FINANCIAL STATEMENT ANALYSIS |

HORIZONTAL ANALYSIS |
VERTICAL ANALYSIS |
RATIO ANALYSIS |
 HORIZONTAL ANALYSIS- INCOME STATEMENT    
  2012 2011 % CHANGE
INTEREST INCOME
LOANS AND RECEIVABLES (NOTE 7) 1,681,753,792 1,594,479,822 5.47%
CASH AND CASH EQUIVALENTS (NOTES 4 AND 22) 69,777,148 96,970,933 -28.04%
1,751,530,940 1,691,450,755 3.55%

INTEREST EXPENSE (Notes 12, 13 and 22) 871,324,497 926,500,660 -5.96%

NET INTEREST INCOME 880,206,443 764,950,095 15.07%
SERVICE FEES AND OTHER INCOME (Note 18) 94,012,903 104,229,186 -9.80%

OPERATING EXPENSES
Provision for credit and impairment losses (Notes 7, 8 and 11) 269,173,350 147,352,989 82.67%
Taxes and licenses 108,935,058 110,631,053 -1.53%
Compensation and fringe benefits (Notes 19 and 22) 71,990,427 92,717,359 -22.35%
Occupancy (Note 21) 43,403,873 44,662,006 -2.82%
Sales and marketing 30,988,799 45,431,524 -31.79%
Litigation 28,693,957 23,261,859 23.35%
Management and professional fees 16,987,702 16,496,025 2.98%
Depreciation and amortization (Notes 9 and 10) 10,756,533 20,472,814 -47.46%
Entertainment, amusement and recreation (Note 20) 9,161,400 8,356,705 9.63%
Credit investigation 8,350,866 10,798,807 -22.67%
Transportation and travel 6,087,398 5,370,346 13.35%
Others 15,266,754 12,559,687 21.55%
  619,796,117 538,111,174 15.18%

INCOME BEFORE INCOME TAX 354,423,229 331,068,107 7.05%

PROVISION FOR INCOME TAX (Note 20) 109,813,456 103,433,869 6.17%

NET INCOME 244,609,773 227,634,238 7.46%

OTHER COMPREHENSIVE INCOME

Net unrealized gain on available-for-sale investments 75,000 45,000 66.67%
Net movement on cash flow hedges (Note 15) 50,872,023 11,956,004 325.49%
Income tax effect (Note 20) (15,261,607) (3,586,801) 325.49%
  35,610,416 8,369,203 325.49%
  35,685,416 8,414,203 324.11%

TOTAL COMPREHENSIVE INCOME 280,295,189 236,048,441 18.74%

HORIZONTAL ANALYSIS- BALANCE SHEET
  2012 2011 % CHANGE
ASSETS
Cash (Notes 4, 22, 23 and 25) 1,216,209,838 1,221,471,063 -0.43%
Due from Bangko Sentral ng Pilipinas (Notes 4, 23 and 25) 1,595,003,345 1,690,041,380 -5.62%
Securities Purchased Under Resale Agreement (Note 5) 540,000,000 208,000,000 159.62%
Available-for-Sale Investments (Notes 6, 23 and 25) 930,000 955,000 -2.62%
Loans and Receivables (Notes 7, 11, 23 and 25) 17,542,603,072 16,641,743,028 5.41%
Assets Held for Sale (Note 8) 74,860,784 63,358,174 18.15%
Property and Equipment (Note 9) 17,337,934 16,380,855 5.84%
Software Costs (Note 10) 22,647,467 21,670,634 4.51%
Deferred Tax Assets (Note 20) 113,392,599 88,857,053 27.61%
Other Assets (Note 10) 21,700,434 11,298,236 92.07%
  21,144,685,473 19,963,775,423 5.92%
       
