BDO 2009 AR Supplement

7/29/2019 BDO 2009 AR Supplement

1/136

BDOANNUALREPORT2009

1

2009 A N N UA L RE PO RT

F I N A N C I A L S UPPL E M E N T S


2/136

CORPORATE PROFILE

Te product o a merger heralded as unprecedented in size and scale in the Philippine banking industry, Banco De OroUnibank (BDO) today represents a rm consolidation o distinct strengths and advantages built over the years by the entitiesbehind its history. More importantly, BDO is an institution that does more than honor its past, it continues to improve onits present, and moves with innovation and dynamism toward an even stronger uture.

BDOs reputation as a ull-service universal bank remains as ormidable as ever. It has the caliber and the muscle to provideindustry-leading corporate, retail, investment banking and insurance services. It maintains its strategic ocus on its principalmarkets, notably the corporate market, the middle-market banking segment consisting o mid-sized corporations and smalland medium-sized enterprises and the retail / consumer market. Moreover, it has complimented this base with expertisein asset management, leasing and nance, remittances, bancassurance, credit cards, corporate cash management, trust, andtreasury. Its institutional strengths and value-added products and services hold the key to its successul business relationships

with customers. Trough selective acquisitions and organic growth, BDO is positioning or growth and continued expansioninto new markets.

CORPORATE MISSION

o be the preerred bank in every market we serve byconsistently providing innovative products and awlessdelivery o services, proactively reinventing ourselves tomeet market demands, creating shareholders value throughsuperior returns, cultivating in our people a sense o pride andownership, and striving to be always better than what we aretodaytomorrow.

CORE VALUES

Commitment to CustomersWe are committed to deliver products and services thatsurpass customer expectations in value and every aspecto customer service, while remaining to be prudent andtrustworthy stewards o their wealth.

Commitment to a Dynamic and Ecient OrganizationWe are committed to creating an organization that is exible,responds to change and encourages innovation and creativity.

We are committed to the process o continuous improvementsin everything we do.

Commitment to EmployeesWe are committed to our employees growth and developmentand we will nurture them in an environment where excellence,integrity, teamwork, proessionalism and perormance arevalued above all else.

Commitment to ShareholdersWe are committed to provide our shareholders with superiorreturns over the long term.

1 Financial Highlights

2 Statement of Managements Responsibility

for Financial Statements

3 Report of Independent Auditors

4 Statements of Financial Position

5 Statements of Income6 Statements of Comprehensive Income

7 Statements of Changes in Equity

9 Statements of Cash Flows

11 Notes to Financial Statements

CONTENTS


3/136

BDOANNUALREPORT2009

1

FINANCIAL HIGHLIGHTS

In Billion Pesos 2009 2008 % Change

Resources 862.0 802.0 7%Gross Customer Loans 472.7 392.8 20%

Deposit Liabilities 694.7 636.8 9%

Capital Funds 67.9 57.8 18%

Net Income* 6.0 2.2 177%

05 06 07

2

34

629

617

802 8

62

08 09

Resources(in Billion Pesos)

1,000

800

600

400

200

0

05 06 07

20

52

6058

68

08 09

Capital Funds(in Billion Pesos)

80

70

60

50

40

30

20

10

0

05 06 07 08 09

Gross Customer Loans(in Billion Pesos)

84

258 2

97

393

473

500

400

300

200

100

005 06 07 08 09

Deposit Liabilities(in Billion Pesos)

160

470

446

637 6

95800

700

600

500

400

300

200

100

0

05 06 07

2.6

6.5

2.2

6.0

08 09

Net Income(in Billion Pesos)

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0

6.4

*Attributable to Shareholders o the Parent Bank


4/136

BDOANNUALREPORT2009

2

Te management o Banco De Oro Unibank, Inc. and subsidiaries is responsible or all inormation and

representations contained in the inancial statements or the years ended December 31, 2009 and 2008.he nancial statements have been prepared in conormity with nancial reporting standards in the Philippinesor banks and reect amounts that are based on the best estimates and inormed judgment o management with anappropriate consideration to materiality.

In this regard, management maintains a system o accounting and reporting which provides or the necessaryinternal controls to ensure that transactions are properly authorized and recorded, assets are saeguarded againstunauthorized use or disposition and liabilities are recognized. Te management likewise discloses to the Banksaudit committee and to its external auditor: (i) all signicant deciencies in the design or operation o internalcontrols that could adversely aect its ability to record, process, and report nancial data; (ii) material weaknessesin the internal controls; and (iii) any raud that involves management or other employees who exercise signicant

roles in internal controls.

Te Board o Directors reviews the nancial statements beore such statements are approved and submitted to thestockholders o the Bank.

Punongbayan & Araullo, the independent auditors appointed by the stockholders, has examined the nancialstatements o the Bank in accordance with Philippine Standards on Auditing and has expressed its opinion onthe airness o presentation upon completion o such examination, in its report to the Board o Directors andstockholders.

Signed under oath by the ollowing:

STATEMENT OF MANAGEMENTS RESPONSIBILITY

FOR FINANCIAL STATEMENTS

Teresita T. SyChairperson of the Board

Nestor V. TanPresident

Lucy C. DyExecutive Vice President / Comptroller


5/136

BDOANNUALREPORT2009

3

o the Board o Directors and to the StockholdersBanco De Oro Unibank, Inc.BDO Corporate Center7899 Makati Avenue, Makati City

We have audited the accompanying nancial statements o Banco De Oro Unibank, Inc. and subsidiaries (together hereinater reerred to asthe BDO Unibank Group) and Banco De Oro Unibank, Inc. (the Parent Bank), which comprise the statements o nancial position as atDecember 31, 2009 and 2008, and the statements o income, comprehensive income, changes in equity and cash ows or each o the threeyears in the period ended December 31, 2009, and notes to nancial statements comprising o a summary o signicant accounting policiesand other explanatory notes.

Managements Responsibility or the Financial Statements

Management is responsible or the preparation and air presentation o these nancial statements in accordance with the nancialreporting standards in the Philippines or banks as described in Note 2 to the nancial statements. Tis responsibility includes: designing,

implementing and maintaining internal control relevant to the preparation and air presentation o nancial statements that are ree rommaterial misstatement, whether due to raud or error; selecting and applying appropriate accounting policies; and making accountingestimates that are reasonable in the circumstances.

Auditors Responsibility

Our responsibility is to express an opinion on these nancial statements based on our audits. We conducted our audits in accordance withPhilippine Standards on Auditing. Tose standards require that we comply with ethical requirements and plan and perorm the audit toobtain reasonable assurance whether the nancial statements are ree rom material misstatement.

An audit involves perorming procedures to obtain audit evidence about the amounts and disclosures in the nancial statements.Te procedures selected depend on the auditors judgment, including the assessment o the risks o material misstatement o the nancialstatements, whether due to raud or error. In making those risk assessments, the auditor considers internal control relevant to the entityspreparation and air presentation o the nancial statements in order to design audit procedures that are appropriate in the circumstances,

but not or the purpose o expressing an opinion on the eectiveness o the entitys internal control. An audit also includes evaluating theappropriateness o accounting policies used and the reasonableness o accounting estimates made by management, as well as evaluating theoverall presentation o the nancial statements.

We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis or our audit opinion.

Opinion

In our opinion, the nancial statements reerred to above present airly, in all material respects, the nancial position o BDO UnibankGroup and o the Parent Bank as o December 31, 2009 and 2008, and their nancial perormance and their cash ows or each o the threeyears in the period ended December 31, 2009, in accordance with nancial reporting standards in the Philippines or banks as described inNote 2 to the nancial statements.

PUNONGBAYAN & ARAULLO

By: Benjamin P. ValdezPartnerCPA Reg. No. 0028485IN 136-619-880PR No. 2087602, January 4, 2010, Makati CityPartners SEC Accreditation No. 009-AR-2BIR AN 08-002511-11-2008 (Nov. 25, 2008 to 2011)

Firm BOA/PRC Cert. o Reg. No. 0002Firm SEC Accreditation No. 002-FR-2

February 27, 2010

REPORT OF INDEPENDENT AUDITORS


6/136

BDOANNUALREPORT2009

4

BDO Unibank Group Parent Bank

Notes 2009 2008 2009 2008

RESOURCES

CASH AND OTHER CASH ITEMS 7 P 30,544 P 21,770 P 30,365 P 21,763

DUE FROM BANGKO SENTRAL NG PILIPINAS 7 64,833 62,669 62,864 59,940

DUE FROM OTHER BANKS 8 16,732 17,102 14,611 14,881

TRADING AND INVESTMENT SECURITIES 9 171,712 156,151 153,262 142,092

LOANS AND OTHER RECEIVABLES - Net 10 524,901 491,986 497,302 467,590

PREMISES, FURNITURE, FIXTURESAND EQUIPMENT - Net 11 14,732 14,676 13,058 12,886

INVESTMENT PROPERTIES - Net 12 13,834 15,234 12,805 14,314

OTHER RESOURCES - Net 13 24,761 22,444 30,917 28,160

TOTAL RESOURCES P 862,049 P 802,032 P 815,184 P 761,626

LIABILITIES AND EQUITY

DEPOSIT LIABILITIES 15 P 694,678 P 636,754 P 669,805 P 612,967

BILLS PAYABLE 16 31,415 51,436 21,519 43,242

SUBORDINATED NOTES PAYABLE 17 23,152 20,146 23,152 20,146

OTHER LIABILITIES 18 44,917 35,922 38,136 32,011

otal Liabilities 794,162 744,258 752,612 708,366

EQUITY 19

Attributable to:Shareholders o the Parent Bank 67,252 57,212 62,572 53,260Non-controlling Interest 635 562 - -

67,887 57,774 62,572 53,260

TOTAL LIABILITIES AND EQUITY P 862,049 P 802,032 P 815,184 P 761,626

STATEMENTS OF FINANCIAL POSITIONDecember 31, 2009 and 2008

(Amounts in Millions of Philippine Pesos)

See Notes to Financial Statements.


