1.    Corporate Policy.

a.  Brief discussion of bank’s vision and mission statements.

With the replacement of the previous Strategic Plan for the year 2021 – 2026 with the revised 2024 – 2028 Strategic Plan, Partner Rural Bank (Cotabato) Inc. formulated and agreed among themselves to adopt equally adjusted and appropriate Vision and Mission statements for the coming years. The revision was seen applicable to the changes in the banking environment and the demands of the regulatory body for more adjusted banking industry features.

VISION:

Partner Rural Bank, the Mindanao-wide prominent bank that provides excellent customer services using digital banking technologies hand-in-hand with established sound banking practices.

The new vision viewed the bank to be focused on “excellent customer services” that are tied up with adjusted or adopted technologies such as digital banking hand – in – hand with established sound banking practices.  The new vision is an adjustment from the rather emphasis as “a premier bank with dominant market leadership” providing competitive, innovative, and varied banking and financial products and services in broader markets as previously expressed in the 2021 – 2026 vision statement.

MISSION:

Partner Rural Bank, a creative financial provider using advanced banking technologies for sustained partnerships with its customers and stakeholders.

The bank’s mission in the previous strategic plan then is to be “a financial provider delivering convenient, creative and advanced banking technologies while ensuring financial integration and partnerships to all its customers and stakeholders”.  The new vision for the 2024 – 2028 focuses on the bank being more of a creative financial provider using advanced banking technologies for sustained partnership.

b. Introduction of the bank’s brand.

As has been stated in previous annual reports, and to repeat and emphasize, Partner Rural Bank, Inc. for around 40 years of the past has been branded as an agriculture – oriented rural bank. In its initial years in 1979 until 1985, the rural bank has been engrossed in the Masagana – 99 program handled by the Central Bank headed by then Gov. Gregorio Licaros at that time and its rural bank rediscounting program.  The rural bank started as a Masagana – 99 participant until the collapse of the government lending program during the last years of the Marcos regime in 1984 - 85.  During the years after, the bank has focused its concentration on farmer subsistence, food via rice production, on agricultural improvements and technology - changes, and rural integration even with the closure of the rediscounting programs. In the early 1980’s, at the time the bank has participated in the government’s Masagana – 99 and other agricultural credit projects, the bank has also invested in an allied undertaking engaged in rice – milling and hog – raising in Pigcawayan Agro – Industrial Development Corporation (Paidcor) as its collecting arm until 1992. As a brand could be the name or design, or any feature that identifies one good or service different from others, basically the loans extended by the bank  were referred to as the “supervised farmer loans”.  It was only lately that the bank, has shifted at around 2010 – 2012 to introducing electronic banking technologies with the introduction of ATM units and its membership with the BancNet network of commercial, thrift, and a few rural banks during the period. Partner rural bank was then referred to as the active ATM rural bank.  The bank was also an original incorporator and member of the Phil. Payment Management, Inc. (PPMI).  At its first phase of development therefore, the bank was branded as a serious agriculture – focused rural bank proven by the fact that its loans are mainly agricultural of up to 75% of its portfolio.  At the second stage of its upgrading, the bank was branded and identified as an on – going electronic and digitalizing rural bank ahead of others but still with food sufficiency, poverty alleviation and agricultural development focus. Since then, the bank’s statement to the clients and customers has always been “Save first, and Credit follows”. 

When rural banks were eventually allowed to engage in branching to other municipalities and locations, and the Pigcawayan Rural Bank decided to set up rural bank branches in towns where the former rural banks were ordered closed or restricted by the Central Bank, it had its named changed to “Partner Rural Bank, Inc.” 

Since 2014 then, the public impression of the Partner Rural Bank, Inc. has been gradually moving, changing, and viewed alongside its having ATM machines that are maintained well and professionally with BancNet and Diebold - Nixdorf, and also its campaign for the use of its Mobile Banking services via Smart cell - phones.  The impression that the Partner Rural Bank, Inc. is an electronic brand of bank has been moving on since then.  The bank has been building its brand as a different kind of a rural bank: a technology – oriented, electronic type of rural bank, and even with a potential on – line feature with is currently available Mobile banking service (MBS) through smart phones. Even among different rural banks, the fact that the eight Partner Rural Bank branches and branch – lites have their all-installed ATM machines as a member of BancNet have distinguished itself with the other traditional rural bank units.

c.  Business model of the bank.

The bank’s current Business model is consistent in the descriptions provided in its Vision, i.e. to be a Mindanao-wide prominent bank that provides excellent customer services using digital banking technologies hand-in-hand with established sound banking practices.  Likewise, its business model, also consistent with its mission describes itself as a creative financial provider using advanced banking technologies for sustained partnerships with its customers and stakeholders. The branches and branch – lites of the bank are, since earlier and until currently 2023, now considered “market units” - meaning focused on marketing various products of the Partner Rural Bank, not only the loan products, but all its products specially savings, term – deposits, payment and remittance services, mobile – banking services, financial advisory services, promoting deposit generation, and building revenues and resources.  Business model of the Partner rural bank could be considered a “Direct sales business model”, or even a “Low cost credit and loan business model” if the bank’s products are to be compared to the interest and costs of private money – lenders in the rural communities.  However, in the year 2023, competition with the entry of so – many other financial institutions including cooperatives and thrift - banks soared affecting the bank’s continuing need to increase the loan portfolio and deposit liabilities of the Partner Rural Bank as a whole. Income and revenue of the bank declined. Human resource costs due to piracy and employment offers of the commercial banks, cooperative banks, an even the public schools via Dept. Education, undermined Partner Rural Bank’s employment and salary schemes. Also, marketing efforts rose as stiff requirements of the bank to forestall the continued losses of clients and customers being identified and pirated by other lending institutions. Besides, by 2022 – 23, the eight (8) branches and branch – lites were already being classified as the bank’s Marketing Units. What used to be the Loans departments of the branches and the branch – lites were transformed and taken out to join the independent Lending Centers composed of the Inspector – appraisers, Loan analysts and evaluators, and the lending center head. Inspection, appraisal of collaterals and securities, the risk studies, loan analysis and evaluation are all centered in the Lending Center outside the confines of the branches which are all focused on serious marketing efforts.  

2.    Financial Summary/ Financial Highlights.

Comparative run down of selected profitability, capital, performance and balance sheet data and ratios serving as a glance of Partner Rural Bank’s condition in 2023 and the prior year.

3.    Financial Condition and Results of Operations.

(Including a Report from the President/ CEO addressed to the stockholders and other stakeholders of the bank covering the following information.)

Dear Stockholders,

Pursuant to Article VII, Section 1 of the By-laws of Partner Rural Bank, Inc., this report accumulates and mixes the outputs and results of the bank’s operation as an offshoot of its policies and the environment during the previous year 2023.  The report also includes the comparative financial statements for the years 2022 and 2023, and the various analyses and explanations of the conditions, policies and factors that have led to the said results. We may even take note in limited expressions and explanations the specific findings and notifications drawn out of the results of examination of the BSP which may strengthen and upgrade the qualities of the bank’s varied components. In simpler and comprehensive ways, these are all here provided to the stockholders and guests present on the 46th Annual Stockholders’ meeting this 13^th day of Jan. 2024 at Pigcawayan, Cotabato.

Partner Rural Bank, Inc. should actively and positively pursue its mission and vision.  The business of rural banking is wholly encouraging.  It is more of the bank’s appropriate human resources, improved internal and managerial capabilities that are most needed and necessary by the bank to pursue it goals, especially its continued profitability. The shareholders and stakeholders, and their succeeding generations, should all be aware of the bank’s capability and capacity to run its banking structure and edifice for the whole 45 years, without even one year ending in income losses and negative revenues. Except during the first years in 1978 – 1979, for those 45 years, the bank has retained its profitability.   Currently, the statistics agency reports that the national economy grew by 5.9 percent in the third quarter of 2023 with increased public spending despite persisting inflationary pressures.

Government data have shown that the major contributors to the improved third quarter of 2023 gross domestic products were wholesale and retail trade, construction, and financial and insurance activities.

Furthermore, according to the same data source, the 3rd quarter 2023 performance proved better than the previous one in the major economic sectors — agriculture, forestry and fishing, industry, and services — all recording expansions to make the Philippines the fastest-growing economy among major economies in Southeast Asia this year. This can give us the encouragement for the coming year to build better results and needed revenues.

Overall, there is a prevailing positive economic outlook that propels a robust growth momentum. The challenge now is how we can take advantage of this to further strengthen efforts to better sustain economic growth at the national level – and of course, for the benefit of the Partner Rural Bank, Inc.

