BDO Annual Report Volume 2

www.bdo.com.
ph
1
TABLE OF
CONTENTS
Corporate Prole
Financial Highlights
Report of Independent Auditors
Statements of Financial Position
Statements of Income
Statements of Comprehensive Income
Statements of Changes in Equity
Statements of Cash Flows
02
03
Statements of Managements Responsibility 04
Notes to Financial Statements 16
05
07
08
09
10
14
CORPORATE
MISSION
CORPORATE MISSION
To be the preferred bank in every market we serve by consistently providing innovative products and
awless delivery of services, proactively reinventing ourselves to meet market demands, creating
shareholders value through superior returns, cultivating in our people a sense of pride and ownership,
and striving to be always better than what we are todaytomorrow.
CORPORATE PROFILE
CORE VALUES
COMMITMENT TO CUSTOMERS
We are committed to deliver products and services that surpass customer expectations in value and every
aspect of customer service, while remaining to be prudent and trustworthy stewards of their wealth.
COMMITMENT TO A DYNAMIC AND EFFICIENT ORGANIZATION
We are committed to creating an organization that is exible, responds to change and encourages innovation
and creativity. We are committed to the process of continuous improvements in everything we do.
We are committed to our employees growth and development and we will nurture them in an environment
where excellence, integrity, teamwork, professionalism and performance are valued above all else.
COMMITMENT TO EMPLOYEES
We are committed to provide our shareholders with superior returns over the long term.
COMMITMENT TO SHAREHOLDERS
The product of a merger heralded as unprecedented in
size and scale in the Philippine banking industry, BDO
Unibank, Inc. (BDO) today represents a rm consolidation
of distinct strengths and advantages built over the years
by the entities behind its history. BDO is an institution that
honors its past, continues to improve on its present, and
moves towards the future with condence and strength.
BDO is a full-service universal bank. It has the ability to
provide a complete array of industry-leading products
and services to the retail and corporate markets including
Lending (corporate, middle market, SME, and consumer),
Deposit-taking, Foreign Exchange, Brokering, Trust and
Investments, Credit Cards, Corporate Cash Management
and Remittances. Through its subsidiaries, the Bank
offers Leasing and Financing, Investment Banking, Private
Banking, Bancassurance, Insurance Brokerage and Stock
Brokerage services.
BDOs institutional strengths and value-added products
and services hold the key to its successful business
relationships with customers. On the front line, its
branches remain at the forefront of setting high standards
as a sales and service-oriented, customer-focused force.
BDO has one of the largest distribution networks, with
more than 740 operating branches and over 1,600 ATMs
nationwide.
Through selective acquisitions and organic growth, BDO
has positioned itself for increased balance sheet strength
and continuing expansion into new markets. As of 31
December 2011, BDO is the countrys largest bank in
terms of total resources, customer loans, total deposits
and assets under management.
BDO is a member of the SM Group, one of the countrys
largest and most successful conglomerates with
businesses spanning between retail, mall operations,
property development (residential, commercial, resorts/
hotel), and nancial services.
www.bdo.com.ph
3
FINANCIAL
HIGHLIGHTS
1,097.3
670.1
858.6
97.0
10.5
744
1,596
20,804
11.4%
11.7%
1.0%
3.5%
15.8%
59.00
3.91
3.91
1.00
35.03
1.7x
58.50
3.37
3.37
0.80
31.84
1.8x
1%
16%
16%
25%
10%
11.3%
11.7%
1.0%
4.1%
13.8%
6 bps
0 bps
6 bps
-52 bps
196 bps
726
1,430
20,053
2%
12%
4%
1,000.9
541.5
782.6
88.7
8.8
10%
24%
10%
9%
19%
2011 2010 Change
Resources
Gross Customer Loans
Deposits
Total Equity*
Net Prot**
Operating Branches
ATMs
Employees
Return on Average Equity
Return on Average Common Equity
Return on Average Assets
Net Interest Margin
Capital Adequacy Ratio***
Share Price (end of period)
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends per Common Share
Book Value per Share
Price to Book Value Ratio (x)
OPERATING HIGHLIGHTS
FINANCIAL PERFORMANCE INDICATORS (in %)
SHAREHOLDER INFORMATION (in Php)
In Billion Pesos
Total capital accounts, inclusive of minority interest and preferred shares
Net Income attributable to shareholders of the Parent Bank
Per Notes to F/S for the audited nancial statements
*
**
***
RESOURCES
in Billion Pesos
GROSS
CUSTOMER LOANS
in Billion Pesos
1,097
670
859
97
10.5
1,001
542
783
89
8.8
862
473
695
68
6.0
802
393
637
58
2.2
617
297
445
60
6.5
DEPOSITS
LIABILITIES
in Billion Pesos
CAPITAL FUNDS
in Billion Pesos
NET INCOME*
in Billion Pesos
1200
1000
800
600
400
200
0
1200
1000
800
600
400
200
0
1200
1000
800
600
400
200
0
120
100
80
60
40
20
0
12
10
8
6
4
2
0
07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11
* Attributable to shareholders of the Parent Bank
SUBSCRIBED and SWORN to me before this 21st day of March, 2012 afants exhibiting to me
their Competent Evidence of Identity (CEI), as follows:
Name CEI Number Date & Place Issue
1. Teresita T. Sy Passport No. EB0826424 08.25.2010 / Manila
CTC No. CCI2011 17339257 02.09.2012 / Manila
2. Nestor V. Tan Passport No. EB2127090 03.21.2011 / Manila
CTC No. CCI2011 09875125 02.29.2012 / Mandaluyong
3. Lucy Co Dy SSS No. 03-4074342-5 Quezon City
CTC No. CCI2011 09866095 02.29.2012 / Mandaluyong
WITNESS BY HAND AND SEAL on the day rst above-mentioned at Makati City.
Doc. No. 78
Page. No. 17
Book. No. II
Series of 2012
Atty. MARICHELLE Q. GERARDO
Appointment No. M-441
Notary Public until 31 December 2012
14/F BDO North Tower, BDO Corporate Center
7899 Makati Avenue, Makati City
Roll No. 45121
IBP No. 877979, 1/4/2012, Quezon City
PTR No. 3181662, 1/5/2012, Makati City
MCLE Compliance No. III-0004698, 9/04/2009
STATEMENT OF MANAGEMENTS
RESPONSIBILITY FOR
FINANCIAL STATEMENTS
The management of BDO Unibank, Inc. (the Bank), formerly Banco De Oro Unibank, Inc., is responsible for the preparation and fair
presentation of the nancial statements for the years ended December 31, 2011 and 2010, in accordance with nancial reporting
standards in the Philippines for banks, including the following additional supplemental information led separately from the basic nancial
statements:
a. Supplementary Schedule Required under Annex 68-E of the Securities Regulation Code Rule 68
b. Map Showing the Relationship Between the Company and its Related Entities
c. Reconciliation of Retained Earnings Available for Dividend Declaration
d. Schedule of Philippine Financial Reporting Standards Effective as of December 31, 2011
Management responsibility on the nancial statements includes designing and implementing internal controls relevant to the preparation
and fair presentation of nancial statements that are free from material misstatement, whether due to fraud or error, selecting and
applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
The Board of Directors reviews and approves the nancial statements, including the additional supplemental information, and submits
the same to the stockholders.
Punongbayan & Araullo, the independent auditors appointed by the stockholders, has examined the nancial statements of the Bank
in accordance with Philippine Standards on Auditing and, and in its report to the Board of Directors and stockholders, has expressed its
opinion on the fairness of presentation upon completion of such examination.