7/136

BDOANNUALREPORT2009

5


Notes 2009 2008 2007 2009 20082007

(Note 26)

INTEREST INCOME 20 P 48,810 P 42,359 P 37,603 P 45,011 P 39,733 P 35,235

INTEREST EXPENSE 21 18,251 19,323 16,167 17,181 18,043 14,978

NET INTEREST INCOME 30,559 23,036 21,437 27,830 21,690 20,257

IMPAIRMENT LOSSES - Net 14 6,153 5,232 4,118 5,775 5,171 3,802

NET INTEREST INCOME

AFTER IMPAIRMENT LOSSES 24,406 17,804 17,319 22,055 16,519 16,455

OTHER OPERATING INCOME 22 15,483 13,731 16,858 14,375 11,810 16,758

OTHER OPERATING EXPENSES 22 32,129 27,852 24,760 28,811 25,892 22,908

PROFIT BEFORE TAX 7,760 3,683 9,417 7,619 2,437 10,305

TAX EXPENSE 27 1,659 1,445 2,847 1,263 958 2,634

NET PROFIT P 6,101 P 2,238 P 6,570 P 6,356 P 1,479 P 7,671

Attributable o:

Shareholders o the Parent Bank P 6,035 P 2,182 P 6,518

Non-controlling Interest 66 56 52

P 6,101 P 2,238 P 6,570

Earnings Per Share:

Basic 28 P 2.57 P 0.95 P 2.86 P 2.71 P 0.64 P 3.36

Diluted 28 P 2.47 P 0.93 P 2.85 P 2.60 P 0.63 P 3.36


STATEMENTS OF INCOMEFor the Years Ended December 31, 2009, 2008 and 2007

(Amounts in Millions of Philippine Pesos Except Per Share Data)


8/136

BDOANNUALREPORT2009

6

In compliance with the revised Philippine Accounting Standard 1, Presentation o Financial Statements, that became eective

in 2009, BDO Unibank Group is now required to present these separate statements o comprehensive income whichcomprise o the net prot and/or changes to equity which are not recognized in prot or loss or in the statements o income(see Note 2.2).

For nancial statement analysis, the current results o operations o BDO Unibank Group and the Parent Bank amounted toP6,101 and P6,356, respectively, in 2009; P2,238 and P1,479, respectively, in 2008; and P6,570 and P7,671, respectively, in2007, and are reported as net prot in the statements o income.


Note 2009 2008 2007 2009 20082007

(Note 26)

NET PROFIT P 6,101 P 2,238 P 6,570 P 6,356 P 1,479 P 7,671

OTHER COMPREHENSIVEINCOME (LOSS)

Net unrealized air value gains (losses)

on available-or-sale securities 9 3,413 ( 6,132 ) ( 684 ) 2,404 ( 5,080 ) ( 224 )

ranslation adjustment related tooreign operations (1) 1 203 - - -

Other Comprehensive Income, net o tax 3,412 ( 6,131 ) ( 481 ) 2,404 ( 5,080 ) ( 224 )

TOTAL COMPREHENSIVEINCOME (LOSS) P 9,513 ( P 3,893) P 6,089 P 8,760 ( P 3,601 ) P 7,447

Attributable o:

Shareholders o the Parent Bank P 9,447 ( P 3,949 ) P 6,037

Non-controlling Interest 66 56 52

P 9,513 ( P 3,893 ) P 6,089


STATEMENTS OF COMPREHENSIVE INCOMEFor the Years Ended December 31, 2009, 2008 and 2007



9/136


10/136


11/136

BDOANNUALREPORT2009

9


Notes 2009 2008 2007 2009 2008 2007

CASH FLOWS FROM OPERATING ACTIVITIES

Proft beore tax P 7,760 P 3,683 P 9,417 P 7,619 P 2,437 P 10,305

Adjustments or:

Interest income 20 (48,810) (42,359) (37,603) (45,011) (39,733) (35,235)

Interest received 46,791 35,301 38,292 44,476 37,877 35,823

Interest expense 21 18,251 19,323 16,167 17,181 18,043 14,978

Interest paid (16,800) (19,465) (16,824) (16,341) (18,088) (14,867)

Impairment losses 14 6,153 5,232 4,118 5,775 5,171 3,802

Depreciation and amortization 11, 12, 13 2,848 2,119 2,843 1,684 1,902 1,690

Fair value loss (gain) (1,719) 2,335 792 (1,663) 2,226 750

Operating income beore changes in operatingresources and liabilities 14,474 6,169 17,202 13,720 9,835 17,246

Decrease in fnancial assets at air value throughproft or loss 300 12,329 10,326 563 10,890 11,873

Increase in loans and other receivables (52,460) (194,237) (36,959) (48,417) (182,443) (45,368)

Decrease (increase) in investment properties 973 2,533 (463) 1,102 2,526 (502)

Decrease (increase) in other resources 273 3,395 15,517 (1,494) 3,399 13,587

Increase (decrease) in deposit liabilities 59,989 195,825 (20,230) 59,145 182,459 (26,525)

Increase (decrease) in other liabilities 4,585 (4,071) 5,836 1,459 (4,653) 5,862

Cash generated rom (used in) operations 28,134 21,943 (8,771) 26,078 22,013 (23,827)

Cash paid or income tax (1,933) (1,834) (4,618) (1,253) (1,147) (2,757)

Net Cash From (Used In) Operating Activities 26,201 20,109 (13,389) 24,825 20,866 (26,584)

CASH FLOWS FROM INVESTING ACTIVITIES

Net decrease (increase) in held-to-maturity investments 6,620 (40,935) 21,595 5,747 (37,886) 22,355

Net decrease (increase) in available-or-sale securities (7,204) 36,809 (7,205) (4,006) 33,464 (7,553)

Net acquisitions o premises, urniture, fxturesand equipment (2,636) (5,079) (1,948) (1,623) (3,569) (1,614)

Proceeds rom disposal (aquisition) o equityinvestments 13 (2,000) - - (2,000) - 923

Net Cash From (Used In) Investing Activities (5,220) (9,205) 12,442 (1,882) (7,991) 14,111

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds rom (payments o) bills payable (18,801) (3,859) (1,370) (20,137) (178) 6,445

Proceeds rom issuance o subordinated notes payable 3,000 - - 3,000 - -

Proceeds rom issuance o common shares 19 1,299 - 314 1,299 - 314

Dividends paid 19 (791) (3,683) (770) (729) (3,683) (770)

Disposal o treasury shares - - 1,428 - - 1,400

Proceeds rom issuance o preerred shares 19 - 5,000 - - 5,000 -

Net Cash From (Used In) Financing Activities (15,293) (2,542) (398) (16,567) 1,139 7,389

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS (Carried Forward) P 5,688 P 8,362 (P 1,345) P 6,376 P 14,014 (P 5,084)


STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2009, 2008 and 2007



12/136

BDOANNUALREPORT2009

10


Notes 2009 2008 2007 2009 2008 2007

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS (Brought Forward) P 5,688 P 8,362 (P 1,345) P 6,376 P 14,014 (P 5,084)

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR

Cash and other cash items 7 21,770 18,388 17,905 21,763 18,437 18,055

Due rom Bangko Sentral ng Pilipinas 7 62,669 49,461 42,236 59,940 48,320 40,275

Due rom other banks 8 17,102 20,690 12,835 14,881 16,102 7,777

Interbank call loans receivable 4,880 9,520 26,428 4,880 4,591 26,427

106,421 98,059 99,404 101,464 87,450 92,534

CASH AND CASH EQUIVALENTS AT END OF YEAR

Cash and other cash items 7 30,544 21,770 18,388 30,365 21,763 18,437

Due rom Bangko Sentral ng Pilipinas 7 64,833 62,669 49,461 62,864 59,940 48,320

Due rom other banks 8 16,732 17,102 20,690 14,611 14,881 16,102

Interbank call loans receivable - 4,880 9,520 - 4,880 4,591

P 112,109 P 106,421 P 98,059 P 107,840 P 101,464 P 87,450

Supplemental Inormation on Noncash Financing and Investing Activities

Te ollowing are the signicant noncash transactions:

a. Te carrying values o the resources and liabilities o Equitable Savings Bank (ESB), BDO Elite Savings Bank, Inc. and PCI CapitalCorporation that were absorbed by Banco De Oro Unibank, Inc. (the Parent Bank) on October 30, 2008 were P14,790 and P9,249,respectively (see Note 26).

b. In 2008, BDO Unibank Group made the ollowing reclassications o trading and investment securities (see Note 9):

- Financial Assets at Fair Value through Prot or Loss (FVPL) with a total carrying value o P6,297 was reclassied to Heldto Maturity (HM) both in the BDO Unibank Group and Parent Bank nancial statements.

