20 13 A nnual R ep ort1GROUP FINANCIAL HIGHLIGHTSIn million pesos (except per share amounts)Increase (Decrease)2013 2012 Amount %As restatedAt Year EndTotal A ssets1,378,569 1,0 4 6,64 3 331,92631.7% Trad ingandInvestm ent Securities367,295 247,412 119,8834 8.5% Loans andR eceivab les, net611,0 64525,895 85,16916.2% D ep osit Liab ilities1,0 16,268 738,694277,574 37.6% Sub ord inatedD eb t8,628 14 ,24 3 (5,615) -39.4 %E q uityA ttrib utab le to: E q uity H old ers of the P arent C om p any134 ,887 117,733 17,154 14 .6% N on-controllingInterest7,818 6,976 84 212.1%B ook value p er share4 6.83 52.75 Foreig n E xchang e P D S C losingR ate4 4 .4 041.0 5 P D S W eig htedA verag e R ates4 2.4 3 4 2.24 (PDS: Philippine Dealing System)Increase (Decrease) Increase (Decrease)2013 vs 2012 2012 vs 20112013 2012 2011 Amount % Amount %As restated As restatedFor the Year N et Interest Incom e38,269 30 ,85429,4 37 7,41524 .0 %1,4174 .8% O ther O p eratingIncom e4 0 ,655 26,22419,696 14 ,4 3155.0 %6,52833.1% Total O p eratingIncom e78,92457,0 78 4 9,133 21,84 638.3%7,94 516.2% P rovision for C red it andIm p airm ent Losses10 ,722 4 ,478 3,823 6,24 4 139.4 %65517.1% O ther O p eratingE xp enses38,775 33,375 30 ,70 05,4 0 0 16.2%2,6758.7% Total O p eratingE xp enses4 9,4 97 37,853 34 ,523 11,64 4 30 .8%3,330 9.6% Share in N et Incom e of A ssociates anda Joint V enture1,477 2,54 8 1,4 23 (1,0 71) -4 2.0 %1,12579.1% P rovision for Incom e Tax 6,74 8 3,856 3,54 2 2,892 75.0 % 314 8.9%N et Incom e24 ,156 17,917 12,4 91 6,23934 .8%5,4 264 3.4 %A ttrib utab le to: E q uity H old ers of the P arent C om p any22,4 88 15,399 11,0 31 7,0 894 6.0 %4 ,36839.6% N on-controllingInterest1,668 2,518 1,4 60(850 ) -33.8%1,0 5872.5%B asic/D ilutedE arning s P er Share A ttrib utab le to E q uity H old ers of the P arent C om p any 8.0 2 5.4 4 * 3.86* *Restated to include the effect of stock dividend issued in 20132 M etrop olitan B ank andTrust C om p anyRESULTS OF OPERATIONSW ith another p ositive year for the P hilip p ine econom y, M etrob ank rep orted 22.5 b illion consolid atednet incom e attrib utab le to the eq uity hold ers of the P arent C om p any, after a 4 6%g row th over the p revious years15.4b illion.Total revenues consistingof net interest incom e, other op eratingincom e, andshare in net incom e of associates anda joint venture reached 80 .4b illion or 35%hig her than the59.6 b illion reg isteredin 20 12.N et interest incom e d erivedfromlend ing , investm ent andb orrow ingactivities g rewby 24 %to38.3 b illion w hile other op eratingincom e w ent upby 4 6%to4 2.1 b illion d ue to resilient trad ing , stead y service fees, andone-tim e g ains fromthe sale of non-core assets. The asset sales consistedof the B anks 15%stake in Toyota M otor P hilip p ines C orp oration (TM P C ), anda 4 0 %stake in G lob al B usiness P ow er C orp oration (G B P C ) throug h its sub sid iary, F irst M etro Investm ent C orp oration (F M IC ).Incom e fromtrad ingandforeig n exchang e transactions totaled 14 .9 b illion; w hile service charg es, fees andcom m issions, leasingincom e, andtrust incom e im p rovedto8.6 b illion,1.6 b illion, and 1.1 b illion, resp ectively. Share in net incom e of associates anda joint venture d ip p edto1.5 b illion fromthe p revious2.5 b illion.Total op eratingexp enses, exclud ingp rovision for cred it andim p airm ent losses, increasedby 16%to38.8 b illion, m ainly d riven by the 9%increase in com p ensation andfring e b enefits to15.6 b illion, and54 %increase in taxes andlicenses to8.1 b illion as a result of the one-tim e d ivestm ents of non-core assets. M eanw hile, the G roupset asid e p rovision for cred it andim p airm ent losses of10 .7 b illion andp rovision for incom e tax of6.7 b illion.W ith the healthy p rofit g row th, return on averag e eq uity rose to 17.8%from13.6%in 20 12 andreturn on averag e assets rose fromthe p revious 1.5%to 1.9% . In 20 13, M etrob ank raisedits authorizedcap ital stock from 50b illion to10 0b illion to g ive the B ank the flexib ility to release B asel III-com p liant notes. A s a result, the B ank issued30 %stock d ivid end s out of the ad d itional authorizedcap ital stock. The B ank also p aidcash d ivid end s totaling 2.1 b illion, rep resentinga total p ayout of 13%of the P arent C om p anys net earning s for the year.The P hilip p ine stock m arket faceda challeng ing20 13, w ith g ains accum ulatedearlier in the year w ip edout by year-end . The P hilip p ine Stock E xchang e ind ex (P SE i) closedat 5,889.83, upby 77 p oints fromend -20 12. M etrob anks m arket cap italization stoodat20 7.4b illion as of D ecem b er 31, 20 13 as the B anks share p rice settledat75.55 p ost ad justm ents fromthe increase in outstand ingshares.20 13 A nnual R ep ort3FINANCIAL CONDITIONThe G roupclosedthe year 20 13 w ith aud itedconsolid atedtotal assets at1.4trillion or331.9 b illion hig her fromthe 1.0b illion p ostedin the p revious year. C onsolid atedtotal liab ilities likew ise increasedto1.2 trillion from 921.9 b illion as fund s sourcedfromtotal d ep osit liab ilities, andb ills p ayab le andsecurities soldund er rep urchase ag reem ents (SSU R A ) increasedby277.6 b illion and 30 .1 b illion, resp ectively. O n the other hand , sub ord inatedd eb ts d ecreasedby5.6 b illion. D ep osit liab ilities, w hich rep resent 82%of the consolid atedtotal liab ilities, stoodat1.0trillion w ith d em and , saving s, andtim e d ep osits accountingfor 15% , 36% , and4 9% , resp ectively.Lowcost d ep osits rep resent 51%of the G roup s total d ep osit liab ilities.Loans andreceivab les, net of allow ance for cred it losses, record edan increase of85.2 b illion or 16%to611.1 b illion d riven by d oub le-d ig it g row ths in com m ercial andconsum er loans.C onsum er loans w ere b olsteredby stead y d em andacross the housing , auto, andcred it cardseg m ents.C om m ercial loans continue to account for the b ig g est share of total p ortfolio at 72%w ith d em andcom ingfromthe m anufacturing , w holesale andretail trad e, real estate, rentingandb usiness activities, andp rivate household s. W ith the B anks continuedfocus to enhance cred it q uality, total nonp erform ingloans (N P L) w as red ucedto7.8 b illion from 9.6 b illion in p revious year andN P L ratio further im p rovedto 1.3%from1.8%in 20 12. M eanw hile, the net b ook value of investm ent p rop erties, w hich consist of foreclosedreal estate p rop erties andinvestm ent in real estate, further d eclinedto13.1 b illion d ue to the sales andred em p tions of various p rop erties in line w ith the P arent C om p anys continuingefforts to d isp ose non-p erform ingassets. Liq uidassets increasedby 58%to712.1 b illion on account of the 4 8%hike in investm ent securities w hich consist of financial assets at fair value throug h p rofit or loss, availab le-for-sale andheld -to-m aturity investm ents.D ue fromB ang ko Sentral ngP ilip inas, andd ue fromother b anks increasedby 27%to166.8 b illion andby 14 %to26.3 b illion, resp ectively. E q uity attrib utab le to eq uity hold ers of the B ank g rewby 15%to134 .9 b illion on account of hig her earning s g eneratedd uringthe year.4 M etrop olitan B ank andTrust C om p anySUPPLEMENTARY 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. GroupParent Company December 31 2013201220132012 (In Millions) Tier 1 capitalP=123,895P=100,056P=118,183P=96,180 Less: Required deductions1,3801,18724,72120,725 Sub-total122,51598,86993,46275,455 Excess from Tier 2 deducted to Tier 1 capital*(15,868)(7,061) Net Tier 1 capital122,51598,86977,59468,394 Tier 2 capital15,02119,5888,85313,664 Less: Required deductions1,3801,18724,72120,725 Sub-total13,64118,401(15,868)(7,061) Excess of Tier 2 deducted to Tier 1 capital*15,8687,061 Net Tier 2 capital13,64118,401 Total Qualifying CapitalP=136,156P=117,270P=77,594P=68,394 Credit Risk-Weighted AssetsP=665,376P=571,063P=483,969P=424,347 Market Risk-Weighted Assets58,19662,58652,22248,903 Operational Risk-Weighted Assets94,24086,22755,79153,184 Risk-Weighted AssetsP=817,812P=719,876P=591,981P=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 ratio14.98%13.73%13.11%12.99% Total capital ratio16.65%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. 20 13 A nnual R ep ort5The components of Tier 1 capital and deductions follow: GroupParent Company December 31 2013201220132012 (In Millions) Tier 1 Capital Paid-up common stockP=54,896P=42,228P=54,896P=42,228 Additional paid-in capital13,37113,37113,37113,371 Retained earnings56,49650,19556,49650,195 Cumulative foreign currency translation1,3083721,308372 Minority interest in subsidiary financial allied undertakings which are less than wholly-owned7,5026,778 Sub-total133,573112,944126,071106,166 Less deductions: Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI, and unsecured loans, other credit accommodations and guarantees granted to subsidiaries and affiliates (net of specific provisions, if any) referred to in Circular No. 5603,8275,8353,2174,801 Deferred income tax (net of allowance for impairment, if any)7,6437,5386,5095,716 Goodwill (net of allowance for impairment, if any)3,6744,5693,6284,523 Total deductions from Tier 1 capital15,14417,94213,35415,040 Total core Tier 1 capital118,42995,002112,71791,126 Add Hybrid Tier 1 capital5,4665,0545,4665,054 Total Tier 1 capitalP=123,895P=100,056P=118,183P=96,180 The components of Tier 2 capital consist of the following: GroupParent Company December 31 2013201220132012 (In Millions) Tier 2 Capital Net unrealized gains on available for sale equity securities (subject to a 55% discount)P=6P=35P=6P=35 General loan loss provision6,4305,3894,3893,728 Unsecured subordinated debts8,58514,1644,4589,901 Total Tier 2 capitalP=15,021P=19,588P=8,853P=13,664 The following items were deducted 50% from Tier 1 and 50% from Tier 2 capital: GroupParent Company December 31 2013201220132012 (In Millions) Investments in equity of unconsolidated subsidiary securities dealers/brokers, insurance companies, and non-financial allied undertakings, after deducting related goodwillP=766P=528P=42P=58 Investments in equity of unconsolidated subsidiary banks and quasi-banks, and other financial allied undertakings (excluding subsidiary securities dealers/brokers, and insurance companies), after deducting related goodwill48,74740,809 Significant minority investments in banks and quasi- banks, and other financial allied undertakings1,9941,846653583 Total deductionsP=2,760P=2,374P=49,442P=41,450 50%P=1,380P=1,187P=24,721P=20,725 6 M etrop olitan B ank andTrust C om p anyDetails of risk-weighted assets and capital requirements by type of exposure as of December 31, 2013 and 