up.

Shares

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Note 19 - Interest Income

2017 2016Loans and receivables 22,433,086 19,537,902Sales Contract receivables 51,036 -Held-to-maturity Investments 2,993,663 1,986,815Deposits with banks 1,594,872 1,053,888Total Interest Income 27,072,657 22,578,605

Note 20 - Interest Expense2017 2016

Interest on deposit liabilities 2,031,702 2,211,347Interest on borrowed funds 55,990 14,145Total Interest Expense 2,087,692 2,225,492

Note 21- Non - Interest income2017 2016

Service charges/Fees 3,932,221 3,830,965Fees and commission income 565,562 899,559Gain/(losses from Sale/ Derecognition of Non-Financial Assets 2,901,065 2,539,303Recovery of charge off assets 2,048 13,070Other income 3,832,413 2,852,004Total Non-Interest-Income 11,233,308 10,134,901

Note 22- Non - Interest expensesIncrease(Decrease) 2017 2016

Compensation and other benefits 3,789,570 18,212,164 14,422,593Taxes and licenses Note 25 118,384 897,969 779,585Fees and commissions expenses (13,493) 52,350 65,843Depreciation & amortization Note 10.1 (193,115) 1,437,639 1,630,754Impairment loss (24,815) 1,902 26,717Provisions for probable losses-Loans and discount (53,940) 1,717,181 1,771,120Rent 16,538 405,088 388,550Power, light and water 49,358 860,800 811,443Postage, telephone and telegram 47,559 609,058 561,500Repairs and maintenance 83,817 503,861 420,044Security, clerical, messengerial and janitorial services (4,200) 1,373,473 1,377,673Information technology expenses 35,462 231,167 195,705Supervision fees (13,149) 44,297 57,446Insurance PDIC 135,117 932,057 796,940 Others (20,449) 702,857 723,306

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Management and other professional fees (10,800) 172,700 183,500Representation and entertainment (188,798) 41,769 230,568Travelling expenses 50,843 353,607 302,764Fuel and lubricants 19,740 244,606 224,866Advertising and publicity (125,372) 50,874 176,246Membership fees and dues (11,960) 15,400 27,360Donations and charitable contributions 5,353 37,018 31,665Periodicals and magazines (1,968) 19,844 21,812Documentary stamps used 1,754 107,582 105,828Stationery and supplies used 46,285 561,846 515,562Fines, penalties and other charges 16,491 19,172 2,681Litigation/Assets acquired expenses (311,355) 262,764 574,119Miscellaneous expenses 228,819 380,598 151,779Total 3,757,449 30,249,643 26,577,968

Note 23- Commitment and Contingencies

The following are the significant commitments and contingencies involving the bank:

Operating Lease Commitment - Bank as LesseeSison Branch Binalonan Branch Ext. Office-HO

No. of years 2 years 15 yearsrenewable every

yearStart February 29, 2016 Nov. 06, 2006 June 24, 2004Maturity February 28, 2018 Nov. 06, 2021Monthly rental 7,260 19,000 4,650

Total rentals from this operating lease amounted to P405,088 and P388,550 in 2017 and 2016, respectively .

Others

Note 24 - Income Tax Expense

Under Normal Income tax the Current tax expense is 30% of profit before tax while, under Minimum Corporate Incometax is 2% of the Gross Profit. The bank is liable whichever is higher between Normal Income tax and MinimumCorporate Income tax.

There are commitments and contingencies that arise in the normal course of the Bank’s operations that are not reflected inthe financial statements. As of December 31, 2017, management is of the opinion that losses from these commitments andcontingencies will not have a material effect of the Bank’s financial statements.

The bank entered into lease agreements under operating lease covering the Sison and Binalonan Branch and Head Officeextension Office. The leases have different terms with renewal options. As of December 31, 2017 the bank had nocontingent rent payable.

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Normal Income Tax is computed as follows:2017 2016

Profit (loss) per books 5,968,630 3,910,046Add: Non-deductible expenses/other taxable income Provision for credit losses on loans and receivables 1,719,082 1,771,121Total 7,687,712 5,681,167Add: Interest Arbitrage Multiply by 33% 1,514,217 1,254,290Net income before non-taxable items 9,201,929 6,935,457Less: Non-taxable income & income subjected to final tax 4,588,535 3,040,703 Write off - 465,591Net taxable income (loss) 4,613,394 3,429,163Income Tax Rate 30% 30%Regular Income Tax 1,384,018 1,028,749

2017 2016GROSS INCOME

Total interest income 27,072,657 22,578,605Total other income 11,233,308 10,134,901Gross income 38,305,965 32,713,506Add: Interest arbitrage (Multiply by 33%) 1,514,217 1,254,290Less: Non-taxable income & income subjectedto final tax (RMC# 4-2003) 4,588,535 3,040,703Gross taxable income 35,231,647 30,927,093

COST OF SERVICEInterest expense 2,087,692 2,225,492Salaries, wages 8,475,228 8,759,905BSP- supervision fees 44,297 57,446Insurance - PDIC 932,057 796,940Cost of service 11,539,274 11,839,783

GROSS INCOME FOR MCIT PURPOSES 23,692,372 19,087,310MCIT Rate 2% 2%Minimum Corporate Income Tax 473,847 376,729

Note 25 - Taxes and licenses

Details of this account were as follows;2017 2016

Annual registration fee 3,000 4,000Business/Municipal permit/clearances 208,630 209,478Real Estate Tax 88,699 99,819Registration of motor vehicle 14,333 17,253Gross receipt tax 557,833 446,744Documentary stamp tax 2,020Others 23,453 2,291Total 897,969 779,585

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Note 26 - Employees' compensation and other benefits

Details of this account were as follows;2017 2016

Salaries and wages 8,475,228 8,759,905 Officers and Staff benefits -13 month/Bonuses/ Seminars/Unused sick leave/others 7,010,904 2,901,148 Director's fees 925,485 934,251 SSS, Pag-ibig, Philhealth prem.cont. 773,114 792,838 Contribution to retirement/provident fund 1,027,433 1,034,452

Total 18,212,164 14,422,593

Note 27 - Adjustments and Charges

2017 2016Adjustment #1 and # 3 113,475 -Prior period adjustments 94,385 (223,023)

Total 207,860 (223,023)

Note 28 - Earnings Per Share

2017 2016Profit for the period 4,584,612 2,808,862Less: Preference dividends for the current year - -

Weighted average number of shares: Outstanding and issued shares 300,647 289,702Total 300,647 289,702Earnings Per Share 15.25 9.70

Note 29- Financial Assets and Liabilities

Carrying Value Fair Value Carrying Value Fair ValueFinancial Assets:Cash and cash equivalents 12,869,185 12,869,185 12,929,410 12,929,410Due from BSP 16,291,730 16,291,730 14,556,847 14,556,847Due from other banks 209,361,372 209,361,372 208,555,255 208,555,255Loans and receivables 172,333,334 172,333,334 154,808,284 154,808,284Held-to-maturity investments 137,005,696 137,005,696 98,848,264 98,848,264

Financial Liabilities:Deposit liabilities 495,596,044 495,596,044 444,920,886 444,920,886

2017 2016

The account consists of various adjustments broken down as follows:

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Note 30- Related Party Transactions

Note 30.1

2017 2016Short-term benefits 3,516,441 2,901,148Post employment

Termination benefits 3,516,441 2,901,148

Note 30.2

Note 31 - Events After the Reporting Period

No any significant events took place after the Balance Sheet date that could affect the presentation of the financialstatements.