4.       Resources:

During 2023, the Total Assets of the bank decreased by ₱7.824 million. That is, from ₱312,953,124.72 as of Dec. 31, 2022, to ₱305,128,492.20 by year - ending Dec. 31, 2023 giving a decrease of 2.56%.  (Exhibit "A").

The decrease in 2023 Total Assets compared to the previous year can be due to the decreases in the Earning assets, the decrease in Liquid assets, Due from BSP and Local banks, and similar items. The earning asset decreased by – 9.75% from ₱226,461,782.43 m. in 2022 to only ₱206,336,986.09 by end of 2023. This decrease in earning assets amounted to ₱20,124,796.34. Furthermore, the gross loan portfolio increased by 1.9% only from ₱149,808,764.45 in 2022 to ₱152,478,256.90 by end of 2023, or an increase of merely ₱2,669,492.45. The bank previously targeted ₱210,000,000.00 million loans for the year 2023 and ended up with only ₱152.0 million short and lesser. The loan target achievement by end of 2023 was still  very low , but the present target increases in loans may be considered good challenges.

The present changes in Deposits amounted to merely ₱9,648,313.55  by the end of 2023 from ₱239,468,802.88 on Dec. 31, 2022 to ₱229,820,489.33 by Dec. 31, 2023. 

The increase in assets and the deposit liabilities, can be considered as effects of the larger circulation of money caused by the local elections during the 2nd quarter of this year 2023, and the poorer effects on local businesses due to wars and conflicts in numerous places under current conditions. These include the effects of the disputes in the “West Philippine Seas”. The results of the bank’s operation by 2023 however can be said to be a continuation of the restoration of the continuing growth agenda and positive outputs of the bank since the past decades but blocked by the current negative development of the environment, society and politics.

5.       Results of Operations.

As shown also in Exhibit “A”, for the 2023 Year – end result of operation, Gross Income increase reached ₱5,038,281.20 or comparing with the previous year result in 2022, it increased by 11.86%.  The Operating expenses comparing 2022 and 2023 end – of - year figures seem to have increased by P2,816,524.64 or by 7.28%.  Net Income, therefore, prior to tax, increased by merely around a million pesos. The net Income in fact increased to ₱3,072,103.80 by end of 2023 to ₱2,138,289.39 by end of 31 Dec. 2022 – or an increase by 30.4%.

The provision for Income tax however was ₱514,061.90 in 2022. The same provision for Income tax is estimated to be merely ₱229,314.00 by the year ending 2023.  Net income after tax is ₱2,842,789.80 by Dec. 31, 2023, versus ₱1,624,227.49 by the previous year ending 2022, or an increase in income after tax by positive ₱1,218,562.31.  This is a net income increase by 42.87% after tax deductions.

Calculating Return on Equity (ROE) following the calculation of income – net – of – tax gave 4.36% compared to the ROE of the previous year 2022 of 2.56%.  The same holds true in calculating the Return on Investment (ROI) of 6.82% for end of year 2023 compared to 3.92% in the previous year – end 2022.

With the still – high cases non – payment of loan obligations which started at around 2020 – 2021 pandemic period, the Past due ratio, the ratio of delinquent loans to total loans, were not strictly controlled as shown with the maintenance of 18.16% Past due ratio up and compared to 14.12 at the end of 2022. 

Book value of the common shares by end of 2023 is ₱152.83 down from ₱157.14 per share which was comparably higher by end of 2022.  Given the current book value of the shares at ₱152.83, the total common shares - subscribed would be reduced to only ₱64.0 m. - more or less.

6.       Assets.

Current Assets, and these are made up of COH, COCI, Due BSP & Deposits in Other/ local banks, decreased by – 6.63%, or a decrease of an amount of ₱23,204,167.29, that is, from previous ₱133,697,982.43 as of Dec. 31, 2022, to ₱110,493,815.14 as of Dec. 31, 2023.  While the current assets constituted 42.84% of the total assets in 2022, it now however constitutes only 36.21% of total assets by end of 2023.

Loans, net of valuation reserves, however increased by 1.97% only, that is, by only ₱2.669 million from ₱149,808,764.45 as of Dec. 31, 2022, to ₱152,478,256.90 as of Dec. 31, 2023.  The increase in the Loan Portfolio, net of valuation reserves, could be considered negligible. The styles and techniques in selling the products of the bank, especially the Lending products and services, on community - based and house – to – house approaches, or the person – to – person appeals, can prove to have been effective, yet still needed to be pursued more aggressively. 

The net Loan & Discounts’ share in the total asset also increased very slightly from 48.0% in 2022 to 49.97% in Dec. 2023. Competition from other banks.  Less aggressive rural banks with limited capital will definitely lose a lot of borrowers and depositors in the process, given bigger capital of commercial and universal banks and with Land Bank’s available government funds disbursed and distributed cheaply and on very unsecured bases. The competition in the rural financial market was met aggressively likewise by the management and staff of Partner Rural Bank, Inc. despite smallness of capital, investment, funding, tools, equipment, technology, and on the whole, of know – how, which the Partner Rural bank try to confront via continuous training, team – work, and almost weekly dialogue and exchanges of information on TTBD – the weekly ZOOM meetings every Monday afternoon.

On the Fixed Asset side, due to the move of Partner Rural Bank, Inc. to invest in a self – owned property in Kabacan, and in constructing its own branch building, the Bank Premises, Building, Leasehold improvements, and FFE (net of depreciation) moved from ₱10,237,440.31 in 2022 to P29,970,773.78 as of  Dec. 31, 2023. Investment and purchases of Premises and FFE increased by 6.54% amounting to P19,733,333.47. The share of the FF&E (net of depreciation) to total assets is merely 3.28% in 2022 and increased to 9.82% in 2023. There were furthermore increases in the purchase of mobile equipment such the L-300, the 3 WIGO Toyota 2^nd hand cars, and the likes.

Though the sales of Foreclosed assets and properties were kept continued, the total amount of ROPAs has almost been unmoved since Dec. 31, 2022, with ₱5,600,542.73 by Dec. 31, 2022 with P5,181,878.41 by end of 2023.   The year – to – year change in ROPA amounted to negative 0.10% only. Overall, the role of ROPA to total asset may also be considered low – keyed with only 1.79 – 1.70% share in total assets in 2022 to present. Also, the sale of foreclosed properties recorded under Sales Contract Receivables (SCR) in both 2022 to 2023 decreased by only -0.06% or a decrease of ₱212,841.67 only.  As portions of total assets, the SCR in Dec. 31, 2022, was merely 0.47% and 0.41% on Dec. 31, 2023. More sales and disposition of the bank’s foreclosed properties are to be pursued more aggressively.

The “Other Intangible assets” decreased by merely – 03% or around - ₱95,888.91.  “Other assets” however are the Accounts payables, pre-paid expenses, petty cash funds, Stationery, and office supplies on – hand, and Miscellaneous assets. Their almost reduced portion of the total assets are negligible and reflects the thriftiness in operations.  “Other Assets” on the other hand decreased again from ₱10,442,365.60 as of Dec.31, 2022 to P4,584,203.92 by Dec. 31, 2023.  Their share in assets also decreased from 3.35% in 2022, to 1.50% by the end of 2023. 

7.       Liabilities:

Total Liabilities as of Dec. 31, 2023 decreased from the total liabilities as of Dec. 31, 2022, by – 3.39%. That is, from ₱247,984,285.50 compared to the total Liability of ₱238,759,271.94 as of end of 2023, or a decrease by as much as ₱9,225,013.56. (Exh."B-2").  In terms of their share to Total Liabilities and Capital, the liabilities constitute 79.46% as of Dec. 31, 2022, compared to 78.25% as of Dec. 31, 2023.  The slight decrease in Liabilities could have been the result of limited branch and managers’ campaigns for Saving mobilization and Deposit generation. The lack of promotion of the bank’s Payment system and management could have reduced the appeal of the payment products of the bank and attraction of the payment schemes among the populations, especially those expecting remittances and fund transfers. 

During previous year, all the branches were instructed to go aggressive and forceful in the campaign to increase the Deposit balances of all the Partner Rural clients, customers, MBS users, market vendor and stall – holders’ patrons and consumers, and all their savings accounts.  As a turn – out, the Deposit Liabilities even decreased by – 4.20% amounting to a decrease of ₱9,648,313.55. This was a decrease from ₱239,468,802.88 m. by Dec. 31, 2022 to only ₱229,820,489.33 by the end of Dec. 2023. The bank’s launching of its Mobile Banking services (MBS) did not increase its deposits as marketing MBS will definitely take time. Besides the interest in MBS by provincial clients are still low, unlike the interest of the Millennials and the younger generations. The branch managers however achieved the serious endeavor to increase the Deposit Liabilities of clients and customers to the bank most likely due to the aggressive push of the managers during even the previous and earlier years of 2022, 2021, etc.