LIABILITIES AND EQUITY
LIABILITIES
Loans Payable (Notes 12, 22, 23 and 25) 14,408,406,141 15,549,334,873 -7.34%
Derivative Liability (Notes 15 and 23) 34,246,258 70,548,282 -51.46%
Accounts Payable and Other Liabilities (Notes 14, 22, 23, and
25) 550,013,206 411,907,333 33.53%
Deposits on Lease Contracts (Note 16) 2,921,006,789 1,993,934,583 46.49%
Subordinated Debt (Note 13) 996,239,534 - N/A
Income Tax Payable 39,940,720 23,512,716 69.87%
  18,949,852,648 18,049,237,787 4.99%

EQUITY

Capital Stock - P=100 par value Authorized, issued and

outstanding - 10,000,000 shares (Note 24) 1,000,000,000 1,000,000,000 0%
Retained Earnings (Note 24) 1,137,136,606 892,526,833 27.41%

Net Unrealized Gain on Available-for-Sale

Investments (Note 6) 120,000 45,000 166.67%
Cash Flow Hedge Reserve (Note 15) 57,576,219 21,965,803 162.12%
  2,194,832,825 1,914,537,636 14.64%
  21,144,685,473 19,963,775,423 5.92%
VERTICAL ANALYSIS- INCOME STATEMENT

  2012 % 2011 %
INTEREST INCOME
LOANS AND RECEIVABLES (NOTE 7) 1,681,753,792 172.63% 1,594,479,822 183.45%
CASH AND CASH EQUIVALENTS (NOTES 4 AND 22) 69,777,148 7.16% 96,970,933 11.16%
1,751,530,940 179.79% 1,691,450,755 194.60%

INTEREST EXPENSE (Notes 12, 13 and 22) 871,324,497 89.44% 926,500,660 106.59%
NET INTEREST INCOME 880,206,443 90.35% 764,950,095 88.01%
SERVICE FEES AND OTHER INCOME (Note 18) 94,012,903 9.65% 104,229,186 11.99%

OPERATING EXPENSES
Provision for credit and impairment losses (Notes 7, 8
and 11) 269,173,350 27.63% 147,352,989 16.95%
Taxes and licenses 108,935,058 11.18% 110,631,053 12.73%
Compensation and fringe benefits (Notes 19 and 22) 71,990,427 7.39% 92,717,359 10.67%
Occupancy (Note 21) 43,403,873 4.46% 44,662,006 5.14%
Sales and marketing 30,988,799 3.18% 45,431,524 5.23%
Litigation 28,693,957 2.95% 23,261,859 2.68%
Management and professional fees 16,987,702 1.74% 16,496,025 1.90%
Depreciation and amortization (Notes 9 and 10) 10,756,533 1.10% 20,472,814 2.36%
Entertainment, amusement and recreation (Note 20) 9,161,400 0.94% 8,356,705 0.96%
Credit investigation 8,350,866 0.86% 10,798,807 1.24%
Transportation and travel 6,087,398 0.62% 5,370,346 0.62%
Others 15,266,754 1.57% 12,559,687 1.45%
  619,796,117 63.62% 538,111,174 61.91%

INCOME BEFORE INCOME TAX 354,423,229 36.38% 331,068,107 38.09%

PROVISION FOR INCOME TAX (Note 20) 109,813,456 11.27% 103,433,869 11.90%

NET INCOME 244,609,773 25.11% 227,634,238 26.19%

OTHER COMPREHENSIVE INCOME

Net unrealized gain on available-for-sale investments 75,000 0.01% 45,000 0.01%
Net movement on cash flow hedges (Note 15) 50,872,023 5.22% 11,956,004 1.38%
Income tax effect (Note 20) (15,261,607) -1.57% (3,586,801) -0.41%
  35,610,416 3.66% 8,369,203 0.96%
  35,685,416 3.66% 8,414,203 0.97%