_______________________
TERESITA T. SY
Chaiman of the Board
_______________________
NESTOR V. TAN
President
________________________
LUCY CO DY
Executive Vice President and Comptroller
Signed this 21st day of March 2012
PUNONGBAYAN & ARAULLO
By: Benjamin P. Valdez
Partner
Report on Other Legal and Regulatory Requirements
As discussed in Note 27 to the nancial statements, the Parent Bank presented the supplementary information
required by the Bureau of Internal Revenue for the year ended December 31, 2011 in a supplementary schedule
led separately from the basic nancial statements. Such supplementary information is the responsibility of
management. The supplementary information is presented for purposes of additional analysis and is not a
required part of the basic nancial statements prepared in accordance with Philippine Financial Reporting
Standards; it is neither a required disclosure under Philippine Securities and Exchange Commission rules and
regulations covering form and content of nancial statements under Securities Regulation Code 68.
CPA Reg. No. 0028485
TIN 136-619-880
PTR No. 3174790, January 2, 2012, Makati City
SEC Group A Accreditation
Partner No. 009-AR-3 (until Dec. 9, 2014)
Firm No. 0002-FR-3 (until Jan. 18, 2015)
BIR AN 08-002511-11-2011 (until Sept. 22, 2014)
Firms BOA/PRC Cert. of Reg. No. 0002 (until Dec. 31, 2012)
February 25, 2012
REPORT OF
INDEPENDENT AUDITORS
www.bdo.com.ph
7
DECEMBER 31, 2011 AND 2010
(Amounts in Millions of Philippine Pesos)
STATEMENTS OF
FINANCIAL POSITION
N otes
CASH AN D OTHER CASH ITEMS 7
DUE FROM BAN GKO SEN TRAL N G PILIPINAS 7
DUE FROM OTHER BAN KS 8
TRADIN G AN D IN VESTMEN T SECURITIES 9
LOAN S AN D OTHER RECEIVABLES - N et 10
PREMISES, FURN ITURE, FIXTURES
AN D EQUIPMEN T - N et 11
IN VESTMEN T PROPERTIES - N et 12
OTHER RESOURCES - N et 13
TOTAL RESOURCES
DEPOSIT LIABILITIES 15
BILLS PAYABLE 16
SUBORDIN ATED N OTES PAYABLE 17
OTHER LIABILITIES 18
Total Liabilities
EQUITY
Attributable to:
Shareholders of the Parent Bank 19
N on-controlling Interests 19
TOTAL LIABILITIES AN D EQUITY
R E S O U R C E S
LIABILITIES AN D EQUITY
See N ot es t o F i nanci al St at ement s.
2011 2010 2011 2010
33,129 P 26,673 P 33,102 P 26,660 P
124,894 138,482 115,992 129,718
24,719 21,777 22,777 20,433
188,418 197,287 171,081 177,641
673,927 566,021 653,857 548,618
15,690 15,057 15,074 14,115
10,137 11,979 9,571 11,152
26,435 23,593 33,804 30,866
1,097,349 P 1,000,869 P 1,055,258 P 959,203 P
858,569 P 782,635 P 838,748 P 762,634 P
59,474 65,861 51,378 56,081
38,255 23,152 38,255 23,152
44,089 40,489 37,294 34,787
1,000,387 912,137 965,675 876,654
96,329 88,009 89,583 82,549
633 723 - -
96,962 88,732 89,583 82,549
1,097,349 P 1,000,869 P 1,055,258 P 959,203 P
BDO Unibank Group Parent Bank
www.bdo.com.ph
7
STATEMENTS OF
INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in Millions of Philippine Pesos Except Per Share Data)
N otes 2011
IN TEREST IN COME 20 50,467 P
IN TEREST EXPEN SE 21 16,688
N ET IN TEREST IN COME 33,779
IMPAIRMEN T LOSSES - N et 14 6,144
N ET IN TEREST IN COME
AFTER IMPAIRMEN T LOSSES 27,635
OTHER OPERATIN G IN COME 22 20,899
OTHER OPERATIN G EXPEN SES 22 36,316
PROFIT BEFORE TAX 12,218
TAX EXPEN SE 27 1,630
N ET PROFIT 10,588 P
Attributable To:
Shareholders of the Parent Bank 10,531 P
N on-controlling Interests 57
10,588 P
Earnings Per Share:
Basic 28 3.91 P
Diluted 28 3.91 P
2009
48,810 P
18,251
30,559
6,153
24,406
15,483
32,129
7,760
1,659
6,101 P
6,035 P
66
6,101 P
2.57 P
2.47 P
2010
49,930 P
15,772
34,158
6,698
27,460
17,841
34,789
10,512
1,631
8,881 P
8,825 P
56
8,881 P
3.37 P
3.37 P
2011
48,024 P
16,039
31,985
5,945
26,040
17,976
33,863
10,153
1,199
8,954 P
3.31 P
3.31 P
2009
45,011 P
17,181
27,830
5,775
22,055
14,375
28,811
7,619
1,263
6,356 P
2.71 P
2.60 P
2010
46,544 P
14,990
31,554
6,374
25,180
16,404
31,854
9,730
1,297
8,433 P
3.21 P
3.21 P
www.bdo.com.ph
9
STATEMENTS OF
COMPREHENSIVE INCOME
N ote 2011
N ET PROFIT 10,588 P
OTHER COMPREHEN SIVE IN COME (LOSS)
Unrealized f air value gains
on available-f or-sale securit ies 846
Transf er of realized f air value losses (gains)
on available-f or-sale securit ies t o st at ement s of income 209 ) (
N et fair value gains on available for sale securities 9 637
Translation adjustment related to foreign operations 9 ) (
Other Comprehensive Income, N et of Tax 628
TOTAL COMPREHEN SIVE IN COME 11,216 P
Attributable To:
Shareholders of the Parent Bank 11,218 P
N on-controlling Interests 2 ) (
11,216 P
2010
8,881 P
3,020
768
3,788
350 ) (
3,438
12,319 P
12,231 P
88
12,319 P
2010
8,433 P
1,951
1,352
3,303
317 ) (
2,986
11,419 P
2009
6,356 P
2,173
231
2,404
-
2,404
8,760 P
2011
8,954 P
1,096
118 ) (
978
-
978
9,932 P
2009
6,101 P
2,356
1,057
3,413
1 ) (
3,412
9,513 P
9,447 P
66
9,513 P
www.bdo.com.ph
9
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www.bdo.com.ph
15
Supplemental Information on N oncash Financing and Investing Activities
The f ollowing are the signicant noncash transactions:
I n 2011, t he Parent Bank agreed t o t ransf er, cede, and coney absolutely to SM Keppel Land, Inc. ,SM Keppel, the
outstanding adances totalling P364 recognized as part o Other receiables rom customers under Loans and Other
Receiables in exchange or 36,401,500 pref erred shares or a subscription price o P364 ,see Notes 10 and 13,.
a.
c.
In 2010, the BDO UnibanN Group and the Parent BanN participated in the Global Bond Lxchange by exchanging
Republic o the Philippines ,ROP, bonds booNed under linancial Assets at lair Value through Prot or Loss ,lV1PL,
amounting to US>1.3 million o the Parent BanN ,see Note 9.01, and Ield-to-maturity ,I1M, Inestments amounting to
US>111.5 million and US>5.4 million o the BDO UnibanN Group and Parent Bank, respectiely ,see Note 9.03,. 1his
resulted to a gain o P1 or lV1PL shown as part o Trading gain - net under Other Operating Income ,see Note 22, and
P824 and P28 or I1M by the BDO UnibanN Group and Parent Bank, respectiely, shown as part o Unearned Income
under Other Liabilities ,see Note 18,.
b. On April 30, 2011, the Board of D irectors approed the e-way merger ,the Merger, o wholly-owned subsidiaries:
BDO Strategic Ioldings, Inc. ,BDOSII,, Lquitable Card NetworN, Inc., LBC Strategic Ioldings Corporation ,LSIC,, BDO
Technology Center, Inc. and Strategic Property Ioldings, Inc. with BDOSII as the suriing corporation. 1he Merger was
approed by the BSP and the SLC on Noember 29, 2011 and on December 29, 2011, respectiely. As a consideration or
the Merger, the BanN inested additional P4,580 to BDOSII through dacion en pago by LSIC o its 3,621,159 pref erred
shares and 2,000,001 common shares and conersion o adances o the subsidiaries ,see Note 13,.