- Credit-linked Notes (CLNs) with a total carrying value o P18,590 and P14,166 were reclassied rom Available or Sale(AFS) to Loans and Other Receivables in BDO Unibank Group and Parent Bank nancial statements, respectively.

- Embedded derivatives o CLNs with a total carrying value o P183 and P70 were reclassied rom FVPL to Loans andOther Receivables in BDO Unibank Group and Parent Bank nancial statements, respectively.

- AFS with a total carrying value o P25,540 and P22,474 were reclassied rom AFS to HM in the BDO Unibank Groupnancial statements and Parent Bank nancial statements, respectively.

- FVPL with carrying value o P102 was reclassied to AFS in BDO Unibank Group nancial statements.

c. In 2008, land reclassied rom investment properties to bank premises amounted to P181 and P127 in BDO Unibank Group andParent Bank nancial statements, respectively (see Note 12).

d. In 2008, building reclassied rom investment properties to bank premises amounted to P359 both in BDO Unibank Group andParent Bank nancial statements (see Note 12).

e. Te carrying values o the resources and liabilities o Equitable PCIBank that were absorbed by BDO Unibank Group on May 31,

2007 were P305,779 and P274,557, respectively, in exchange or the 1,308,606,021 Parent Banks common shares (see Notes 1and 26).


STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2009, 2008 and 2007



13/136

BDOANNUALREPORT2009

11

NOTES TO FINANCIAL STATEMENTSDecember 31, 2009, 2008 and 2007

(Amounts in Millions of Philippine Pesos, Except Per Share Data or as Indicated)

1. CORPORATE MATTERS

1.1 Incorporation and Operations

Banco De Oro Unibank, Inc. (the Parent Bank) was incorporated in the Philippines on August 16, 1967 toengage in the business o banking. It was authorized to engage in trust operations on January 5, 1988 and inoreign currency deposit operations on November 23, 1990. Te Bangko Sentral ng Pilipinas (BSP) grantedapproval to the Parent Bank to operate as an expanded commercial bank on August 5, 1996. Te ParentBank commenced operations as such in September o the same year. Te Parent Bank and its subsidiaries(collectively reerred to as the BDO Unibank Group) oer a wide range o commercial, investment, private andother banking services. Tese services include traditional loan and deposit products, as well as treasury, assetmanagement, realty management, leasing and nance, remittance, trade services, retail cash cards, insurance,credit card services, stockbrokerage, trust and others.

As a banking institution, BDO Unibank Groups operations are regulated and supervised by the BSP. In thisregard, BDO Unibank Group is required to comply with the rules and regulations o the BSP such as thoserelating to maintenance o reserve requirements on deposit liabilities and deposit substitutes and those relatingto the adoption and use o sae and sound banking practices, among others, as promulgated by the BSP. BDOUnibank Group is subject to the provisions o the General Banking Law o 2000 (Republic Act No. 8791).

Te Parent Banks common shares are listed in the Philippine Stock Exchange (PSE). As o December 31,2009, the Parent Bank has 685 branches, and 784 on-site and 540 o-site automated teller machines, all locatednationwide. Te Parent Banks registered address is at BDO Corporate Center, 7899 Makati Avenue, MakatiCity.

BDO Unibank Group operates mainly within the Philippines with a banking branch in Hong Kong and various

remittance subsidiaries operating in Asia, Europe and the United States. In 2009 and 2008, these oreignoperations accounted or 1.0% and 0.8% o the BDO Unibank Groups total revenues and 1.1% and 0.1%o BDO Unibank Groups total resources, respectively. BDO Unibank Groups subsidiaries and associates areshown in Note 13.5.

1.2 Approval o Financial Statements

Te nancial statements o BDO Unibank Group or the year ended December 31, 2009 (with comparativesor the years ended December 31, 2008 and 2007) were approved and authorized or issue by the Board oDirectors on February 27, 2010.

1.3 Merger o BDO Unibank with EPCIBank (EPCIB)

As discussed more ully in Note 26.1, on March 29, 2007 and May 25, 2007, the BSP and the PhilippineSecurities and Exchange Commission (SEC), respectively, approved the merger o the Parent Bank and EPCIBwhich became eective on May 31, 2007.


14/136

BDOANNUALREPORT2009

12



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Te signicant accounting policies that have been used in the preparation o these nancial statements are summarizedin the succeeding pages. Te policies have been consistently applied to all the years presented, unless otherwisestated.

2.1 Basis o Preparation o Consolidated Financial Statements

(a) Statement o Compliance with Financial Reporting Standards in the Philippines or Banks

Te nancial statements o BDO Unibank Group and the nancial statements o the Parent Bank havebeen prepared in accordance with the Financial Reporting Standards in the Philippines (FRSP) or banks.FRSP and Philippine Financial Reporting Standards (PFRS) are similar except or the reclassication othe embedded derivatives in credit-linked notes (CLNs) that are linked to Republic o the Philippines(ROP) bonds rom air value through prot or loss (FVPL) to unquoted debt securities classied asloans (UDSCL), that are outstanding as o the eective date o reclassication, which is permitted by theBSP or prudential reporting, and by the SEC or nancial reporting purposes.

PFRSs are adopted by the Financial Reporting Standards Council (FRSC) rom the pronouncementsissued by the International Accounting Standards Board (IASB).

Tese nancial statements have been prepared on the historical basis, except or the revaluation ocertain nancial assets. Te measurement bases are more ully described in the accounting policies inthe succeeding pages.

Te ollowing reconciliations and explanatory notes thereto describe the dierence on the statements o

nancial position under FRSP and PFRS. In 2007 and prior years, there is no dierence between theFRSP and PFRS since the reclassication to UDSCL o embedded derivatives in CLNs and other similarinstruments that are linked to ROP bonds out o FVPL was made by BDO Unibank Group only in2008.

(i) Te reconciliations o the equity reported under FRSP to equity under PFRS as o December 31ollow:


2009 2008 2009 2008

Equity under FRSP P 67,887 P 57,774 P 62,572 P 53,260

Prior year reconciling items (1,141) - (908) -

Current year reconciling items:

Amortization o premium/discount dueto change in eective interest rates (75) (7) (65) 1

Unrealized mark-to-market gain(loss) on embedded derivatives onCLNs reclassied to loans and otherreceivables 1,597 (1,134 ) 1,274 (909)

1,522 (1,141) 1,209 (908)

otal adjustments to equity 381 (1,141) 301 (908)

Equity under PFRS P 68,268 P 56,633 P 62,873 P 52,352


15/136

BDOANNUALREPORT2009

13



(ii) Dierences in the measurement o items in the statements o nancial position as o

December 31 are summarized below.BDO Unibank Group

2009

FRSP Dierence PFRS

Changes in resources:

rading and investment securities P 171,712 P 1,277 P 172,989

Loans and other receivables 524,901 (896) 524,005

P 696,613 P 696,994

Total adjustments to equity P 381

2008

FRSP Dierence PFRS

Changes in loans and other receivables P 491,986 P 194 P 492,180

Changes in other liabilities 35,922 1,335 37,257

P 456,064 P 454,923

otal adjustments to equity (P 1,141)

Parent Bank

2009

FRSP Dierence PFRS

Changes in resources:

rading and investment securities P 153,262 P 1,197 P 154,459

Loans and other receivables 497,302 (896) 496,406

P 650,564 P 650,865

otal adjustments to equity P 301

2008

FRSP Dierence PFRS

Changes in loans and other receivables P 467,590 P 78 P 467,668

Changes in other liabilities 32,011 986 32,997

P 435,579 P 434,671

otal adjustments to equity (P 908)


16/136

BDOANNUALREPORT2009

14



(iii) Te reconciliations o net prot reported under FRSP to net prot under PFRS or the years

ended December 31 ollow:


2009 2008 2009 2008

Net proft under FRSP P 6,101 P 2,238 P 6,356 P 1,479

Amortization o premium/discount dueto change in eective interest rates (75) (7) (65) 1

Unrealized mark-to-market gain(loss) on embedded derivatives onCLNs reclassied to loans and otherreceivables 1,597 (1,134) 1,274 (909)

1,522 (1,141) 1,209 (908)Net proft under PFRS P 7,623 P 1,097 P 7,565 P 571

(b) Functional and Presentation Currency

Tese nancial statements are presented in Philippine pesos, BDO Unibank Groups unctional andpresentation currency, and all values represent absolute amounts, except when otherwise indicated(see also Note 2.23).