2012 follow: Credit RiskMarket RiskOperational Risk Group Parent CompanyGroup Parent CompanyGroup Parent Company (In Millions) December 31, 2013 On-Balance SheetP=635,617P=454,860 Off-Balance Sheet14,79814,181 Counterparty (Banking Book)7,3807,380 Counterparty (Trading Book)7,5817,548 Interest Rate ExposuresP=31,423P=26,907 Equity Exposures1,843 Foreign Exchange Exposures2,4902,875 Options22,44022,440 Basic IndicatorP=94,240P=55,791 TotalP=665,376P=483,969P=58,196P=52,222P=94,240P=55,791 Capital RequirementsP=66,538P=48,397P=5,820P=5,222P=9,424P=5,579 December 31, 2012 On-Balance SheetP=548,413P=402,330 Off-Balance Sheet17,21616,608 Counterparty (Banking Book)2,5552,555 Counterparty (Trading Book)2,8792,854 Interest Rate ExposuresP=40,061P=30,383 Equity Exposures3,897 Foreign Exchange Exposures17,12617,018 Options1,5021,502 Basic IndicatorP=86,227P=53,184 TotalP=571,063P=424,347P=62,586P=48,903P=86,227P=53,184 Capital RequirementsP=57,106P=42,435P=6,259P=4,890P=8,623P=5,318 Credit exposures for on-balance sheet assets cover exposures on sovereigns, multilateral development banks (MDBs), banks/quasi-banks, local government banks (LGUs), government corporations, corporates, housing loans, MSMEs, defaulted exposures, ROPA and other assets, net of deductions. On the other hand, counterparty risk assets cover derivatives and repo-style transactions both in the banking and trading books. As of December 31, 2013 and 2012, the Group has no exposures to securitization structures, contracts that provide credit protection through credit derivatives and investments in other types of structured products. Credit risk mitigants on risk-weighted assets were based on collateralized transactions (margin deposits and hold-out on deposits) as well as guarantees by the Philippine National Government and those guarantors and exposures with highest credit rating. Standardized credit risk weights were used in the credit assessment of asset exposures.Third party credit assessments were based on the ratings by Standard & Poor's, Moody's, Fitch and PhilRatings on exposures to Sovereigns, MDBs, Banks, LGUs, Government Corporations and Corporates. Operational Risk-Weighted Assets are computed using the Basic Indicator Approach. 20 13 A nnual R ep ort7 Total credit exposures of the Group and Parent Company broken down by type of exposures are shown in the following tables: GROUP Exposures, Net of Specific Provisions Exposures Covered by CRM, Gross of Materiality Threshold Exposures after RiskMitigation/Credit Equivalent 2013 On-Balance Sheet Assets (net of deductions)*P=1,310,480P=35,335P=1,275,145 Off-Balance Sheet Assets22,363 Counterparty Assets in the Banking Book19,569 Counterparty Assets in the Trading Book11,856 Total Credit ExposuresP=1,328,933 2012 On-Balance Sheet Assets (net of deductions)*P=948,924P=37,617P=911,307 Off-Balance Sheet Assets17,867 Counterparty Assets in the Banking Book6,019 Counterparty Assets in the Trading Book4,395 Total Credit ExposuresP=939,588 Total credit exposures broken down by risk buckets follows: Risk Weights 0%20%50%75%100%150%TOTAL 2013 On-Balance Sheet Assets (net of deductions)*P=573,059P=34,856P=73,985P=32,305P=547,971P=12,969P=1,275,145 Off-Balance Sheet Assets15,1307,23322,363 Counterparty Assets in the Banking Book6966,85412,01919,569 Counterparty Assets in the Trading Book3973,7681,7285,96311,856 Total Credit ExposuresP=574,152P=45,478P=102,862P=32,305P=561,167P=12,969P=1,328,933 Total Risk-Weighted On-Balance Sheet AssetsP=P=6,971P=36,993P=24,228P=547,971P=19,454P=635,617 Total Risk-Weighted Off-Balance Sheet Assets7,5657,23314,798 Total Counterparty Risk-Weighted Assets in the Banking Book1,3716,0097,380 Total Counterparty Risk-Weighted Assets in the Trading Book7548645,9637,581 Total Credit Risk-Weighted AssetsP=P=9,096P=51,431P=24,228P=561,167P=19,454P=665,376 2012 On-Balance Sheet Assets (net of deductions)*P=293,928P=45,106P=59,322P=42,874P=455,081P=14,996P=911,307 Off-Balance Sheet Assets60034316,92417,867 Counterparty Assets in the Banking Book8445974,2852936,019 Counterparty Assets in the Trading Book1,3788272,1904,395 Total Credit ExposuresP=294,772P=47,681P=64,777P=42,874P=474,488P=14,996P=939,588 Total Risk-Weighted On-Balance Sheet AssetsP=P=9,021P=29,661P=32,156P=455,081P=22,494P=548,413 Total Risk-Weighted Off-Balance Sheet Assets12017216,92417,216 Total Counterparty Risk-Weighted Assets in the Banking Book1192,1432932,555 Total Counterparty Risk-Weighted Assets in the Trading Book2764132,1902,879 Total Credit Risk-Weighted AssetsP=P=9,536P=32,389P=32,156P=474,488P=22,494P=571,063 8 M etrop olitan B ank andTrust C om p anyPARENT COMPANY Exposures, Net of Specific Provisions Exposures Covered by CRM, Gross of Materiality Threshold Exposures after RiskMitigation/Credit Equivalent 2013 On-Balance Sheet Assets (net of deductions)*P=1,027,043P=30,637P=996,406 Off-Balance Sheet Assets21,746 Counterparty Assets in the Banking Book19,569 Counterparty Assets in the Trading Book11,689 Total Credit ExposuresP=1,049,410 2012 On-Balance Sheet Assets (net of deductions)*P=703,801P=25,357P=678,444 Off-Balance Sheet Assets16,779 Counterparty Assets in the Banking Book6,019 Counterparty Assets in the Trading Book4,271 Total Credit ExposuresP=705,513 Total credit exposures broken down by risk buckets follows: *As of December 31, 2013 and 2012, deductions from other assets amounted to P=74.4 million and P=94.1 million, respectively, for the Group and P=109.8 million and P=120.9 million, respectively, for the Parent Company. Deductions from other assets include among others: financial assets held for trading, derivatives with positive fair value held for hedging, total outstanding unsecured credit accommodations to DOSRI (both direct and indirect), unsecured loans, other credit accommodations and guarantees granted to subsidiaries and affiliates, deferred income tax, goodwill, investments in equity of unconsolidated banks and quasi-banks and other financial allied undertakings (excluding subsidiary securities dealers/brokers and insurance companies), after deducting goodwill, if any (for solo basis), investments in equity of unconsolidated subsidiary securities dealers/brokers, insurance companies and non-financial allied undertakings, after deducting related goodwill, if any (for both solo and consolidated bases), significant minority investments (20%-50% of voting stock) in banks and quasi-banks and other financial allied undertakings (for both solo and consolidated bases), loans to RBU by FCDU/EFCDU and net accumulated market gain/(losses) on available for sale debt securities. The impacts of reasonably possible changes in the interest rates on net interest income are as follows: Sensitivity of net interest income GroupParent Company December 31 Currency Movement in basis points2013201220132012 PHP+10(P=136.94)P=40.22 (P=17.70)P=95.74 USD+10(21.97)4.90(24.10)4.98 Others+104.54105.65 4.54105.65 PHP-10138.17(62.74) 17.70(95.74) USD-1021.97(4.90) 24.10(4.98) Others-10 (4.54)(105.65) (4.54)(105.65) Risk Weights 0%20%50%75%100%150%TOTAL 2013 On-Balance Sheet Assets (net of deductions)*P=495,147P=22,686P=49,261P=30,741P=390,440P=8,131P=996,406 Off-Balance Sheet Assets15,1306,61621,746 Counterparty Assets in the Banking Book6966,85412,01919,569 Counterparty Assets in the Trading Book3973,6011,7285,96311,689 Total Credit ExposuresP=496,240P=33,141P=78,138P=30,741P=403,019P=8,131P=1,049,410 Total Risk-Weighted On-Balance Sheet AssetsP=P=4,537P=24,630P=23,056P=390,440P=12,197P=454,860 Total Risk-Weighted Off-Balance Sheet Assets7,5656,61614,181 Total Counterparty Risk-Weighted Assets in the Banking Book1,3716,0097,380 Total Counterparty Risk-Weighted Assets in the Trading Book7218645,9637,548 Total Credit Risk-Weighted AssetsP=P=6,629P=39,068P=23,056P=403,019P=12,197P=483,969 2012 On-Balance Sheet Assets (net of deductions)*P=222,814P=32,215P=45,449P=41,103P=325,917P=10,946P=678,444 Off-Balance Sheet Assets34316,43616,779 Counterparty Assets in the Banking Book8445974,2852936,019 Counterparty Assets in the Trading Book1,2548272,1904,271 Total Credit ExposuresP=223,658P=34,066P=50,904P=41,103P=344,836P=10,946P=705,513 Total Risk-Weighted On-Balance Sheet AssetsP=P=6,443P=22,725P=30,827P=325,917P=16,418P=402,330 Total Risk-Weighted Off-Balance Sheet Assets17216,43616,608 Total Counterparty Risk-Weighted Assets in the Banking Book1192,1432932,555 Total Counterparty Risk-Weighted Assets in the Trading Book2514132,1902,854 Total Credit Risk-Weighted AssetsP=P=6,813P=25,453P=30,827P=344,836P=16,418P=424,347 20 13 A nnual R ep ort9STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS10 M etrop olitan B ank andTrust C om p any20 13 A nnual R ep ort11INDEPENDENT AUDITORS REPORT*SGVFS004156*INDEPENDENT AUDITORS REPORTThe Stockholders and the Board of DirectorsMetropolitan Bank & Trust CompanyMetrobank Plaza, Sen. Gil J . Puyat AvenueMakati CityReport on the Financial StatementsWe have audited the accompanying financial statements of Metropolitan Bank & Trust Company andSubsidiaries (the Group) and of Metropolitan Bank & Trust Company (the Parent Company), whichcomprise the statements of financial position as at December 31, 2013 and 2012 and the statements ofincome, statements of comprehensive income, statements of changes in equity and statements of cashflows for each of the three years in the period ended December 31, 2013, and a summary of significantaccounting policies and other explanatory information.Managements Responsibility for the Financial StatementsThe Groups management is responsible for the preparation and fair presentation of the financialstatements in accordance with accounting principles generally accepted in the Philippines for banks forthe Group and Philippine Financial Reporting Standards for the Parent Company as described inNote 2 to the financial statements, and for such internal control as the Groups managementdetermines is necessary to enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.Auditors ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits.Weconducted our audits in accordance with Philippine Standards on Auditing.Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements.The procedures selected depend on the auditors judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror.In making those risk assessments, the auditor considers internal control relevant to the Groupspreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the Groups internal control.An audit also includes evaluating the appropriateness of theaccounting policies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippinesTel: (632) 891 0307Fax: (632) 819 0872ey.com/phBOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015A member firmof Ernst & Young Global Limited12 M etrop olitan B ank andTrust C om p any *SGVFS004156*- 2 -OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position ofthe Group as at December 31, 2013 and 2012 and its financial performance and its cash flows for eachof the three years in the period ended December 31, 2013 in accordance with the accounting principlesgenerally accepted in the Philippines for banks as described in Note 2 to the financial statements.In our opinion, the financial statements present fairly, in all material respects, the financial position ofthe Parent Company as at December 31, 2013 and 2012 and its financial performance and its cashflows for each of the three years in the period ended December 31, 2013 in accordance with PhilippineFinancial Reporting Standards.Report on the Supplementary Information Required Under Revenue Regulations 19-2011and 15-2010Our audits were conducted for the purpose of forming an opinion on the basic financial statementstaken as a whole.The supplementary information required under Revenue Regulations 19-2011 and15-2010 in Note 38 to the financial statements is presented for purposes of filing with the Bureau ofInternal Revenue and is not a required part of the basic financial statements.Such information is theresponsibility of the management of the Parent Company.The information has been subjected to theauditing procedures applied in our audit of the basic financial statements.In our opinion, theinformation is fairly stated, in all material respects, in relation to the basic financial statements takenas whole.SYCIP GORRES VELAYO & CO.Aris C. MalanticPartnerCPA Certificate No. 90190SEC Accreditation No. 0326-AR-2 (Group A),March 15, 2012, valid until March 14, 2015Tax Identification No. 152-884-691BIR Accreditation No. 08-001998-54-2012,April 11, 2012, valid until April 10, 2015PTR No. 4225187, J anuary 2, 2014, Makati CityFebruary 18, 2014A member firmof Ernst & Young Global Limited20 13 A nnual R ep ort13N otes:STATEMENTS OF FINANCIAL POSITION(In Millions)*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESSTATEMENTS OF FINANCIAL POSITION(In Millions)Consolidated Parent CompanyDecember 31 J anuary 1, December 31 J anuary 1,20132012(As Restated -Note 2)2012(As Restated -Note 2) 20132012(As Restated -Note 2)2012(As Restated -Note 2)ASSETSCash and Other Cash Items P=29,742 P=24,382 P=20,954 P=26,532 P=21,540 P=16,985Due from Bangko Sentral ng Pilipinas(Note 16) 166,774 131,278 156,537 143,724 111,515 146,636Due from Other Banks 26,275 22,996 32,761 8,947 7,873 13,310Interbank Loans Receivable and SecuritiesPurchased Under Resale Agreements(Notes 7 and 33) 122,011 23,392 24,367 96,872 15,046 3,222Financial Assets at Fair Value ThroughProfit or Loss (Notes 8, 17 and 29) 55,441 72,920 8,908 36,140 57,635 4,597Available-for-Sale Investments(Note 8) 273,429 123,041 143,223 226,943 102,574 115,976Held-to-Maturity Investments(Note 8) 38,425 51,451 47,457 38,358 21,491 17,464Loans and Receivables (Note 9) 611,064 525,895 457,556 456,895 398,563 352,042Investments in Subsidiaries (Note 11) 24,882 24,922 25,399Investments in Associates and aJoint Venture (Note 11) 6,274 14,868 16,660 578 578 1,263Property and Equipment (Note 10) 15,756 15,345 13,937 10,296 10,321 9,408Investment Properties (Note 12) 13,125 15,422 15,471 9,504 11,898 11,044Non-Current Asset Held For Sale (Note 13) 1,102 336 Deferred Tax Assets (Note 28) 7,190 8,871 8,577 6,333 7,276 7,008Goodwill (Note 11) 5,206 6,409 6,413 1,203 1,203Other Assets (Note 14) 7,857 9,271 9,255 4,696 6,285 7,198P=1,378,569 P=1,046,643 P=962,076 P=1,090,700 P=799,056 P=732,755LIABILITIES AND EQUITYLIABILITIESDeposit Liabilities (Notes 16 and 31)Demand P=150,694 P=106,229 P=77,589 P=134,788 P=94,516 P=71,667Savings 362,915 305,034 283,011 348,244 293,934 272,331Time 502,659 327,431 320,393 407,722 245,969 237,6381,016,268 738,694 680,993 890,754 634,419 581,636Bills Payable and Securities Sold UnderRepurchase Agreements (Notes 17and 31) 127,204 97,108 99,657 45,993 16,223 13,600Derivative Liabilities (Notes 8 and 31) 4,452 6,692 2,826 4,452 6,425 2,689Managers Checks and Demand DraftsOutstanding 3,927 3,489 2,610 2,816 2,732 1,955Income Taxes Payable 676 1,326 597 267 912 322Accrued Interest and Other Expenses(Note 18) 8,507 8,341 7,199 6,002 5,907 4,547Bonds Payable (Note 19) 11,643 11,556 4,678 Subordinated Debt (Note 20) 8,628 14,243 19,735 4,497 9,977 18,442Deferred Tax Liabilities (Note 28) 479 244 157 Other Liabilities (Note 21) 54,080 40,241 28,876 28,860 25,450 19,4911,235,864 921,934 847,328 983,641 702,045 642,682(Forward)*SGVFS004156*- 2 -Consolidated Parent CompanyDecember 31 J anuary 1, December 31 J anuary 1,20132012(As Restated -Note 2)2012(As Restated -Note 2) 20132012(As Restated -Note 2)2012(As Restated -Note 2)EQUITYEquity Attributable to Equity Holders of theParent CompanyCommon stock (Note 23) P=54,896 P=42,228 P=42,228 P=54,896 P=42,228 P=42,228Hybridcapital securities (Note23) 6,351 6,351 6,351 6,351 6,351 6,351Capital paid in excess of par value 19,312 19,312 19,312 19,312 19,312 19,312Surplusreserves (Note24) 1,235 1,108 1,002 1,235 1,108 1,002Surplus(Notes 23 and 24) 55,525 48,418 35,712 30,903 29,570 21,115Remeasurement losses on retirement plan(Note 26) (2,870) (2,011) (1,460) (2,617) (1,877) (1,358)Net unrealized gain (loss) on available-for-saleinvestments (Note8) (481) 2,439 4,460 (2,133) 1,613 2,377Equity in net unrealized gain on available-for-saleinvestments of associates (Note11) 272 757 433 Translation adjustment and others 647 (869) 26 (888) (1,294) (954)134,887 117,733 108,064 107,059 97,011 90,073Non-controlling Interest 7,818 6,976 6,684 142,705 124,709 114,748 107,059 97,011 90,073P=1,378,569 P=1,046,643 P=962,076 P=1,090,700 P=799,056 P=732,755See accompanying Notes to Financial Statements.14 M etrop olitan B ank andTrust C om p anyN otes:STATEMENTS OF INCOME(In Millions, Except Earnings Per Share)*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESSTATEMENTS OF INCOME(In Millions, Except Earnings Per Share)Consolidated Parent CompanyYears Ended December 312012 2011 2012 20112013 (As Restated - Note 2) 2013 (As Restated - Note 2)INTEREST INCOME ONLoans and receivables (Notes 9 and 31) P=35,537 P=32,728 P=29,035 P=18,156 P=17,652 P=15,656Trading and investment securities (Note 8) 11,415 10,463 9,893 9,106 7,118 5,146Interbank loans receivable and securitiespurchased under resale agreements (Note 31) 2,417 551 458 1,705 269 311Deposits with banks and others (Note16) 523 1,274 5,682 282 499 4,49849,892 45,016 45,068 29,249 25,538 25,611INTEREST AND FINANCE CHARGESDeposit liabilities (Notes 16 and 31) 7,556 8,756 10,234 4,975 5,679 7,010Bills payable and securities sold under repurchaseagreements, bonds payable, subordinated debtand others (Notes 17, 19, 20 and 31) 4,067 5,406 5,397 873 1,389 1,46011,623 14,162 15,631 5,848 7,068 8,470NET INTEREST INCOME 38,269 30,854 29,437 23,401 18,470 17,141Trading and securities gain - net (Notes 8 and 31) 17,182 6,680 6,246 8,586 1,706 3,710Service charges, fees and commissions (Note 31) 8,640 8,123 7,666 3,555 3,527 3,558Gain on saleof investment in an associate(Note 11) 7,388 370 Gain on saleof non-current asset held for sale(Notes 13 and 31) 3,440 3,403 4,201 4,164 Leasing (Notes 12, 27 and 31) 1,638 1,380 1,017 243 207 196Income from trust operations (Notes 24 and 29) 1,071 853 695 1,057 841 687Profit from assets sold (Note 12) 894 1,119 886 643 1,118 826Dividends (Note 11) 435 156 136 10,006 1,773 2,777Foreign exchangegain (loss) - net (Note31) (2,266) 3,636 1,623 (2,575) 3,380 1,539Miscellaneous (Note 25) 2,233 874 1,057 421 373 420TOTAL OPERATING INCOME 78,924 57,078 49,133 49,538 35,559 30,854Compensation and fringebenefits(Notes 26 and 31) 15,634 14,406 13,310 11,018 10,385 9,308Provision for credit and impairment losses(Note 15) 10,722 4,478 3,823 5,294 777 1,186Taxes and licenses 8,131 5,268 4,606 4,167 3,162 2,609Depreciation and amortization(Notes 10, 12 and 14) 2,400 2,188 2,104 1,112 1,028 1,080Occupancy and equipment-related cost (Note 27) 2,225 2,107 1,959 1,286 1,215 1,139Amortization of software costs (Note 14) 284 236 230 139 120 120Miscellaneous (Note 25) 10,101 9,170 8,491 6,162 5,964 5,382TOTAL OPERATING EXPENSES 49,497 37,853 34,523 29,178 22,651 20,824INCOME BEFORE SHARE IN NETINCOME OF ASSOCIATES AND AJOINT VENTURE 29,427 19,225 14,610 20,360 12,908 10,030SHARE IN NET INCOME OF ASSOCIATESAND A JOINT VENTURE (Note 11) 1,477 2,548 1,423 INCOME BEFORE INCOME TAX 30,904 21,773 16,033 20,360 12,908 10,030PROVISION FOR INCOME TAX(Note 28) 6,748 3,856 3,542 3,646 1,760 2,119NET INCOME P=24,156 P=17,917 P=12,491 P=16,714 P=11,148 P=7,911Attributable to:Equity holders of theParent Company(Note 32) P=22,488 P=15,399 P=11,031Non-controlling Interest 1,668 2,518 1,460P=24,156 P=17,917 P=12,491Basic/Diluted Earnings Per Share Attributableto Equity Holders of the Parent Company(Note 32) P=8.02 P=5.44* P=3.86**Restated to include the effect of stock dividend issued in 2013 (Note 23).See accompanying Notes to Financial Statements.20 13 A nnual R ep ort15N otes:STATEMENTS OF COMPREHENSIVE INCOME(In Millions)*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESSTATEMENTS OF COMPREHENSIVE INCOME(In Millions)Consolidated Parent CompanyYears Ended December 312012 2011 2012 20112013 (As Restated - Note 2) 2013 (As Restated - Note 2)Net Income P=24,156 P=17,917 P=12,491 P=16,714 P=11,148 P =7,911Other Comprehensive Income for the Year,Net of TaxItems that may not be reclassified to profit or loss:Changein remeasurement loss ofretirement liability (897) (556) (740) (519) Items that may be reclassified to profit or loss:Change in net unrealized gain on available-for-saleinvestments (Note8) (2,917) (2,517) 3,732 (3,746) (764) 1,555Changein equity in net unrealized gain onavailable-for-saleinvestments ofassociates (Note 11) (498) 330 152 Translation adjustment and others(Notes 8 and 11) 1,746 (2,099) 362 406 (340) (10)(1,669) (4,286) 4,246 (3,340) (1,104) 1,545Total Comprehensive Income for the Year P=21,590 P=13,075 P=16,737 P=12,634 P=9,525 P =9,456Attributable to:Equity holders of theParent Company P=19,740 P=12,256 P=14,931 P=12,634 P=9,525 P =9,456Non-controlling Interest 1,850 819 1,806 P=21,590 P=13,075 P=16,737 P=12,634 P=9,525 P =9,456See accompanying Notes to Financial Statements.16 M etrop olitan B ank andTrust C om p anySTATEMENTS OF CHANGES IN EQUITY(In Millions)*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESSTATEMENTS OF CHANGES IN EQUITY(In Millions)ConsolidatedEquity Attributable to Equity Holders of the Parent CompanyCommonStock(Note 