24,719
14,881
4,880 4,880
21,63
59,940
30,365
62,864
1 1 6 , 4 1
2 3 , 6 1
4 4 5 , 0 3
3 3 8 , 4 6
3 6 , 6 2
2 8 4 , 8 3 1
, 1 2
2 0 1 , 1
Cash and other cash items
Due rom BangNo Sentral
ng Pilipinas
Due rom other banNs
InterbanN call loans
receiable
CASH AN D CASH EQUIVALEN TS
AT BEGIN N IN G OF YEAR
N ET IN CREASE (DECREASE) IN
(Brought F or ward)
7
7
8
7
7
8
AT EN D OF YEAR
26,673
138,482
21,777
33,129
124,894
0 , 1 2
9 6 6 , 2 6
4 4 5 , 0 3
3 3 8 , 4 6
2 3 , 6 1
20,433
26,660
129,718
33,102
115,992
22,777
Cash and other cash items
Due rom BangNo Sentral
ng Pilipinas
Due rom other banNs
1 1 6 , 4 1
5 6 3 , 0 3
4 6 8 , 2 6
2 3 9 , 6 8 1 P 0 4 8 , 0 1 P P 182,742 9 0 1 , 2 1 1 P P 171,871 1 1 8 , 6 1 P
0 6 6 , 6 2
8 1 , 9 2 1
3 3 4 , 0 2
6 3 , 6 P 3 2 8 , 4 P P 4,190 8 8 6 , 5 P P 4,940 1 9 , 8 6 P
4 6 4 , 1 0 1 9 0 1 , 2 1 1 1 2 4 , 6 0 1 186,932 176,811 0 4 8 , 0 1
2011 2010
Parent Bank
2009 2011 2010 2009 N otes
) ( ) (
www.bdo.com.ph
15
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
(A mount s i n M i l l i ons of Phi l i ppi ne Pesos, E x cept Per Shar e D at a or A s I ndi cat ed)
NOTES TO
FINANCIAL STATEMENT
1. CORPORATE MATTERS
1 . 0 1 I n cor por at i on an d O per at i on s
BD O Unibank, I nc. (f ormerly Banco de Oro Unibank, I nc., t he Bank, BD O Unibank or t he
Parent Bank) was incorporat ed in the Philippines on August 16, 1967 t o engage in the
business of banking. I t was aut horized t o engage in t rust operat ions on January 5, 1988 and in
f oreign currency deposit operat ions on N ovember 23, 1990. The Bangko Sent ral ng Pilipinas
(BSP) grant ed approval to the Parent Bank to operate as an expanded commercial bank on
August 5, 1996. The Parent Bank commenced operat ions as such in Sept ember of the same
year. The Parent Bank and it s subsidiaries (collect ively ref erred t o as the BD O Unibank
Group) of f er a wide range of commercial, invest ment , privat e and other banking services.
These services include t radit ional loan and deposit product s, as well as t reasury, asset
management , realt y management , leasing and f inance, remit t ance, t rade services, ret ail cash
cards, insurance, credit card services, stockbrokerage, t rust and others.
On January 29, 2011, t he Parent Banks Board of D irectors (BOD ) approved the change in
t he Bank regist ered name f rom Banco D e Oro Unibank, I nc. to BD O Unibank, I nc. The
change in the Banks regist ered name was approved by t he Philippine Securit ies and Exchange
Commission (SEC) on N ovember 4, 2011.
As a banking inst it ut ion, t he BD O Unibank Groups operat ions are regulat ed and supervised
by t he BSP. I n t his regard, the BD O Unibank Group is required to comply wit h the rules and
regulat ions of the BSP such as those relat ing to maint enance of reserve requirement s on
deposit liabilit ies and deposit subst it ut es and those relat ing t o t he adopt ion and use of saf e
and sound banking pract ices, among others, as promulgat ed by the BSP. BD O Unibank
Group is subject t o the provisions of t he General Banking L aw of 2000 [Republic Act (RA)
N o. 8791].
The Parent Banks common shares are list ed in t he Philippine Stock Exchange (PSE). As of
D ecember 31, 2011, t he Parent Bank has 744 branches (including one f oreign branch) and
934 on-sit e and 662 of f -sit e aut omat ed t eller machines. The Parent Banks regist ered address
is at BD O Corporat e Cent er, 7899 Makat i Avenue, Makat i Cit y.
The BD O Unibank Group operates mainly wit hin the Philippines wit h a banking branch in
H ong K ong and various remitt ance subsidiaries operat ing in Asia, Europe and the Unit ed
St at es. I n 2011, 2010 and 2009, t hese f oreign operations account ed f or 0.5%, 0.4% and 1.0%,
respect ively, of the BD O Unibank Groups tot al revenues and 1.1%, 0.1% and 1.1%,
respect ively, of the BD O Unibank Groups tot al resources. The BD O Unibank Groups
subsidi aries and associat es are shown in N ote 13.01.
www.bdo.com.ph
17
1 . 0 2 A ppr oval of F i n an ci al St at emen t s
The f inancial st at ement s of t he BD O Unibank Group and the Parent Bank f or t he year ended
D ecember 31, 2011 (wit h comparat ives f or the years ended D ecember 31, 2010 and 2009) were
approved and authorized f or issue by the BOD on February 25, 2012.
2. SUMMARY OF SIGN IFICAN T ACCOUN TIN G POLICIES
The signif icant account ing policies t hat have been used in t he preparat ion of t hese f inancial
st at ement s are summarized in the succeeding pages. The policies have been consist ent ly
applied t o all t he years present ed, unless ot herwise stat ed.
2 . 0 1 B asi s of P r epar at i on of C on sol i dat ed F i n an ci al St at emen t s
(a) St at ement of Compl i ance wi t h F i nanci al Repor t i ng St andar ds i n t he Phi l i ppi nes for Bank s
The consolidat ed f inancial st at ement s of BD O Unibank Group and the f inancial
st at ement s of t he Parent Bank have been prepared in accordance wit h t he Financial
Report ing St andards in t he Philippines (FRSP) f or banks. FRSP and Philippine Financial
Report ing St andards (PFRS) are similar except f or the reclassif icat ion of t he embedded
derivat ives in credit -linked not es (CLN s) that are linked t o Republic of the Philippines
(ROP) bonds f rom f air value t hrough prof it or loss (FVTPL) t o unquot ed debt securit ies
classi f ied as loans or UD SCL (included as part of Loans and Ot her Receivables), t hat are
out st anding as of the ef f ect ive dat e of reclassif icat ion, which is permitt ed by t he BSP f or
prudent ial report ing, and by the SEC f or f inancial report ing.
PFRSs are adopt ed by t he Financial Report ing St andards Council (FRSC) f rom the
pronouncement s issued by the I nt ernat ional Account ing St andards Board.
The f inancial st at ement s have been prepared using the measurement bases specif ied by
PFRS f or each t ype of asset s, liabilit ies, income and expense. The measurement bases are
more f ully described in the account ing policies t hat f ollow.