TOTAL COMPREHENSIVE INCOME 280,295,189 28.77% 236,048,441 27.16%

VERTICAL ANALYSIS-BALANCE SHEET

  2012 % 2011 %
ASSETS
Cash (Notes 4, 22, 23 and 25) 1,216,209,838 5.75% 1,221,471,063 6.12%
Due from Bangko Sentral ng Pilipinas (Notes 4, 23 and 25) 1,595,003,345 7.54% 1,690,041,380 8.47%
Securities Purchased Under Resale Agreement (Note 5) 540,000,000 2.55% 208,000,000 1.04%
Available-for-Sale Investments (Notes 6, 23 and 25) 930,000 0.00% 955,000 0.00%
Loans and Receivables (Notes 7, 11, 23 and 25) 17,542,603,072 82.96% 16,641,743,028 83.36%
Assets Held for Sale (Note 8) 74,860,784 0.35% 63,358,174 0.32%
Property and Equipment (Note 9) 17,337,934 0.08% 16,380,855 0.08%
Software Costs (Note 10) 22,647,467 0.11% 21,670,634 0.11%
Deferred Tax Assets (Note 20) 113,392,599 0.54% 88,857,053 0.45%
Other Assets (Note 10) 21,700,434 0.10% 11,298,236 0.06%
  21,144,685,473 100.00% 19,963,775,423 100.00%

         
LIABILITIES AND EQUITY
LIABILITIES
Loans Payable (Notes 12, 22, 23 and 25) 14,408,406,141 68.14% 15,549,334,873 77.89%
Derivative Liability (Notes 15 and 23) 34,246,258 0.16% 70,548,282 0.35%
Accounts Payable and Other Liabilities (Notes 14, 22, 23, and 25) 550,013,206 2.60% 411,907,333 2.06%
Deposits on Lease Contracts (Note 16) 2,921,006,789 13.81% 1,993,934,583 9.99%
Subordinated Debt (Note 13) 996,239,534 4.71% - 0.00%
Income Tax Payable 39,940,720 0.19% 23,512,716 0.12%
  18,949,852,648 89.62% 18,049,237,787 90.41%

EQUITY

Capital Stock - P=100 par value Authorized, issued and outstanding -

10,000,000 shares (Note 24) 1,000,000,000 4.73% 1,000,000,000 5%
Retained Earnings (Note 24) 1,137,136,606 5.38% 892,526,833 4.47%

Net Unrealized Gain on Available-for-Sale

Investments (Note 6) 120,000 0.00% 45,000 0.00%
Cash Flow Hedge Reserve (Note 15) 57,576,219 0.27% 21,965,803 0.11%
  2,194,832,825 10.38% 1,914,537,636 9.59%
  21,144,685,473 100.00% 19,963,775,423 100.00%
RATIO ANALYSIS-LIQUIDITY RATIO

  CLASSIFICATION AMOUNT
ASSETS
Cash (Notes 4, 22, 23 and 25) CURRENT 1,216,209,838
Due from Bangko Sentral ng Pilipinas (Notes 4, 23 and 25) CURRENT 1,595,003,345
Securities Purchased Under Resale Agreement (Note 5) NONCURRENT
Available-for-Sale Investments (Notes 6, 23 and 25) NONCURRENT
814,961,98
Loans and Receivables (Notes 7, 11, 23 and 25) CURRENT PORTION = 8
Assets Held for Sale (Note 8) NONCURRENT
Property and Equipment (Note 9) NONCURRENT
Software Costs (Note 10) NONCURRENT
Deferred Tax Assets (Note 20) NONCURRENT
Other Assets (Note 10) NONCURRENT  
     
     
LIABILITIES AND EQUITY
LIABILITIES
23,357,15
Loans Payable (Notes 12, 22, 23 and 25) CURRENT PORTION = 7
Derivative Liability (Notes 15 and 23) NONCURRENT
550,013,20
Accounts Payable and Other Liabilities (Notes 14, 22, 23, and 25) CURRENT 6
Deposits on Lease Contracts (Note 16) NONCURRENT
Subordinated Debt (Note 13) NONCURRENT
39,940,72
Income Tax Payable CURRENT 0
     

The company’s total current assets amounted to P3,626,175,171.

The company’s total current liabilities amounted to P613,311,083.

The working capital of the company amounts to P3,012,864,088.

Analysis: This indicates that more liquid resources were created than were used during
the year. The working capital is trending too high, investing excess current assets in longer term
assets, which yield higher rates of return at acceptable risk levels can help the company to
become profitable, though can decrease working capital levels.
The current ratio of the company is 5.91:1.0.