23)HybridCapitalSecurities(Note 23)Capital PaidIn Excessof Par ValueSurplusReserves(Note 24)Surplus(Notes 23and 24)Net UnrealizedGain/(Loss) onAvailable-for-SaleInvestments(Note 8)Equity in NetUnrealizedGain onAvailable-for-SaleInvestmentsof Associates(Note 11)RemeasurementLosses onRetirementPlan(Note 26)TranslationAdjustmentand OthersTotalNon-controllingInterestTotalEquityBalance at January 1, 2013, as previouslyreportedP=42,228P=6,351P=19,312P=1,108P=48,692P=2,438P=758P=-(P=869)P=120,018P=7,002P=127,020 Effect of change in accounting for (Note 2): Retirement benefits (PAS 19)----(274)--(2,011)-(2,285)(26)(2,311) Consolidated financial statements(PFRS 10)-----1(1)-----Balance as at January 1, 2013, as restated42,2286,35119,3121,10848,4182,439757(2,011)(869)117,7336,976124,709Total comprehensive income for the year----22,488(2,920)(485)(859)1,51619,7401,85021,590Transfer to surplus reserves---127(127)-------Cash dividends----(2,111)----(2,111)(1,008)(3,119)Coupon payment of hybrid capital securities (Note 32)----(475)----(475)-(475)Stock dividends12,668---(12,668)-------Balance at December 31, 2013P=54,896P=6,351P=19,312P=1,235P=55,525(P=481)P=272(P=2,870)P=647P=134,887P=7,818P=142,705Balance at January 1, 2012, as previously reportedP=42,228P=6,351P=19,312P=1,002P=35,986P=4,458P=435P=-P=26P=109,798P=6,706P=116,504 Effect of change in accounting for (Note 2): Retirement benefits (PAS 19)----(274)--(1,460)-(1,734)(22)(1,756) Consolidated financial statements(PFRS 10)-----2(2)-----Balance as at January 1, 2012, as restated42,2286,35119,3121,00235,7124,460433(1,460)26108,0646,684114,748Total comprehensive income for the year----15,399(2,021)324(551)(895)12,25681913,075Transfer to surplus reserves---106(106)-------Cash dividends----(2,111)----(2,111)(527)(2,638)Coupon payment of hybrid capital securities (Note 32)----(476)----(476)-(476)Balance at December 31, 2012P=42,228P=6,351P=19,312P=1,108P=48,418P=2,439P=757(P=2,011)(P=869)P=117,733P=6,976P=124,709(Forward)*SGVFS004156*- 2 -ConsolidatedEquity Attributable to Equity Holders of the Parent CompanyCommonStock(Note 23)HybridCapitalSecurities(Note 23)Capital PaidIn Excessof Par ValueSurplusReserves(Note 24)Surplus(Notes 23and 24)Net UnrealizedGain onAvailable-for-SaleInvestments(Note 8)Equity in NetUnrealizedGain onAvailable-for-SaleInvestmentsof Associates(Note 11)RemeasurementLosses onRetirementPlan (Note 26)TranslationAdjustmentand OthersTotalNon-controllingInterestTotalEquityBalance at January 1, 2011, as previously reportedP=38,228P=6,351P=13,484P=912P=27,640P=1,238P=284P=-(P=503)P=87,634P=5,383P=93,017Effect of change in accounting for retirement benefits (PAS 19) (Note 2)----(274)--(1,460)-(1,734)(22)(1,756)Balance as at January 1, 2011, as restated38,2286,35113,48491227,3661,238284(1,460)(503)85,9005,36191,261Total comprehensive income for the year----11,0313,222149-52914,9311,80616,737Transfer to surplus reserves---90(90)-------Issuance of shares of stock4,000-5,828------9,828-9,828Cash dividends----(2,111)----(2,111)(483)(2,594)Coupon payment of hybrid capital securities (Note 32)----(484)----(484)-(484)Balance at December 31, 2011P=42,228P=6,351P=19,312P=1,002P=35,712P=4,460P=433(P=1,460)P=26P=108,064P=6,684P=114,74820 13 A nnual R ep ort17Notes:*SGVFS004156*- 3 -Parent CompanyCommonStock(Note 23)HybridCapitalSecurities(Note 23)Capital PaidIn Excessof Par ValueSurplusReserves(Note 24)Surplus(Notes 23and 24)Net UnrealizedGain (Loss) onAvailable-for-SaleInvestments(Note 8)RemeasurementLosses onRetirementPlan (Note 26)TranslationAdjustmentand OthersTotalEquityBalance at January 1,2013, as previously reportedP=42,228P=6,351P=19,312P=1,108P=29,882P=1,613P=(P=1,294)P=99,200Effect of change in accounting for retirement benefits (PAS 19) (Note 2)(312)(1,877)(2,189)Balance at January 1, 2013, as restated42,2286,35119,3121,10829,5701,613(1,877)(1,294)97,011Total comprehensive income for the year16,714(3,746)(740)40612,634Transfer to surplus reserves127(127)Cash dividends(2,111)(2,111)Stock dividends12,668(12,668)Coupon payment of hybrid capital securities (Note 32)(475)(475)Balance at December 31, 2013P=54,896P=6,351P=19,312P=1,235P=30,903(P=2,133)(P=2,617)(P=888)P=107,059Balance at January 1, 2012, as previously reportedP=42,228P=6,351P=19,312P=1,002P=21,427P=2,377P=(P=954)P=91,743Effect of change in accounting for retirement benefits (PAS 19) (Note 2)(312)(1,358)(1,670)Balance at January 1, 2012, as restated42,2286,35119,3121,00221,1152,377(1,358)(954)90,073Total comprehensive income for the year11,148(764)(519)(340)9,525Transfer to surplus reserves106(106)Cash dividends(2,111)(2,111)Coupon payment of hybrid capital securities (Note 32)(476)(476)Balance at December 31, 2012P=42,228P=6,351P=19,312P=1,108P=29,570P=1,613(P=1,877)(P=1,294)P=97,011Balance at January 1, 2011, as previously reportedP=38,228P=6,351P=13,484P=912P=16,201P=822P=(P=944)P=75,054Effect of change in accounting for retirement benefits (PAS 19) (Note 2)(312)(1,358)(1,670)Balance at January 1, 2011, as restated38,2286,35113,48491215,889822(1,358)(944)73,384Total comprehensive income for the year7,9111,555(10)9,456Issuance of shares of stock4,0005,8289,828Transfer to surplus reserves90(90)Cash dividends(2,111)(2,111)Coupon payment of hybrid capital securities (Note 32)(484)(484)Balance at December 31, 2011P=42,228P=6,351P=19,312P=1,002P=21,115P=2,377(P=1,358) (P=954)P=90,073See accompanying Notes to Financial Statements.18 M etrop olitan B ank andTrust C om p anyN otes:STATEMENTS OF CASH FLOWS(In Millions)*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESSTATEMENTS OF CASH FLOWS(In Millions)Consolidated Parent CompanyYears Ended December 312012 2011 2012 20112013 (As Restated - Note2) 2013 (As Restated - Note2)CASH FLOWS FROM OPERATINGACTIVITIESIncomebeforeincometax P=30,904 P=21,773 P=16,033 P=20,360 P=12,908 P=10,030Adjustments for:Provision for credit and impairment losses(Note15) 10,722 4,478 3,823 5,294 777 1,186Trading and securities gain onavailable-for-saleinvestments (Note8) (12,833) (7,096) (5,831) (4,816) (4,004) (3,671)Depreciation and amortization (Notes 10, 11,12 and 14) 2,400 2,188 2,104 1,112 1,028 1,080Share in net income of associates and ajoint venture(Note11) (1,477) (2,548) (1,423) Profit fromassets sold (Notes 10 and 12) (894) (1,119) (886) (643) (1,118) (826)Gain on initial recognition of investmentproperties and chattel propertiesacquired in foreclosure (Note 25) (649) (139) (238) (61) (122) (135)Amortization of software costs (Note 14) 284 236 230 139 120 120Amortization of discount on subordinateddebt and bonds payable 29 42 62 20 35 36Unrealized market valuation loss (gain) onfinancial assets and liabilities atFVPL (4,624) 3,747 944 (3,691) 3,721 968Dividends (Note11) (435) (156) (136) (10,006) (1,773) (2,777)Gain on saleof non-current asset held forsale(Notes 13 and 31) (3,440) (3,403) (4,201) (4,164) Net loss on sale/dissolution of investment insubsidiaries (Note11) 1 14 Gain on saleof investment in an associate(Note11) (7,388) (370) Changes in operating assets and liabilities:Decrease (increase) in:Financial assets at fair valuethrough profit or loss 19,958 (63,989) 4,200 23,201 (53,016) 3,518Loans and receivables (95,041) (73,989) (68,937) (61,553) (48,037) (60,620)Other assets 245 (2,217) (1,293) 1,191 (1,257) (1,160)Increase (decrease) in:Deposit liabilities 277,574 57,701 29,731 256,335 52,783 17,828Managers checks and demanddrafts outstanding 438 879 567 84 777 561Accrued interest and otherexpenses 166 1,142 2,003 95 1,360 1,775Other liabilities 12,920 11,191 3,587 2,366 5,612 (1,278)Net cash generated from(used in) operations 228,859 (51,279) (15,830) 225,227 (34,356) (33,365)Dividends received 716 2,981 1,454 10,006 1,773 2,741Income taxes paid (5,482) (3,706) (3,397) (3,347) (1,437) (1,569)Net cash provided by (used in) operatingactivities 224,093 (52,004) (17,773) 231,886 (34,020) (32,193)CASH FLOWS FROM INVESTINGACTIVITIESAcquisitions of:Available-for-sale investments (982,284) (481,008) (483,687) (882,101) (408,144) (360,008)Held-to-maturity investments (23,798) (21,577) (30,811) (23,798) (19,303) (18,953)Property and equipment (Note10) (3,295) (3,841) (2,783) (1,560) (2,208) (1,228)Investments in subsidiaries, associatesand ajoint venture(Note11) (959) (644) (1,278) (41) (41) Proceeds fromsale of:Available-for-sale investments 877,988 503,669 477,238 759,206 424,436 345,574Property and equipment 1,301 585 313 954 430 206(Forward)20 13 A nnual R ep ort19N otes:*SGVFS004156*- 2 -Consolidated Parent CompanyYears Ended December 312012 2011 2012 20112013 (As Restated - Note2) 2013 (As Restated - Note2)Investments in subsidiaries andassociates (Note11) P=14,308 P=314 P=175 P= P=71 P=Investment properties (Note12) 3,059 4,090 4,424 2,402 3,287 4,084Non-current asset held for sale(Notes 13 and 31) 4,537 4,500 4,537 4,500 Decrease (increase) in interbank loans receivable andsecurities purchased under resale agreements(Note33) (492) (3,380) 1,768 (492) (3,380) 1,768Proceeds from maturity of held-to-maturityinvestments 6,932 17,583 16,017 6,932 15,277 15,434Net cash provided by (used in) investingactivities (102,703) 20,291 (18,624) (133,961) 14,925 (13,123)CASH FLOWS FROM FINANCINGACTIVITIESSettlements of bills payable (1,767,989) (983,041) (1,001,574) (1,271,929) (467,160) (249,712)Availments of bills payable and securitiessold under repurchaseagreement 1,798,085 980,491 1,015,718 1,301,699 469,783 252,907Proceeds fromissuance of shares of stock(Note23) 9,828 9,828Repayments of subordinated debt (Note20) (6,800) (8,500) (2,000) (5,500) (8,500) Proceeds fromissuance of:Bonds payable (Note 19) 6,958 Subordinated debt (Note20) 1,170 2,968 Cash dividends paid (Note23) (3,119) (2,638) (2,594) (2,111) (2,111) (2,111)Coupon payment of hybrid capitalsecurities (Note 23) (475) (476) (484) (475) (476) (484)Net cash provided by (used in) financingactivities 20,872 (4,238) 18,894 21,684 (8,464) 10,428NET INCREASE (DECREASE)IN CASH AND CASHEQUIVALENTS 142,262 (35,951) (17,503) 119,609 (27,559) (34,888)CASH AND CASH EQUIVALENTSAT BEGINNING OF YEARCash and other cash items 24,382 20,954 20,201 21,540 16,985 16,996DuefromBangko Sentral ng Pilipinas 131,278 156,537 168,402 111,515 146,636 162,391Due fromother banks 22,996 32,761 38,780 7,873 13,310 19,416Interbank loans receivable and securitiespurchased under resaleagreements (Note33) 19,048 23,403 23,775 10,702 2,258 15,274197,704 233,655 251,158 151,630 179,189 214,077CASH AND CASH EQUIVALENTSAT END OF YEARCash and other cash items 29,742 24,382 20,954 26,532 21,540 16,985DuefromBangko Sentral ng Pilipinas 166,774 131,278 156,537 143,724 111,515 146,636Due fromother banks 26,275 22,996 32,761 8,947 7,873 