Always Driven Contents 1 Group Financial Highlights 2 Results of Operation 4 Supplementary Management Discussion 6 Statement of Management’s Responsibility for Financial Statements 7 Independent Auditors’ Report 9 Statements of Financial Position 10 Statements of Income 11 Statements of Comprehensive Income 12 Statements of Changes in Equity 14 Statements of Cash Flows 16 Notes to Financial Statements 108 Products and Services 110 Branch Network 121 International Offices and Subsidiaries 126 Domestic Subsidiaries Shareholder Information Always Driven Annual Report 2010 Group Financial Highlights In Million pesos (except per share amounts) Group Financial Highlights Increase (Decrease) 2010 2009 Amount % At Year End Total Assets P887,323 P854,307 P33,016 3.86% Trading and Investment Securities 171,710 197,402 (25,692) (13.02%) Loans and Receivables, net 392,659 362,327 30,332 8.37% Deposit Liabilities 651,262 615,700 35,562 5.78% Subordinated Debt 21,673 21,634 39 0.18% Equity Attributable to: Equity Holders of the Parent Company 87,634 75,225 12,409 16.50% Minority Interest 5,383 5,093 290 5.69% Book value per share 42.53 38.11 4 11.60% Foreign Exchange PDS Closing Rate 43.84 46.20 PDS Weighted Average Rates 45.12 47.64 (PDS: Philippine Dealing System) Increase (Decrease) Increase (Decrease) 2010 VS 2009 2009 VS 2008 2010 2009 2008 Amount % Amount % For the Year Net Interest Income P26,390 P26,679 P23,069 P(289) (1.08%) P3,610 15.65% Other Operating Income 20,092 16,081 11,486 4,011 24.94% 4,595 40.01% Total Operating Income 46,482 42,760 34,555 3,722 8.70% 8,205 23.74% Provision for Credit and Impairment Losses 7,285 8,793 3,249 (1,508) (17.15%) 5,544 170.64% Other Operating Expenses 27,818 25,842 24,194 1,976 7.65% 1,648 6.81% Total Operating Expenses 35,103 34,635 27,443 468 1.35% 7,192 26.21% Share in Net Income of Investees 1,618 919 992 699 76.06% (73) (7.36%) Provision for Income Tax 3,731 2,249 3,027 1,482 65.90% (778) (25.70%) Net Income 9,266 6,795 5,077 2,471 36.36% 1,718 33.84% Attributable to: Equity Holders of the Parent Company 8,366 6,029 4,408 2,337 38.76% 1,621 36.77% Minority Interest 900 766 669 134 17.49% 97 14.50% Basic/Diluted Earnings Per Share Attributable to Equity Holders of the Parent Company 4.18 3.07 2.17 1.11 36.16% 0.90 41.47% 1 Metropolitan Bank & Trust Company and Subsidiaries 2010 Annual Report Results of Operation For the year 2010, consolidated net income attributable to the equity holders of the Parent Company stood at P8.4 billion, representing a Loan Breakdown 38.8% increase over the previous year’s P6.0 billion, given improved market conditions in the local and global economy. Total Group revenues consisting of net interest income, other operating income, and share in income of investees reached P48.1 billion, or 10.1% 27.3% higher than the P43.7 billion registered in 2009. Net interest income derived from lending, investment and borrowing activities reached P26.4 billion, representing approximately 54.9% of total revenues net of interest expense. 58.9% 13.8% Other operating income comprised of net trading and securities gain, service charges, fees and commissions, net foreign exchange gain or loss, profit or loss from assets sold, income from trust operations, leasing income, dividend income, miscellaneous income, and share in net income of investees increased by 27.7% to P21.7 billion, accounting for 45.1% of total revenues net of interest expense. Income from trading and foreign exchange transactions increased by P3.1 billion, buoyed by improved Corporate Middle Market/SMEs Consumer market conditions. Service charges, fees and commissions, profit from assets sold and miscellaneous income improved by P354 million, P247 million and P509 million, respectively. Meanwhile, leasing and trust income declined by P184 million and P36 million, respectively. Share in net income of investees increased by 76.1% or P699 million due to the strong performance of certain associates. Deposit Breakdown Total operating expenses of the Group (excluding provision for credit and impairment losses) grew by 7.6% to P27.8 billion, mainly driven by the 10.4% increase in the compensation and fringe benefits to P11.4 billion. The material components of total operating expenses are compensation 10.5% and fringe benefits which accounted for 41.2%, taxes and licenses at 15.8%, and miscellaneous expenses at 28.6%. Meanwhile, the Group set aside provision for credit and impairment losses of P7.3 billion, representing a 17.2% decrease from the P8.8 billion registered in 2009. 