Bills payable, especially the rediscounting through LBP, have been reduced due to the relatively higher liquidity of the bank at these phases of operations, and the cheapness of deposits and savings compared to the charges imposed by Land Bank through the rediscounting fund availment.  The same holds true for financial leasing for the purchase of equipment, vehicles, and building construction.  These also grounded to zero. Policy consideration however tells the bank that the financial relationship with Land Bank should be kept available and usable in case in the future, liquidity issues may crop - up requiring Partner Rural Bank ready access for available sources of credits and liquid resources.

8.       Capital Accounts:

As of Dec. 31, 2023, total capital accounts/ net worth including Provision and Undivided Profit & Reserves stood at ₱66,369220.26.  This was an increase from ₱64,120,534.68 as of 31 Dec. 2022.  Stockholders, despite the financial difficulties did not spare paying their past due Subscriptions or Unpaid subscriptions. Paid – up Common and Preferred Shares did not reflect any substantial increase from 2022 until end of 2023. Its figure of P41,560,700 on Dec. 31, 2022, is almost the same as the figure of P41,821,000 on Dec. 31, 2023.

Undivided profits/Retained earnings – Free and reserves increased by 8.10% amounting to ₱1,988,385.58.  That would mean an increase from ₱22,599,834.68 as of Dec. 31, 2022, to ₱24,548,220.26 as of Dec. 31, 2023. The end figure of the “Undivided Profit & Reserves” as of Dec. 31, 2022, amounted to 7.23% of the total liabilities, and the Dec. 31, 2023 figure is equivalent to a higher percentage of 8.05%.  Partner Rural Bank, Inc. need to raise sufficiently a minimum capital level of P120.0 million level within a period of five (5) years, which is until 2028.  There will be several options here:

a.       The existing stockholders have to subscribe and program the payment of an additional ₱60 – 65 million additional subscriptions, since the total capital account has already reached ₱64.0 million, and an additional ₱60.0 million is needed to reach ₱120.0 million minimum capital requirements for banks operating like Partner Rural Bank, Inc.

b.       Additional “big banker investors” can be attracted and negotiated to infuse the additional ₱60.0 million fresh capital to enlarge the bank’s capital base.  In this particular case, Filipino patriotic – investors are preferred, rather than prefer foreign investors whose backgrounds and motivations are difficult to establish.

c.       Another option is to undertake the challenges of the BSP Rural Bank Strengthening Program that will allow Partner Rural Bank, Inc. to undergo “Merger/ Consolidation” with other rural banks, or even with non- rural banking entities. The Stockholders at this stage have to come up with precise and dedicated decisions to go “merger/ consolidation” and appoint individuals trusted to undertake negotiations and transactions.

The stockholders, in attendance must take and confirm the decisions and the options they wish to absorb and adopt immediately. These are urgent decisions to take up.

9.         Gross Income:

The gross income generated by the bank and its management showed the effort raised by the bank, its officers, and managers to prevent further drop in income and revenues in the light of the impact of the poor economy to agriculture and financial institutions. For the past three years, the desire of the bank to raise its income and revenues have been met with further difficulties.  The situation is mainly attributable to the continuing decline and reduction of the Lending portfolio and the lending businesses of the bank. In connection with this problem however, the bank’s management has maintained the profitability and the positive revenues generated by the bank even at a relatively low level.   Gross income ended with an increase of P5,038,281.20 compared to previous year gross income. Gross income as of Dec. 31, 2023 reached ₱42,468,225.13 compared to ₱37,429,943.93 as of Dec. 31, 2022.  This gross income is composed of the following:

10.     The interest on loans increased by 4.10% from ₱19,476,773.64 in Dec. 31, 2022 to ₱23,839,580.12 as of Dec.31, 2023.

11.     Interest Income on Sales Contract Receivables could not be generated due to lack of new Sales contract agreement for the year 2023.

12.     The Interest Income on deposits with Other Banks and DDA with BSP has reached ₱100,768.51 on Dec. 31, 2023. This is a decrease compared to only ₱101,339.54 as of Dec. 31, 2022. This is therefore a slight decrease of – 0.23%.

13.     Service fees/ charges increased by only 1.57% mainly from the collection and renewal of loans or the lending results in the increase in the total loan portfolio. From ₱12,555,714.61 by 31 Dec. 2022, the earned Service Fees and charges hit only ₱13,579,183.15 as of 31 Dec. 2023. The share of Service fees/ and charges to total Income generated ended 33.54% in 2022 and ended with 32.0% by 2023.  The increase in the share of the service fees/ charges to total income generated could be attributed to Non – interest income generated by the bank’s electronic ATM products and mobile banking, but still including service fees from loans and credit.

14.     “Other income” also generated almost the same amount –₱3,597,905.76 m. as of Dec.31, 2022 and with P3,504,626.83 as of Dec. 31, 2023.

15.     Expenses:

With the increase in savings during the year, the Interest on Deposits somehow increased by ₱355,247.58. That is, from ₱1,859,492.32. in 2022 to ₱2,214,739.90 by end of 2023.  Interest on Deposits used to cover 5.19% of total expenses, and by end of 2023 reached 5.6% of total expenses.

Interest on Borrowed Funds grounded to “zero” within 2022, that is, from rediscounting with the LBP, comparing the year – to – year ratio. was greatly reduced to a decrease of 100%. 

The biggest expense of the bank is really Compensation/ Fringe Benefits which constitute 33.45% of the bank’s percentage of total expenses. The total expense for compensation reduced by 5.75% as of Dec. 31, 2023, compared to the level by Dec. 31, 2022. In addition, Fringe benefits amounting to ₱1,218,325.31 were granted as of Dec. 31, 2023, compared to only ₱236,156.22 granted as of Dec. 31, 2022.

Directors’ Fees increased by 0.21% from ₱147.000.00 up till Dec. 31, 2022, to only ₱245,500.00 until Dec. 31, 2023. The share of the expenses related to Directors’ Fees to total amount of expenses ranged from merely 0.44% in 2022 to 0.61% by end of 2023.  This coincides with the current corporate governance views that the benefits provided to the Directors and Officers are not merely concentrated to them and could not be interpreted as an “abuse of power and privileges” without having to expect so many efforts and over – work from the directors and officers, including the independent directors of the board.

Nevertheless, the expense items that showed increases, or, if at all, even very slight decreases, by the year end of 2022, are the following:

16.     Management and Professional fees increased by as much as ₱161,748.76 or by 70% amounting to ₱231,064.11 by Dec. 31, 2022, to ₱392,812.87 by Dec. 31, 2023.

17.     Other Admin. Expenses between 2022 and 2023 increased by 1.14% in an effort of top management, the BOD, and the Head Office operations to readily reduce “other administrative expenses” from ₱13,952,438.16  or 38.97% of total expenses on Dec. 31, 2022.  However, efforts, nonetheless led to₱14,989,969.38  or 37.8% of total expenses on Dec. 31, 2023.  Specific expense items categorized under “Other Admin. Expenses” are Rent expenses, Power/ light/ water, PTCT, Security services, Insurance premiums, Management & Other Proff. fees, IT Expenses, Travelling & Transport expenses, Advertising & publicity, Donations, Documentary stamps, Stationeries & supplies used, Repairs & maintenance, Litigation expenses, etc.  The items whose prices increased are Rent – 100.45%, PTCT – 138.65%, Repair and Maintenance – 206.52%, Security & Messengerial – 15.15%, Insurance expenses/ PDIC – 25.26%, Management & Other Proff.Fees – 70%, Represenation & Entertainment – 44.35%, Travelling Expenses – 41.04%, Litigation/ Asset Acquired – 377.18%, and Other expenses – 138.41%.   

18.     Taxes and licenses due to lower income and revenues generate decreased by negative –17.76% from ₱3,025,786.03 m. by 31 Dec. 2021 to ₱2,488,391.99 m. by 31 Dec. 2022.

19.     Fees & Commission expenses are negligible. There were no “Bad Debts” that were written off during 2022, and even in earlier years of 2021. The same is true for expenses that can be categorized as “Recoveries of charged – off Assets”.