13,310Interbank loans receivable and securitiespurchased under resaleagreements (Note33) 117,175 19,048 23,403 92,036 10,702 2,258P=339,966 P=197,704 P=233,655 P=271,239 P=151,630 P=179,189OPERATIONAL CASH FLOWS FROM INTERESTConsolidated Parent CompanyYears Ended December 312012 2011 2012 20112013 (As Restated - Note2) 2013 (As Restated - Note2)Interest paid P=11,663 P=14,371 P=15,432 P=5,904 P=7,316 P=8,255Interest received 48,836 44,714 44,193 27,985 25,133 25,059See accompanying Notes to Financial Statements.2 0 M etrop olitan B ank andTrust C om p anyN otes:NOTES TO FINANCIAL STATEMENTS*SGVFS004156*METROPOLITAN BANK & TRUST COMPANY AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS1.Corporate InformationMetropolitan Bank & Trust Company (the Parent Company) is a universal bank incorporated inthe Philippines on April 6, 1962.The Securities and Exchange Commission (SEC) approved therenewal of its Certification of Incorporation until April 6, 2057 on November 19, 2007.In November 1980, the SEC approved and certified the listing of its shares and onFebruary 26, 1981, the listing and trading took effect in Makati Stock Exchange, Inc. and ManilaStock Exchange which unified and now, The Philippine Stock Exchange, Inc. (PSE).Theuniversal banking license was granted by the Philippine Central Bank, now Bangko Sentral ngPilipinas (BSP) on August 21, 1981.The Parent Company and its subsidiaries (the Group) are engaged in all aspects of banking,financing, leasing, real estate and stock brokering through a network of over 1,000 local andinternational branches, subsidiaries, representative offices, remittance correspondents andagencies.As a bank, the Parent Company provides services such as deposit products, loans andtrade finance, domestic and foreign fund transfers, treasury, foreign exchange, trading andremittances, and trust services.Its principal place of business is at Metrobank Plaza, Sen. Gil J .Puyat Avenue, Makati City.2.Summary of Significant Accounting PoliciesBasis of PreparationThe accompanying financial statements have been prepared on a historical cost basis except forfinancial assets and financial liabilities at fair value through profit or loss (FVPL) and available-for-sale (AFS) investments that have been measured at fair value.The financial statements of the Parent Company and Philippine Savings Bank (PSBank) includethe accounts maintained in the Regular Banking Unit (RBU) and Foreign Currency Deposit Unit(FCDU).The functional currency of RBU and FCDU is Philippine peso and United States Dollar(USD), respectively.For financial reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBU are translated into their equivalents in Philippine peso (seeaccounting policy on Foreign Currency Translation).The financial statements of these units arecombined after eliminating inter-unit accounts.The accompanying financial statements provide comparative information in respect of theprevious years.An additional statement of financial position at the beginning of the earliest yearpresented is included when there is a retrospective application of an accounting policy, aretrospective restatement, or a reclassification of items in financial statements.A statement offinancial position as at January 1, 2012 is presented in the 2013 financial statements due to theretrospective application of certain accounting policies as discussed in this Note.Each entity in the Group determines its own functional currency and items included in thefinancial statements of each entity are measured using that functional currency.The respectivefunctional currencies of the subsidiaries are presented under Basis of Consolidation.20 13 A nnual R ep ort21N otes:- 2 -*SGVFS004156*The financial statements are presented in Philippine peso (PHP), and all values are rounded to thenearest million pesos (P=000,000), except when otherwise indicated.Statement of ComplianceThe financial statements of the Group have been prepared in compliance with the accountingprinciples generally accepted in the Philippines for banks or Philippine GAAP for banks.Asdiscussed in Note 8, in 2011, First Metro Investment Corporation (FMIC), a majority-ownedsubsidiary of the Parent Company, participated in a bond exchange transaction under the liabilitymanagement exercise of the Philippine Government.The SEC granted an exemptive relief fromthe existing tainting rule on held-to-maturity (HTM) investments under Philippine AccountingStandard (PAS) 39, Financial Instruments: Recognition and Measurement, while the BSP alsoprovided the same exemption for prudential reporting to the participants.Following thisexemption, the basis of preparation of the financial statements of the availing entities shall not bePhilippine Financial Reporting Standards (PFRS) but should be the prescribed financial reportingframework for entities which are given relief from certain requirements of the PFRS.Except forthe aforementioned exemption which is applied starting 2011, the financial statements of theGroup have been prepared in compliance with the PFRS.The financial statements of the Parent Company have been prepared in compliance with the PFRS.Presentation of Financial StatementsFinancial assets and financial liabilities are offset and the net amount reported in the statement offinancial position only when there is a legally enforceable right to offset the recognized amountsand there is an intention to settle on a net basis, or to realize the assets and settle the liabilitysimultaneously.Income and expense are not offset in the statement of income unless required orpermitted by any accounting standard or interpretation, and as specifically disclosed in theaccounting policies of the Group.Basis of ConsolidationThe consolidated financial statements include the financial statements of the Parent Company andof its subsidiaries and are prepared for the same reporting period as the Parent Company usingconsistent accounting policies.The following are the wholly and majority-owned foreign anddomestic subsidiaries of the Parent Company in 2013 and 2012 (Note 11):SubsidiaryCountry ofIncorporationEffective Percentageof OwnershipFunctional CurrencyFinancial Markets:Domestic:FMIC and Subsidiaries (99.21% in 2012) Philippines 99.23 PHPPhilippine Savings Bank (PSBank) Philippines 75.98 PHPMetrobank Card Corporation (A Finance Company)(MCC) Philippines 60.00 PHPORIX Metro Leasing and Finance Corporation(ORIX Metro) and Subsidiaries (59.84% in 2012) Philippines 59.85 PHPForeign:Metropolitan Bank (China) Ltd. (MBCL) China 100.00 Chinese YuanMetropolitan Bank (Bahamas) Limited (MetrobankBahamas) The Bahamas 100.00United States Dollar(USD)First Metro International Investment CompanyLimited (FMIIC) and Subsidiary (99.84% in2012) Hong Kong 99.85Hong Kong Dollar(HKD)Remittances:Metro Remittance (Hong Kong Limited (MRHL)Hong Kong 100.00 HKDMetro Remittance (Singapore) Pte. Ltd. (MRSPL)Singapore 100.00 Singapore Dollar(Forward)2 2 M etrop olitan B ank andTrust C om p anyN otes:- 3 -*SGVFS004156*SubsidiaryCountry ofIncorporationEffective Percentageof OwnershipFunctional CurrencyMetro Remittance (UK) Limited United Kingdom 100.00 Great Britain PoundMetro Remittance (USA), Inc (MR USA)United States ofAmerica (USA) 100.00 USDMetro Remittance Center, Inc. MRCI) USA 100.00 USDMetro Remittance (J apan) Co. Ltd. (MR J apan) J apan 100.00 J apanese YenMetro Remittance (Italia), S.p.A.(MR Italia)* Italy 100.00 Euro (EUR)Metro Remittance (Spain), S.A. (MR Spain)** Spain 100.00 EUROthers:Philbancor Venture Capital Corporation*** Philippines 60.00 PHPReal EstateCirca 2000 Homes, Inc. (Circa)*** Philippines 100.00 PHPComputer ServicesMBTC Technology, Inc. (MTI)*** Philippines 100.00 PHP*On J uly 16, 2013, the Parent Companys BOD approved the voluntary closure of MR Italia effectiveNovember 1, 2013; in process of dissolution.**Liquidated in J uly 2013.***In process of dissolution.MR Japan, a wholly-owned subsidiary, was established in Yokohama, J apan on May 8, 2013 tocarry on remittance business to foreign countries and undertake intermediary business betweenJ apan and the Philippines.All significant intra-group balances, transactions, income and expenses and profits and lossesresulting from intra-group transactions are eliminated in full in the consolidation (Note 31).Subsidiaries are fully consolidated from the date on which control is transferred to the Group.Control is achieved where the Group is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect those returns through its power over theinvestee.Consolidation of subsidiaries ceases when control is transferred out of the Group or theParent Company.The results of subsidiaries acquired or disposed of during the year are includedin the consolidated statement of income from the date of acquisition or up to the date of disposal,as appropriate.Changes in the Parent Companys ownership interest in a subsidiary that do not result in a loss ofcontrol are accounted for within equity.Any difference between the amount by which thenon-controlling interests are adjusted and the fair value of the consideration paid or received isrecognized directly in equity and attributed to the owners of the Parent Company.When a change in ownership interest in a subsidiary occurs which results in a loss of control overthe subsidiary, the Parent Company:? derecognizes the assets (including goodwill) and liabilities of the subsidiary;? derecognizes the carrying amount of any non-controlling interest;? derecognizes the related other comprehensive income recorded in equity and recycles thesame to statement of income or retained earnings;? recognizes the fair value of the consideration received;? recognizes the fair value of any investment retained;? recognizes any surplus or deficit in statement of income; and? reclassifies the Parent Companys share of components previously recognized in othercomprehensive income (OCI) to profit or loss or surplus, as appropriate, as would be requiredif the Group had directly disposed of the related assets or liabilities.Entity with significant influence over the GroupGT Capital Holdings, Inc. (GT Capital) holds 25.112% of the total shares of the Parent Companyas of December 31, 2013 and 2012.20 13 A nnual R ep ort23N otes:- 4 -*SGVFS004156*Non-controlling InterestNon-controlling interest represents the portion of profit or loss and the net assets not held by theGroup and are presented separately in the consolidated statement of income, consolidatedstatement of comprehensive income and within equity in the consolidated statement of financialposition, separately from equity attributable to the Parent Company.Any losses applicable to thenon-controlling