GROUP FINANCIAL HIGHLIGHTS In million pesos (except per share amounts) Increase (Decrease) 2013 2012 Amount % As restated At Year End Total Assets 1,378,569 1,046,643 331,926 31.7% Trading and Investment Securities 367,295 247,412 119,883 48.5% Loans and Receivables, net 611,064 525,895 85,169 16.2% Deposit Liabilities 1,016,268 738,694 277,574 37.6% Subordinated Debt 8,628 14,243 (5,615) -39.4% Equity Attributable to: Equity Holders of the Parent Company 134,887 117,733 17,154 14.6% Non-controlling Interest 7,818 6,976 842 12.1% Book value per share 46.83 52.75 Foreign Exchange PDS Closing Rate 44.40 41.05 PDS Weighted Average Rates 42.43 42.24 (PDS: Philippine Dealing System) Increase (Decrease) Increase (Decrease) 2013 vs 2012 2012 vs 2011 2013 2012 2011 Amount % Amount % As restated As restated For the Year Net Interest Income 38,269 30,854 29,437 7,415 24.0% 1,417 4.8% Other Operating Income 40,655 26,224 19,696 14,431 55.0% 6,528 33.1% Total Operating Income 78,924 57,078 49,133 21,846 38.3% 7,945 16.2% Provision for Credit and Impairment Losses 10,722 4,478 3,823 6,244 139.4% 655 17.1% Other Operating Expenses 38,775 33,375 30,700 5,400 16.2% 2,675 8.7% Total Operating Expenses 49,497 37,853 34,523 11,644 30.8% 3,330 9.6% Share in Net Income of Associates and a Joint Venture 1,477 2,548 1,423 (1,071) -42.0% 1,125 79.1% Provision for Income Tax 6,748 3,856 3,542 2,892 75.0% 314 8.9% Net Income 24,156 17,917 12,491 6,239 34.8% 5,426 43.4% Attributable to: Equity Holders of the Parent Company 22,488 15,399 11,031 7,089 46.0% 4,368 39.6% Non-controlling Interest 1,668 2,518 1,460 (850) -33.8% 1,058 72.5% Basic/Diluted Earnings Per Share Attributable to Equity Holders of 8.02 5.44* 3.86* the Parent Company *Restated to include the effect of stock dividend issued in 2013 2013 Annual Report 1 RESULTS OF OPERATIONS With another positive year for the Philippine economy, Metrobank reported 22.5 billion consolidated net income attributable to the equity holders of the Parent Company, after a 46% growth over the previous year’s 15.4 billion. Total revenues consisting of net interest income, other operating income, and share in net income of associates and a joint venture reached 80.4 billion or 35% higher than the 59.6 billion registered in 2012. Net interest income derived from lending, investment and borrowing activities grew by 24% to 38.3 billion while other operating income went up by 46% to 42.1 billion due to resilient trading, steady service fees, and one-time gains from the sale of non-core assets. The asset sales consisted of the Bank’s 15% stake in Toyota Motor Philippines Corporation (TMPC), and a 40% stake in Global Business Power Corporation (GBPC) through its subsidiary, First Metro Investment Corporation (FMIC). Income from trading and foreign exchange transactions totaled 14.9 billion; while service charges, fees and commissions, leasing income, and trust income improved to 8.6 billion, 1.6 billion, and 1.1 billion, respectively. Share in net income of associates and a joint venture dipped to 1.5 billion from the previous 2.5 billion. Total operating expenses, excluding provision for credit and impairment losses, increased by 16% to 38.8 billion, mainly driven by the 9% increase in compensation and fringe benefits to 15.6 billion, and 54% increase in taxes and licenses to 8.1 billion as a result of the one-time divestments of non-core assets. Meanwhile, the Group set aside provision for credit and impairment losses of 10.7 billion and provision for income tax of 6.7 billion. With the healthy profit growth, return on average equity rose to 17.8% from 13.6% in 2012 and return on average assets rose from the previous 1.5% to 1.9%. In 2013, Metrobank raised its authorized capital stock from 50 billion to 100 billion to give the Bank the flexibility to release Basel III-compliant notes. As a result, the Bank issued 30% stock dividends out of the additional authorized capital stock. The Bank also paid cash dividends totaling 2.1 billion, representing a total payout of 13% of the Parent Company’s net earnings for the year. The Philippine stock market faced a challenging 2013, with gains accumulated earlier in the year wiped out by year- end. The Philippine Stock Exchange index (PSEi) closed at 5,889.83, up by 77 points from end-2012. Metrobank’s market capitalization stood at 207.4 billion as of December 31, 2013 as the Bank’s share price settled at 75.55 post adjustments from the increase in outstanding shares. 