2.2 Adoption o New Interpretations, Revisions and Amendments to PFRS

(a) Eective in 2009 that are Relevant to BDO Unibank Group

In 2009, BDO Unibank Group adopted or the rst time the ollowing new and amended standards andinterpretations which are mandatory in 2009.

Philippine Accounting Standards(PAS) 1 (Revised 2007)

: Presentation o Financial Statements

PAS 23 (Revised 2007) : Borrowing Costs

PAS 27 (Revised 2008) : Consolidated and Separate Financial Statements Costo an Investment in a Subsidiary, Jointly ControlledEntity or Associate

PAS 32 and PAS 1 (Amendments) : Financial Instruments: Presentation and Presentationo Financial Statements (Revised 2007) PuttableFinancial Instruments and Obligations Arising onLiquidation

PFRS 2 (Amendment) : Share-based Payment Vesting Conditions andCancellations

PFRS 7 (Amendment) : Financial Instruments: Disclosures Improving Disclosures about Financial Instruments

PFRS 8 : Operating Segments


17/136

BDOANNUALREPORT2009

15



Philippine Interpretation

International Financial ReportingInterpretationsCommittee (IFRIC) 13

: Customer Loyalty Programmes

Various Standards : 2008 Annual Improvements to PFRS

Discussed below are the eects in the nancial statements o the new and amended accounting standardsand interpretations.

(i) PAS 1 (Revised 2007), Presentation o Financial Statements (eective rom January 1, 2009).Te amendment requires an entity to present all items o income and expense recognized inthe period in a single statement o comprehensive income or in two statements: a separate

statement o income and a statement o comprehensive income. Te statement o income shalldisclose income and expense recognized in prot or loss in the same way as the current version oPAS 1. Te statement o comprehensive income shall disclose prot or loss or the period, pluseach component o income and expense recognized outside o prot or loss or the non-ownerchanges in equity, which are no longer allowed to be presented in the statements o changes inequity, classied by nature (e.g., gains or losses on available-or-sale assets or translation dierencesrelated to oreign operations). Changes in equity arising rom transactions with owners areexcluded rom the statement o comprehensive income (e.g., dividends and capital increase). Anentity is also required to include in its set o nancial statements a statement showing its nancialposition at the beginning o the previous period when the entity retrospectively applies anaccounting policy or makes a retrospective restatement. Te adoption o PAS 1 (Revised 2007)by BDO Unibank Group did not result in any material adjustments in its nancial statements.

With respect to the presentation o comprehensive income, BDO Unibank Group electedto present two statements: a separate statement o income and a statement o comprehensiveincome.

(ii) PAS 23 (Revised 2007), Borrowing Costs. Te revised standard requires that all borrowingcosts that are directly attributable to the acquisition, construction or production o a qualiyingasset shall be capitalized as part o the cost o that asset. Te option o immediately expensingborrowing costs that qualiy or asset recognition had been removed. BDO Unibank Groupdetermined that the adoption o this new standard has no signicant eects on the nancialstatements or 2009, as well as or prior and uture periods, as the BDO Unibank Groups currentaccounting policy is to capitalize all interests directly related to qualiying assets.

(iii) PAS 27 (Revised 2008), Consolidated and Separate Financial Statements Cost o an Investment in aSubsidiary, Jointly Controlled Entity or Associate. Under the revised standard, the denition o costmethod rom PAS 27 was removed and dividend was required to be presented as income in theseparate nancial statements o the investor. Te amendments address the initial measurementrequirements or the cost o an investment in the separate nancial statements o a new parentormed as the result o a specic type o reorganization, i.e., the new parent is required to measurethe cost o its investment in the previous parent at the carrying amount o its share o the equityitems o the previous parent at the date o the reorganization. Management considered theamendments to have no impact on the nancial statements o BDO Unibank Group.


18/136

BDOANNUALREPORT2009

16



(iv) PAS 32 (Amendment), Financial Instruments: Presentation and PAS 1 (Amendment), Presentation

o Financial Statements (Revised 2007) Puttable Financial Instruments and Obligations Arisingon Liquidation. Te amendments require certain nancial instruments that represent a residualinterest in the net assets o an entity, which would otherwise be classied as nancial liabilities,to be classied as equity, i both the nancial instruments and the capital structure o the issuingentity meet certain conditions. Te adoption o this standard has no signicant impact on thenancial statements o BDO Unibank Group.

(v) PFRS 2 (Amendment), Share-based Payment. Te FRSC adopted the amendments toPFRS 2 regarding vesting conditions and cancellations. Te current share-based paymentscheme o BDO Unibank Group is not aected by the amendments. Management consideredthe amendments to have no impact on the BDO Unibank Groups nancial statements.

(vi) PFRS 7 (Amendment), Financial Instruments: Disclosures Improving Disclosures about Financial

Instruments. Te amendments require additional disclosures or nancial instruments that aremeasured at air value in the statements o nancial position. Tese air value measurementsare categorized into a three-level air value hierarchy, which reects the extent to which they arebased on observable market data. A separate quantitative maturity analysis must be presentedor derivative nancial liabilities that shows the remaining contractual maturities, where theseare essential or an understanding o the timing o cash ows. BDO Unibank Group has takenadvantage o the transitional provisions in the amendments and has not provided comparativeinormation in respect o the new requirements.

(vii) PFRS 8, Operating Segments. Tis standard replaces PAS 14, Segment Reporting. Te adoption othis standard has not aected the identied operating segments or BDO Unibank Group and itssegment reporting since the accounting policy or identiying segments used by BDO Unibank

Group is based on internal management reporting inormation that is regularly reviewed by thechie operating decision maker.

(viii) Philippine Interpretation IFRIC 13, Customer Loyalty Programmes. Tis interpretation clariesthat when goods or services are sold together with a customer loyalty incentive (or example,loyalty points), the arrangement is a multiple-element arrangement and the considerationreceivable rom the customer is allocated between the components o the arrangement using airvalues. Te revenue allocated or the loyalty rewards is deerred until such time that the loyaltyincentive is provided to the customer. At present, BDO Unibank Group has an agreement witha third party running the loyalty programme and pays the third party an agreed amount or eachpoint BDO Unibank Group has granted to customers. By engaging a third party to supply therewards, the Parent Bank has ullled its obligations to its customers as soon as it granted thepoints; hence, BDO Unibank Group does not need to deer any revenue. Consequently, theadoption o this interpretation has no signicant nancial eects to BDO Unibank Group.

(ix) 2008 Annual Improvements to PFRS. Te FRSC has adopted the Improvements to PFRS 2008.Te ollowing amendments to the standards are relevant to BDO Unibank Groups accountingpolicies:

PAS1(Amendment),Presentation o Financial Statements. Te amendment claries thatnancial instruments classied as held or trading in accordance with PAS 39 are notnecessarily required to be presented as current assets or current liabilities. Instead, normalclassication principles under PAS 1 should be applied. Te adoption o this standardhas no impact in the nancial statements o BDO Unibank Group.


19/136

BDOANNUALREPORT2009

17



PAS16 (Amendment),Property, Plant and Equipmentand consequential amendmentsto PAS 7, Statement o Cash Flows. Te amendment claries that an entity, which in thecourse o ordinary activities sells property, plant and equipment that was held or rental,transers the property, plant and equipment to inventories at carrying amount when theyceased to be rented and are held or sale. A consequential amendment to PAS 7 states thatcash ows arising rom purchase, rental and sale o those assets are classied as cash owsrom operating activities. Also, the term net selling price has been replaced with airvalue less cost to sell in the denition o recoverable amount so as to achieve consistencywith the terminology used in PFRS 5. Te amendments have no signicant impact onthe nancial statements o BDO Unibank Group.

PAS19(Amendments),Employee Benefts. Te amendment includes the ollowing:

i. Clarication that a curtailment is considered to have occurred to the extent thatbenet promises are aected by uture salary increases and a reduction in thepresent value o the dened benet obligation results in negative past servicecost.

ii. Change in the denition o return o plan assets to require the deduction o planadministration costs in the calculation o plan assets return only to the extentthat such costs have been excluded rom measurement o the dened benetobligation.

iii. Distinction between short-term and long-term employee benets will be basedon whether benets are due to be settled within or ater 12 months o employee

service being rendered.

iv. Removal o the reerence to recognition in relation to contingent liabilities in orderto be consistent with PAS 37, Provisions, Contingent Liabilities and Contingent

Assets, which requires contingent liabilities to be disclosed and not recognized.

Management determined that the adoption o this amendment has no signicant impacton the nancial statements o BDO Unibank Group.

PAS20 (Amendment),Accounting or Government Grants and Disclosure o GovernmentAssistance. Tis amendment claries that the benet o a below-market rate governmentloan is measured as the dierence between the carrying amount in accordance withPAS 39 and the proceeds received with the benet accounted or in accordance withPAS 20. Te current accounting policy o BDO Unibank Group or government grantsreceived prior to January 1, 2009, the eectivity o PAS 20 (Amendment), is acceptableunder the provisions o the PAS 20 (Amendment), which requires prospective applicationor all government loans received on or ater January 1, 2009.