interests in excess of the non-controlling interests are allocated against theinterests of the non-controlling interest even if this results in the non-controlling interest having adeficit balance.Acquisitions of non-controlling interests are accounted for as equity transactions.Changes in Accounting Policies and DisclosuresThe Group applied, for the first time, the following applicable new and revised accountingstandards.Unless otherwise indicated, these new and revised accounting standards have noimpact to the Group.Except for these standards and amended PFRS which were adopted as ofJ anuary 1, 2013, the accounting policies adopted are consistent with those of the previousfinancial year.PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities (Amendments)These amendments require an entity to disclose information about rights of set-off and relatedarrangements (such as collateral agreements).The new disclosures are required for all recognizedfinancial instruments that are set off in accordance with PAS 32, Financial Instruments:Presentation.These disclosures also apply to recognized financial instruments that are subject toan enforceable master netting arrangement or similar agreement, irrespective of whether they areset-off in accordance with PAS 32.The amendments require entities to disclose, in a tabularformat unless another format is more appropriate, the following minimum quantitativeinformation.This is presented separately for financial assets and financial liabilities recognized atthe end of the reporting period:a)The gross amounts of those recognized financial assets and recognized financial liabilities;b)The amounts that are set off in accordance with the criteria in PAS 32 when determining thenet amounts presented in the statement of financial position;c)The net amounts presented in the statement of financial position;d)The amounts subject to an enforceable master netting arrangement or similar agreement thatare not otherwise included in (b) above, including:i.Amounts related to recognized financial instruments that do not meet some or all of theoffsetting criteria in PAS 32; andii.Amounts related to financial collateral (including cash collateral); ande)The net amount after deducting the amounts in (d) from the amounts in (c) above.The additional disclosures required by the amendments are presented in Note 4 to the financialstatements.PFRS 10, Consolidated Financial StatementsThe Group adopted PFRS 10 in the current year.PFRS 10 replaced the portion of PAS 27,Consolidated and Separate Financial Statements, that addressed the accounting for consolidatedfinancial statements.It also included the issues raised in SIC 12, Consolidation - Special PurposeEntities.PFRS 10 established a single control model that applied to all entities including specialpurpose entities.The changes introduced by PFRS 10 require management to exercise significantjudgment to determine which entities are controlled, and therefore, are required to be consolidatedby a parent, compared with the requirements that were in PAS 27.2 4 M etrop olitan B ank andTrust C om p anyN otes:- 5 -*SGVFS004156*The application of PFRS 10 affected the accounting for the Groups interest in First Metro Saveand Learn Balance Fund, Inc. (FMSALBF) and First Metro Save and Learn Equity Fund, Inc.(FMSALEF), subsidiaries of FMIC, collectively referred to as the Funds.FMIC holds 17.97%and 22.58% equity interests, respectively, and for all financial years up to December 31, 2012, theFunds were considered to be associates under the previously existing PAS 28, Investments inAssociates, and were accounted for using the equity method.At the date of initial application ofPFRS 10, the Group assessed that it controls the Funds based on the factors explained in Note 3,Judgments and Estimates.As a result of the adoption of PFRS 10, the Group retrospectively consolidated the accounts ofFMSALBF and FMSALEF.Non-controlling interests have been recognized at the proportionateshare of the net assets of the subsidiaries.The opening balances at J anuary 1, 2012 andcomparative information for the year ended December 31, 2012 have been restated accordingly.The following tables show the significant increase (decrease) in the following accounts in theconsolidated statements of comprehensive income, net equity, and statements of cash flows as aresult of the adoption of PFRS 10:Statements of comprehensive incomeYears Ended December 312012 2011Other income P=1,161 P=123Operating expenses 25 20Share in net income of associates and a joint venture (285) (14)Net income 870 101Total comprehensive income 870 101Attributable to non-controlling interest 870 101Statements of financial positionDecember 312012 2011Financial assets at FVPL P=6,199 P=2,720Total assets 5,076 2,721Other liabilities 5,355 2,913Total liabilities 5,076 2,721Net impact on equity Statements of cash flowsYears Ended December 312012 2011Net cash provided by (used in) operating activities (P=40) (P =138)Net cash provided by (used in) investing activities (187) 332Net cash provided by (used in) financing activities Net increase (decrease) in cash andcashequivalents (P=227) P=194PFRS 11, Joint ArrangementsPFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC-13, Jointly-controlled Entities -Non-monetary Contributions by Venturers.PFRS 11 removes the option to account for jointlycontrolled entities (J CEs) using proportionate consolidation.Instead, J CEs that meet thedefinition of a joint venture must be accounted for using the equity method.20 13 A nnual R ep ort25N otes:- 6 -*SGVFS004156*PFRS 12, Disclosure of Interests in Other EntitiesPFRS 12 sets out the requirements for disclosures relating to an entitys interests in subsidiaries,joint arrangements, associates and structured entities.The requirements in PFRS 12 are morecomprehensive than the previously existing disclosure requirements for subsidiaries (for example,where a subsidiary is controlled with less than a majority of voting rights).While the Group hassubsidiaries with material non-controlling interests, there are no unconsolidated structured entities.PFRS 12 disclosures are provided in Note 11.PFRS 13, Fair Value MeasurementPFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather provides guidanceon how to measure fair value under PFRS.PFRS 13 defines fair value as an exit price. PFRS 13also requires additional disclosures.As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fairvalues, in particular, its valuation inputs such as non-performance risk for fair value measurementof liabilities.The Group has assessed that the application of PFRS 13 has not materially impactedthe fair value measurements of the Group.Additional disclosures, where required, are provided inthe individual notes relating to the assets and liabilities whose fair values were determined.Fairvalue hierarchy is provided in Note 5.PAS 1, Presentation of Financial Statements - Presentation of Items of Other ComprehensiveIncome (OCI) (Amendments)The amendments to PAS 1 change the grouping of items presented in OCI.Items that could bereclassified (or recycled) to profit or loss at a future point in time (for example, uponderecognition or settlement) would be presented separately from items that will never bereclassified.PAS 19, Employee Benefits (Amendment) (PAS 19R)PAS 19R includes a number of amendments to the accounting for defined benefit plans, includingactuarial gains and losses that are now recognized in OCI and permanently excluded from profitand loss; expected returns on plan assets that are no longer recognized in profit or loss, instead,there is a requirement to recognize interest on the net defined benefit liability (asset) in profit orloss, calculated using the discount rate used to measure the defined benefit obligation, and;unvested past service costs are now recognized in profit or loss at the earlier of when theamendment occurs or when the related restructuring or termination costs are recognized.Otheramendments include new disclosures, such as, quantitative sensitivity disclosures.Further, thetransition to PAS 19R had an impact on the net defined benefit plan obligations due to thedifference in accounting for interest on plan assets and unvested past service costs.The effect ofthe adoption of PAS 19R is explained below.The Group operates a defined benefit pension plan, which requires contributions to be made to aseparately administered fund.PAS 19R has been applied retrospectively from J anuary 1, 2011.As a result, expected returns on plan assets of defined benefit plans are not recognized in profit orloss.Instead, interest on net defined benefit obligation (net of the plan assets) is recognized inprofit or loss, calculated using the discount rate used to measure the net pension obligation orasset.Also, unvested past service costs can no longer be deferred and recognized over the futurevesting period.Instead, all past service costs are recognized at the earlier of when amendmentoccurs and when the Group recognizes related restructuring or termination costs.Until 2011, theGroups unvested service costs were recognized as an expense on a straight-line basis over theaverage period until the benefits become vested.Upon transition to PAS 19R, past service costsare recognized immediately if the benefits have vested immediately following the introduction of,or changes to, a pension plan.2 6 M etrop olitan B ank andTrust C om p anyN otes:- 7 -*SGVFS004156*The impact of PAS 19R on the statements of financial position of the Group and the ParentCompany follows:Consolidated Parent CompanyAsrestatedAspreviouslyreported Change As restatedAs previouslyreported ChangeAs at December 31, 2012Retirement liability P=4,278 P=972 P=3,306 P=3,891 P=758 P=3,133Deferred tax asset 1,287 292 995 1,171 227 944Equity (2,991) (680) (2,311) (2,720) (531) (2,189)As at J anuary 1, 2012Retirement liability (asset) P=2,581 P =68 P=2,513 P=2,290 (P =101) P=2,391Deferred tax asset (liability) 778 21 757 691 (30) 721Equity (1,803) (47) (1,756) (1,599) 71 (1,670)PAS 27, Separate Financial Statements (as revised in 2011)As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12,Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting forsubsidiaries, jointly controlled entities, and associates in separate financial statements.PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, Disclosure of Interestsin Other Entities, PAS 28 has been renamed PAS 28, Investments in Associates and JointVentures, and describes the application of the equity method to investments in joint ventures inaddition to associates.Amendments to PFRS 1 covering first time adoption of PFRS on government loans and PhilippineInterpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine are notapplicable to the Group.Significant Accounting PoliciesForeign Currency TranslationTransactions and balancesFor financial reporting purposes, the foreign currency-denominated monetary assets and liabilitiesin the RBU are translated in Philippine peso based on the Philippine Dealing System (PDS)closing rate prevailing at the statement of financial position date and foreign currency-denominated income and expenses, at the prevailing exchange rates as at the date of transaction.Foreign exchange differences arising from revaluation and translation of foreign-currencydenominated assets and liabilities are credited to or charged against operations in the year in whichthe rates change.Non-monetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rates as at the dates of the initial transactions.Non-monetary itemsmeasured at fair value in a foreign currency are translated using the exchange rates at the datewhen the fair value was determined.FCDU, foreign branches and subsidiariesAs at the reporting date, the assets and liabilities of foreign branches and subsidiaries and FCDUof the Parent Company and PSBank are translated into the Parent Companys presentationcurrency (the Philippine peso) at PDS closing rate prevailing at the statement of financial positiondate, and their income and expenses are translated at PDS weighted average rate (PDSWAR) forthe year.Exchange differences arising on translation are taken to statement of comprehensiveincome.Upon disposal of a foreign entity or when the Parent Company ceases to have control20 13 A nnual R ep ort27N otes:- 8 -*SGVFS004156*over the subsidiaries or upon actual remittance of FCDU profits to RBU, the deferred cumulativeamount recognized in the statement of comprehensive income is recognized in the statement ofincome.Fair Value MeasurementThe Group measures financial instruments, such as, derivatives, and non-financial assets such asinvestment properties, at fair value at each balance sheet date. Also, fair values of financialinstruments measured at amortized cost are disclosed in Note 5.Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:? In the principal market for the asset or liability, or? In the absence of a principal market, in the most advantageous market for the asset or liabilityThe principal or the most advantageous market must be accessible to by the Group.The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput that is significant to the fair value measurement as a whole:? Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities? Level 2 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is directly or indirectly observable? Level 3 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is unobservableFor assets and liabilities that are recognized in the financial statements on a recurring basis, theGroup determines whether transfers have occurred between Levels in the hierarchy by re-assessingcategorization (based on the lowest level input that is significant to the fair value measurement asa whole) at the end of each reporting period.The Group determines the policies and procedures for both recurring fair value measurement, suchas financial assets at FVPL, and for non-recurring measurement, such as investment properties.External valuers are involved for valuation of significant assets, such as investment properties.Selection criteria include market knowledge, reputation, independence and whether professionalstandards are maintained.2 8 M etrop olitan B ank andTrust C om p anyN otes:- 9 -*SGVFS004156*For the purpose of fair value disclosures, the Group has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the asset or liability and the level of the fairvalue hierarchy as explained above.Financial Instruments - Initial Recognition and Subsequent MeasurementDate of recognitionPurchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace are recognized on the settlement date.Derivatives are recognized on trade date basis.Deposits, amounts due to banks and customers andloans are recognized when cash is received by the Group or advanced to the borrowers.Initial recognition of financial instrumentsAll financial instruments are initially measured at fair value.Except for financial assets andfinancial liabilities valued at FVPL, the initial measurement of financial instruments includestransaction costs.The Group classifies its financial assets in the following categories: financialassets at FVPL, HTM investments, AFS investments, and loans and receivables while financialliabilities are classified as financial liabilities at FVPL and financial liabilities carried at amortizedcost.The classification depends on the purpose for which the investments were acquired andwhether they are quoted in an active market.Management determines the classification of itsinvestments at initial recognition and, where allowed and appropriate, re-evaluates suchdesignation at every reporting date.Determination of fair valueThe fair value for financial instruments traded in active markets at the statement of financialposition date is based on their quoted market price or dealer price quotations (bid price for longpositions and ask price for short positions), without any deduction for transaction costs.Whencurrent bid and ask prices are not available, the price of the most recent transaction is used since itprovides evidence of the current fair value as long as there has not been a significant change ineconomic circumstances since the time of the transaction.For all other financial instruments not listed in an active market, the fair value is determined byusing appropriate valuation techniques.Valuation techniques include net present valuetechniques, comparison to similar instruments for which market observable prices exist, optionspricing models, and other relevant valuation models.Day 1 differenceWhere the transaction price in a non-active market is different with the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Group recognizes the differencebetween the transaction price and fair value (a Day 1 difference) in the statement of income.Incases where the transaction price used is made of data which is not observable, the differencebetween the transaction price and model value is only recognized in the statement of income whenthe inputs become observable or when the instrument is derecognized.For each transaction, theGroup determines the appropriate method of recognizing the Day 1 difference amount.Derivatives recorded at FVPLThe Parent Company and some of its subsidiaries are counterparties to derivative contracts, suchas currency forwards, currency swaps, interest rate swaps, call options, non-deliverable forwardsand other interest rate derivatives.These derivatives are entered into as a service to customers andas a means of reducing or managing their respective foreign exchange and interest rate exposures,as well as for trading purposes.Such derivative financial instruments are initially recorded at fairvalue on the date at which the derivative contract is entered into and are subsequently remeasuredat fair value.Any gains or losses arising from changes in fair values of derivatives (except those20 13 A nnual R ep ort29N otes:- 10 -*SGVFS004156*accounted for as accounting hedges) are taken directly to the statement of income and are includedin Trading and securities gain - net.Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative.Hedge accountingFor the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of thefair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of theexposure to variability in cash flows attributable to an asset or liability or a forecasted transaction(cash flow hedge); or (c) a hedge of a net investment in a foreign operation (net investmenthedge).Hedge accounting is applied to derivatives designated as hedging instruments in a fairvalue, cash flow, or net investment hedge provided certain criteria are met.At the inception of a hedge relationship, the Group formally designates and documents the hedgerelationship to which the Group wishes to apply hedge accounting and the risk managementobjective and strategy for undertaking the hedge.The documentation includes identification of thehedging instrument, the hedged item or transaction, the nature of the risk being hedged and howthe Group will assess the effectiveness of changes in the hedging instruments fair value inoffsetting the exposure to changes in the hedged items fair value or cash flows attributable to thehedged risk.Such hedges are expected to be highly effective in achieving offsetting changes infair value or cash flows and are assessed on an ongoing basis to determine that they actually havebeen highly effective throughout the financial reporting periods for which they were designated.Cash flow hedgeThe effective portion of the gain or loss on the hedging instrument is recognized directly asTranslation adjustment and others in the statement of comprehensive income.Any gain or lossin fair value relating to an ineffective portion is recognized immediately in the statement ofincome.Amounts recognized as other comprehensive income are transferred to the statement of incomewhen the hedged transaction affects profit or loss, such as when the hedged financial income orfinancial expense is recognized or when a forecast sale occurs.Where the hedged item is the costof a nonfinancial asset or liability, the amounts taken to other comprehensive income aretransferred to the initial carrying amount of the nonfinancial asset or liability.If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gainor loss previously recognized in the statement of comprehensive income are transferred to thestatement of income.If the hedging instrument expires or is sold, terminated or exercised withoutreplacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or losspreviously recognized in other comprehensive income remains in other comprehensive incomeuntil the forecast transaction or firm commitment affects profit or loss.If the related transaction isno longer expected to occur, the amount is recognized in the statement of income.Hedge effectiveness testingTo qualify for hedge accounting, the Group requires that at the inception of the hedge andthroughout its life, each hedge must be expected to be highly effective (prospective effectiveness),and demonstrate actual effectiveness (retrospective effectiveness) on an ongoing basis.Thedocumentation of each hedging relationship sets out how the effectiveness of the hedge isassessed.The method that the Group adopts for assessing hedge effectiveness will depend on itsrisk