Analysis: This means that for every peso of current liabilities, the company has P5.91 of
current assets. Higher ratios indicate an increase ability to pay short-term debt obligations such
as accounts payable and interest payments on debt. Historic rule of thumb, is that, healthy
current ratios equal or exceed the value of 2.0. Thus, this company has a “healthy” current
ratio. However, very high current ratios much in excess in 2.0, can indicate a company not doing
well in terms of investing it in high-yield noncurrent assets, such as investment. This is because
current assets seldom yield return as large as long-term assets.

The ratios for the company’s ability to sell inventory and collect receivables is not applicable to this
company, because of its nature, a service business.

Analysis: LIQUIDITY ASSESSMENT, AS NOTED IN THE FINANCIAL STATEMENTS

Liquidity risk is the risk of encountering difficulty in raising funds to meet commitments
associated with financial instruments.

Liquidity of the Company’s operations are managed with highest degree of accuracy,
supported by sufficient, locally available, committed and uncommitted sources of funds for
shorter periods and a sound and conservative funding plan with an appropriate internal
authorization for longer periods. The funding structure is diversified as to financial instruments
adopted, geographical markets approached and funding maturities in order to maintain stable
access to low cost funds.

The Asset Liability Committee (ALCO) oversees the management of liquidity risks. The
Company’s Treasury Department has the primary responsibility for managing the Company’s
sources of funding, and is tasked with ensuring that the Company has adequate liquidity at all
times. As part of this function, the Treasury Department prepares an annual funding plan that
places the highest priority on liquidity and diversity of funding structure. The Department also
prepares an annual contingency funding plan based on stress scenarios which include inability
to access the debt market for an extended period. As such, monthly computation of Days until
Alternative Funding key risk indicator and setting of appropriate limits provides management
the means to adopt measures that will strengthen its liquidity position.

The Company’s principal source of funding are borrowings from international and
domestic banks amounting to P=14.4 billion and P=15.5 billion as of March 31, 2012 and 2011,
respectively, with maturities ranging from one month to five years, including bond issuances
secured by stand-by letter of credit issued by an international bank. Borrowings are generally
on a clean basis.

The Company maintains what it believes to be a sufficient cash level. In addition, the
Company manages its liquidity by managing the maturity profile of its outstanding loans.

RATIO ANALYSIS-PROFITABILITY RATIO

The following are the company’s basic ratios that measure the financial performance of the
Company for years 2012 and 2011, respectively (as cited on page 37 of the financial
statements):

2012 2011
Return on average equity 11.78 12.64%
%
Return on average assets 1.18% 1.27%
Net interest margin on average earning assets 5.81% 5.61%

Return on average equity shows the relationship between profit and ordinary
shareholders’ investment in the company. It serves as gauge with the return on average
assets as the standard.

Return on average assets is a measure of management’s efficiency in using its assets

to earn profits. Creditors have loaned money to the company and interest is their return.
Shareholders have invested in the company and profit is their source of return. The sum of
interest expense and profit is the returns to the two groups who have financed the
company’s operations.
 If the return on average equity is higher than the return on average assets, the
management has made effective use of leverage or trading on the equity.

Analysis: In the case of the company presented here, for years 2012 and 2011, the return
on average equity is higher than the return on average assets. This difference resulted from
borrowing rate at a lower rate and investing the funds to earn a higher rate of return on
ordinary equity. This ratio is also tied up with debt ratio; the higher the debt ratio, the higher
the leverage.
However, the company’s return on average equity and the return on average assets for
year 2011 have dropped in terms of percentage on 2012. This is because of the sudden change
in the composition of assets funded by liabilities and equity during 2012. During 2011, assets is
composed of 90.41% debt and 9.59% equity while on 2012, the assets is composed only of
89.62% debt and 10.38% equity. As stated earlier, debt ratio is tied with the leverage, thus the
change happened in the rates of return in 2012. Another factor would be the percentage
decrease of interest expense. A decrease of about 5.96% happened during 2012.