PAS23 (Amendment),Borrowing Costs. Te amendment claries that denition oborrowing costs include interest expense determined using the eective interest methodunder PAS 39. Te adoption o this standard has no signicant nancial impact toBDO Unibank Group since its current accounting policy considers all interest expense indetermining its borrowing costs.


20/136

BDOANNUALREPORT2009

18



PAS27 (Amendment),Consolidated and Separate Financial Statement. When an entityprepares separate nancial statements and accounts or investments in subsidiaries, jointlycontrolled entities and associates in accordance with PAS 39 (rather than at cost), suchinvestments will continue to be measured using PAS 39 even i classied as held or sale inaccordance with PFRS 5. Investment measured at cost will continue to be re-measured inaccordance with PFRS 5 when classied as held or sale. Tis amendment does not havea signicant impact on the nancial statements o BDO Unibank Group since it does nothave any investments in subsidiaries, jointly controlled entities and associates measuredat air value in accordance with PAS 39.

PAS28, (Amendment), Investments in Associates. Where an investment in associateis accounted or in accordance with PAS 39, only certain rather than all disclosurerequirements in PAS 28 need to be made in addition to disclosures required by PAS 32

and PFRS 7. Tis amendment does not have an impact on the nancial statements oBDO Unibank Group since it does not have any investments in associates measured atair value in accordance with PAS 39.

PAS 36 (Amendment), Impairment o Assets. Where air value less cost to sell iscalculated on the basis o discounted cash ows, disclosures equivalent to those orvalue-in-use calculation should be made. Management determined that the adoption othis amendment has no signicant impact on the nancial statements o BDO UnibankGroup.

PAS38 (Amendment), Intangible Assets. Te amendment claries when to recognizea prepayment asset, including advertising or promotional expenditures. In the case o

supply o goods, the entity recognizes such expenditure as an expense when it has a rightto access the goods. For services, an expense is recognized on receiving the service. Also,prepayment may only be recognized in the event that payment has been made in advanceo obtaining right o access to goods or receipt o services. Te current accounting policieso BDO Unibank Group comply with the oregoing amendment. Hence, the adoptiono this amendment has no material eect on its 2009 nancial statements.

PAS39(Amendment),Financial Instruments: Recognition and Measurement. Te denitiono nancial asset or nancial liability at air value through prot or loss as it relates toitems that are held or trading was changed. A nancial asset or liability that is part o aportolio o nancial instruments managed together with evidence o an actual pattern oshort-term prot taking is included in such a portolio on initial recognition. Te currentaccounting practice o BDO Unibank Group complies with this amendment. Hence, theadoption o this amendment has no material eect on its 2009 nancial statements.

PAS40(Amendment),Investment Property. Te amendment requires that property underconstruction or development or uture use as investment property shall be includedunder the denition o investment property. Tis results in such property being withinthe scope o PAS 40 which was previously within the scope o PAS 16. Also, i anentitys policy is to measure investment property at air value, but during constructionor development o an investment property the entity is unable to reliably measure itsair value, then the entity would be permitted to measure the investment property atcost until construction or development is complete. At such time, the entity would beable to measure the investment property at air value. Te adoption o this amendmenthas no signicant nancial impact to BDO Unibank Group as it has no property under

construction or development or uture use as investment property in 2009.


21/136

BDOANNUALREPORT2009

19



PFRS 5 (Amendment), Non-current Assets Held-or-sale and Discontinued Operations

and consequential amendment to PFRS 1, First-time Adoption o PFRS Disclosures oNon-current Assets (or Disposal Groups) Classifed as Held or Sale o Discontinued Operations.Te amendment claries that all the assets and liabilities o a subsidiary should beclassied as held or sale i the entity is committed to a sale plan involving loss o controlo the subsidiary, regardless o whether the entity will retain a non-controlling interestater the sale. Relevant disclosures should be made or this subsidiary i the denitiono discontinued operations is met. Te consequential amendment to PFRS 1 states thatthe amendments are applied prospectively rom the date o transition to PFRS. BDOUnibank Group will apply PFRS 5 (Amendment) prospectively to all partial disposalso subsidiary beginning January 1, 2009. Management initially determined that theadoption o PFRS 5 has no immediate signicant impact on the nancial statements oBDO Unibank Group.

Minor amendments were made to several other standards. However, those amendments are notexpected to have a material impact on the nancial statements o BDO Unibank Group.

Te rst-time application o these amended standards and interpretations has not resulted in any priorperiod adjustments o cash ows, net prot or statement o nancial position line items.

(b) Eective in 2009 but not Relevant to BDO Unibank Group

Te ollowing amended standards and interpretations are mandatory or accounting periods beginningon or ater January 1, 2009 but are not relevant to BDO Unibank Group:

PAS 29 (Amendment) : Financial Reporting in Hyperinationary Economies

PAS 31 (Amendment) : Interest in Joint Ventures

PAS 41 (Amendment) : Agriculture

PFRS 1 (Amendment) : First-time Adoption o PFRS

Philippine InterpretationsIFRIC 9 : Reassessment o Embedded Derivatives

IFRIC 16 : Hedges o a Net Investment in a Foreign Operation

(c) Eective Subsequent to 2009 that are Relevant to BDO Unibank Group but not Adopted Early

At the date o authorization o these nancial statements, certain new standards, amendments andinterpretations to existing standards have been published but are not yet eective, and have not beenadopted early by BDO Unibank Group.


22/136

BDOANNUALREPORT2009

20



Management anticipates that all o the pronouncements will be adopted in the BDO Unibank Groups

accounting policies or the rst period beginning ater the eective date o the pronouncement.Inormation on new standards, amendments and interpretations that are expected to be relevant toBDO Unibank Groups nancial statements is provided below. Certain other new standards andinterpretations have been issued but are not expected to have a material impact on BDO UnibankGroups nancial statements.

PAS 24 (Revised 2008) : Related Party Disclosures

PAS 27 (Revised 2008) : Consolidated and Separate Financial Statements

PAS 39 (Amendment) : Financial Instruments: Recognition and Measurement Eligible Hedged Items

PFRS 3 (Revised 2008) : Business Combinations

PFRS 9 : Financial Instruments

Philippine Interpretation IFRIC 19 : Extinguishing Financial Liabilities with Equity Instruments

Various Standards : 2009 Annual Improvements to PFRS

Below is a discussion o the possible impact o these accounting standards.

(i) PAS 24 (Revised), Related Party Disclosures(eective rom January 1, 2011). Te revised standardintroduces an exemption rom the disclosure requirements o PAS 24 or transactions with:

(a) government that has control, joint control or signicant inuence over the reporting entity;and, (b) government-related entities (entities controlled, jointly controlled or signicantlyinuenced by the same government). Management has determined that the adoption o therevised PAS 24 will not have signicant eect on BDO Unibank Groups nancial statements.

(ii) PAS 27 (Revised 2008), Consolidated and Separate Financial Statements (eective rom July 1,2009). Te revised standard introduces changes to the accounting requirements or the loss ocontrol o a subsidiary and or changes in the entitys interest in subsidiaries. Tese changes willbe applied prospectively in accordance with the transitional provisions and so do not have animmediate eect on BDO Unibank Groups nancial statements.

(iii) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement Eligible Hedged

Items (eective rom July 1, 2009). Te amendment provides additional guidance on what canbe designated as a hedged item. It claries that hedging instruments may be held by any entitieswithin the group. Tis includes a oreign operation that itsel is being hedged. Tis change willbe applied prospectively in accordance with the transitional provisions and so do not have animmediate eect on BDO Unibank Groups nancial statements.

(iv) PFRS 3 (Revised 2008), Business Combinations (eective rom July 1, 2009). Te standard isapplicable or business combinations occurring in reporting periods beginning on or ater July 1,2009 and will be applied prospectively. Te new standard introduces changes to the accountingrequirements or business combinations, but still requires use o the purchase method, and

will have a signicant eect on business combinations occurring in uture reporting periods.Management has determined that the amendment has no immediate eect on BDO UnibankGroups nancial statements.


23/136

BDOANNUALREPORT2009

21



(v) PFRS 9, Financial Instruments (eective rom January 1, 2013). Te FRSC will align its objective

with IASB to replace PAS 39, Financial Instruments: Recognition and Measurementin its entiretyby the end o 2010, with the replacement standard to be eective or annual periods beginningJanuary 1, 2013. FRSC will adopt PFRS 9 which is the rst part o Phase 1 o this project. Temain phases o the project are:

Phase 1: Classication and Measurement

Phase 2: Impairment methodology

Phase 3: Hedge accounting

In addition, a separate project is dealing with derecognition.

Management is yet to assess the impact that this amendment is likely to have on the nancialstatements o BDO Unibank Group. However, it does not expect to implement the amendmentsuntil all chapters o the PAS 39 replacement have been published and it can comprehensivelyassess the impact o all changes.