In the ordinary course of business, the Bank has transactions with its certain directors, officers, and stockholders and

related interest (DOSRI).The General Banking Act and BSP regulations limit the amount of loans to each affiliate to

25 % of the Bank's capital funds. The amount of individual loans to DOSRI, of which 70% must be secured, should not

exceed the amount of their deposit and book value of their investment in the Bank. In the aggregate, loans to Dosri

exclusive of loans secured by hold-out deposits) generally should not exceed the total capital funds or 15 % of the total

loan portfolio of the Bank, whichever is lower. All DOSRI loans are within the statutory limit.

DOSRI loans as of December 31, 2017 and 2016 are all current . There was an unsecured Dosri loans with outstandingbalance of P279,942.34 and 116,455.34 for the year 2017 and 2016 respectively. Percentage of DOSRI to total loans in2017 and 2016 is 1.10% and 0.94%, respectively. The Unsecured DOSRI to total DOSRI is 14.22% and 7.58% for 2017and 2016 respectively.

Other long-term employee benefits

Key management includes directors (executive and non-executive), members of the Executive Committee, the Company

The use of the fair value option in accordance with the criteria set forth in the amendments to PAS 39 shall be allowed byBSP subject to the following conditions:1. Financial institutions shall have in place appropriate risk management systems (including related risk managementpolicies, procedures and controls) prior to initial application of the fair value option for a particular activity or purpose andon an ongoing basis;2. Financial institutions shall apply the fair value option only to instruments for which fair values can be reliablyestimated; and3. Financial institutions shall provide BSP with supplemental information as may be necessary, to enable BSP to assessthe impact of the financial institution’s utilization of the fair value option.

The carrying value of the financial assets and liabilities approximate its fair value as of the balance sheet date.

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Note 32 - Disclosures on Capital Adequacy

Note 33- Quantitative Indicators of Financial Performance2017 2016

I. AT YEAR ENDCurrent assets 547,861,317 489,698,060Current liabilities 495,596,044 444,920,886Current ratio 1.11 1.10

Past due 16,642,543 14,303,808Total loan portfolio 178,473,662 163,265,889Past due ratio 0.09 0.09

Total liabilities 517,975,985 465,533,499Total equity 58,058,854 52,171,881Debt-to-equity ratio 8.92 8.92

II. FOR THE YEARGross income 38,305,965 32,713,506Total expenses 32,337,335 28,803,459Net profit (before income tax) 5,968,630 3,910,047Net profit margin rate (before income tax) 15.58% 11.95%Expenses over income rate 84.42% 88.05%Net profit (after tax) 4,584,612 2,947,043Average assets 546,870,110 452,507,569Average share capital 29,517,450 20,920,250Average equity 55,115,368 48,294,033Return on average assets 0.84% 0.65%Return on average share capital 15.53% 14.09%Return on average equity 8.32% 6.10%

Net interest income 24,984,964 20,353,113Average interest earning assets 518,779,688 449,500,159Net interest margin 4.82% 4.53%

The Bank's Risk-Based Capital Adequacy ratio is 13.95%, which is higher than the standard ratio of 10 % indicates

stabilily of the bank. Having the ratio of 8.32% on Return on Average Equity, 0.84% on Return on Average Assets,

Return average capital 15.53% and 4.82% on Net Interest Margin indicates profitability and good performance of the

bank for the year 2017 and most of income comes from interest on loans and receivables.

The deployment of assets in loans is good at 29.92%. The bank has minimized its total assets deployed as cash (in handand bank) at 38.58% and has liquid deposits with BSP and other banks at high 39.17%. On the liability side, the bank hasrelied primarily on savings. Savings mobilized from the clients constitute 95.68% of total liabilities.

For disclosure on computed capital adequacy, refer to attached schedule of Computation of the Risk-based CapitalAdequacy Ratio Covering Credit Risks as of December 31, 2017 as submitted by the Bank.

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COMPARISON OF AUDITED VS. SUBMITTED STATEMENT OF FINANCIAL POSITIONAS OF DECEMBER 31, 2017(Amounts In Philippine Pesos)

Account Name AUDITED F/S

SUBMITTEDREPORTS

DISCREPANCY REASONS FOR DISCREPANCY AMOUNT

ASSETSCash and Cash Equivalents 12,869,185 12,854,185 15,000 AJE#2-Reclassification of account (15,000)Due from Bangko Sentral Ng Pilipinas 16,291,730 16,291,730 -Due from other banks 209,361,372 209,361,372 -Loans and receivables 172,333,334 172,333,334 -Held to maturity investments 137,005,696 137,005,696 -Bank premises, furniture, fixtures and equipments 11,804,050 11,804,050 -Investment property (ROPA) 14,410,964 14,410,964 -Deferred tax assets 6,296 - 6,296 AJE#3-To record over payment of income tax for the year. 6,296Other assets 1,952,213 1,967,213 (15,000) AJE#2-Reclassification of account 15,000

TOTAL ASSETS 576,034,839 576,028,543 6,296 6,296

LIABILITIES AND EQUITY

LIABILITIESDeposit liabilities 495,596,044 495,596,044 -Bills payable 1,281,000 1,281,000 -Income tax payable - 107,179 (107,179) AJE#1-To record adjustment of over payment of income tax. (107,179)Other liabilities 21,098,941 21,098,941 -

TOTAL LIABILITIES 517,975,985 518,083,164 (107,179) (107,179)

.

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Audited Submitted Reasons forAccount Name F/S Reports Discrepancy Discrepancy Amount

EQUITYShare capital 30,064,700 30,064,700 -Additional paid-in Capital 525,601 525,601 -Retained Earnings 27,468,553 27,355,078 113,475 AJE#1-To record adjustment of over payment of income tax. 107,179

AJE#3-To record over payment of income tax for the year. 6,296TOTAL EQUITY 58,058,854 57,945,379 113,475 113,475TOTAL LIABILITIES AND EQUITY 576,034,839 576,028,543 6,296 6,296


.