20.     An additional posting of the Provision for Probable Losses was booked at ₱825,856.15 for the year 2021.  By 2022, a reversal of the provisioning for Probable Loan Losses amounting to – ₱567,715.35 was however entered into the book thereby reducing the provision by – ₱1,393,571.50.

21.     NET INCOME:

Net Income before Income tax decreased by – 29.23% or by negative ₱670,991.32 from ₱2,295,218.81 m. on 31 Dec. 2021 to ₱1,624,227.49 m. as of 31 Dec. 2022. Despite the attempts to control and partially reduce expense, the bank still failed to achieve much higher income and revenues during 2022 due to the two (2) tranches increases in salaries on July and Sept. of the year caused by the DOLE political stance and posturing.

(Please see attachments: Exhibit A, B1- B2, and C.)

22.     Conditions and Changed perspectives.

a. The need to have a new branch building for the Kabacan branch proved to be very “distractive” to normal and steady activities of the whole banking organization. A ₱10.0 million worth of lot was procured, and some ₱8.0 m. worth of building was constructed from beginning of the year until August 2023. It was blessed and inaugurated by Sept. 2023 during the bank’s 45th anniversary celebration.  The construction activities ate a lot of efforts and activities of crucial personnel, including the whole batch of Kabacan employees who were preoccupied in the physical transfer of the branch itself to its new location.

23.     Partner Rural Bank, since the middle of 2022, has tried to redesign its operations.  Changes and revisions in operations were done redefining the role of its branches as the “Marketing Centers” instead of the previous concept of “Business Units”. All staff and employees of the branches and branch – lites are considered “marketing employees” who are tasked to “sell & market” all the varieties of products regardless as to whether they are loans, savings, deposits, payment systems, fund transfer products, online cash, or cash – light services, and all. A loan staff, for example, is not only about loans, but should also be promoting savings, ATM, and MBS services, cash disposals and fund transfers, and the likes.  A teller is not only what they are, tellers, and nothing else. They also must be knowledgeable about loans, lending, payment – systems, fund – transfers, etc. In short, Partner Rural Bank has been less aggressive over the past four or five years of operations. It has not taken full benefit of its creation of 3 Branch – lites or extensions of its long operating Branches in Pigcawayan, Mlang and Tacurong.  The bank now formulates effective marketing and on – boarding strategies to keep its customers attracted to new products and services of the bank. including competition against “new” players in areas where the bank should have been in full control and aggressiveness.  To a certain extent, the effects of the above changes have been gradually attained. The bank simply needs “persons” and “people” who the bank can rely on in executive new strategies and capable of communication to customers, clients, staff, colleagues and companions in the challenges.

24.     Lending Center. Another major change introduced during late 2022 and seriously implemented in 2023 is the adoption of the “Lending Center” which suites the concept of the branches as “Marketing Centers”. As focused “marketing” units, the branches are not supposed to process, document, analyze, evaluate, assess, and do the recommendation for the approval of the loans, including reloans, at its level. The Branches’ supposed staff – in – charge of the loans is “out”. These tasks were transferred to the newly created “Lending Center” made up of the lending center Head, two to three Loan analysts and evaluators, Loan Assessors and CI & BI, and the Loan Collateral/ security Inspectors/ Appraisers. All these tasks used to be done before by the supposed Loan Staff and Personnel of the branches which were eating up most of their time, efforts, skills and the like, thereby devoting most of their time to “loan related” tasks, responsibilities, skills, and efforts – and thereby contributing to the reduction of branch efforts for lending or loan expansion.  The tasks inside the branches have been dissolved. The introduction of the Lending Center revised those conditions and upgraded the tasks of the Credit Committee. More improvements are expected upon implementation by the year 2024 – up to 2026.

In terms of new banking ways to serve clients and customers, the banking executives, officers and managers in 2023 have been enjoined to focus on the following:

a.       Retail Banking – the practice of prioritizing client/ customer experiences and mind - sets. A critical test here would require providing “personalized advice” and “professionalized partnership” with customers.

b.       Transaction Banking – the ability to trace and track the ways and systems by which the money flows with the clients and customers day – day - efforts.

c.       Private Banking – the need to identify the “millionaires” who are in surveys done could surpass 87 million by 2026 worldwide. It will depend on how managers intelligently identify and approach them within their areas of banking.

d.       MSME Banking – Stick to our definition of what an entrepreneur is, link with them, as SME are conceived to contribute up to 40% of national income (GDP) in emerging economies like the Phils. However, informal MSME’s can reach up to 80 – 90%.

Our traditional approach of identifying farmers and rural clients must have gone out. Providing credits to rice producers, crop farmers, livestock raisers, etc. have been diversified. Government, Dept. of Agricultural & Fisheries, LGUs, and the government bank Land Bank, have been providing the cash credits, interest rate free and medium term – even without hope of being able to collect the funds disposed and “given”. Partner Rural Bank, Inc. has to refocus, or at least, compliment their credit/ loan and deposit focuses on these stages.

Another focus that the stockholders, stakeholders, directors, officers, managers, key staff and employees of Partner Rural Bank, Inc. have to look into is the “digitalization” of the bank. Globally, banks and financial institutions for the past decade have been moving towards digitalization. Technical innovations intended for the financial industry and institutions as a whole have been moving around as bank customers and clients themselves move from the traditional and conventional banking models moving towards more technical upgradings through digitalization.  Digitalization is an area where the bank’s officers and managers, all of them, have to move and be developed as well.  The literature is available.

It has been viewed by many that what are needed are, first, introducing marketing skills and the need for MSME – related skills and knowledge, where training come to fore. As of last year, Training in accountancy, in Project Feasibility studies, in planning skills, idea – preparation skills, skills in analytical reviews and critical investigations of data and facts that will help improve lending and client analysis, etc. have been noted.  All were enjoined to undertake their own learning processes, either through self – learning processes, or through free and available institutional learning. These are all needed within our growing banking institution. These have been discussed last year and through the planning outputs initiated by the managers and the key staff themselves. The thrust toward “digitalization” should also be linked and connected.

First requirement is corporate leadership - not only to provide authorizations and positions to people more interested in financial considerations than anything else, but to genuine bankers who can contribute both theories and good practices without counting on compensations and fees most of the time.

2^nd requirement is the sufficiency in capital contributions, and this means pushing for systems, projects and schemes that can help raise more capital. Persons who can introduce and inject more capital without exploiting the bank would be necessary.

3^rd requirement would be the efficient internal auditors and loan system analysts, both of which will always be able to provide the necessary assistance to keep on strengthening the bank and the bank’s risk management.

A 4^th requirement would be a fully dedicated Chief Compliance officer who will assist the Internal Auditing Team and the Human Resources Team in upgrading the banking organization, conduct tightly implemented assessment of personnel, officers, directors and even the BOD, and the like.

And finally, the 5^th requirement would be the highly dedicated, capable, focused Managers of units of the bank and branches – who are not there because of opportunism, but because of the social necessity of upgrading the implementation and concrete handing of the bank and its social and economic concerns.                                                                                   

                                                                                                                                                                                                                                     EUGENIO A. DEMIGILLO, JR.

                                                                                         P R E S I D E N T  &  C .E .O.

a.        Review of the bank’s operations and result of operations for the financial year with details and explanations for significant changes during 2023.

Before further discussing the financial and revenue results of the bank in 2023 as they may have been affected financially, the external factors, particularly the economic factors and the macro – economic considerations must be noted. The critical factors that have nailed 2023 based on studies and key challenges that faced the economy are the following items.

i. High unemployment rates.

ii. High inflation rate (forecast to reach 5.1 percent in 2023).

iii. Poor import and export activities.

iv. Declining P₱hil. peso against the American U$D which nearly reach P₱58 U$D. 

v. Local political elections that disturbed attentions of the public.

All of these have affected the Partner Rural Bank, Inc. in numerous ways. Firstly, while unemployment rates are high, the unemployed sectors are labor - focused and which do not fit the requirements of the bank.  White – collar jobs are better desired by the employment – requirements of the bank, such as tellers, cash – handlers, marketing staff, and most especially potential employees with high accounting and IT and recording skills and capabilities. There is not much unemployment among the type of employees needed by the bank.

Second, inflation that has led to increases in prices of basic commodities, such as rice, foodstuffs, meat, vegetables, and the likes, have equally affected the costs of oil and fuel, water, services, and others.  With the rise of the prices of other supplies and services, inflation has also affected the increase of various requirements of the bank such as its fuel and lube consumptions, electric services supplied by the power cooperatives, insurance and bond requirements, office supplies such as papers, pens, fasteners, staplers, etc., and others. Overall costs of operations, mobilizations, movements, all together have increased.