The reconciliat ions and explanatory not es in the succeeding pages theret o describe t he
dif f erence on the st at ement s of f inancial posit ion under FRSP and PFRS.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(i ) The reconciliat ions of the equit y reported under FRSP t o equit y under PFRS as of
D ecember 31 f ollow:
2011 2010 2011 2010
Equity under FRSP P 96,962 P 88,732 P 89,583 P 82,549
Prior year reconciling items 311 381 240 301
Current year reconciling items:
Amortizat ion of premi um/ discount due
to change in ef f ective interest rates ( 16) ( 222 ) ( 16 ) ( 209 )
Amortization of negati ve f air value of
embedded derivatives on CL N s
reclassif ied to loans and other receivables 9 - - -
Reversal of net adjust ments to equi ty due to:
Unwinding of CLN s ( 80) - - -
Unrealized mark-to-market gain (loss) on
embedded derivatives on CL N s
reclassif ied to loans and other receivables ( 202) 152 ( 202) 148
( 289) ( 70 ) ( 218) ( 61 )
Total adjust ments to equi ty 22 311 22 240
Equity under PFRS P 96,984 P 89,043 P 89,605 P 82,789
(i i ) D if f erences in t he measurement of it ems in t he st at ement s of f inancial posit ion as of
D ecember 31 are summarized below.
BDO Unibank Group
2011
FRSP Difference PFRS
Changes in resources:
Trading and i nvest ment secur it i es P 188,418 (P 218) P 188,200
Loans and ot her recei vables 673,927 240 674,167
P 862,345 P 862,367
Total adjustments to equity P 22
2010
FRSP D if f erence PFRS
Trading and i nvest ment secur it i es P 197,287 P 41 P 197,328
P 763,308 P 763,619
www.bdo.com.ph
19
Parent Bank
2011
FRSP Difference PFRS
Trading and i nvest ment secur it i es P 171,081 ( P 218) P 170,863
P 824,938 P 824,960
2010
FRSP D if f erence PFRS
Trading and i nvest ment secur it i es P 177,641 ( P 61 ) P 177,580
P 726,259 P 726,499
(i i i ) The reconciliat ions of net prof it report ed under FRSP t o net prof it under PFRS f or t he
years ended D ecember 31 f ollow:
2011 2010 2011 2010
N et profit under FRSP P 10,588 P 8,881 P 8,954 P 8,433
Unrealized mark-t o-market gai n (l oss)
on embedded der ivat ives on CLN s
recl assi f i ed t o loans and ot her
recei vabl es ( 202 ) 152 ( 202) 148
Rever sal of net adj ust ment s t o equit y due t o
unwinding of CLN s ( 80) - - -
Amort izat ion of pr emi um/ discount
due t o change in ef f ect i ve int er est rat es ( 16 ) ( 222 ) ( 16) ( 209 )
Amort izat ion of negat ive f ai r value of
Embedded deri vat i ves on CLN s
Reclassi f i ed t o loans and r eceivabl es 9 - - -
( 289 ) ( 70 ) ( 218) ( 61 )
N et profit under PFRS P 10,299 P 8,811 P 8,736 P 8,372
(b) Present at i on of F i nanci al St at ements
The f inancial st at ement s are present ed in accordance wit h Philippine Account ing
St andards (PAS) 1, Pr esent at i on of F i nanci al St at ement s. The BD O Unibank Group present s
t he st at ement of comprehensive income in t wo st at ement s: a st atement of income and a
st at ement of comprehensive income. Two comparat ive periods are present ed f or the
st at ement of f inancial posit ion when BD O Unibank Group applies an account ing policy
ret rospect ively, makes retrospect ive rest at ement of items in it s f inancial st at ement s, or
reclassif ies it ems in t he f inancial st at ement s.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(c) F unct i onal and Pr esent at i on Cur r ency
These f inancial st at ement s are present ed in Philippine pesos, the BD O Unibank Groups
f unct ional and present at ion currency, and all values r epresent absolut e amount s, except
when otherwise indicat ed (see also N ot e 2.25). The f inancial st at ement s of the f oreign
currency deposit unit s (FCD Us) of BD O Unibank Group and f oreign subsidiaries are
translat ed at t he prevailing current exchange rat es (f or st at ement of f inancial posit ion
account s) and average exchange rat e during t he period (f or st at ement of income account s)
f or consolidat ion purposes.
I t ems included in t he f inancial st at ement s of BD O Unibank Group are measured using it s
f unct ional currency. Funct ional currency is the currency of t he primary economic
environment in which BD O Unibank Group operates.
2 . 0 2 A dopt i on of N ew an d A men ded P F R S
(a) E ffect i ve i n 2011 t hat ar e Rel evant t o BD O U ni bank G r oup
I n 2011, BD O Unibank Group adopt ed t he f ollowing amendment s, int erpret at ion and
annual improvement s to PFRS t hat are relevant t o the BD O Unibank Group and ef f ect ive
f or f inancial st at ement s f or t he annual period beginning on or af t er
January 1, 2011.
PAS 24 (Amendment) : Relat ed Part y D isclosures
Philippine I nt erpret at ion
I nt ernat ional Financial
Report ing I nt erpret at ions
Commit t ee (I FRI C) 14
(Amendment) : Prepayment of a Minimum Funding
Requirement
I FRI C 19 : Ext inguishing Financial Liabil it ies wit h
Equit y I nst rument s
Various St andards : 2010 Annual I mprovement s to PFRS
D iscussed below are t he ef f ect s in t he f inancial st at ement s of the revised and amendment
t o t he account ing st andards and int erpret at ions.
(i ) PAS 24 (Amendment), Rel at ed Par t y D i scl osur es (ef f ective f rom January 1, 2011). The
amendment simplif ies and clarif ies t he def init ion of a relat ed part y by eliminat ing
inconsist encies in det ermining relat ed part y relat ionships. The amendment also
provides part ial exempt ion f rom the disclosure requi rement s f or government-relat ed
ent it ies t o disclose det ails of all t ransact ions with the government and ot her
government-relat ed ent it ies. The adopt ion of this amendment did not result in any
signif icant changes on BD O Unibank Groups disclosures of relat ed part ies in it s
f inancial st at ement s.
www.bdo.com.ph
21
(i i ) Philippine I nt erpret at ion I FRI C 14 (Amendment ), Prepayment of a M i ni mum F undi ng
Requi rement (ef f ect ive f rom January 1, 2011). This interpret at ion addresses unint ended
consequences t hat can arise f rom t he previous requirement s when an ent it y prepays
f ut ure cont ribut ions int o a def ined benef it pension plan. I t set s out guidance on when
an ent it y recognizes an asset in relat ion t o a surplus f or def ined benef it plans based on
PAS 19, E mpl oyee Benefi t s, that are subject to a minimum f unding requirement . The
BD O Unibank Group is not subject to minimum f unding requirement , hence, t he
adopt ion of the revised st andard has no mat erial ef f ect on it s f inancial st at ement s.
(i i i ) Philippine I nt erpret at ion I FRI C 19, E x t i ngui shi ng F i nanci al L i abi l i t i es wi t h E qui t y
I nst r ument s (ef f ect ive f rom July 1, 2010). This int erpret at ion clarif ies t he account ing
when an ent it y renegot iat es the t erms of a f inancial liabilit y t hrough issuance of equit y
inst rument s to ext inguish all or part of t he f inancial liabil it y. These t ransact ions are
somet imes ref erred to as debt f or equit y exchanges or swaps. The int erpret at ion
requires t he debt or to account f or a f inancial liabilit y which is ext inguished by equit y
inst rument s as f ollows:
t he issue of equit y inst rument s t o a credit or t o ext inguish all or part of a f inancial
liabi lit y is considerat ion paid in accordance wit h PAS 39, F i nanci al I nst rument s:
Recogni t i on and M easurement ;
t he ent it y measures the equit y inst rument s issued at f air val ue, unless t his cannot
be reliably measured;
if t he f air value of t he equit y inst rument s cannot be reliably measured, t hen t he
f air val ue of the f inancial liabi lit y ext inguished is used; and,
t he dif f erence bet ween the carrying amount of the f inancial liabil it y ext inguished
and the considerat ion paid is recognized in prof it or loss.