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COMPARISON OF AUDITED VS. SUBMITTED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2017(Amounts In Philippine Pesos)

Audited Submitted Reasons forAccount Name F/S Reports Discrepancy Discrepancy Amount

Interest Income 27,072,657 27,072,657 -

Interest Expense 2,087,692 2,087,692 -

GROSS PROFIT 24,984,964 24,984,964 -

Non-Interest Income 11,233,308 11,233,308 --

Non-Interest Expense 30,249,643 30,249,643 - -

PROFIT BEFORE TAX 5,968,630 5,968,630 - -

Income Tax Expense 1,384,018 1,497,493 (113,475) AJE#1-To record adjustment of over payment of income tax. (107,179)AJE#3-To record over payment of income tax for the year. (6,296)

PROFIT FOR THE YEAR 4,584,612 4,471,137 (113,475) (113,475)

Other Comprehensive Income -

COMPREHENSIVE INCOME FOR THE YEAR 4,584,612 4,471,137 (113,475) - (113,475)


.

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RURAL BANK OF ROSARIO (LA UNION), INC.Poblacion East, Rosario La UnionADJUSTING ENTRIESDecember 31, 20171 Income tax payable 107,179.00Income tax provision-RE 107,179.00To record adjustment of over payment of income tax.2 Cash on hand and in vault 15,000.00Petty cash fund 15,000.00To record reclassification of the account.3 Deferred tax asset 6,295.87Retained Earnings 6,295.87To record over payment of income tax for the year.

.

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Reconciliation of Retained Earnings Available for Dividend DeclarationAs of December 31, 2017(Amount in Philippine Pesos)

Unappropriated Retained Earnings, beginning 22,633,280Net Income base on the face of AFS 4,584,612Less: Non-Actual/unrealized income net of tax - Equity in net income of associate/joint venture - Unrealized foreign exchange gain-net -Unrealized actuarial gain - Fair value adjustment (M2M gains) - Fair value adjustment of Investment Properry resulting to gain Adjustment due to deviation from PFRS/GAAp-gain - Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under the PFRS -

Add: Non-actual losses Depreciation on revaluation increment (after tax) - Adjustment due to deviation from PFRS/GAAP-loss - Loss on fair value adjustment of investment property (after tax) -

Net Income Actual/Realized 4,584,612

Add/ (Less): Adjustments Dividends Declaration During the period - Appropriations of Retained Earnings during the period Reversals of Appropriations Effect of Provisions and/or Adjustments Other Adjustments 207,860

Unappropriated Retained Earnings, as adjusted, ending 27,425,753


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SCHEDULE OF STANDARDS AND INTERPRETATIONSAS OF DECEMBER 31, 2017

x

First-time Adoption of Philippine Financial Reporting StandardsAmendments to PFRS 1 and PAS 27: Cost of an Investment in aSubsidiary, Jointly Controlled Entity or AssociateAmendments to PFRS 1: Additional Exemptions for First-time AdoptersAmendment to PFRS 1: Limited Exemption from Comparative PFRS 7Disclosures for First-time AdoptersAmendments to PFRS 1: Severe Hyperinflation and Removal of FixedDate for First-time AdoptersAmendments to PFRS 1: Government LoansShare-based PaymentAmendments to PFRS 2: Vesting Conditions and CancellationsAmendments to PFRS 2: Group Cash-settled Share-based PaymentTransactions

PFRS 3(Revised) Business Combinations

Insurance ContractsAmendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

PFRS 5 Non-current Assets Held for Sale and Discontinued OperationsPFRS 6 Exploration for and Evaluation of Mineral Resources

Financial Instruments: Disclosures xAmendments to PAS 39 and PFRS 7: Reclassification of Financial AssetsAmendments to PAS 39 and PFRS 7: Reclassification of Financial Assets– Effective Date and TransitionAmendments to PFRS 7: Improving Disclosures about Financial xAmendments to PFRS 7: Disclosures – Transfers of Financial AssetsAmendments to PFRS 7: Disclosures – Offsetting Financial Assets andFinancial LiabilitiesAmendments to PFRS 7: Mandatory Effective Date of PFRS 9 andTransition Disclosures x

PFRS 8 Operating SegmentsFinancial Instruments xAmendments to PFRS 9: Mandatory Effective Date of PFRS 9 andTransition Disclosures x

PFRS 10* Consolidated Financial StatementsPFRS 11* Joint ArrangementsPFRS 12* Disclosure of Interests in Other EntitiesPFRS 13* Fair Value Measurement x

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONSAdopted

NotAdopted

NotApplicableEffective as of December 31, 2017

Framework for the Preparation and Presentation of Financial StatementsxConceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management CommentaryPhilippine Financial Reporting StandardsPFRS 1(Revised)

x

xx

x

xx

PFRS 2 xx

x

xPFRS 4 x

xxx

PFRS 7x

x

x

x

xPFRS 9*

x

xx

Philippine Accounting Standards

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NotAdopted


Framework for the Preparation and Presentation of Financial Statementsx

Presentation of Financial Statements xAmendment to PAS 1: Capital Disclosures xAmendments to PAS 32 and PAS 1: Puttable Financial Instruments andObligations Arising on LiquidationAmendments to PAS 1: Presentation of Items of Other Comprehensive x

PAS 2 InventoriesPAS 7 Statement of Cash Flows xPAS 8 Accounting Policies, Changes in Accounting Estimates and Errors xPAS 10 Events after the Reporting Period xPAS 11 Construction Contracts

Income Taxes xAmendment to PAS 12 – Deferred Tax: Recovery of Underlying Assets x

PAS 16 Property, Plant and Equipment xPAS 17 Leases xPAS 18 Revenue x

Employee Benefits xAmendments to PAS 19: Actuarial Gains and Losses, Group Plans andDisclosures

PAS19(Amended)* Employee Benefits xPAS 20 Accounting for Government Grants and Disclosure of Government

The Effects of Changes in Foreign Exchange RatesAmendment: Net Investment in a Foreign Operation

PAS 23(Revised) Borrowing Costs xPAS 24(Revised) Related Party Disclosures xPAS 26 Accounting and Reporting by Retirement Benefit Plans x

PAS 27(Amended)* Separate Financial StatementsPAS 28 Investments in AssociatesPAS 28(Amended)* Investments in Associates and Joint VenturesPAS 29 Financial Reporting in Hyperinflationary EconomiesPAS 31 Interests in Joint Ventures

Financial Instruments: Disclosure and Presentation xAmendments to PAS 32 and PAS 1: Puttable Financial Instruments andObligations Arising on LiquidationAmendment to PAS 32: Classification of Rights IssuesAmendments to PAS 32: Offsetting Financial Assets and Financial

PAS 33 Earnings per Share xPAS 34 Interim Financial Reporting xPAS 36 Impairment of Assets xPAS 37 Provisions, Contingent Liabilities and Contingent Assets xPAS 38 Intangible Assets

Financial Instruments: Recognition and Measurement xAmendments to PAS 39: Transition and Initial Recognition of FinancialAssets and Financial Liabilities x