Third, the poor financial performance of the national economy and the current administration has created the grounds that needed the increase in the Bank staffs’ salaries and compensations, including the adjustments in salaries of security guards under the contract with the security agency connected or dealt with by the bank.  Moreover, the genuine strength during this 2023 of the Philippine financial services sectors, which includes our bank, relates to BSP interest rate increases and as have been mentioned, the rising inflation. Interest rate hikes could have had positive effects by widening the interest margin, but macro - volatility could cause a slowdown in new loans sought by the public.  This, to a certain extent explains why it was too difficult for the bank branches to increase their loan portfolios in accordance to determined targets.

Furthermore, the banking/ financial sector by middle of 2023 has been responding to difficulties of the financial sector by prioritizing the so – called interoperability and digitization of banks. Bangko Sentral has been pushing, not only the big universal banks, but also the rural banks to go digitalized and adopt modern banking technologies to develop their marketing performances. In view of this, during the year, generally, banks including Partner Rural Bank, Inc., have taken additional efforts such as trying to recover its ROPA’s and still un - litigated non - performing loans (NPL), further reducing their loan loss provisions (LLP), and upgrading credit risk management.  Partner Rural Bank, Inc. in fact has been subjected to a general examination by July until August of 2023 the results of which focused on the entire credit – granting operation and improvements. BSP recommended that the bank change its 2021 – 2026 Strategic Plan to another that can consider the changes in the current conditions related to banking in general. Perhaps most crucially, the Partner Rural Bank, Inc. realize and absorbed in its new strategic plan that are increasing efforts to make banking more accessible, inclusive and digitalized. These would however mean additional costs and capital – expenditures. This would impact and push the Partner Rural Bank to push and increase its capital immediately. Studies have made note that in 2021, an estimated 60 percent of Filipino consumers have used digital banking. The figure rose from merely 17 percent in 2019. Further growth is expected to accelerate in the coming years, 2023 included.

Fourth, the local internal factors and the global factors blended and mixed leading to impacts into the bank. The decline of the value of the peso, of course, led us to paying the Partner bank’s dollar – denominated accounts into sky – high pesos.  Both the wars between Russia and Ukraine, and later the war between Israel and Palestinian territory of Gaza, have cause global effects to us. In addition, aggravated by climate change, ecological threats — water and food shortage made further complicated by continuing population growth can likely raise the risks of conflicts, wars and mass displacement or migrations on a worldwide basis. In the case of the Philippines, due to a growing population of 112 million Filipinos, a poorly run and managed economy characterize by depletion of domestic gas from the Malampaya gas field, and a heavy reliance on imported fuel, the Philippine supply shortage is expected closer by the next succeeding years to come. The Philippines may be able to generate enough energy to ensure domestic consumption requirements, but the supply vs. demand will remain tight with apparent more of supply risks. Threats to the energy supply include constant importation, rising oil and gas prices, supply-chain disruptions, and the Phil. Pesos depreciation relative to U$D. This puts the Philippine interest in its West Philippine Sea crucial and has to be protected as it seems to be with using US aggression against China as a protective tool.

b.       Highlight of major activities in 2023 that impact operations.

A major activity of the bank that actually started around Nov. 2022 and intensified from Jan. until Sept. – Oct. 2023 was the construction of the branch building where the Kabacan branch will be relocated due to the end of the rent contract with the Polido owners on March, 2024. The movement of the branch physically must be done earlier, that is, by 2023. The involvement, supervision and the review of the costs and activities of the construction ate a lot of the executive and managerial time – tables of the bank president and other officers, such as the compliance officer, branch manager, and others.  To a certain extent, these have reduced efforts towards improved management, regular branch operation supervision, constant policy issue formulation, human personnel assessment and employee performance reviews.  A lot of time and energy have been eaten off, but could not be viewed as wasted, of course. These efforts and dedications nonetheless led to the launching of the Kabacan branch in its newly finished building and the coincidental celebration also of the Partner Rural Bank’s 45^th founding anniversary on Sept. 3, 2023.

Furthermore, the bank was subjected to a Regular examination by the Bangko Sentral through the efforts of the Financial Supervision Sector 2 (FSD2) completed on Aug. 18, 2023. The results and findings during the regular examination have definitely contributed to the strengthening and upgrading of the bank’s continued operation beyond 2023.

c.    Major strategic initiatives of the bank and the banking group.

An offshoot of the operations during 2023 is the revision of the current “strategic plan” of the bank covering 2022 up to 2026.  The revised strategic plan covers 2024 until 2028, including an agreement on the adoption and absorption of the adjusted vision and mission statements of the bank.

Within 2023, further strengthening and implementation of the Lending Center where the stricter loans and credit analysis, evaluation and promotions are handled. The Lending Center office was further set - up and installed in the Head office. All the Branches and the three (3) branch - lites which were focused on “marketing and product promotions” pass on Loans & Credit reviews to the Lending Center.  Likewise, security and collateral inspections and appraisals are passed on to the Lending Center.

Management, supervision, and monitoring also of the Litigation processes, coordination of registering to ROD of bidded properties, payment of BIR capital gains taxes, titling and selling of  ROPA, and other related activities.  All of these ativities are handled and managed by the bank’s LARGA.      

d.   Challenges, opportunities and responses during 2023.

Partner Rural Bank, Inc. even for the estimated years to come, will actively and positively pursue its mission and vision.  The business of rural banking is wholly encouraging.  It is more of the bank’s appropriate human resources, improved internal and managerial capabilities that are most needed and necessary for the bank to be able to pursue it goals, especially its continued profitability.  Currently, the statistics agency reports that the national economy grew by 5.9 percent in the third quarter of 2023 with increased public spending despite persisting inflationary pressures.

Government data have shown that the major contributors to the improved third quarter of 2023 gross domestic products were wholesale and retail trade, construction, and financial and insurance activities. Furthermore, according to the same data source, the 3rd quarter 2023 performance proved better than the previous one in the major economic sectors — agriculture, forestry and fishing, industry, and services — all recording expansions to possibly make the Philippines the “fastest-growing” economy among major economies in Southeast Asia that year. Overall, there is a prevailing positive economic outlook that propels a robust growth momentum. The challenge now is how we can take advantage of these to further strengthen efforts to better sustain economic growth at the national level – and of course, for the benefit of the banking sector including a small player such as Partner Rural Bank, Inc.

Given the statements in the National Strategy for Financial Inclusion, “…financial inclusion is defined as a state wherein there is effective access to a wide range of financial products and services by all”.  Partner Rural Bank, Inc. has taken this statement as a challenge, and likewise an opportunity to itself to be able to provide access to a wide range of financial products and services to majority of our population who could be reached by the bank not only within its region, but also nationwide. These challenges and opportunity is also imbedded in the bank’s vision and mission statement.  In response to these, the bank further pursued its installation of the Mobile Banking Service, its willingness to implements the fund transfer and bill payment systems through partnerships with BancNet which is a network of some 200 banks and financial institutions, and other outsourced providers and partners. Although it can be stated that the digitalization process of the bank has started with its membership to PhilPass way back 2012, its membership to BancNet in 2014, its membership to Phil. Payment Management Inc. (PMMI) in 2018, the bank is still pushing through with the digitalization effort by launching its MBS way back on last quarter of 2020.

Poverty in the bank’s region, the Central Mindanao area, is still the major issue confronted by the bank.  Partner Rural Bank, Inc. recognizes the poverty conditions of its areas of operations. While certain municipalities seem to be improving in the trading and the commercial sectors showing with the rise of larger stores, the spread of Manila – based restaurants and eateries, mini – malls, and the likes, poverty and household hardships are still obvious in the countryside, in the far flung barangays and rural communities.  Since Partner Rural Bank does not have the excess funds to share to the impoverished sectors, the bank has entered into an arrangement with the Agricultural Credit Policy Council (ACPC) to serve as the conduit for funds for the poorer agriculture – based farmers and landless tenants without having to shoulder the terrible risks such as lending through “microfinance” but unsecured programs.  So far, the bank has released some ₱70.0 million loans to poor and landless farmers, cultivators, livestock raisers and inland fisherfolks. Being a direct conduit by the ACPC, a unit under the Dept. of Agriculture, the bank has linked with the poverty sector without having to engage in the too risky credit type such as the microfinance programs, and even “salary” loans done by other rural banks and NGO’s, that is actually a supposed lending to mainly public school teachers who already have access to their own funds and salaries. 

4. Risk Management Framework Adopted.

c.      Bank – wide risk governance structure and risk management process.