The adopt ion of t he int erpret at ion did not have a mat erial ef f ect on BD O Unibank
Groups f inancial st at ement s as it did not ext inguish f inancial li abilit ies t hrough equit y
swap during t he year.
(i v) 2010 Annual I mprovement s to PFRS. The FRSC has adopted the 2010 I mpr ovement s t o
PF RS. Most of these amendment s became ef f ect ive f or annual periods beginning on
or af t er July 1, 2010 or January 1, 2011. Among t hose improvement s, only the
f ollowing amendment s which are ef f ect ive f rom July 1, 2010 were ident if ied t o be
relevant to BD O Unibank Groups f inancial st at ement s but which did not have any
mat erial impact on it s f inancial st at ement s:
PAS 1 (Amendment ), Present at i on of F i nanci al St at ements: Cl ar i fi cat i on of St at ement of
Changes i n E qui t y (ef f ect ive f rom July 1, 2010). The amendment clarif ies t hat , f or
each component of equit y, an ent it y may present an analysis of ot her
comprehensive income eit her in the st at ement of changes in equit y or in t he
notes to t he f inancial st at ement s. As the BD O Unibank Groups ot her
comprehensive income only includes f air value changes on Available-f or-sale
(AFS) securit ies, revaluat ion of cert ain it ems of bank premises, f urnit ure, f ixt ures
and equipment, and cumulat ive t ranslat ion adjust ment , t he BD O Unibank
Group has elect ed t o cont inue present ing each it em of ot her comprehensive
income in t he st at ement of changes in equit y.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(ef f ect ive f rom July 1, 2010). This amendment clarif ies t hat t he consequent ial
amendment s made t o PAS 21, T he E ffect of Changes i n F or ei gn E x change Rat es,
PAS 28, I nvest ment i n A ssoci at e, and, PAS 31, I nvest ment i n Joi nt V ent ures, arising f rom
t he PAS 27 (2008) amendment s apply prospect ively, t o be consist ent wit h t he
relat ed PAS 27 transit ion requirement s. The amendment has no impact on BD O
Unibank Groups f inancial st at ement s.
PAS 34 (Amendment), I nteri m F i nanci al Report i ng Si gni fi cant E vent and T ransact i ons
(ef f ect ive f rom January 1, 2011). The amendment provides f urt her guidance to
ill ust rat e how to apply disclosure principles under PAS 34 f or signif icant event s
and t ransact ions t o improve int erim f inancial report ing. I t requires addit ional
disclosure covering signif icant changes t o f air value measurement and
classi f icat ion of f inancial inst rument s, and t o updat e relevant inf ormat ion f rom the
most recent annual report . This amendment has no signif icant ef f ect on t he
f inancial st at ement s since t he BD O Unibank Group already provides adequat e
inf ormat ion in it s f inancial st at ement s in compliance wit h t he disclosure
requirement s.
PFRS 3 (Amendment s), Busi ness Combi nat i ons (ef f ect ive f rom July 1, 2010).
The amendment clarif ies t hat cont ingent considerat ion arrangement and balances
arising f rom business combinat ions wit h acquisit ion dat es prior t o the ent itys dat e
of adopt ion of PFRS 3 (Revised 2008) shall not be adjust ed on t he adopt ion dat e.
I t also provides guidance on t he subsequent accounting f or such balances.
I t f urther clarif ies t hat t he choice of measuring non-cont rolling int erest (N CI ) at
f air val ue or at the proport ionat e share in t he recognized amount s of an acquirees
ident if iable net asset s, applies only t o inst rument s t hat represent ownership
int erest s and ent it le their holders t o a proport ionat e share of the acquirees net
asset s in the event of liquidat ion. All ot her component s of N CI are measured at
f air val ue unless PFRS requires anot her measurement basis.
This amendment also clarif ies account ing f or all share-based payment t ransact ions
t hat are part of a business combinat ion, including unreplaced and volunt ary
replaced share-based payment awards. Specif ically, t his provides guidance f or
sit uat ions where t he acquirer does not have an obligat ion t o replace an award but
replaces an exist ing acquiree award t hat would otherwise have cont inued
unchanged af t er t he acquisit ion, thus result ing to t he account ing f or these awards
being the same as f or t he awards t hat the acquirer is obliged t o replace. This
amendment has no signif icant ef f ect on t he BD O Unibank Groups f inancial
st at ement s since the manner of measuring N CI at the t ime of business
combinat ion is based on net ident if iable asset s and there are no
share-based payment transact ions that are part of a business combinat ion.
PAS 27 (Amendment), Consolidated and Separate Financial Statements
www.bdo.com.ph
23
PFRS 7 (Amendment), F i nanci al I nst rument s: Cl ari fi cat i on of D i scl osures (ef f ect ive f rom
January 1, 2011). The amendment clarif ies t he disclosure requirement s which
emphasize t he int eract ion bet ween quant it at ive and qualit at i ve disclosures about
t he nat ure and ext ent of risks arising f rom f inancial inst rument s. I t also amends
t he required disclosure of f inancial asset s including t he f inancial ef f ect of collat eral
held as securit y. This amendment has no signif icant ef f ect on the f inancial
st at ement s since BD O Unibank Group already provides adequat e inf ormat ion in
it s f inancial st at ement s in compliance with t he disclosure requirement s.
Philippine I nt erpret at ion I FRI C 13, Cust omer L oyal t y Pr ogrammes F ai r V al ue
A wards Credi t s (ef f ect ive f rom January 1, 2011). The improvement clarif ies t hat
when t he f air value of award credit s is measured on the basis of the value of t he
awards f or which they could be redeemed, the f air value of t he award credit s
should t ake into account the expect ed f orf eit ures as well as discount s or incent ives
t hat would otherwise be of f ered t o cust omers who have not earned award credit s
f rom an init ial sale. This improvement has no signif i cant ef f ect on the
consolidat ed f inancial st at ement s of BD O Unibank Group.
(b) E ffect i ve i n 2011 but not Rel evant t o BD O U ni bank G r oup
The f ollowing amended st andards are mandat ory f or account ing periods beginning on or
af t er July 1, 2010 or January 1, 2011 but are not relevant to BD O Unibank Groups
f inancial st at ement s:
PAS 32 (Amendment) : Financial I nst rument s: Present at ion -
Classi f icat ion of Right s I ssues
PFRS 1 (Amendment s) : First -t ime Adopt ion of PFRS
(c) E ffect i ve Subsequent to 2011 but not A dopt ed E ar l y
There are new PFRS, amendment s, annual improvement s and int erpret at ions to exist ing
st andards that are ef f ect ive f or periods subsequent to 2011. Management has init ially
det ermined t he f ollowing pronouncement s, which t he BD O Unibank Group will apply in
accordance wit h t heir transit ional provisions, to be relevant to it s f inancial st at ement s:
(i ) PAS 1 (Amendment ), F i nanci al St at ements Pr esent at i on Pr esent at i on of I t ems of Ot her
Comprehensi ve I ncome (ef f ect ive f rom July 1, 2012). The amendment requires an ent it y to
group it ems present ed in Other Comprehensive I ncome into t hose that , in accordance
wit h ot her PFRSs: (a) will not be reclassif ied subsequent ly to prof it or loss and (b) will
be reclassif ied subsequent ly t o prof it or loss when specif ic condit ions are met . The
management expect s that t his will not af f ect the present at ion of it ems in other
comprehensive income since BD O Unibank Groups other comprehensive income
only includes unrealized f air value gains and losses on AFS securit ies and cumulat ive
t ranslat ion, which can be reclassif ied t o prof it or loss when specif ied condit ions are
met .