PAS 1(Revised)

x

x

xPAS 12

PAS 19

x

xPAS 21 x

x

PAS 27 Consolidated and Separate Financial Statements x

xx

xxx

PAS 32

xxx

xPAS 39

50

Page 90 of 106


NotAdopted


Framework for the Preparation and Presentation of Financial Statementsx

Amendments to PAS 39: Cash Flow Hedge Accounting of ForecastIntragroup TransactionsAmendments to PAS 39: The Fair Value Option xAmendments to PAS 39 and PFRS 4: Financial Guarantee ContractsAmendments to PAS 39 and PFRS 7: Reclassification of Financial AssetsAmendments to PAS 39 and PFRS 7: Reclassification of Financial Assets– Effective Date and TransitionAmendments to Philippine Interpretation IFRIC–9 and PAS 39:Embedded DerivativesAmendment to PAS 39: Eligible Hedged Items

PAS 40 Investment PropertyPAS 41 Agriculture

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar xIFRIC 2 Members’ Share in Co-operative Entities and Similar Instruments xIFRIC 4 Determining Whether an Arrangement Contains a Lease xIFRIC 5 Rights to Interests arising from Decommissioning, Restoration and

Environmental Rehabilitation Funds xIFRIC 6 Liabilities arising from Participating in a Specific Market – Waste

Electrical and Electronic Equipment xIFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting

in Hyperinflationary Economies xIFRIC 8 Scope of PFRS 2 x

Reassessment of Embedded Derivatives xAmendments to Philippine Interpretation IFRIC–9 and PAS 39:Embedded Derivatives x

IFRIC 10 Interim Financial Reporting and Impairment xIFRIC 11 PFRS 2- Group and Treasury Share Transactions xIFRIC 12 Service Concession Arrangements xIFRIC 13 Customer Loyalty Programmes x

The Limit on a Defined Benefit Asset, Minimum Funding Requirementsand their Interaction xAmendments to Philippine Interpretations IFRIC- 14, Prepayments of aMinimum Funding Requirement x

IFRIC 16 Hedges of a Net Investment in a Foreign Operation xIFRIC 17 Distributions of Non-cash Assets to Owners xIFRIC 18 Transfers of Assets from Customers xIFRIC 19 Extinguishing Financial Liabilities with Equity Instruments xIFRIC 20 Stripping Costs in the Production Phase of a Surface Mine xSIC-7 Introduction of the Euro xSIC-10 Government Assistance – No Specific Relation to Operating Activities x

Consolidation – Special Purpose Entities xAmendment to SIC – 12: Scope of SIC 12 x

SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers xSIC-15 Operating Leases – Incentives xSIC-21 Income Taxes – Recovery of Revalued Non-Depreciable AssetsSIC-25 Income Taxes – Changes in the Tax Status of an Entity or its xSIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a xSIC-29 Service Concession Arrangements: Disclosures. xSIC-31 Revenue – Barter Transactions Involving Advertising Services xSIC-32 Intangible Assets – Web Site Costs x

PAS 39

x

xx

x

xxxx

Philippine Interpretations

IFRIC 9

IFRIC 14

SIC-12

51

Page 91 of 106

2017 ANNUAL REPORT


CAPITALSTRUCTURE&CAPITALADEQUACY

RURAL BANK OF ROSARIO (LA UNION), INC. [ 04-043970 ] As of: December 31, 2017

PART I. CALCULATION OF RISK-BASED CAPITAL ADEQUACY RATIO (in absolute amounts)

Item Nature of Item Account Code

A. Calculation of Qualifying Capital

A.1 Net Tier 1 Capital 395000000000710000 57,665,436.98

A.2 Net Tier 2 Capital 395000000000720000 1,466,142.21

A.3 Total Qualifying Capital [Sum of A.1 and A.2] 395000000000700000 59,131,579.19

B. Calculation of Risk-Weighted Assets

B.1 Total Credit Risk-Weighted Assets [B.1(d) minus B.1(h) ] 195931000000000000 383,722,318.08

(a) Risk-Weighted On-Balance Sheet Assets 100000000000811000 383,722,318.08

(b) Risk-Weighted Off-Balance Sheet Assets 400000000000812000 0.00

(c) Counterparty Risk-Weighted Assets 110100000000813000(d) Total Credit Risk Weighted Assets [Sum of B.1(a), B.1(b) and B.1(c) ] 100000000000810000 383,722,318.08

(e) Deductions from Total Credit Risk-Weighted Assets

(f) General Loan Loss Provision (in excess of the amount permitted to beincluded in upper Tier 2 capital)[Part III.1, Item G.(1)(b) minus Part II, Item B.1 (7) ]

175150500000000000 0.00

(g) Unbooked valuation reserves and other capital adjustments affectingasset accounts based on the latest report of examination as approvedby the Monetary Board

365052000000711000 0.00

(h) Total Deductions [Sum of B.1(f) and B.1(g) ] 165000000000810000 0.00

B.2 Total Operational Risk-Weighted Assets 195000000000830000 40,892,970.03

B.3 Total Market Risk-Weighted Assets 100000000000820000

B.4 Total Risk-Weighted Assets [Sum of B.1, B.2 and B.3 ] 100000000000800000 424,615,288.11

C. RISK-BASED CAPITAL ADEQUACY RATIO [A.3 divided by B.4multiply by 100 ]

990000000000000000 13.93

$$$

Amount

Page 93 of 106


PART II. QUALIFYING CAPITAL (in absolute amounts)

A. Tier 1 (Core plus Hybrid) CapitalA.1 Core Tier 1 Capital(1) Paid up common stock 305050000000000000 30,064,700.00(2) Deposit for common stock subscription 305250500000000000(3) Paid-up perpetual and non-cumulative preferred stock 305100000000000000(4) Deposit for perpetual and non-cumulative preferred stock subscription 305251000000000000(5) Additional paid-in capital 305200000000000000 525,601.48(6) Retained earnings 315000000000000000 22,883,940.69(7) Undivided profits 315150000000000000 4,471,137.15(8) Net gains on fair value adjustment of hedging instruments in a cash flow hedge of available for sale equity

securities320101000500000000

(9) Cumulative foreign currency translation 320150000000000000(10) Minority interest in subsidiary financial allied undertakings (i.e., RBs and venture capital corporations

(VCCs) for TBs, and RBs for Coop Banks) which are less than wholly-owned (for consolidated basis) 1/325150000000000000

(11) Sub-total [Sum of A.1 (1) to A.1 (10)] 300000000000711000 57,945,379.32

A.2 Deductions from Core Tier 1 Capital(1) Common stock treasury shares (for consolidated basis) 365050500000711000(2) Perpetual and non-cumulative preferred stock treasury shares (for consolidated basis) 365051000000711000(3) Net unrealized losses on available for sale equity securities purchased 365051500000711000(4) Unbooked valuation reserves and other capital adjustments based on the latest ROE as approved by the