Through years of experience, Partner Rural Bank has absorbed its own risk – governance system through its adopted organizational set- up. Foremost in handling the risks are the managers at the branch and branch – lite levels. The most common among the varied risks met and experienced by the bank are the risk of non – payment of loans which is foremost among all other risks met b the bank.   Handling the risks through the step – by – step phases in risk management are the following:

                              i.    First would be the identification of the risks by identifying the events or conditions that can affect a given key objective, such as the objective of keeping effective loan repayments, or the objective of stabilizing the deposits and saving accounts with the bank, and other objectives.

                             ii.    Second would be the assessment of the risks, by determining how and under what conditions they may arise, circumstances, and their impacts or effects to operations in qualitative and quantitative terms.

                           iii.     Third, after properly identifying and assessing the risks, would be treating and finding solutions that can solve the risk. At this stage the bank management can start identifying the strategies by developing treatment plans to specific identifies and assessed risks.

                           iv.    The last is the monitoring and reporting of the risks and the results of the prior phases of handling and managing the risk.  It is important to monitor the solution and to have them reported/ recorded for future cases, and for the use of others.

                             v.    AML governance and culture, and description of the overall Money Laundering (ML)/ Terrorist Financing (TF) risk management framework to prevent the use of the bank for ML/ TF activities.

5.      Corporate Governance.

a.    Overall corporate governance structure and practices.

Corporate governance within Partner Rural Bank, Inc. is considered its structure of rules, recorded and noted practices developed through the years since it was set up and established by its “founding fathers” particularly adopting the proposed set – up upon its operation then by Mr. Eugenio D. Demigilllo, Sr. who was then a newly retired examiner of the then Central Bank under DRBSLA. The corporate governance structure and practices include the processes used to direct and manage a company and based on the then rules and regulations governing rural banks during the bank’s early years from 1978 until the 1990’s.

One of the important practice adopted by the bank during those years was the ban on allowing and approving DORSI loans to stockholders, officers, and related interests. It has been adopted up to the present.

b.    Selection process for the board and senior management.

The bank’s BOD is the primary team in influencing corporate governance. The members of the Board are regularly elected by the stockholders during the annual stockholders’ meeting held every 2^nd Saturday of the month of January every year. The majority of the BOD are the non – executive directors including the independent director/s. Since the bank has seven (7) directors, then four (4) are non – executives, and a minimum of one (1) could be the independent director. In the case of the bank, we normally have two (2) independent directors out of the four (4) non – executive directors.  The three (3) are the executive directors. Identifying, selecting and convincing the non- executive directors and the independent directors in the past, and as usual could be difficult, due to the needed qualifications and capabilities, as well as selecting potential non – executive and independent directors suitable to the bank’s needs.

c.    BOD overall responsibility.

Corporate governance schemes and practices that are not properly handled and implemented can damage the Partner Rural Bank, Inc.’s operations and profitability.

d.    Description of the major role and contribution of the chairman of the BOD.

The basic principles of corporate governance are accountability, transparency, fairness, responsibility, and risk management.

e.       Board composition including the names of the members of the BOD.

f.         Board qualification.

g.        List of board – level committees including membership and function.

The Board of the bank has created the single board – level committee, which is the Audit and Compliance Committee (ACC). For the year 2021, its members were Mr. Alberto Arellano, Dr. Nick Aduana and Mrs. Annali D. Mana – ay, all directors of the bank. Mrs. Annali D. Mana – ay was designated as member of the ACC for the whole year of 2021 in B. res. No. 2021 – 06. The head of the ACC is Mr. Alberto Arellano, a former Dept. head of the University of Southern Mindanao (USM), Kabacan, Cotabato. Sitting as sources of reports, data and information, related to auditing and compliances, are the Internal Acting Audit team (IA’s) coordinator, Mrs. Sharon Guerra, and the bank’s Acting Compliance Officer (ACO), Mr. Hailar D. Defenio.  The major function of the ACC is to receive and gather all reports and information from the bank’s Internal Auditors and the Acting Compliance Officer, and thereupon scrutinize, review, analyze, and come up with stern decisions that will be used to solve findings drawn from Audit and Compliance reports.  These Committee – level decisions will then evolve as recommendations of the ACC to the Board of Directors during either the regular meetings, or if too serious and would need immediately actions, to requested special board meeting/s. 

The two other committees of the bank are the Credit Committee (Crecom) and the Information Technology Steering Committee (ITSC) which are both Management – level committees. The decisions and recommendations that the committees come up with are submitted to the Board during regular meetings for either the BOD confirmation of Crecom and ITSC committee – level decisions, or directly issue Board resolutions to legitimize the committee recommendations or come up with direct approvals if beyond the authorities of the committees, such as equipment purchases, contracts, and approval of Loans beyond P700,000 pesos approving level of the Crecom.

h.    Directors’ attendance at board and committee meeting (include total no. of BOD and committee meetings for the election year and the no. of BOD and committee meetings attended by each director).

i.         Changes in the BOD (for complex banks only)

j.         List of executive officers/ senior management (disclosing the names, positions, relevant qualifications/ experiences, ages and nationalities of the officers. Senior management refers to the President/ CEO or officer of equivalent rank and other persons with authorities and responsibilities for planning, directing and controlling the activities of the bank).

Disclosure/ and information on the headcount for stockholders, directors, Officers and staff/employees as of Dec. 31, 2023.

4.     Financial Results of Business Segments. (For Complex Banks/ not applicable).

a.    Summary of the Financial Performance of the business segment.

b.    Contribution of each Major business segment to the total revenue of the bank.

c.    Significant developments during the year including major activities.

d.    Future Plans/ Targets/ objective.

k.    Performance Assessment Program. (describes the process in assessing the performance of the BOD and Senior management based on established performance standards consistent with the bank’s strategic objectives).

Performance assessment program intended for the Directors as individuals, and for the Board itself as a collective unit of the directors, has been conducted before end of 2023.    The corresponding assessment questionnaires for the individual directors and board as a collective group, of that of the board itself have been used and tested.  Based on an Assessment on compliance report, on Self- Assessment for the individual directors, it shows that the directors “demonstrate positive behavior towards work as shown by punctuality and regularity in attendance”. Skills and knowledge needed for their positions as required are maintained.  In the Assessment of the Board of Directors, areas considered were Corporate Governance, Credit Risk Management, Business Decision making, and other areas such as Liquidity management, capital management, Asset/ Liability Management, Risk Management and Internal Control. 

An assessment of Officers as Fit and Proper shows that most officers, President, Vice- President, Finance officer, Chief Accountant, and Internal auditors, show above satisfactory rating as fit and proper for their positions. However, most of them need to improve further in enhancing knowledge and skill through additional education and training related to added performance of their respective functions.

Assessment of Credit Committee.  The Credit Committee has shown the above satisfactory rating as to its composition and qualifications, although the Credit Committee chair is moderately rated due to credit management expertise and experience. As to the Credit committee members’ duties and responsibilities, a satisfactory rating has been shown in ensuring proper implementation of credit policy, loan evaluation, loan approval, and receiving and reviewing loan documentation.  The Credit Committee also demonstrate moderate rating as to reporting, training, self – assessment and charter reviews.

Compliance testing of branches and branch – lites on AMLA.  All branches and branch – lites have complied with all compliance test procedures and have shown no dummy accounts except in the specimen signature where certain discrepancies on signature requirements and needs to fill up based on documents presented resulting in high risk assessment.

Above are all based on the report rendered by the acting compliance officer.

l.     Orientation and Education Program.

Partner Rural Bank provides an orientation and familiarization program for incoming employees and staff related to the tasks and responsibilities they are to undertake and implement.  These are continuously done whenever new employees are hired and become permanently employed after passing the 5 – 6 months trainee and probationary employee statuses.

In case of all the already permanently employed staff, employees, and even officers and directors, Partner Rural Bank keeps on being informed of the scheduled training, workshop, seminars, and conferences conducted by the Rural Bankers Research and Development Foundation, Inc. (RBRDFI) ran by the Rural Bankers Association of the Phils. (RBAP), and other training institutions and relevant firms running their own training and seminar schemes.

m.   Retirement and Succession Policy.

The retirement age and term limit for all employees of the bank is 55 years of age, regardless of the number of years of service and employment with the bank. In the cases of officers, directors, and the likes, there is no age limit imposed on the officers, directors as the bases are the specialized skills, capabilities, knowledge, familiarities which are most important – like policies and practices of hiring in the USA at present.