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(i i ) PAS 12 (Amendment), I ncome T ax es D efer r ed T ax : Recovery of U nder l yi ng A ssets
(ef f ect ive f rom January 1, 2012). The amendment provides an except ion to the
exist ing principle in PAS 12 t hat recovery of t he carrying amount of invest ment
propert y measured at f air value under PAS 40, I nvest ment Propert y, will be or
normally be t hrough sale. The amendment introduces a rebut t able presumpt ion t hat
t he measurement of a def erred t ax liabilit y or asset on an invest ment property
measured at f air value should ref lect the t ax consequence of recovering the carrying
amount ent irely through sale. The presumpt ion is rebut t ed f or depreciable invest ment
propert y (e.g., building) measured at f air value t hat is held wit h an object ive to
consume subst ant ially t he economic benef it s embodied in t he asset over t ime, rat her
t han through sale. As a result of t he amendment , Standing I nt erpret at ion Committ ee
(SI C) 21 I ncome Taxes Recovery of Revalued N on-D epreciable Asset s, is
accordingly wit hdrawn. The management does not expect that t his amendment will
impact t he f inancial st at ement s since BD O Unibank Group does not measure it s
invest ment propert y at f air value.
(i i i ) PAS 19 (Amendment), E mpl oyee Benefi ts (ef f ect ive f rom January 1, 2013). The
amendment made a number of changes as part of the improvement s t hroughout the
st andard. The main changes relat e t o def ined benef it plans as f ollows:
eliminat es t he corridor approach under t he exist ing guidance of PAS 19 and
requires an ent it y t o recognize all gains and losses arising in t he report ing period;
st reamlines the present at ion of changes in plan asset s and liabilit ies result ing in
t he disaggregat ion of changes into t hree main component s of service cost s, net
int erest on net def ined benef it obligat ion or asset , and remeasurement ; and,
enhances disclosure requirement s, including inf ormat ion about the
charact erist ics of def ined benef it plans and the risks t hat ent it ies are exposed to
t hrough part icipat ion in t hem.
Current ly, BD O Unibank Group is using t he corridor approach. The unrecognized
act uarial losses of BD O Unibank Group and the Parent Bank as of D ecember 31,
2011 amount ed t o P4,520 and P4,252, respect ively, which will be ret rospect ively
recognized as loss in ot her comprehensive income in 2013.
(i v) PFRS 7 (Amendment), F i nanci al I nst rument s: D i scl osures T ransfers of F i nanci al A sset s
(ef f ect ive f rom July 1, 2011). The amendment requires addit ional disclosures t hat will
allow users of f inancial st at ement s t o underst and the relat ionship bet ween t ransf erred
f inancial asset s t hat are not derecognized in their entiret y and the associat ed liabilit ies;
and, to evaluat e t he nat ure of , and risk associat ed wit h any cont inuing involvement of
t he report ing ent it y in f inancial asset s t hat are derecognized in t heir ent iret y. BD O
Unibank Group does not usually ent er int o this t ype of arrangement wit h regard to
t ransf er of f inancial asset , hence, t he amendment may not signif icant ly change BD O
Unibank Groups disclosures in it s f inancial st at ement s.
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(v) PFRS 9, F i nanci al I nst r ument s: Cl assi fi cat i on and M easur ement (ef f ect ive f rom
January 1, 2015). This is the f irst part of a new st andard on classif icat ion and
measurement of f inancial asset s and f inancial liabi lit i es t hat will replace PAS 39 in it s
ent iret y. This chapt er deals wit h t wo measurement cat egories f or f inancial asset s:
amort ized cost and f air value. All equit y inst rument s will be measured at f air value
while debt inst rument s will be measured at amort ized cost only if the ent it y is holding
it t o collect cont ract ual cash f lows which represent payment of principal and int erest .
The account ing f or embedded derivat ives in host cont ract s that are f inancial asset s is
simplif ied by removing the requirement to consider whet her or not t hey are closely
relat ed, and, in most arrangement , does not require separat ion f rom t he host
cont ract .
For liabilit ies, t he st andard ret ains most of t he PAS 39 requirement s which include
amort ized-cost account ing f or most f inancial liabi lit i es, wit h bif urcat ion of embedded
derivat ives. The main change is that , in case where the f air value opt ion is t aken f or
f inancial li abilit ies, t he part of a f air value change due to an ent it ys own credit risk is
recorded in ot her comprehensive income rather than in prof it or loss, unless this
creat es an account ing mismat ch.
To date, other chapt ers of PFRS 9 dealing wit h impairment met hodology and hedge
account ing are st ill being complet ed.
BD O Unibank Group does not expect t o implement and adopt PFRS 9 unt il it s
ef f ect ive dat e or unt il all chapt ers of this new st andard have been published. I n
addit ion, management is current ly assessing t he impact of PFRS 9 on t he f inancial
st at ement s of BD O Unibank Group.
(vi ) PFRS 13, F ai r V al ue M easur ement (ef f ect ive f rom January 1, 2013). This st andard aims
t o improve consist ency and reduce complexit y by providing a precise def init ion of
f air val ue and a single source of f air value measurement and disclosure requirement s
f or use across PFRS. The requirement s do not ext end the use of f air value
account ing but provide guidance on how it should be applied where it s use is already
required or permit t ed by other st andards. BD O Unibank Group is yet to assess t he
impact of t his new st andard.
(vi i ) Consolidat ion St andards
% PAS 27 (Revised), Separat e F i nanci al St at ement s (ef f ect ive f rom January 1, 2013).
This revised st andard now covers the requirement s pert aining solely t o separat e
f inancial st at ement s af t er the relevant discussions on cont rol and consolidat ed
f inancial st at ement s have been t ransf erred and included in t he new PFRS 10.
N o new major changes relat ing t o separat e f inancial st at ement s have been
int roduced as a result of the revision.
% PAS 28 (Revised), I nvest ment s i n A ssoci at e and Joi nt V ent ur e (ef f ect ive f rom
January 1, 2013). This revised st andard includes t he requirement s f or joint vent ures,
as well as associat es, t o be account ed f or using equit y method f ollowing t he
issuance of PFRS 11, Joi nt A r r angement .
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
PFRS 10, Consol i dat ed F i nanci al St at ement s (ef f ect ive f rom January 1, 2013). This
st andard builds on exist ing principles of consolidat ion by ident if ying t he
concept of control as t he determining f act or in whether an ent it y should be
included wit hin the consolidat ed f inancial st at ement s. The st andard also
provides addit ional guidance t o assist in det ermining cont rol where t his is
dif f icult t o assess.
PFRS 12, D i scl osur e of I nt erest i n Other E nt i t i es (ef f ect ive f rom January 1, 2013).
This st andard int egrat es and makes consist ent the disclosure requirement s f or
all f orms of int erest s in ot her ent it ies, including joint arrangement s, associat es,
special purpose vehicles and unconsolidat ed st ruct ured ent it ies. This also
int roduces new disclosure requirement s about the risks t o which an ent it y is
exposed f rom it s involvement wit h st ruct ured ent it ies.
BD O Unibank Group is current ly reviewing t he impact of the above consolidat ion
st andards on it s f inancial st at ement s in t ime f or it s adopt ion in 2013.
2 . 0 3 P r esen t at i on of C on sol i dat ed F i n an ci al St at emen t s
The consolidat ed f inancial st at ement s are present ed in accordance wit h PAS 1. BD O
Unibank Group has elect ed to present t he st atement of comprehensive income in t wo
st at ement s: a st at ement of income and a st at ement of comprehensive income.