Monetary Board365052000000711000

(5) Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI, net of allowancefor credit losses

365052500000711000 279,942.34

(6) Total outstanding unsecured loans, other credit accommodations and guarantees granted to subsidiariesand affiliates, net of allowance for credit losses

365053000000711000

(7) Deferred tax asset, net of deferred tax liability 2/ 365053500000711000

(8) Goodwill, net of allowance for losses 3/ 365054000000711000

(9) Total Deductions[Sum of A.2 (1) to A.2 (8)]

365050000000711000 279,942.34

A.3 Total Core Tier 1 Capital [A.1 (11) minus A.2 (9)] 395000000000711000 57,665,436.98A.4 Hybrid Tier 1 Capital(1) Perpetual preferred stock 310030500000000000(2) Perpetual unsecured subordinated debt 310031000000000000(3) Total Hybrid Tier 1 Capital

[Sum of A.4 (1) and A.4 (2)]300000000000712000 0.00

(4) Eligible Hybrid Tier 1 Capital[limited to 17.65% of Total Core Tier 1 Capital (Item A.3)]

396000000000712000 0.00

A.5 Total Tier 1 Capital[Sum of A.3 and A.4 (4)]

300000000000710000 57,665,436.98

Item Nature of Item Account Code Amount

Page 94 of 106



B. Tier 2 (Supplementary) CapitalB.1 Upper Tier 2 Capital(1) Paid-up perpetual and cumulative preferred stock 305150000000000000

(2) Deposit for perpetual and cumulative preferred stock subscription 305251500000000000

(3)Paid-up limited life redeemable preferred stock with the replacement requirement upon redemption 220250500000000000 42,800.00

(4) Deposit for limited life redeemable preferred stock subscription with the replacement requirement uponredemption

305252000000000000

(5) Appraisal increment reserve – bank premises, as authorized by the Monetary Board 325050000000000000

(6)Net unrealized gains on available for sale equity securities purchased (subject to a 55% discount) 320052000500000000

(7)General loan loss provision [limited to 1.00% of total credit risk-weighted assets computed per Part I, ItemB.1(d)]

175151000000000000 1,472,188.09

(8)

Unsecured subordinated debt with a minimum original maturity of at least 10 years (subject to acumulative discount factor of 20% per year during the last 5 years to maturity, i.e., 20% if the remaininglife is 4 years to less than 5 years, 40% if the remaining life is 3 years to less than 4 years, etc.)

295202001000000000

(9) Hybrid Tier 1 Capital (in excess of the max allowable 15% limit of total Tier 1 capital)[A.4 (3) minus A.4 (4)]

310031500000000000 0.00

(10) Sub-total[Sum of B.1 (1) to B.1 (9)]

300000000000721000 1,514,988.09

B.2 Deductions from Upper Tier 2(1) Perpetual and cumulative preferred stock treasury shares (for consolidated basis) 365100500000721000(2) Limited life redeemable preferred stock treasury shares with the replacement requirement upon

redemption (for consolidated basis)365101000000721000

(3) Sinking fund for redemption of limited life redeemable preferred stock with the replacement requirementupon redemption

365101500000721000 48,845.88

(4) Net losses in fair value adjustment of hedging instruments in a cash flow hedge of available for sale equitysecurities

365102000000721000

(5) Total Deductions [Sum of B.2 (1) to B.2 (4)] 365100000000721000 48,845.88

B.3 Total Upper Tier 2 Capital [B.1 (10) minus B.2 (5)] 395000000000721000 1,466,142.21B.4 Lower Tier 2 Capital(1) Paid-up limited life redeemable preferred stock without the replacement requirement upon redemption

(subject to a cumulative discount factor of 20% per year during the last 5 years to maturity, i.e., 20% if theremaining life is 4 years to less than 5 years, 40% if the remaining life is 3 years to less than 4 years, etc.)

220251000000000000

(2) Deposit for limited life redeemable preferred stock subscription without the replacement requirement uponredemption

305252500000000000

(3) Unsecured subordinated debt with a minimum original maturity of at least 5 years (subject to a cumulativediscount factor of 20% per year during the last 5 years to maturity, i.e., 20% if the remaining life is 4 yearsto less than 5 years, 40% if the remaining life is 3 years to less than 4 years, etc.)

295202002000000000

(4) Sub-total [Sum of B.4 (1) to B.4 (3)] 300000000000722000 0.00

Page 95 of 106



B.5 Deductions from Lower Tier 2(1) Limited life redeemable preferred stock treasury shares without the replacement requirement upon

redemption (for consolidated basis)365150500000722000

(2) Sinking fund for redemption of limited life redeemable preferred stock without the replacementrequirement upon redemption (limited to the balance of redeemable preferred stock after applying thecumulative discount factor)

365151000000722000

(3) Total Deductions[Sum of B.5 (1) and B.5 (2)]

365150000000722000 0.00

B.6 Total Lower Tier 2 Capital [B.4 (4) minus B.5 (3)] 395000000000722000 0.00

B.7 Eligible Amount of Lower Tier 2 Capital (limited to 50% of total Tier 1 capital per Item A.5) 396000000000722000 0.00

B.8 Total Tier 2 Capital [Sum of B.3 and B.7] 300000000000720000 1,466,142.21

B.9 Eligible Amount of Tier 2 Capital (limited to 100% of total Tier 1 capital per Item A.5) 396000000000720000 1,466,142.21

C. Gross Qualifying Capital(Sum of A.5 and B.9)

396000000000700000 59,131,579.19

(1) Total Tier 1 Capital (Item A.5) 300000000000710001 57,665,436.98

(2) Total Tier 2 Capital (Item B.9) 396000000000720001 1,466,142.21

D. Deductions from Tier 1 and Tier 2 Capital(1) Investments in equity of unconsolidated subsidiary RBs and VCCs for TBs, and RBs for Coop Banks after

deducting related goodwill, if any (for solo basis)365200500000700000

(2) Investments in other regulatory capital instruments of unconsolidated subsidiary RBs for Coop Banks (forsolo basis)

365201000000700000

(3) Investments in equity of unconsolidated subsidiary non-financial allied undertakings after deducting relatedgoodwill, if any (for both solo and consolidated bases)

365201500000700000

(4) Significant minority investments (20%-50% of voting stock) in banks and other financial allied undertakings(for both solo and consolidated bases)

365202000000700000

(5) Reciprocal investments in equity/other regulatory capital instruments of other banks/quasi-banks/enterprises

365202500000700000

(6) Total Deductions [Sum of D (1) to D (5)] 365200000000700000 0.00

E. Net Tier 1 and Tier 2 CapitalE.1 Net Tier 1 Capital 4/ {C (1) minus [D (6) multiply by 50%]} 395000000000710000 57,665,436.98

E.2 Net Tier 2 Capital 4/ {C (2) minus [D (6) multiply by 50%]} 395000000000720000 1,466,142.21

F. Total Qualifying Capital [C minus D (6)] 395000000000700000 59,131,579.19

$$$1/

2/

3/

4/

This shall include those relating to unconsolidated subsidiary RBs and VCCs for TBs, and RBs for Coop Banks (on solo basis) and unconsolidated non-financial allied undertakings (on solo andconsolidated bases).