It has been an established policy since the 1980’s that the retirement age of hired employees is up to the age of 55 regardless of the length of service rendered.  Retirement pay can then be sought by the employees at the full value of their latest salary/ wages multiplied by the number of years of service net of indebtedness or loans availed of the Financing Plan for Officers and Employees (FPOE). The retirement pay received from the bank is tax – free as provided by the related laws.

After which, the retired employees of the bank can receive their Social Service System (SSS) retirement benefits however at the age of 60 following the benefits from the bank’s retirement fund a 55. Thereafter, their pension fund from SSS could be received monthly.

In short, Partner Rural Bank has an existing retirement and separation program which has been existing since 1980 and that provides for a separate, segregated, and off - book thrust fund with another bank, i.e., Land Bank Thrust for retirement and separation of staff and employees. The trust department of Land Bank has been contracted to handle and manage the fund, and sees to it that it can, by itself, generate income through their investment program.  Information regarding the balance of the fund are sent to Partner Rural Bank regularly for monitoring and confirmation. The bank contracts Salamia Actuarial Services to regularly review the required balances of the bank’s retirement funds and recommend the filling up of the required amounts in accordance with schedules.

Furthermore, the bank has a Succession plan and program where the possible substitutes, or call it “successors of the staff”, are early identified to prevent difficulties in cases of necessary movements, deployment, and changes of roles of the personnel and officers, or even resignations and discontinuations.  Mentoring and familiarization of the tasks, duties, and responsibilities to be assumed by the “successors” are continually done by the staff, manager, officers, to be conceived and imagined to be replaced.  Results and effects are monitored regularly by the COO where written tables/ log - books are kept on record. Successors of officers and top management are kept and logged in by a designated director to do the “care taking” and virtual recording, and jointly with the corporate secretary. 

The bank, moreover, has adopted a retirement concept for members of the board or term limits. Regular members of the board of directors could serve up to the maximum age of 75 on the condition that mental health and stability are maintained.  Physical conditions of the elected and/ or appointed members of the Board of directors are constantly checked and reviewed where their regular/ semi – annual medical tests (CT Scan, Pet scan, Magic 8 and other laboratory tests, could be engaged at the cost of the bank, except when the director itself has active medical and health insurances). 

n.        Remuneration Policy.

Other executive directors engaged in continuous day – to – day operations if at the level of management earn remunerations ranked within and identified in the bank’s Compensation and Salary Benchmarks Table.  Examples of this would be the Branch Managers or head office key executive - level staffs. Executive directors, on the other hand, with the rank of President and Vice - president and are engaged in operations, regular monitoring, constant supervision, consultations and review of policies, and other similar tasks, are compensated based on skills, capabilities, experiences, talents, and responsibilities, and in certain cases, comparable to rates in other rural banks or the industry practices within the region.  Beginning 2022, and with the crises generated by the pandemic, the use of other means of operational reviews, meetings and consultations, discussion and exchanges of information and point – of – views are all possible, such as with ZOOM, Microsoft Team, Microsoft Edge, Viber, Group Chats, and Team Viewer, and the likes. All these tools and facilities upgraded and improved the instances by which exchanges, and dialogues have been more intensified in the year 2022 among the executives, the key managers, the directors, and the officers.  All branches and their managers and branch vital – staff continually meet, discuss, exchanges views, tactics, styles among themselves with the Chief Operations officer (COO) every Friday during the managers’ Regular weekly forum, or any day when exchanges and discussions are needed.

Non – executive directors, based on regulations of the Corporation Code in the Philippines, and BSP MORB, received regular honorarium/ per diem for attendance to meetings equally to all the directors for the amount of P3,000.00, and receipt - based reimbursement mainly covering their trip and travel expenses in attending meetings, either physically, online, or electronically.

Executive as well as the Non – executive directors are not beneficiaries of the Retirement and Separation Fund of the bank. Neither do they benefit from the SSS, PhilHealth and the Pag- ibig Fund programs as they are not considered as “regular employees”.

         ii.        Remuneration Policy for Senior Management.

Senior management staff remuneration is considered part of the remuneration policies applicable to all employees where a benchmark of roles and tasks are maintained to guide possible changes and upgrading of ranks and positions of employees (except the president and vice – president) are marked.  The benchmark indicates the payment and salary schemes applicable to the rank – and – file employees up to the highest managerial levels.

In the case however of directors, especially the independent directors and the non – executives, they are compensated through per diems and honoraria, on a uniform bases.

o.    Policies and procedures on “Related – party transactions”.

It has been an internal policy of the bank since its founding year in 1978 and up to now to avoid and prohibit cases of DOSRI loans.  The bank ever since has “banned” DOSRI loans.  As an extension of this same policy, the bank has also prevented dealings and arrangements with “parties who are joined by pre- existing business relationships or common interests”, or by itself relate to such parties specially through loans, credits and large non – loan transactions. Although related – party transactions are themselves legal, they can create conflicts of interests or lead to other illegal situations if abused.  Cases of lending and granting privileges to “related – party transactions” are avoided, just as the bank has banned cases of DORSI loans over the years.

i.       Overarching policies and procedures for managing related party transactions.

Cases of loans or loan applications of possible “related – party transactions” are outright rejected or denied by the bank,  and related parties are enjoined to transact with other financial institutions instead.

ii.     Conglomerate Structure.

The bank does not have conglomerate structures, connections, and similar links. 

iii.    Material RPT’s.

Although a number of its shareholders also have their own businesses, e.g. hardware stores, construction materials trading, construction and engineering business, or rice and corn trading, “related – party transactions” are avoided. The bank however has only a leasing/ renting agreement for a garage for the bank’s vehicles, or motorcycles in Pigcawayan branch and H.O., and storage of records and files in the same mini - property near the bank’s building by the son of a shareholder and a preferred share investor, Mrs. Ma. Amy B. Cruz, covered by a contract and approved by the board of directors some eight (8) years ago and expired in 2022.  It was however renewed.

p.        Self – Assessment Function.

Self – assessment is part of the employee appraisal within Partner Rural Bank where personnel or employees are encouraged to provide their own versions of their performances and exercises over the year 2021, or even much earlier.  Self – assessment could also be treated as the bank’s ability to improve themselves without having to undergo the efforts of an external performance appraiser, although it could be more convenient to contract 3^rd party service providers for employee assessments, and also costlier, however.  For the bank, it is like immediately finding the weaknesses and the strengths within the banks’ units or branches as they diagnose certain solutions to personnel problems. Aside from being a formal employee appraisal, the bank’s self – assessment of its employees could also be important for their professional and personal developments.

-          Self – assessment makes employees confident about themselves and their capabilities,

           and enhances capacity – building.

-          Self – assessment provides directions for trainings, where the employees themselves

           can choose the right training they need and fit their career requirements.

-          At best, self- assessment function provides an objective evaluation of the employees by themselves and where they can state their own targets and goals of their work -  and assess their own performance. These could be done along with the target settings and planning for every succeeding years.

Self – assessment monitoring and their recording is also done parallel with the Internal Audit activities of the internal audit team of the Partner Rural Bank.

          i.    The structure of internal audit and compliance functions including its role, mandate/ authority,  and reporting process.

Divided areas of operation of auditing. As have been described in various literature and reading materials, Internal Audit, including presumably the duties and functions of the Compliance Officer, are considered an integral process which are independent and separate from other aspects of a business operations of the bank. These are to ensure the correctness in evaluating the extent to which the internal control in Partner Rural Bank may achieve their objectives in the key areas including appropriate risk management, efficient business operations, reliable financial reporting and compliances.   

Previously, prior to 2023, the bank has divided its areas of operations into three (3) parts or sections: the Pigcawayan – Alamada – Midsayap area, the Kabacan – M’lang – Kidapawan area, and the Tacurong – Surallah – Lambayong area.  Specific branches and branch – lites correspond to the specified area where the internal audit team schedules their rotation and coverage with the year.  By end of 2022, the bank was able to hire a capable Internal Audit head, and another internal auditor, and decided to restructure the internal audit team. As mentioned, the new Internal Audit team formed during the last quarter of 2022 and fully set up by 2023 was initially composed only of its head and a member internal auditor.  

       iii.     

In terms of composition and design, the internal auditors, along with the still Acting Compliance Officer, Mr. Hailar D. Defenio, are all considered “independent”, meaning, all of them are not subject to the control and supervision of management, managers and executives.  They all report and take up their information, data, and related issues to the Audit and Compliance Committee (ACC) headed by an Independent Director. The ACC then directly give reports to the board of directors every monthly BOD regular meeting.

ii.       The review process adopted by the Board to ensure effectiveness and adequacy of the internal control system.