41.1% Provision for income tax increased by P1.5 billion due to the increase in 48.4% provision for deferred income tax by P1.1 billion and P358 million hike in provision for current tax. Effective income tax rate of the Group was at 28.7% in 2010 compared to 24.9% in 2009. Given the improvement in net profits for the year, Return on Average Equity rose to 10.3% from 8.6% in 2009, and Return on Average Assets was at 1.0% in 2010 from 0.7% in the previous year. Time Savings Demand For the year 2010, Metrobank paid total cash dividends of P1.1 billion representing a total payout of 22.7% of the Parent Company’s net earnings for the year. 2 Always Driven Annual Report 2010 Following the recovery in stock markets across the globe, the Philippine Stock Exchange index climbed by 37.6%, and the Metrobank share Non Performing Loans Ratio (%) price increased to P72.00 at the last trading day of December 2010 from P45.00 in the comparative period in 2009. Market capitalization stood at P137.6 billion as at December 31, 2010. 4.5 3.5 Financial Condition 2.9 The Metrobank Group closed the year 2010 with audited consolidated total resources of P887.3 billion, or P33.0 billion higher than the figure reported in 2009. The growth was driven by the P35.6 billion increase in deposits, sourced mainly by the Parent Company and PSBank while 2008 2009 2010 bills payable and securities sold under repurchase agreements decreased by P10.4 billion. Deposit liabilities represent 82.0% of the consolidated 4.5 Cash Dividends Declared total liabilities as of December 31, 2010. At year-end, deposits stood at (in billion pesos) P651.3 billion, with demand, savings, and time deposits accounting for 10.5%, 41.1% and 48.4%, respectively. With the continued push for low cost deposit generation, total low cost deposits now represent 51.6% of the Group’s total deposits, from only 47.2% in 2009. 1.81 Loans and receivables, net of allowance for impairment and credit losses, recorded an increase of P30.3 billion or 8.4% to P392.7 billion. The P30.1 billion spike in gross loans was mainly driven by the strong demand 1.08 1.08 in corporate and consumer loans. The consumer book, which accounted for 27.3% of the total portfolio, was bolstered by steady demand across the housing, auto, and credit card segments. Corporate loans continue 2008 2009 2010 to account for the biggest share of total book at 58.9%, with demand coming from the manufacturing, wholesale and retail trade, real estate, renting and business activities, and private households. Continuing its Pre-Provision Operating Profit efforts to enhance credit quality, total nonperforming loans (NPL) was (in billion pesos) reduced by P1.5 billion to P11.0 billion. Thus, the NPL ratio further improved to 2.9% in 2010 from 3.5% in 2009. On the other hand, the net book value of investment properties, which consist of foreclosed real estate properties and investment in real estate, declined by P3.3 billion to P18.4 billion as of end 2010, due to the sales and redemptions of various 20.3 properties in line with the Parent Company’s continuing efforts to dispose 17.8 of nonperforming assets. 11.4 Liquid assets increased by 4.9% to P425.1 billion on account of the 8.8 134.0% hike in Due from Bangko Sentral ng Pilipinas . On the other hand, 7.3 Interbank Loans Receivable and Securities Purchased under Agreements 3.2 to Resell decreased by 66.7% to P26.5 billion. Meanwhile, Investment 2008 2009 2010 Securities which consist of Financial Assets at Fair Value through Profit or Pre-Provision Operating Profit Loss, Available-for-Sale and Held-to-Maturity Investments, decreased by Provision for Credit and Impairment Losses 13.0% to P171.7 billion. Capital excluding minorities increased by 16.5% to P87.6 billion, on account of proceeds from the issuance of additional common shares and increase in the market valuation of AFS investments, net of the 3.0% cash dividends declared and the coupon payments on the Hybrid Tier 1 capital securities in 2010. 3 Metropolitan Bank & Trust Company and Subsidiaries 2010 Annual Report Supplementary Management Discussion The capital-to-risk assets ratio of the Group as reported to the BSP as of December 31, 2010 and 2009 are shown in the table below. Consolidated Parent Company December 31 2010 2009 2010 2009 (In Millions) Tier 1 capital P67,670 P56,212 P65,134 P53,824 Tier 2 capital 25,796 25,147 21,234 21,114 Gross qualifying capital 93,466 81,359 86,368 74,938 Less: Required deductions 2,037 2,521 33,655 23,104 Total qualifying capital P91,429 P78,838 P52,713 P51,834 Credit risk-weighted assets P459,764 P467,590 P327,899 P358,494 Market risk-weighted assets 18,396 11,830 15,954 9,563 Operational risk-weighted assets 78,081 72,426, 52,580 49,958 Risk weighted assets P556,241 P551,846 P396,433 P418,015 Tier 1 capital ratio 12.0% 10.0% 12.2% 10.1% Total capital ratio 16.4% 14.3% 13.3% 12.4% The regulatory qualifying capital of the Parent Company consists of Tier 1 (core) capital, which comprises paid-up common stock, hybrid tier 1 capital securities, surplus including current year profit, surplus reserves and minority interest less required deductions such as unsecured credit accommodations to DOSRI, deferred income tax, and goodwill.