The amount to be deducted from Tier 2 capital shall be limited to its balance and any excess thereof shall be deducted from Tier 1 capital.

Provided that a bank shall not use minority interests in the equity accounts of consolidated subsidiaries as an avenue for introducing into its capital structure elements that might not otherwisequalify as Tier 1 capital or that would, in effect, result in an excessive reliance on preferred stock within Tier 1.Provided that the conditions to offset under PAS 12 are met and that any excess of deferred tax liability over deferred tax assets (i.e., net deferred tax liability) shall not be added to Tier 1 capital.

Page 96 of 106


PART III.1. RISK-WEIGHTED ON-BALANCE SHEET ASSETS (in absolute amounts)

Net Carrying Amount 1/ Risk Weight(in %) Risk Weighted Amount

(1) (2) (3) = (1) * (2) A.

(1) 105050000000000000 12,854,184.55

(2)

(a) 105150000500000000 16,291,730.27(b) 115001000500000000

(c) 195201000500000000(d) 195251000500000000 137,005,695.98(e) 195301000500000000(f) 195401200500000000(g) 195402000500000000

(h) 199000000000000000(3) 108100500000000000

(4) 108101000000000000

(5) 140150507500600000 2,646,237.76

(6) 140150508000600000

(7) 140150508500600000

(8) 140150510500600000

(9) 140150509500600000

(10) 100000000000811100 168,797,848.56 0 0.00

B.(1) 105100000000000000

(2) 108101500000000000

(3) 108102000000000000

(4) 108102500000000000

(5) 108103000000000000

(6) 195401000500000000(7) 108103500000000000

(8) 108104000000000000

(9) 140150519500600000 5,066,491.49

Item Nature of Item

Loans to the extent covered by hold-out on, or assignment of, deposits/deposit substitutes maintained with the lendingbank

Loans or acceptances under letters of credit (LCs) to the extent covered by margin deposits

Due from BSPFinancial assets designated at fair value through profit or loss

Available for sale financial assetsHeld-to-maturity financial assetsUnquoted debt securities classified as loansLoans and receivables

Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government publicsector entities of foreign countries with the highest credit quality

Loans and receivables arising from repurchase agreements, certificates of assignment/participation with recourse,and securities lending and borrowing transactions

OthersClaims on or portions of claims guaranteed by or collateralized by securities issued by central governments and centralbanks of foreign countries with the highest credit quality

Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development bankswith the highest credit quality

Account Code

0% Risk Weight –Cash on hand (including foreign currency notes and coins on hand acceptable as international reserves)

Peso denominated claims on or portions of claims guaranteed by or collateralized by peso-denominated securities issuedby the Philippine National Government and the BSP

Interbank call loans

Claims on or portion of claims guaranteed by Philippine incorporated private enterprises, including claims on governmentcorporations and MSME not qualifying under highly diversified loan portfolio definition, with the highest credit quality

Peso denominated special time deposit loans to the extent guaranteed by Industrial Guarantee and Loan Fund (IGLF)

Peso denominated real estate mortgage loans to the extent guaranteed by the Home Guaranty Corporation (HGC)

Peso denominated loans to the extent guaranteed by the Trade and Investment Development Corporation of thePhilippines (TIDCORP)

Sub-total[Sum of A (1) to A (9)]

20% Risk Weight -Checks and other cash items (including foreign currency checks and other cash items denominated in currenciesacceptable as international reserves)

Claims on or portions of claims guaranteed by or collateralized by securities issued by local government units (LGUs) withthe highest credit quality

Claims on or portions of claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality

Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality

Claims on or portion of claims guaranteed by foreign incorporated private enterprises, including claims on governmentcorporations, with the highest credit quality

Loans to small farmer and fisherfolk engaged in palay and/or food production projects/activities to the extent guaranteedby the Agricultural Guarantee Fund Pool (AGFP) subject to the conditions enumerated in Circular No. 713 dated 14February 2011

Page 97 of 106



(1) (2) (3) = (1) * (2)Item Nature of Item Account Code

(10) 140150520000600000

(11)100000000000811200 5,066,491.49 20 1,013,298.30

C.(1) 140150004000100000 30,693,092.19

(2) 108104501500000000

(3) 100000000000811300 30,693,092.19 50 15,346,546.10

D.(1) 140180500000000000 56,983,875.99 75 42,737,906.99

E.(1) 140150004000000000 100 0.00

F.(1) 142001000000000000 3,813,699.05 150 5,720,548.58

(2) 195501201500000000 14,174,164.11 150 21,261,246.17

G.(1)

(a) 100000000000000000 576,028,543.47(b) 175150000000000000 1,472,188.09(c) 100050000000811000 279,529,171.39

(d) 195000500000811000 297,971,560.17

(2)(a) 165500500000811000 279,942.34

(b) 165501000000811000 0.00

(c) 165501500000811000 0.00

(d) 165502000000811000 0.00

Loans to individuals for housing purpose, fully secured by first mortgage on residential property that is or will be occupiedby the borrower, which are not classified as non-performing

Sub-total [Sum of B (1) to B (10)]

50% Risk Weight -

100 % Risk Weight –Other Assets

Total Assets per Balance Sheet

Deferred tax asset, net of deferred tax liability[refer to Part II. Item A.2 (7)]

Goodwill, net of allowance for losses[refer to Part II. Item A.2 (8)]

75% Risk Weight –Qualified micro, small and medium enterprise (MSME) loan portfolio

100% Risk Weight –

Sub-total[Sum of G(1)(a) and G(1)(b) minus G(1)(c)]

Deductions from Other AssetsTotal outstanding unsecured credit accommodations, both direct and indirect, to DOSRI, net of allowance for creditlosses[refer to Part II. Item A.2 (5)]

Total outstanding unsecured loans, other credit accommodations and guarantees granted to subsidiaries andaffiliates, net of allowance for credit losses[refer to Part II. Item A.2 (6)]

Non-performing loans to individuals for housing purpose, fully secured by first mortgage on residential property that is orwill be occupied by the borrower.

150% Risk Weight –

All non-performing loans (except non-performing loans to individuals for housing purpose, fully secured by first mortgageon residential property that is or will be occupied by the borrower), all non-performing sales contract receivables, and allnon-performing debt securities

Real and other properties acquired and Non-current assets held for sale, net of allowance for losses

Loans to performing MSME loans to the extent guaranteed by a Credit Surety Fund (CSF) Cooperative, subject to theconditions prescribed under Appendix 63c of the MORB

Foreign currency denominated claims on or portions of claims guaranteed by or collateralized by foreign currencydenominated securities issued by the Philippine National Government & the BSP.