(vi) Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments(eective on or ater July 1, 2010). It addresses accounting by an entity when the terms o anancial liability are renegotiated and result in the entity issuing equity instruments to creditorto extinguish all or part o the nancial liability. Tese transactions are sometimes reerred to asdebt or equity exchanges or swaps, and have happened with increased regularity during thenancial crisis. Te interpretation requires the debtor to account or a nancial liability which isextinguished by equity instruments as ollows:

theissueoftheequityinstrumentstoacreditortoextinguishall(orpartofanancialliability) is consideration paid in accordance with PAS 39;

theentitymeasuresthe equity instrument issued at fair value, unless this cannot bereliably measured;

ifthefairvalueoftheequityinstrumentscannotbereliablymeasured,thenthefairvalueo the nancial liability extinguished is used; and,

thedierencebetweenthecarryingamountofthenancialliabilityextinguishedandtheconsideration paid is the recognized prot or loss.

Management has determined that the adoption o the interpretation will not have a materialeect on its nancial statement as BDO Unibank Group does not normally extinguish nancialliabilities through equity swap.


24/136

BDOANNUALREPORT2009

22



(vii) 2009 Annual Improvements to PFRS (eective rom July 1, 2009 and later). Te Philippine FRSC

has adopted the Improvements to PFRS 2009. Management has initially determined that amongthese amended standards, the ollowing will be relevant to BDO Unibank Group subsequent to2009 which will be applied in accordance with their transitional provisions:

PAS 1 (Amendment), Presentation o Financial Statements Current/non-currentClassifcation o Convertible Instruments (eective rom January 1, 2010). Te amendmentclaries that the classication o potential settlement o a liability by issuing equity is notrelevant to its classication as current or non-current. Te denition o current liabilityis amended which permits a liability to be classied as non-current (provided that theentity has an unconditional right to deer settlement by transer o cash or other assets orat least 12 months ater the accounting period) notwithstanding the act that the entitycould be required by the counterparty to settle in shares at any time. BDO UnibankGroup will apply the amendment in its 2010 nancial statements. Management has

determined that this amendment has no immediate material impact on the nancialstatements o BDO Unibank Group.

PAS 7 (Amendment), Statement o Cash Flows Classifcation o Expenditures onUnrecognized Assets (eective rom January 1, 2010). Tis amendment requires that onlyexpenditures that result in a recognized asset in the statements o nancial position canbe classied as investing activities. Management has determined that the amendmenthas no signicant impact on the nancial statements o BDO Unibank Group as onlyrecognized assets are classied as cash ows rom investing activities.

PAS17 (Amendment),Leases Classifcation o Leases o Land and Buildings (eectiverom January 1, 2010). Tis amendment deleted the specic guidance regarding the

classication o leases o land as operating lease. It also eliminates the inconsistency withthe general guidance on lease classication. As a result, leases o land should be classiedas either nance or operating using the general principles o PAS 17. Management hasdetermined that the amendment will not have material impact on the nancial statementso BDO Unibank Group.

PAS18(Amendment),Revenue Determining whether an Entity is Acting as a Principal oras an Agent (amendment to non-mandatory guidance). Te amendment provides additionalguidance to the appendix to PAS 18, Revenueregarding the determination as to whetheran entity is acting as a principal or an agent. Management has determined that theamendment will not have material impact on the nancial statements o BDO UnibankGroup.

PAS36(Amendment),Impairment o Assets Unit o Accounting or Goodwill Impairmentest (eective rom January 1, 2010). Tis amendment claries that the largestcash-generating unit (or group o units) to which goodwill should be allocated or thepurposes o impairment testing is an operating segment as dened in PFRS 8, OperatingSegments. Management has determined that the amendment will not have materialimpact on the nancial statements o BDO Unibank Group.


25/136

BDOANNUALREPORT2009

23



PAS38(Amendment),Intangible Assets Consequential Amendments Arising rom revised

PFRS 3 and Measuring Fair Value o an Intangible Asset Acquired in a Business Combination(eective rom July 1, 2009). Te amendment claries the description o valuationtechniques commonly used by entities when measuring the air value o intangible assetsacquired in a business combination that are not traded in active markets. Managementhas determined that the amendment will not have material impact on the nancialstatements o BDO Unibank Group.

PAS39 (Amendment),Financial Instruments: Recognition and Measurement reatingLoan Prepayment Penalties as Closely Related Embedded Derivatives, Scope Exemption

or Business Combination Contracts and Cash Flow Hedge Accounting (eective romJanuary 1, 2010). Te amendments clariy that prepayment options, the exercise priceo which compensates the lender or loss o interest by reducing the economic loss romreinvestment risk, should be considered closely related to the host debt contract. Herein,

the scope exemption in PAS 39, Financial Instruments: Recognition and Measurementwasamended to clariy that:

i. It only applies to binding (orward) contracts between an acquirer and a vendor ina business combination to buy an acquiree at uture date;

ii. Te term o the orward contract should not exceed a reasonable period normallynecessary to obtain any required approvals and to complete the transaction; and,

iii. Te exemption should not be applied to option contracts (whether or not currentlyexercisable) that on exercise will result in control o an entity, nor by analogy toinvestments in associates and similar transactions.

Te amendment claries when to recognize gains or losses on hedging instruments asa reclassication adjustment in a cash ow hedge o a orecast transaction that resultssubsequently in the recognition o a nancial instrument, that gains or losses should bereclassied rom equity to prot or loss in the period in which the hedged orecast cashow aects prot or loss and that entities should no longer use hedge accounting ortransactions between segments in their separate nancial statements. Management hasdetermined that the amendment will not have material impact on the nancial statementso BDO Unibank Group.

PFRS2(Amendment),Share-based Payment Scope o PFRS 2 and revised PFRS 3 (eectiverom July 1, 2009). Te amendment claries that in addition to business combinationsas dened by PFRS 3, Business Combination, contributions o a business on ormation ojoint ventures and common control transactions are excluded rom the scope o PFRS 2,Share-based Payment. Management has determined that the amendment will not havematerial impact on the nancial statements o BDO Unibank Group.

PFRS8 (Amendment),Operating Segments Disclosure o Inormation about SegmentAssets (eective rom January 1, 2010). Te amendment requires an entity to disclose ameasure o segment assets only i that measure is regularly reported to the chie operatingdecision maker. Management has determined that the adoption o this amendment willnot aect the existing disclosure policy o BDO Unibank Group on operating segments.


26/136

BDOANNUALREPORT2009

24



PhilippineInterpretationIFRIC9(Amendment),Reassessment o Embedded Derivatives

and PAS 39, Financial Instruments: Recognition and Measurement Embedded Derivatives(eective rom July 1, 2009). Te amendments clariy that on reclassication o nancialassets out o the FVPL category, all embedded derivatives have to be assessed and, inecessary, separately accounted or in the nancial statements. Te amendment conrmsthat, in addition to business combinations as dened by PFRS 3 (Revised), derivativesacquired in the ormation o a joint venture and in common control transactions areoutside the scope o Philippine Interpretation IFRIC 9.

2.3 Presentation o Consolidated Financial Statements

Te consolidated nancial statements are presented in accordance with PAS 1 (Revised 2007), Presentation oFinancial Statements. BDO Unibank Group has elected to present the statement o comprehensive income intwo statements: a statement o income and a statement o comprehensive income.

wo comparative periods are presented or the statements o nancial position when BDO Unibank Group:

(a) Applies an accounting policy retrospectively;

(b) Makes a retrospective restatement o items in its nancial statements; or,

(c) Reclassies items in the nancial statements.

2.4 Basis o Consolidation

BDO Unibank Group obtains and exercises control through voting rights. BDO Unibank Groups nancial

statements comprise the accounts o the Parent Bank and its subsidiaries as enumerated in Note 13.5, ater theelimination o material intercompany transactions. All signicant intercompany balances and transactions withsubsidiaries, including income, expenses and dividends, are eliminated in ull. Unrealized prots and lossesrom intercompany transactions that are recognized in assets are also eliminated in ull. Intercompany lossesthat indicate impairment are recognized in BDO Unibank Group nancial statements.

Business combinations arising rom transers o interests in entities that are under the common control o theshareholder that controls BDO Unibank Group are accounted or under the pooling-o-interests method andreected in the nancial statements as i the business combination had occurred at the beginning o the earliestcomparative period presented, or i later, at the date that common control was established; or this purpose,comparatives are restated. Te resources and liabilities acquired are recognized in BDO Unibank Groupscontrolling shareholders nancial statements at the carrying amounts recognized previously. Te components

o equity o the acquired entities are added to the same components within BDO Unibank Group equity. BDOUnibank Group accounts or its investments in subsidiaries and non-controlling interest as ollows:

(a) Investments in Subsidiaries

Subsidiaries are all entities over which BDO Unibank Group has the power to control in terms onancial and operating policies. BDO Unibank Group obtains and exercises control over subsidiariesthrough voting rights.


27/136

BDOANNUALREPORT2009

25



Subsidiaries are consolidated rom the date BDO Unibank Group obtains control until such time that

such control ceases. Except as otherwise indicated, the acquisition o subsidiaries are accounted orusing the purchase method o accounting (see Note 2.12). Purchase method involves the revaluation atair value o all identiable assets and liabilities at the acquisition date, regardless o whether or not theywere recorded in the nancial statements o the subsidiary prior to acquisition. On initial recognition,the assets and liabilities o the subsidiary are included in the statements o nancial position o BDOUnibank Group at their revalued amounts, which are also used as bases or subsequent measurement inaccordance with BDO Unibank Groups accounting policies.