Net interest margin on average earning assets, popularly known as “ROI or return on
investment”, on the other hand, measures the capability of those “profit yielding assets” to
earn profits. This means, that those “working” assets is the heart and soul of the company’s
profitability condition.

Analysis: The company’s net interest margin on average earning assets, increased from
2011 to 2012, due to the main reason of the company’s increased amount of profits in 2012.
This means that the company’s earning assets, such as investment, did “its part” in contributing
in the well-being of the organization.

TIMES INTEREST EARNED RATIO

This ratio is a measure of how readily a company can meet interest payments with
profit earned from operations. This ratio is a measure of “margin of safety” provided by
current earnings in meeting the company’s interest responsibilities. Higher ratios indicate
healthy companies that generate high income from operations and/or companies that
employ little or no debt. A higher ratio typically means less risky companies to invest with.
However, lower ratios indicate highly leveraged firms with significant interest expense
and/or those firms that generate small income streams from operations. While creditor risk
increases as times interest earned ratios decrease, there is the potential that the leverage
gained with the financed debt may allow enhanced future returns.

Analysis: The company has a total profit of P 1,225,747,726 before interest expense and
income taxes while having an annual interest expense for 2012 of P871,324,497. The
company’s times interest earned is 1.41 times. This means that the interest expense has in
effect yielded 1.41 times in terms of use of funds from borrowings before becoming due as
interest expense. The company presented tends to be risky with payments of interest, but
remember, with great risks, comes great returns. This only means that the company has the
leverage to be potentially more profitable in the years to come.

COMPOSITION OF ASSETS RATIO

Assets, as stated in the accounting equation, are equal to the sum of liabilities and
equity. To measure if the proper mix of composition of assets, debt to total assets ratio and
equity to total assets ratio can be used.

Higher debt to assets ratio indicates that a company has financed a large portion of
assets with debt. As this ratio increases, creditor risk increases because there is fewer
margins available if the company must liquidate assets. Creditors may require higher interest
rates or refuse to issue additional debt under these circumstances. However, a certain degree
of debt is generally quite acceptable; especially in the view of investors. As stated in the
previous paragraphs, leverage gained with debt financing may yield higher returns on equity
investments.

Equity to total assets ratio or equity ratio on the other hand, shows the percentage of
the firm’s assets financed by shareholders. The higher this ratio is, the smaller the risk that
the company will be unable to meet its obligations when due.

Analysis: The Company’s debt-to-assets ratio for 2012 is 89.62% while its equity-to-assets
ratio is 10.38%. This means that the company has its assets funded about 90% with borrowing
and around 10% with investments from shareholders. The company has a very high leverage in
this case and the risk for its long-term creditors is very high. However, to reiterate, the
company could be potentially just heading to its “golden harvest” years because of the risks it
has been handling for the time presented in the financial statements. Another indicative factor
could be the nature of the business per se. The business, being a financial company, tends to
“play” with risks, because of the big returns it can bring back to the company. Though, with the
return the company is anticipating during the timeframe given in the financial statements, the
Company should not “downplay” the adverse impact of the significant amount of debts it is
holding.

SUMMARY OF FINANCIAL STATEMENT ANALYSIS PROCEDURES

Merely reading financial statements provides some amount of information, but this is
not enough for purposes of making good decisions. An analysis and interpretation of the
financial statements must be made, and this involves thorough study of the historical figures
shown on the face of the statements and an evaluation of the firm’s present condition and
future potential.
Different analytical tools and techniques may be used for financial statement analysis.
Among the tools discussed are horizontal and vertical analyses and ratio analysis.
The decision, on which tool must be used, depends on the type of decision to be made
by the management and/or the purpose for which the tool is computed.
Ratio analysis, on the other hand, must be used with care. It involves some problems
and limitations with which the analyst must guard against, such as the inaccuracy due to the
use of averages, peso valuations, differences in the use of accounting method, and the
peculiarities of absolute and percentage changes.

REINIEL JOHN G. AQUINO, C.P.A.

P.R.C. LICENSE NO. 0143377