Sub-total [Sum of C(1) to C(2)]

General Loan Loss Provisions per Balance Sheet

Total Exposures excluding Other Assets [Sum of A(10), B(11), C(3), D(1), E(1), F(1) and F(2)]

Page 98 of 106



(1) (2) (3) = (1) * (2)Item Nature of Item Account Code

(e) 165502500000811000 48,845.88

(f) 165503000000811000 0.00

(g) 165503500000811000 0.00

(h) 165504000000811000 0.00

(i) 165504500000811000 0.00

(j) 165505000000811000 0.00

(k) 165505500000811000 0.00

(l) 165506000000811000

(m) 165506500000811000(n) 165507000000811000(o) 165500000000811000 328,788.22

(3) 195000000000811000 297,642,771.95 100 297,642,771.95

H. 100000000000811000 383,722,318.08

$$$1/

Significant minority investments (20%-50% of voting stock) in banks and other financial allied undertakings (forboth solo and consolidated bases)[refer to Part II. Item D (4)]

Investment in equity of unconsolidated subsidiary RBs and VCCs for TBs, and RBs for Coop Banks, afterdeducting related goodwill, if any (for solo basis)[refer to Part II. Item D (1)]

Sinking fund for redemption of limited life redeemable preferred stock with the replacement requirement uponredemption[refer to Part II. Item B.2 (3)]

Sinking fund for redemption of limited life redeemable preferred stock without the replacement requirement uponredemption (limited to the balance of redeemable preferred stock after applying the cumulative discount factor)[refer to Part II. Item B.5 (2)]

TOTAL RISK-WEIGHTED ON-BALANCE SHEET ASSETS [Sum of A(10), B(11), C(3), D(1), E(1), F(1), F(2) and G(3) ]

Investment in equity of subsidiary non-financial allied undertakings, after deducting related goodwill, if any (for bothsolo and consolidated bases)[refer to Part II. Item D (3)]

Investments in other regulatory capital instruments of unconsolidated RBs for Coop Banks (for solo basis)[refer to Part II. Item D (2)]

This shall refer to the outstanding balance of the account inclusive of unamortized discount/(premium) and accumulated market gains/(losses), and net of allowance for credit losses, except that foravailable for sale debt securities, any accumulated market gains/(losses) shall be deducted/added back.

Reciprocal investments in equity/other regulatory capital instruments of other banks/quasi-banks/enterprises[refer to Part II. Item D (5)]

Net accumulated market gains/(losses) on available for sale debt securities purchased

Financial Assets Held for TradingDerivatives with Positive Fair Value Held for HedgingTotal Deductions[Sum of G(2)(a) to G(2)(n)]

Net Other Assets[G (1)(d) minus G (2)(o)]

Page 99 of 106


PART III.2 RISK-WEIGHTED OFF-BALANCE SHEET ASSETS (in absolute amounts)

(1) (2) (3) =(1)*(2)A.

(1) 405000000000000000 100% 0.00

(2) 410050500000000000 100% 0.00

(3) 410051000000000000 100% 0.000

(4) 403000000000000000 0.00 0.00

(5) 403000000000812000

B.

(1) 410100500000000000 50% 0.00

(2) 410101000000000000 50% 0.000

(3) 425200000000000000 50% 0.00

(4) 408000000000000000 0.00 0.00

(5) 408000000000812000

Guarantees issued other than shipside bonds/airway bills

Financial standby letters of credit - domestic (net of margin deposit)

Item Nature of itemCredit Equivalent

Amount

Direct credit substitutes (.e.g. general guarantees of indebtedness and acceptances)

Account Code Seq.No.

Notional PrincipalAmount

CreditConv.Factor(CCF)

Financial standby letters of credit - foreign (net of margin deposit)

Sub-total[Sum of A (1) to A (3)]Risk-weighted amount[ A(4) x applicable risk weight]

Transaction-related contingencies (e.g., performance bonds, bid bonds, warrantees andstand-by LCs related to particular transactions)

Performance Standby LCs – domestic (net of margin deposit) established as aguarantee that a business transaction will be performed

Performance Standby LCs – foreign (net of margin deposit) established as aguarantee that a business transaction will be performed

Other Commitments e.g. formal standby facilities and credit lines with maturity ofmore than one year

Sub-total[Sum of B (1) to B (3)]

Risk-weighted amount[ B (4) x applicable risk weight]

Page 100 of 106


(1) (2) (3) =(1)*(2)


AmountAccount Code Seq.No.



C.

(1) 420100000000000000 20% 0.00

(2) 420050000000000000 20% 0.00

(3) 415050500000000000 20% 0.00

(4) 415051000000000000 20% 0.000

(5) 415100500000000000 20% 0.00

(6) 415101000000000000 20% 0.000

(7) 415150500000000000 20% 0.00

(8) 415151000000000000 20% 0.000

(9) 415200500000000000 20% 0.00

(10) 415201000000000000 20% 0.000

(11) 425250000000000000 20% 0.00

(12) 412000000000000000 0.00 0.00

(13) 412000000000812000

D.

(1) 425150000000000000 0%

Trade related guarantees – shipside bonds/airway bills

Trade related guarantees – LCs confirmed

Trade-related contingencies arising from movement of goods (e.g., documentary creditscollateralized by the underlying shipments) and commitments with an original maturity ofup to one (1) year

Risk-weighted amount[ C (12) x applicable risk weight]

Other commitments which can be unconditionally cancelled at any time by the bankwithout prior notice

Sight LCs - domestic (net of margin deposit)

Sight LCs - foreign (net of margin deposit)

Usance LCs - domestic (net of margin deposit)

Usance LCs - foreign (net of margin deposit)

Deferred LCs - domestic (net of margin deposit)

Deferred LCs - foreign (net of margin deposit)

Revolving LCs - domestic (net of margin deposit) arising from movement of goodsand/or services

Revolving LCs - foreign (net of margin deposit) arising from movement of goodsand/or services

Other commitments with an original maturity of up to 1 year

Sub-total[Sum of C (1) to C (11)]

Credit card lines

Page 101 of 106


(1) (2) (3) =(1)*(2)


AmountAccount Code Seq.No.



E.(1) 495050000000000000 0%(2) 495100000000000000 0%(3) 495150000000000000 0%(4) 495200000000000000 0%(5) 495250000000000000 0%(6) 495260000000000000 0%

(7) 495350000000000000 0%(8) 495400000000000000 0%(9) 495950000000000000 _a 0.00 0%

- _ 495950000000000000 1 0%- $

$$$(10) 495000000000000000 0.00

F. 400000000000000000 0.00

G. 400000000000812000

$$$1/

Trust department accountsItems held for safekeeping/custodianship

Items not involving credit riskLate deposits/payments receivedInward bills for collectionOutward bills for collectionTravelers’ checks unsold

Assign the appropriate risk weight according to the obligor, or if relevant, the qualified guarantor or the nature of the collateral.