Goodwill (positive) represents the excess o acquisition cost over BDO Unibank Groups share in theair value o the identiable net assets o the acquired subsidiary at acquisition date. Negative goodwillrepresents the excess o BDO Unibank Groups share in the air value o identiable net assets o thesubsidiary at acquisition date over acquisition cost (see Note 2.12).

(b) Non-controlling Interests

Non-controlling interests represent the portion o the net assets and prot or loss not attributable toBDO Unibank Group and are presented separately in BDO Unibank Group statements o income andwithin equity in the BDO Unibank Group statements o nancial position and changes in equity.

BDO Unibank Group applies a policy o treating transactions with non-controlling interests astransactions with parties external to BDO Unibank Group. Disposals o equity investments tonon-controlling interests result in gains and losses or BDO Unibank Group, which are recorded inBDO Unibank Group statement o income. Purchases o equity shares rom non-controlling interestsresult in goodwill, being the dierence between any consideration paid and the relevant share acquiredin the carrying value o the net assets o the subsidiary.

In BDO Unibank Group nancial statements, the non-controlling interest component is shown in BDOUnibank Group statement o changes in equity and in BDO Unibank Group statement o income.

2.5 Segment Reporting

A business segment is a group o assets and operations engaged in providing products or services that are subjectto risks and returns that are dierent rom those o other business segments. A geographical segment is one thatprovides products or services within a particular economic environment that is subject to risks and returns thatare dierent rom those segments operating in other economic environments.

BDO Unibank Groups operations are organized according to the nature o products and services provided.

Financial inormation on business segments is presented in Note 5.


28/136

BDOANNUALREPORT2009

26



2.6 Financial Assets

Financial assets include cash and other nancial instruments. Financial assets, other than hedging instruments,are classied into the ollowing categories: at FVPL, loans and receivables, held-to-maturity (HM) andavailable-or-sale (AFS). Financial assets are assigned to the dierent categories by management on initialrecognition, depending on the purpose or which the investments were acquired. Except or derivative nancialinstruments and nancial assets designated at FVPL, the designation o nancial assets is re-evaluated at theend o each reporting period at which date a choice o classication or accounting treatment is available, subjectto compliance with specic provisions o applicable accounting standards.

Cash and cash equivalents consist o cash and non-restricted balances with the BSP and amounts due romother banks. For purposes o reporting cash ows, cash and cash equivalents include cash and other cash items,amounts due rom BSP and other banks, interbank call loans receivable and Securities Purchased Under ReverseRepurchase Agreement (SPURRA) with original maturities o three months or less rom placement date.

Regular purchase and sales o nancial assets are recognized on their settlement date. All nancial assets thatare not classied as at air value through prot or loss are initially recognized at air value plus any directlyattributable transaction costs. Financial assets carried at air value through prot or loss are initially recorded atair value and transaction costs related to it are recognized in prot or loss.

Te oregoing categories o nancial instruments are more ully described below.

(a) Financial Assets at Fair Value Trough Proft or Loss

Tis category includes derivative nancial instruments and nancial assets that are either classied as heldor trading or are designated by BDO Unibank Group to be carried at FVPL upon initial recognition.

A nancial asset is classied in this category i acquired principally or the purpose o selling in the nearterm or i so designated by management. Derivatives are also categorized as held or trading unlessthey are designated as hedges.

Subsequent to initial recognition, the nancial assets included in this category are measured at air valuewith changes in air value recognized in prot or loss. Financial assets (except derivatives and nancialassets originally designated as nancial assets at FVPL) may be subsequently reclassied out o FVPLcategory eective July 1, 2008:

(i) Only in rare circumstances and i there is a change in intention (i.e., the nancial asset is nolonger held or the purpose o selling or repurchasing it in the near uture);

(ii) I the nancial asset would have met the denition o loans receivables and i the nancialasset had not been required to be classied as HF at initial recognition and the entity has theintention and ability to hold the nancial asset or the oreseeable uture or until maturity; and,

(iii) For CLNs and derivatives embedded in CLNs linked to ROP bonds as permitted by BSP orprudential reporting and by the SEC or nancial reporting purposes.


29/136

BDOANNUALREPORT2009

27



(b) Loans and Receivables

Loans and receivables are non-derivative nancial assets with xed or determinable payments that arenot quoted in an active market. Tese arise when BDO Unibank Group provides money, goods orservices directly to the debtor with no intention o trading the receivables. Included in this categoryare nancial assets arising rom direct loans to customers, interbank loans and receivables, sales contractreceivables and all receivables rom customers and other banks. Loans and receivables also include theaggregate rental on nance lease transactions. Unearned income on nance lease transactions is shownas a deduction rom loans and receivables.

Loans and receivables are subsequently measured at amortized cost using the eective interest method,less impairment losses. Any change in the value o loans and receivables is recognized in prot or loss,except or reclassied nancial assets under PAS 39 and PFRS 7 (Amendments). Increases in estimateso uture cash receipts rom nancial assets that have been reclassied in accordance with PAS 39 and

PFRS 7 (Amendments) shall be recognized as an adjustment to the eective interest rate rom the dateo the change in estimate. SPURRA, wherein BDO Unibank Group enters into short-term purchaseso securities under reverse repurchase agreements o substantially identical securities with the BSP, areincluded in this category. Te dierence between the sale and repurchase price is recognized as interestand accrued over the lie o the agreements using the eective interest method.

Impairment loss is the estimated amount o loss in BDO Unibank Groups loan portolio, based on theevaluation o the estimated uture cash ows discounted at the loans original eective interest rate or thelast repricing rate or loans issued at variable rates (see Note 2.21). Impairment is established throughan allowance account which is charged to expense. Loans and receivables are written o against theallowance or impairment when management believes that the collectibility o the principal is unlikely,subject to BSP regulations.

(c) Held-to-maturity Investments

Tis category includes non-derivative nancial assets with xed or determinable payments and a xeddate o maturity. Investments are classied as HM i BDO Unibank Group has the positive intentionand ability to hold them until maturity. Investments intended to be held or an undened period arenot included under this category.

HM investments consist o government and private debt securities. I BDO Unibank Group were tosell other than an insignicant amount o HM assets, the entire category o HM securities wouldbe tainted and would be reclassied as AFS securities. Te tainting provision will not apply i the salesor reclassications o HM investments: (i) are so close to maturity or the nancial assets call datethat changes in the market rate o interest would not have a signicant eect on the nancial assets airvalue; (ii) occur ater BDO Unibank Group has collected substantially all o the nancial assets originalprincipal through scheduled payments or prepayments; or, (iii) are attributable to an isolated event thatis beyond the control o BDO Unibank Group, is nonrecurring and could not have been reasonablyanticipated by BDO Unibank Group.

HM investments are subsequently measured at amortized cost using the eective interest method. Ithere is objective evidence that the investment has been impaired, the nancial asset is measured at thepresent value o estimated cash ows. Any changes to the carrying amount o the investment due toimpairment are recognized in prot or loss.


30/136

BDOANNUALREPORT2009

28



(d) Available-or-sale Securities

Tis category includes non-derivative nancial assets that are either designated to this category or do notqualiy or inclusion in any o the other categories o nancial assets.

Non-derivative nancial asset classied as AFS may be reclassied to loans and receivables category thatwould have met the denition o loans and receivables (eective July 1, 2008) i there is an intention andability to hold that nancial asset or the oreseeable uture or until maturity.

All nancial assets within this category are subsequently measured at air value, unless otherwise disclosed,with changes in value recognized in other comprehensive income, net o any eects arising rom incometaxes. Cumulative gains and losses arising rom securities classied as AFS are reclassied rom othercomprehensive income to prot or loss when these are sold or when the investment are impaired andpresented as a reclassication adjustment within comprehensive income.

In the case o impairment, any loss previously recognized in other comprehensive income is reclassiedto prot or loss. Losses recognized in prot or loss on equity instruments are not reversed through theprot or loss. Losses recognized in prior period prot or loss resulting rom the impairment o debtinstruments are reversed through the prot or loss, when the recovery in the amount o previouslyrecognized impairment losses can be objectively related to an event occurring ater the impairment lossis recognized.

Te air values o quoted investments in active markets are based on current bid prices. I the market or anancial asset is not active (and or unlisted securities), BDO Unibank Group establishes the air value by usingvaluation techniques, which include the use o recent arms length transactions, discounted cash ow analysis,option pricing models and other valuation techniques commonly used by market participants.

Gains and losses arising rom changes in the air value o the nancial assets at air value through prot orloss category are reported as part o rading Gain under Other Operating Income account in the statemento income in the period in which these arise. Gains and losses arising rom changes in the air value o AFSsecurities are recognized in other comprehensive income until the nancial asset is derecognized or impaired, atwhich time the cumulative gain or loss previously recognized in other comprehensive income shall be reclassiedto prot or loss. However, interest calculated using the eective interest method is recognized in prot or loss.Dividends on AFS equity instruments are recognized in prot or loss when BDO Unibank Groups right toreceive payment is established.