management strategy.3 0 M etrop olitan B ank andTrust C om p anyN otes:- 12 -*SGVFS004156*Interest earned on holding AFS investments are reported as Interest income using the effectiveinterest rate (EIR) method.Dividends earned on holding AFS investments are recognized in thestatement of income as Dividends when the right of the payment has been established.Thelosses arising from impairment of such investments are recognized as Provision for credit andimpairment losses in the statement of income.HTM investmentsHTM investments are quoted non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which the Groups management has the positive intention and ability tohold to maturity.Where the Group sells other than an insignificant amount of HTM investments,the entire category would be tainted and reclassified as AFS investments unless for sales orreclassifications that:? are so close to maturity or the financial assets call date (for example, less than three monthsbefore maturity) that changes in the market rate of interest would not have a significant effecton the financial assets fair value;? occur after the entity has collected substantially all of the financial assets original principalthrough scheduled payments or prepayments; or? are attributable to an isolated event that is beyond the entitys control, is non-recurring andcould not have been reasonably anticipated by the entity.After initial measurement, these investments are subsequently measured at amortized cost usingthe EIR method, less impairment in value.Amortized cost is calculated by taking into accountany discount or premium on acquisition and fees that are an integral part of the EIR.Theamortization is included in Interest income in the statement of income.Gains and losses arerecognized in statement of income when the HTM investments are derecognized or impaired, aswell as through the amortization process.The losses arising from impairment of such investmentsare recognized in the statement of income under Provision for credit and impairment losses.Theeffects of revaluation on foreign currency-denominated HTM investments are recognized in thestatement of income.The Group follows Philippine GAAP for banks in accounting for its HTM investments in theconsolidated financial statements.Under Philippine GAAP for banks, the gain on exchange onFMICs participation in the domestic bond exchange was deferred and amortized over the term ofnew bonds (see Statement of Compliance discussion).Loans and receivablesThis accounting policy relates to the statement of financial position captions Due from BSP,Due from other banks, Interbank loans receivable and securities purchased under resaleagreements (SPURA) and Loans and receivables.These are financial assets with fixed ordeterminable payments and fixed maturities that are not quoted in an active market.They are notentered into with the intention of immediate or short-term resale and are not classified as otherfinancial assets held for trading, designated as AFS investments or financial assets designated atFVPL.Loans and receivables include purchases made by MCCs cardholders which are collected oninstallments and are recorded at the cost of the items purchased plus interest covering theinstallment period which is initially credited to unearned discount, shown as a deduction fromLoans and receivables.Loans and receivables also include ORIX Metros lease contracts receivable and notes receivablefinanced which are stated at the outstanding balance, reduced by unearned lease income andunearned finance income, respectively.- 11 -*SGVFS004156*For prospective effectiveness, the hedging instrument must be expected to be highly effective inoffsetting changes in fair value or cash flows attributable to the hedged risk during the period forwhich the hedge is designated.The Group applies the dollar-offset method using hypotheticalderivatives in performing hedge effectiveness testing.For actual effectiveness to be achieved, thechanges in fair value or cash flows must offset each other in the range of 80.0% to 125.0%.Anyhedge ineffectiveness is recognized in the statement of income.Embedded derivativesThe Group has certain derivatives that are embedded in host financial (such as structured notesand debt instruments) and nonfinancial (such as lease and service agreements) contracts.Theseembedded derivatives include interest rate derivatives in debt instruments which include structurednotes and foreign currency derivatives in debt instruments and lease agreements.Embedded derivatives are bifurcated from their host contracts and carried at fair value with fairvalue changes being reported through profit or loss, when the entire hybrid contracts (composed ofboth the host contract and the embedded derivative) are not accounted for as financial assets orliabilities at FVPL, when their economic risks and characteristics are not clearly and closelyrelated to those of their respective host contracts, and when a separate instrument with the sameterms as the embedded derivatives would meet the definition of a derivative.The Group assesseswhether embedded derivatives are required to be separated from the host contracts when theGroup first becomes a party to the contract.Reassessment of embedded derivatives is only donewhen there are changes in the contract that significantly modifies the contractual cash flows.Financial assets or financial liabilities held for tradingFinancial assets or financial liabilities held for trading are recorded in the statement of financialposition at fair value.Changes in fair value relating to the held for trading positions arerecognized in Trading and securities gain - net.Interest earned or incurred is recorded inInterest income or Interest expense respectively, while dividend income is recorded inDividends when the right to receive payment has been established.Included in this classificationare debt and equity securities which have been acquired principally for the purpose of selling orrepurchasing in the near term.AFS investmentsAFS investments include debt and equity instruments.Equity investments classified under AFSinvestments are those which are neither classified as held-for-trading (HFT) nor designated atFVPL.Debt securities are those that do not qualify to be classified as HTM investments or loansand receivables, are purchased and held indefinitely, and may be sold in response to liquidityrequirements or changes in market conditions.After initial measurement, AFS investments are subsequently measured at fair value.Theeffective yield component of AFS debt securities, as well as the impact of restatement on foreigncurrency-denominated AFS debt securities, is reported in the statement of income.The unrealizedgains and losses arising from the fair valuation of AFS investments are excluded, net of tax, fromreported earnings and are included in the statement of comprehensive income as Net unrealizedgain on AFS investments.When the security is disposed of, the cumulative gain or loss previously recognized in thestatement of comprehensive income is recognized as Trading and securities gain - net in thestatement of income.Gains and losses on disposal are determined using the average cost method.20 13 A nnual R ep ort31N otes:- 12 -*SGVFS004156*Interest earned on holding AFS investments are reported as Interest income using the effectiveinterest rate (EIR) method.Dividends earned on holding AFS investments are recognized in thestatement of income as Dividends when the right of the payment has been established.Thelosses arising from impairment of such investments are recognized as Provision for credit andimpairment losses in the statement of income.HTM investmentsHTM investments are quoted non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which the Groups management has the positive intention and ability tohold to maturity.Where the Group sells other than an insignificant amount of HTM investments,the entire category would be tainted and reclassified as AFS investments unless for sales orreclassifications that:? are so close to maturity or the financial assets call date (for example, less than three monthsbefore maturity) that changes in the market rate of interest would not have a significant effecton the financial assets fair value;? occur after the entity has collected substantially all of the financial assets original principalthrough scheduled payments or prepayments; or? are attributable to an isolated event that is beyond the entitys control, is non-recurring andcould not have been reasonably anticipated by the entity.After initial measurement, these investments are subsequently measured at amortized cost usingthe EIR method, less impairment in value.Amortized cost is calculated by taking into accountany discount or premium on acquisition and fees that are an integral part of the EIR.Theamortization is included in Interest income in the statement of income.Gains and losses arerecognized in statement of income when the HTM investments are derecognized or impaired, aswell as through the amortization process.The losses arising from impairment of such investmentsare recognized in the statement of income under Provision for credit and impairment losses.Theeffects of revaluation on foreign currency-denominated HTM investments are recognized in thestatement of income.The Group follows Philippine GAAP for banks in accounting for its HTM investments in theconsolidated financial statements.Under Philippine GAAP for banks, the gain on exchange onFMICs participation in the domestic bond exchange was deferred and amortized over the term ofnew bonds (see Statement of Compliance discussion).Loans and receivablesThis accounting policy relates to the statement of financial position captions Due from BSP,Due from other banks, Interbank loans receivable and securities purchased under resaleagreements (SPURA) and Loans and receivables.These are financial assets with fixed ordeterminable payments and fixed maturities that are not quoted in an active market.They are notentered into with the intention of immediate or short-term resale and are not classified as otherfinancial assets held for trading, designated as AFS investments or financial assets designated atFVPL.Loans and receivables include purchases made by MCCs cardholders which are collected oninstallments and are recorded at the cost of the items purchased plus interest covering theinstallment period which is initially credited to unearned discount, shown as a deduction fromLoans and receivables.Loans and receivables also include ORIX Metros lease contracts receivable and notes receivablefinanced which are stated at the outstanding balance, reduced