Items held as collateralsDeficiency claims receivable

Total Notional Principal Amount[Sum of A (4), B (4), C (12), D (1) , E (10)]TOTAL RISK-WEIGHTED OFF-BALANCE SHEET ASSETS [Sum of A (5), B (5) andC (13)]

Others (Please specify)

Sub-total[Sum of E (1) to E (9)]

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PART III.2 RISK-WEIGHTED OFF-BALANCE SHEET ASSETS (in absolute amounts)

A.

(1) 405000000000000000

(2) 410050500000000000

(3) 410051000000000000

(4) 403000000000000000

(5) 403000000000812000

B.

(1) 410100500000000000

(2) 410101000000000000

(3) 425200000000000000

(4) 408000000000000000

(5) 408000000000812000

Guarantees issued other than shipside bonds/airway bills

Financial standby letters of credit - domestic (net of margin deposit)

Item Nature of item

Direct credit substitutes (.e.g. general guarantees of indebtedness and acceptances)

Account Code

Financial standby letters of credit - foreign (net of margin deposit)

Sub-total[Sum of A (1) to A (3)]Risk-weighted amount[ A(4) x applicable risk weight]

Transaction-related contingencies (e.g., performance bonds, bid bonds, warrantees andstand-by LCs related to particular transactions)

Performance Standby LCs – domestic (net of margin deposit) established as aguarantee that a business transaction will be performed

Performance Standby LCs – foreign (net of margin deposit) established as aguarantee that a business transaction will be performed

Other Commitments e.g. formal standby facilities and credit lines with maturity ofmore than one year

Sub-total[Sum of B (1) to B (3)]

Risk-weighted amount[ B (4) x applicable risk weight]

0% 20% 75% 100%

(4) (5) (6) (7) (Sum of 4 to 7)

0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00

Distribution of Credit Equivalent Amount According to Risk Weights 1/

Total

Page 103 of 106


Item Nature of item Account Code

C.

(1) 420100000000000000

(2) 420050000000000000

(3) 415050500000000000

(4) 415051000000000000

(5) 415100500000000000

(6) 415101000000000000

(7) 415150500000000000

(8) 415151000000000000

(9) 415200500000000000

(10) 415201000000000000

(11) 425250000000000000

(12) 412000000000000000

(13) 412000000000812000

D.

(1) 425150000000000000

Trade related guarantees – shipside bonds/airway bills

Trade related guarantees – LCs confirmed

Trade-related contingencies arising from movement of goods (e.g., documentary creditscollateralized by the underlying shipments) and commitments with an original maturity ofup to one (1) year

Risk-weighted amount[ C (12) x applicable risk weight]

Other commitments which can be unconditionally cancelled at any time by the bankwithout prior notice

Sight LCs - domestic (net of margin deposit)

Sight LCs - foreign (net of margin deposit)

Usance LCs - domestic (net of margin deposit)

Usance LCs - foreign (net of margin deposit)

Deferred LCs - domestic (net of margin deposit)

Deferred LCs - foreign (net of margin deposit)

Revolving LCs - domestic (net of margin deposit) arising from movement of goodsand/or services

Revolving LCs - foreign (net of margin deposit) arising from movement of goodsand/or services

Other commitments with an original maturity of up to 1 year

Sub-total[Sum of C (1) to C (11)]

Credit card lines

0% 20% 75% 100%

(4) (5) (6) (7) (Sum of 4 to 7)


Total

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

Page 104 of 106


Item Nature of item Account Code

E.(1) 495050000000000000(2) 495100000000000000(3) 495150000000000000(4) 495200000000000000(5) 495250000000000000(6) 495260000000000000

(7) 495350000000000000(8) 495400000000000000(9) 495950000000000000

- _ 495950000000000000-

$$$(10) 495000000000000000

F. 400000000000000000

G. 400000000000812000

$$$1/

Trust department accountsItems held for safekeeping/custodianship

Items not involving credit riskLate deposits/payments receivedInward bills for collectionOutward bills for collectionTravelers’ checks unsold


Items held as collateralsDeficiency claims receivable

Total Notional Principal Amount[Sum of A (4), B (4), C (12), D (1) , E (10)]TOTAL RISK-WEIGHTED OFF-BALANCE SHEET ASSETS [Sum of A (5), B (5) andC (13)]

Others (Please specify)

Sub-total[Sum of E (1) to E (9)]

0% 20% 75% 100%

(4) (5) (6) (7) (Sum of 4 to 7)


Total

0.00


Page 105 of 106


2,017.000PART IV. OPERATIONAL RISK-WEIGHTED ASSETS (in absolute amounts) 0.120

Gross Income

A.1 505050000000000000 20,786,881.21 22,077,886.04 22,578,605.26A.2 605100000000000000 2,108,802.70 2,147,679.79 2,225,491.98A.3 505000000000000000 18,678,078.51 19,930,206.25 20,353,113.28

B.1 510050000000000000B.2 510100000000000000 4,811,079.79 5,094,659.05 4,730,524.16B.3 510150000000000000

B.4 510200000000000000

B.5 510250000000000000B.6 510350000000000000

B.7 510450000000000000 2,442,412.29 2,893,862.54 2,852,004.19B.8 510000000000000000 7,253,492.08 7,988,521.59 7,582,528.35

500000000000000000 25,931,570.59 27,918,727.84 27,935,641.63 27,261,980.02

990000000000830000 3,271,437.60

996000000000830000 4,089,297.00

195000000000830000 40,892,970.03

$$$1/

Interest IncomeInterest Expense

Year 2 Last Year Average 1/

A. Net interest income

Item Nature of Item Account CodeYear 3

Net Profit/loss on Foreign ExchangeNet Gain/loss on Fair Value Adjustment in Hedge Accounting

Sub-total(A.1 minus A.2)

B. Other non-interest incomeDividend IncomeFees and Commissions IncomeNet Gain/loss on Financial Assets and Liabilities Held forTrading

Net Gain/loss on Financial Assets and Liabilities Designatedat Fair Value through Profit or Loss

When calculating the average, include only the positive annual gross income; hence, figures for any year in which annual gross income is negative or zero should be excluded from boththe numerator and denominator.

Other IncomeSub-total(Sum of B.1 to B.7)

C. Gross Income (Sum of A.3 and B.8)

D. Capital Charge [C (average) multiply by Capital Charge Factor of 12% ]

E. Adjusted Capital Charge (D multiply by 125%)

F. TOTAL OPERATIONAL RISK-WEIGHTED ASSETS (E multiply by 10)

Page 106 of 106

2017 annual report · jesus g. tabora nicolas r. tabora chairman president. 2017 annual report...

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