Two comparat ive periods are presented f or t he st at ement s of f inancial posit ion when BD O
Unibank Group:
(a) Applies an account ing policy retrospect ively;
(b) Makes a ret rospect ive rest at ement of it ems in it s f inancial st at ement s; or,
(c) Reclassif ies it ems in the f inancial st at ement s.
2 . 0 4 B asi s of C on sol i dat i on
BD O Unibank Group obt ains and exercises cont rol t hrough vot ing right s. BD O Unibank
Groups consolidat ed f inancial st at ement s comprise t he account s of the Parent Bank and it s
subsidi aries as enumerat ed in N ote 13.01, af t er the eliminat ion of mat erial int ercompany
t ransact ions. All signif icant int ercompany balances and transact ions wit h subsidiaries,
including income, expenses and dividends, are eliminat ed in f ull. Unrealized prof it s and losses
f rom int ercompany t ransact ions that are recognized in asset s are also eliminat ed in f ull.
I nt ercompany losses t hat indicat e impairment are recognized in BD O Unibank Group
Business combinat ions arising f rom t ransf ers of int erest s in ent it ies that are under the
common cont rol of t he shareholder that cont rols BD O Unibank Group are account ed f or
under the pooling-of -int erest s method and ref lect ed in t he f inancial st at ement s as if the
business combinat ion had occurred at the beginning of the earliest comparat ive period
present ed, or if lat er, at t he dat e that common cont rol was est ablished; f or this purpose,
comparat ives are rest at ed. The resources and liabilit i es acquired are recognized in BD O
Unibank Groups cont rolling shareholders f inancial st at ement s at the carrying amount s
recognized previously. The component s of equit y of t he acquired ent it ies are added to the
same component s wit hin BD O Unibank Group equi t y.
The f inancial st at ement s of subsidiaries are prepared f or the same report ing period as the
Company, using consist ent account ing principles.
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BD O Unibank Group account s f or it s invest ment s in subsidiaries and non-cont rolling int erest
(previously called minorit y int erest ) as f ollows:
(a) I nvest ment s i n Subsi di ar i es
Subsidiaries are all ent it ies over which BD O Unibank Group has t he power t o cont rol in
t erms of f inancial and operat ing policies generally accompanying a shareholding of more
t han one half of t he vot ing right s. BD O Unibank Group obt ains and exercises cont rol
over subsidiaries t hrough vot ing right s. The exist ence and ef f ect of pot ent ial vot ing right s
t hat are current ly exercisable or convert ible are considered when assessing whet her BD O
Unibank Group cont rols another ent it y. Subsidiaries are consolidat ed f rom the dat e BD O
Unibank Group obt ains cont rol unt il such t ime that such cont rol ceases.
Except as ot herwise indicat ed, t he acquisit ion of subsidiar ies are account ed f or using the
acquisit ion method (previously called purchase method - see N ot e 2.13). Acquisit ion
method requires recognizing and measuring the ident if iable asset s acquired, t he liabilit ies
assumed and any non-cont rolling int erest in t he acquiree. The considerat ion t ransf erred
f or t he acquisit ion of a subsidiary is t he f air values of t he asset s t ransf erred, t he liabilit ies
incurred and the equit y int erest s issued by t he BD O Unibank, if any. The considerat ion
t ransf erred also includes the f air value of any asset or liabilit y result ing f rom a cont ingent
considerat ion arrangement . Acquisit ion-relat ed costs are expensed as incurred and
subsequent change in the f air value of cont ingent considerat ion is recognized direct ly in
prof it or loss.
I dent if iable asset s acquired and liabilit ies and cont ingent liabilit ies assumed in a
business combinat ion are measured init ially at their f air val ues at t he acquisit ion dat e. On
an acquisit ion-by-acquisit ion basis, t he BD O Unibank Group recognizes any
non-controlling int erest in the acquiree eit her at f air val ue or at the non-cont rolling
int erest s proport ionate share of the acquirees net asset s.
The excess of the considerat ion t ransf erred, the amount of any non-cont rolling int erest in
t he acquiree and the acquisit ion-dat e f air value of any previous equit y int erest in t he
acquiree over the f air value of t he Groups share of the ident if iable net asset s acquired is
recognized as goodwill. I f this is less t han the f air value of the net asset s of the subsidiary
acquired in the case of a bargain purchase, t he dif f erence is recognized direct ly as a gain in
prof it or loss (see N ote 2.13).
(b) T r ansact i ons wi t h N on-cont rol l i ng I nt er est s
BD O Unibank Groups t ransact ion wit h non-controlling int erest s that do not result in
loss of cont rol are account ed f or as equit y transact ions t hat is, as t ransact ion wit h t he
owners of BD O Unibank Group in t heir capacit y as owners. The dif f erence bet ween the
f air val ue of any considerat ion paid and the relevant share acquired of t he carrying value
of net asset s of t he subsidiary is recognized in equit y. D isposals of equit y invest ment s to
non-controlling int erest s result s in gains or losses f or the Group t hat are also recognized
in equit y.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
When BD O Unibank Group ceases to have control, any interest ret ained in the subsidiary
is remeasured to it s f air value, wit h t he change in carrying amount recognized in prof it or
loss. The init ial carrying amount f or the purposes of subsequent ly account ing f or the
int erest ret ained as an associat e, joint vent ure or f inancial asset is t he f air value. I n
addit ion, any amount s previously recognized in ot her comprehensive income in respect of
t hat ent it y are account ed f or as if BD O Unibank Group had direct ly disposed of t he
relat ed resources or liabilit ies. This may mean that amount s previously recognized in
ot her comprehensive income are reclassif ied t o prof it or loss.
I n BD O Unibank Groups f inancial st at ement s, t he non-controlling int erest component is
shown in BD O Unibank Groups st atement of changes in equit y and in BD O Unibank
Groups st at ement of income. N on-cont rolling int erest s in 2011 and 2010 represent t he
int erest s not held by BD O Unibank Group in BD O Leasing and Finance, I nc., BD O Elit e
Savings Bank, I nc. and Equimark N FC D evelopment Corp.
2 . 0 5 Segmen t R epor t i n g
Operat ing segment s are report ed in a manner consist ent wit h the int ernal report ing provided
t o t he BD O Unibank Groups chief operat ing decision-maker. The chief operat ing decision-
maker is responsible f or allocat ing resources and assessing perf ormance of the operat ing
segment s.
I n ident if ying it s operat ing segment s, management generally f ollows t he BD O Unibank
Group's product s and services as disclosed in N ot e 5, which represent the main product s and
services provided by t he BD O Unibank Group.
Each of these operat ing segment s is managed separat ely as each of these services requires
dif f erent t echnologies and resources as well as market ing approaches. All int er-segment
t ransf ers are carried out at arm's lengt h prices.
The measurement policies of the BD O Unibank Group uses f or segment report ing under
PFRS 8, Oper at i ng Segment s, is t he same as those used in it s f inancial st at ement s. I n addit ion,
corporate asset s which are not direct ly at t ribut able to the business act ivit ies of any operat ing
segment are not allocat ed t o a segment .
There have been no changes f rom prior periods in the measurement methods used to
det ermine report ed segment prof it or loss.
The BD O Unibank Groups operat ions are organized according t o the nat ure of t he product s
and services provided. Financial inf ormat ion on operat ing segment s is present ed in N ot e 5.