Non-compounding interest and other cash ows resulting rom holding impaired nancial assets are recognizedin prot or loss when received, regardless o how the related carrying amount o nancial assets is measured.

Derecognition o nancial assets occurs when the right to receive cash ows rom the nancial instrumentsexpire or are transerred and substantially all o the risks and rewards o ownership have been transerred.

2.7 Derivative Financial Instruments and Hedge Accounting

BDO Unibank Group is a party to various oreign-currency orward and swap contracts and cross-currency andinterest rate swaps. Tese contracts are entered into as a service to customers and as a means o reducing ormanaging BDO Unibank Groups oreign exchange and interest rate exposures, as well as or trading purposes.


31/136

BDOANNUALREPORT2009

29



Derivatives are initially recognized at air value on the date on which derivative contract is entered into and are

subsequently measured at their air value (except or the embedded derivatives in CLNs linked to ROP bondswhich BDO Unibank Group reclassied to loans). Fair values are obtained rom quoted market prices inactive markets, including recent market transactions, and valuation techniques, including discounted cash owmodels and option pricing models, as appropriate. All derivatives are carried as assets when air value is positiveand as liabilities when air value is negative.

Te best evidence o the air value o a derivative at initial recognition is the transaction price (the air valueo the consideration given or received) unless the air value o the instrument is evidenced by comparisonwith other observable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data rom observable markets. When such evidence exists, BDO Unibank Grouprecognizes prot or loss at initial recognition.

For more complex instruments, BDO Unibank Group uses proprietary models, which usually are developed

rom recognized valuation models. Some or all o the inputs into these models may not be market observable, andare derived rom market prices or rates or are estimated based on assumptions. When entering into a transaction,the nancial instrument is recognized initially at the transaction price, which is the best indicator o air value,although the value obtained rom the valuation model may dier rom the transaction price. Tis initial dierencein air value indicated by valuation techniques is recognized as prot or loss depending upon the individual actsand circumstances o each transaction and not later than when the market data become observable.

Te value produced by a model or other valuation technique is adjusted to allow or a number o actors asappropriate, because valuation techniques cannot appropriately reect all actors market participants take intoaccount when entering into a transaction. Valuation adjustments are recorded to allow or model risks, bid-askspreads, liquidity risks as well as other actors. Management believes that these valuation adjustments are necessaryand appropriate to airly state nancial instruments carried at air value on the statement o nancial position.

Certain derivatives embedded in other nancial instruments are considered as separate derivatives when theireconomic characteristics and risks are not closely-related to those o the host contract and the host contractis not carried at air value through prot or loss. Tese embedded derivatives are biurcated rom the hostcontracts and are measured at air value with changes in air value recognized in prot or loss (except or theembedded derivatives in CLNs linked to ROP bonds which were not biurcated rom the host contracts andwere reclassied to loans as permitted or prudential reporting).

Certain derivatives may be designated as either: (i) hedges o the air value o recognized assets or liabilitiesor rm commitments (air value hedge); or, (ii) hedges o highly probable uture cash ows attributable to arecognized asset or liability, or a orecasted transaction (cash ow hedge). Changes in the air value o derivativesare recognized in prot or loss. Te method o recognizing the resulting air value gain or loss on derivativesthat qualiy as hedging instrument depends on the hedging relationship designated by BDO Unibank Group.

2.8 Non-current Assets Classifed as Held-or-Sale

Assets held-or-sale include real and other properties acquired through repossession or oreclosure that BDOUnibank Group intends to sell within one year rom the date o classication as held or sale.

Assets classied as held or sale are measured at the lower o their carrying amounts immediately prior to theirclassication as held or sale and their air value less costs to sell. Assets classied as held or sale are not subjectto depreciation or amortization. Te prot or loss arising rom the sale o held-or-sale assets is included as parto Income rom Assets Acquired under Other Operating Income account in prot or loss.


32/136

BDOANNUALREPORT2009

30



2.9 Investment Properties

Investment properties are stated at cost. Te cost o an investment property comprises its purchase price anddirectly attributable cost incurred. Tis also includes land and building acquired by BDO Unibank Group romdeaulting borrowers not held or sale in the next 12 months. For these assets, the cost is recognized initially atair value. Investment properties except land are depreciated on a straight-line basis over a period o 10 years.

Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation and anyimpairment losses.

BDO Unibank Group adopted the cost model in measuring its investment property; hence, this is carriedat cost less accumulated depreciation and any impairment in value. Depreciation and impairment loss arerecognized in the same manner as in premises, urniture, xtures and equipment.

Investment property is derecognized upon disposal or when permanently withdrawn rom use and no utureeconomic benet is expected rom its disposal. Any gain or loss on the retirement or disposal o an investmentproperty is recognized in prot or loss in the year o retirement or disposal.

2.10 Equity Investments

In the nancial statements o BDO Unibank Group, investments in associates are accounted or under theequity method o accounting and are initially recognized at cost (see Note 2.22).

Te BDO Unibank Groups share o its associates post-acquisition prots or losses is recognized in prot or loss,and its share o post-acquisition movements in reserves is recognized in reserves. Te cumulative post-acquisitionmovements are adjusted against the carrying amount o the investment. When BDO Unibank Groups share

o losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables,BDO Unibank Group does not recognize urther losses, unless it has incurred obligations or made payments onbehal o the associate.

Unrealized gains on transactions between BDO Unibank Group and its associates are eliminated to the extento BDO Unibank Groups interest in the associates. Unrealized losses are also eliminated unless the transactionprovides evidence o an impairment o the asset transerred. Accounting policies have been changed wherenecessary to ensure consistency with the policies adopted by BDO Unibank Group.

Subsidiaries are all entities over which BDO Unibank Group has the power to govern the nancial and operatingpolicies generally accompanying a shareholding o more than one-hal o the voting rights. Te existenceand eect o potential voting rights that are currently exercisable or convertible are considered when assessing

whether BDO Unibank Group controls another entity. Subsidiaries are ully consolidated rom the date onwhich BDO Unibank Group obtains control. Tey are de-consolidated rom the date that control ceases.

Associates are all entities over which BDO Unibank Group has signicant inuence but not control, generallyaccompanying a shareholding o between 20% and 50% o the voting rights.

In the Parent Bank nancial statements, the investments in subsidiaries and associates are carried at cost, less anyimpairment in value.


33/136

BDOANNUALREPORT2009

31



2.11 Premises, Furniture, Fixtures and Equipment

Premises, urniture, xtures and equipment are carried at acquisition cost less accumulated depreciation andamortization and any impairment in value. Property items o the ormer EPCIB stated at appraised valueswere included in BDO Unibank Group balances at their deemed costs at date o transition to PFRS onJanuary 1, 2005. Te revaluation increment is credited to Revaluation Increment account in the Equity section,net o applicable deerred income tax.

Te cost o an asset comprises its purchase price and directly attributable costs o bringing the asset to workingcondition or its intended use. Expenditures or additions, major improvements and renewals are capitalized;expenditures or repairs and maintenance are charged to expense as incurred. When assets are sold, retired orotherwise disposed o, their cost and related accumulated depreciation and amortization and impairment lossesare removed rom the accounts and any resulting gain or loss is reected in prot or loss or the period.

Depreciation is computed on straight-line basis over the estimated useul lives o the depreciable assets asollows:

Buildings 10 - 50 yearsFurniture, xtures and equipment 3 - 5 years

Leasehold rights and improvements are amortized over the terms o the leases or the estimated useul lives o theimprovements, whichever is shorter.

An assets carrying amount is written down immediately to its recoverable amount i the assets carrying amountis greater than its estimated recoverable amount (see Note 2.22).

Te residual values and estimated useul lives o premises, urniture, xtures and equipment are reviewed, andadjusted i appropriate, at the end o each reporting period.

An item o premises, urniture, xtures and equipment is derecognized upon disposal or when no uture economicbenets are expected to arise rom the continued use o the asset. Any gain or loss arising on derecognition othe asset (calculated as the dierence between the net disposal proceeds and the carrying amount o the item) isincluded in prot or loss in the period the item is derecognized.

2.12 Business Combination

Except as indicated otherwise, business acquisitions are accounted or using the purchase method oaccounting.

Goodwill acquired in a business combination is initially measured at cost being the excess o the cost o a businesscombination over BDO Unibank Groups interest in the net air value o the identiable assets, liabilities andcontingent liabilities. Goodwill is reviewed or impairment annually or more requently i events or changesin circumstances indicate that the carrying value may be impaired (see Note 2.22). Negative goodwill, iany, which is the excess o BDO Unibank Groups interest in the net air value o acquired identiable assets,liabilities and contingent liabilities over cost is recognized directly to income.

ransers o assets between commonly-controlled entities are accounted or under historical cost accounting.


34/136

BDOANNUALREPORT2009

32



2.13 Intangible Assets

Goodwill represents the

Documents

BDO 2009 AR Supplement