2 Metropolitan Bank and Trust Company FINANCIAL CONDITION The Group closed the year 2013 with audited consolidated total assets at 1.4 trillion or 331.9 billion higher from the 1.0 billion posted in the previous year. Consolidated total liabilities likewise increased to 1.2 trillion from 921.9 billion as funds sourced from total deposit liabilities, and bills payable and securities sold under repurchase agreements (SSURA) increased by 277.6 billion and 30.1 billion, respectively. On the other hand, subordinated debts decreased by 5.6 billion. Deposit liabilities, which represent 82% of the consolidated total liabilities, stood at 1.0 trillion with demand, savings, and time deposits accounting for 15%, 36%, and 49%, respectively. Low cost deposits represent 51% of the Group’s total deposit liabilities. Loans and receivables, net of allowance for credit losses, recorded an increase of 85.2 billion or 16% to 611.1 billion driven by double-digit growths in commercial and consumer loans. Consumer loans were bolstered by steady demand across the housing, auto, and credit card segments. Commercial loans continue to account for the biggest share of total portfolio at 72% with demand coming from the manufacturing, wholesale and retail trade, real estate, renting and business activities, and private households. With the Bank’s continued focus to enhance credit quality, total nonperforming loans (NPL) was reduced to 7.8 billion from 9.6 billion in previous year and NPL ratio further improved to 1.3% from 1.8% in 2012. Meanwhile, the net book value of investment properties, which consist of foreclosed real estate properties and investment in real estate, further declined to 13.1 billion due to the sales and redemptions of various properties in line with the Parent Company’s continuing efforts to dispose non-performing assets. Liquid assets increased by 58% to 712.1 billion on account of the 48% hike in investment securities which consist of financial assets at fair value through profit or loss, available-for-sale and held-to-maturity investments. Due from Bangko Sentral ng Pilipinas, and due from other banks increased by 27% to 166.8 billion and by 14% to 26.3 billion, respectively. Equity attributable to equity holders of the Bank grew by 15% to 134.9 billion on account of higher earnings generated during the year. 2013 Annual Report 3 SUPPLEMENTARY MANAGEMENT DISCUSSION The capital-to-risk assets of the Group and the Parent Company as reported to the BSP as of December 31, 2013 and 2012 are shown in the table below. Group Parent Company December 31 2013 2012 2013 2012 (In Millions) Tier 1 capital P=123,895 P=100,056 P=118,183 P=96,180 Less: Required deductions 1,380 1,187 24,721 20,725 Sub-total 122,515 98,869 93,462 75,455 Excess from Tier 2 deducted to Tier 1 capital* – – (15,868) (7,061) Net Tier 1 capital 122,515 98,869 77,594 68,394 Tier 2 capital 15,021 19,588 8,853 13,664 Less: Required deductions 1,380 1,187 24,721 20,725 Sub-total 13,641 18,401 (15,868) (7,061) Excess of Tier 2 deducted to Tier 1 capital* – – 15,868 7,061 Net Tier 2 capital 13,641 18,401 – – Total Qualifying Capital P=136,156 P=117,270 P=77,594 P=68,394 Credit Risk-Weighted Assets P=665,376 P=571,063 P=483,969 P=424,347 Market Risk-Weighted Assets 58,196 62,586 52,222 48,903 Operational Risk-Weighted Assets 94,240 86,227 55,791 53,184 Risk-Weighted Assets P=817,812 P=719,876 P=591,981 P=526,434 *Deductions to Tier 2 capital are capped at its total gross amount and any excess shall be deducted from Tier 1 capital. Tier 1 capital ratio 14.98% 13.73% 13.11% 12.99% Total capital ratio 16.65% 16.29% 13.11% 12.99% 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, retained earnings including current year profit, cumulative foreign currency translation and non- controlling interest less required deductions such as unsecured credit accommodations to DOSRI, deferred income tax and goodwill. Certain adjustments are made to PFRS-based results and reserves, as prescribed by the BSP. The other component of regulatory capital is Tier 2 (supplementary) capital, which includes unsecured subordinated debt, general loan loss provision, and net unrealized gains on AFS equity securities.