The Board of Directors of Partner Rural Bank has instituted the Auditing and Compliance Committee (ACC) who receives and takes up the reports submitted by the internal auditors, including that of the compliance officer. The reports and cases involving results of self – assessments can also be submitted to the ACC for deliberation and analysis.

At the lower level however, the Internal Auditors and the compliance officer already take up and elaborate their findings at the level of branches and branch – lites, during their exit conferences in the presence of the branch managers and staff, and find the roots causes of the findings. 

q.    Dividend policy.

Partner Rural Bank’s dividend policy evolved out as a cordially established “gentleman’s agreement” that structured its dividend payout to the shareholders through time. The key concern then during the bank’s early years in the 1980’s is whether the directors can always agree among themselves to declare dividends only when the bank’s operation are satisfactory, and the income generated are substantial.

For the bank, dividend payments and declarations are often felt as obligations to repay, assist, and help the shareholders, especially the veterans, retirees and already old shareholders, as they have also provided some sacrifices during the bank’s early years. The shareholders of the bank roughly understand that there are times when the financial results of the bank could not rationally support issuing dividends to support the stockholders and investors specially during the time of politico - economic crises and the revenues generated by the bank are relatively low.  However, with the executive officers’ commitment to support the stockholders, especially regarding their medical and hospitalization requirements, the bank’s Dividend Policy is viewed as an integral part of the bank’s social and senior stockholder assistance strategy of encouraging possible new capital inflows all the time, even prior to dividend declarations. Management, on the other hand, always suggests the dividend amount, timing, and other factors that may influence and define the Dividend payment policies so as not to affect the management goals and financial targets also.

r. Corporate Social Responsibility initiatives.

Partner Rural Bank viewed Corporate social responsibility (CSR) as a self-regulating business - related concept that can help the bank to be socially accountable—to itself, its stakeholders, and the public. Through CSR, the bank could be considered by others as aware of an impact the bank has on other aspects of society or the nation or nature, including economic, social, and environmental concerns.

Aware of the possible impact of well selected CSR initiative, Partner Rural Bank however has to make the choice of selecting its CSR focus.  The bank is conscious of the fact that a CSR view could be a broad concept that can take many forms given the bank’s “banking nature”.  Through CSR programs, philanthropy, donations, and volunteer efforts, the bank’s businesses can benefit a segment of the community or the larger portion of society while boosting the brands of the bank’s products.  Partner Rural Bank views supporting Food Security, Agricultural Development, Poverty Alleviation and Financial Integration, as templates for the bank’s CRS.   For the past decades, the bank has to focus on Food Security and Agricultural stability given the warnings and global problems brought and clarified by the United Nations’ Food and Agricultural Organizations (UN – FAO).  The bank however will need more experts to conceptualize the introduction of the CRS that is now related to electronic banking, online banking, and financial integration of rural communities to the banking sector and financial industry.

Furthermore, while a CSR is for the community, it is equally valuable for the bank’s internal concerns. CSR activities can help forge a stronger bond between employees and the bank, boost morale and help both employees and employers feel more connected with the world, environment, and nature around them. Finally, the bank’s CSR may continue the link and cover of the bank’s efforts and concerns of their employees and officials in responding to Poverty Alleviation schemes of the bank.

s. Consumer Protection Practices.

Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. (Wikipedia). What is targeted here are the fraudulent acts and unfair banking practices that can affect banking customers and thereby create negative perceptions and impressions of the bank.  The Partner Rural Bank has been focusing on the prevention, control, and awareness of cases of financial  frauds and bad banking practices ever since, especially now with the advent of online – banking, electronic banking, and digitalization of banks in general.  It is not only the security of the bank which the board and senior management are concerned with, but mainly the protection of the bank’s customers and clients themselves as they transfer and transact using their own funds as depositing and paying public.  The bank must make sure that the depositing, transacting, and paying public are not fooled by mal - practices within the bank by its own personnel, and by the bank, itself by adopting un – sound practices.

i. Role and responsibility of the Board and Senior Management for the development of “consumer protection strategy” and the establishment of an effective oversight over the bank’s consumer protection programs.

The Board and Senior Management initiated a consumer protection strategy by first making sure that all the business/ marketing centers of the bank, meaning the five (5) Branches and the three (3) branch – lites, are properly upholding customer protection practices as their priority consideration in dealing with customers. Customer protection starts with the proper and market - acceptable pricing of the banks products, whether loans, credits, savings and deposit – taking, fund transfers and remittances.  In loans alone, the strict implementation of the Disclosure statements, presentation of the effective interest rates, and other deductions that can influence the price of loan products, must be revealed to the customers. Among savings and deposit products, the cost and the conveniences have to be posed and discussed among depositors.  Fees and the charges in the ATM services have to be publicized and properly explained.  Finally, the internal auditors are in part tasked to check, monitor and ensure that each branch and branch – lite deploy delegated staff in charge of “Customer Assistance Desk”.

In the case of electronic banking, such as ATM withdrawals and other transactions, customers with complaints are made to submit the “Receiving and Acknowledging Complaints/ Request Form” of the bank where the nature of the Complaint/ or Request details and reason are submitted. Actions to be taken to resolve the complaint are stated at the bottom.

In case of electronic counterfeiting and frauds, the banks’ memberships with BancNet and the PPMI provide the safety - net in cases of massive or technically difficult cases of counterfeiting and frauds that can affect the banking system or the financial industry, or sections of them. Cases affecting e – banking are circularized by BancNet to its members.

ii.           The consumer protection risk management system of the bank.

The bank’s ATM system and Network Policy will be expanded to include critical items related to consumer protection and risk management concern arising as the suggested “digitalization” of banks are pursued by BSP itself. In all branches and branch – lites, with electronic banking in place, mainly with the installed ATM machines and centralized data system in the main branch, the core ware or the system are open to many, the need to protect the bank, and protect directly the consumers, customers, and clients.  Each branch and branch – lite have an employee designated as their protector – the Consumer / Customer Assistance Desk (CAD) whose desks also include protection from risks.

iii.   Consumer assistance management system of the bank which shall include the consumer assistance policies and procedures as well as he corporate structure for handling complaints.

Partner Rural Bank pursues and upgrades its system into a broader “Consumer Assistance management system”  although a more – or – less management - held and administered handling of complaints are already done and implemented by, and with the assistance of, the bank’s Information Technology center/ unit.  The CAD is also part of the consumer assistance management system of the bank.

Hence, in 2022, the  shift of ISO20022 P2P only has been targeted. Upon the shift to ISO20022, the possibilities of P2P QR, P2M, P2B QR, and others are possible for the benefit and assistance to customers and clients.

As the current total of the Common shares is ₱41,270,340.00 and that of the Preferred shares is ₱4,000,000.00 both computed at par value of ₱100 per share, the total of purchased and invested shares which are currently subscribed amounts to P45,270,340.00 million pesos.  With an approved SEC Authorized Capital of ₱80,000,000. 00 million, Partner Rural Bank still has some ₱34,729,600.00 capital amount still unsubscribed, including P6.0 million unused preferred stocks for private and government, and still waiting for investors and capital contributors.   The development of the Bangsamoro Autonomous Region for Muslims in Mindanao (BARMM) gave in 2022 a boom for possible regional development.  Offers of sales of the unsubscribed common shares of the corporation have been proposed to respectable investors for the past four to five years – and to no reactions yet specially during the height of the pandemic.  It could have been positive during normal conditions.

Partner Rural Bank has been envisaging the possible entry of other investor or group of investors due to the available unsubscribed shares. Possibilities were sought and negotiated in previous years.  Other possibilities could be tried in the next years to come.

c.      List and description of products and services offered.

d.      Bank website.

http// www. partnerbank. com.ph.

e.      List of banking units domestic and abroad including.

7.      Audited Financial Statements (AFS) with Auditor’s Opinion.

II.  Compliance with Appendix 62 of the MORB – Disclosures in the Annual Reports and Published Statement of Condition.

Capital structure and capital adequacy:

1. Tier 1 capital and a breakdown of its components;

2.    Tier 2 capital and a breakdown of its components;

General Loan – loss provision   -           ₱ 1,294,479.64

3. Deduction from Tier 1 (50%)and Tier 2 (50%) capital;   - None

1.               Total qualifying capital;                          - ₱   70,497,157.61

2.               Capital requirements for credit risk;    -     225,383,553.63

3.               Capital requirement for market risk     -    none

4.               Capital requirement for operational risk     52,812,810.30

5.               Total and Tier 1 capital adequacy ratio on both solo and consolidated bases. -  24.88%