2 . 0 6 F i n an ci al A sset s
Financial asset s include cash and ot her f inancial inst rument s. Financial asset s, ot her than
t hose designat ed and ef f ect ive as hedging inst ruments, are classif ied int o t he f ollowing
cat egories: at FVTPL, loans and receivables, held-to-mat urit y (H TM) and avail able-f or-sale
(AFS). Financial asset s are assigned to t he dif f erent cat egories by management on init ial
recognit ion, depending on t he purpose f or which the invest ment s were acquired. Except f or
derivat ive f inancial inst rument s and f inancial asset s designat ed at FVTPL , t he designat ion of
f inancial asset s is re-evaluat ed at t he end of each report ing period at which dat e a choice of
classi f icat ion or account ing t reat ment is avail able, subject t o compliance wit h specif ic
provisions of applicable account ing st andards.
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Regul ar purchases and sales of f inancial asset s are recognized on t heir set t lement dat e. All
f inancial asset s t hat are not classif ied as at FVTPL are init ially recognized at f air value plus any
direct ly at tribut able t ransact ion cost s. Financial asset s carried at FVTPL are init ially recorded
at f air value and t ransact ion cost s relat ed t o it are recognized in prof it or loss.
The f oregoing cat egories of f inancial inst rument s are more f ully described below.
(a) F i nanci al A sset s at F ai r V al ue T hr ough Pr ofi t or L oss
This cat egory includes derivat ive f inancial inst rument s and f inancial asset s t hat are either
classi f ied as held f or t rading (H FT) or are designat ed by BD O Unibank Group to be
carried at FVTPL upon init ial recognit ion. A f inancial asset is classif ied in t his cat egory if
acquired principally f or t he purpose of selling in t he near t erm or if so designat ed by
management . D erivat ives are also cat egorized as held f or t rading unless t hey are
designat ed as hedges.
Subsequent to init ial recognit ion, the f inancial asset s included in t his cat egory are
measured at f air value wit h changes in f air value recognized in prof it or loss. Financial
asset s (except derivat ives and f inancial asset s original ly designat ed as f inancial asset s at
FVTPL ) may be subsequent ly reclassif ied out of FVTPL cat egory:
(i ) Only in rare circumst ances and if there is a change in intent ion (i.e., t he f inancial asset
is no longer held f or t he purpose of selling or repurchasing it in t he near f ut ure);
(i i ) I f the f inancial asset would have met the def init ion of loans receivables and if the
f inancial asset had not been required t o be classif ied as H FT at init ial recognit ion and
t he ent it y has the int ent ion and abilit y to hold t he f inancial asset f or t he f oreseeable
f ut ure or unt il mat urit y; and,
(i i i ) For CL N s and derivat ives embedded in CL N s linked t o ROP bonds as permitt ed by
BSP f or prudent ial report ing and by the SEC f or f inancial report ing.
(b) L oans and Recei vabl es
Loans and receivables are non-derivat ive f inancial asset s wit h f ixed or determinable
payment s t hat are not quot ed in an act ive market . These arise when BD O Unibank
Group provides money, goods or services direct ly t o t he debtor wit h no int ent ion of
t rading the receivables. I ncluded in t his cat egory are f inancial asset s arising f rom direct
loans t o cust omers, int erbank loans and receivables, sales cont ract receivables and all
receivables f rom cust omers and other banks. Loans and receivables also include t he
aggregat e rent al on f inance lease t ransact ions. Unearned income on f inance lease
t ransact ions is shown as a deduct ion f rom loans and receivables.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
Loans and receivables are subsequent ly measured at amort ized cost using t he ef f ect ive
int erest met hod, less impairment losses. Any change in the value of loans and receivables
is recognized in prof it or loss, except f or reclassif ied f inancial asset s under PAS 39 and
PFRS 7. I ncreases in est imat es of f ut ure cash receipt s f rom f inancial asset s t hat have been
reclassif ied in accordance wit h PAS 39 and PFRS 7 shall be recognized as an adjust ment
t o t he ef f ect ive int erest rat e f rom t he dat e of t he change in est imat e. The dif f erence
bet ween t he sale and repurchase price is recognized as int erest and accrued over t he lif e of
t he agreement s using the ef f ect ive interest met hod. Securit ies Purchased Under Reverse
Repurchase Agreement (SPURRA), wherein BD O Unibank Group ent ers int o short-t erm
purchases of securit ies under reverse repurchase agreement s of subst ant ially ident ical
securit ies wit h the BSP, are included in t his cat egory.
BD O Unibank Groups f inancial asset s cat egorized as loans and receivables are present ed
as Cash and Cash Equivalent s and Loans and Other Receivables in t he st at ement of
f inancial posit ion. Cash and cash equivalent s consist of cash and non-rest rict ed balances
wit h the BSP and amount s due f rom ot her banks. For purposes of report ing cash f lows,
cash and cash equivalent s include cash and other cash it ems, amount s due f rom BSP
and other banks, int erbank call loans receivable and SPURRA wit h original mat urit ies
of three mont hs or less f rom placement dat e.
I mpairment loss is the est imat ed amount of loss in BD O Unibank Groups loan port f olio,
based on t he evaluat ion of t he est imated f ut ure cash f lows discount ed at the loans original
ef f ect ive int erest rat e or the last repricing rat e f or loans issued at variable rat es (see N ot e
2.23). I mpairment is est ablished t hrough an allowance account which is charged to
expense. Loans and receivables are writt en of f against the allowance f or impairment when
management believes t hat the collect ibilit y of t he principal is unlikely, subject t o BSP
regulat ions.
(c) H T M I nvest ment s
This cat egory includes non-derivat ive f inancial asset s wit h f ixed or det erminable payment s
and a f ixed dat e of mat urit y that BD O Unibank Group has the posit ive int ent ion and
abilit y t o hold t o mat urit y. I nvestment s intended to be held f or an undef ined period are
not included under this cat egory.
H TM investment s consist of government and privat e debt securit ies. I f BD O Unibank
Group were to sell ot her than an insignif icant amount of HTM investment s, t he ent ire
cat egory of HTM securit ies would be t aint ed and would be reclassif ied as AFS securit ies.
The t aint ing provision will not apply if the sales or reclassif icat ions of H TM investment s:
(i ) are so close t o mat urit y or the f inancial asset s call dat e t hat changes in t he market rate
of interest would not have a signif icant ef f ect on t he f inancial asset s f air val ue; (i i ) occur
af t er BD O Unibank Group has collect ed subst ant iall y all of the f inancial asset s original
principal through scheduled payment s or prepayment s; or, (i i i ) are at tribut able to an
isolat ed event that is beyond t he cont rol of BD O Unibank Group, is nonrecurring and
could not have been reasonably ant icipat ed by BD O Unibank Group.
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Subsequent to init ial recognit ion, H TM invest ment s are measured at amort ized cost s using
ef f ect ive int erest method, less impairment losses, if any. I mpairment loss, which is t he
dif f erence bet ween t he carrying value and the present value of est imat ed cash f lows of t he
invest ment , is recognized when t here is object ive evidence t hat the invest ment has been
impaired. Any changes t o the carrying amount of the invest ment due to impairment are
recognized in prof it or loss.
(d) A F S Secur i t i es
This cat egory includes non-derivat ive f inancial asset s t hat are eit her designat ed to t his
cat egory or do not qualif y f or inclusion in any of the other cat egories of f inancial asset s.
N on-derivat ive f inancial asset classif ied as AFS may be reclassif ied t o loans and
receivables cat egory that would have met the def init ion of loans and receivables if there is
an int ent ion and abilit y to hold t hat f inancial asset f or the f oreseeable f ut ure or unt il
mat urit y.
All f inancial asset s wit hin t his cat egory are subsequent ly measured at f air value, unless
ot herwise disclosed, wit h changes in value recognized in ot her comprehensive income, net
of any ef f ect s arising f rom income t axes. Cumulat ive gains and losses arising f rom
securit ies classif ied as AFS are reclassif ied f rom other comprehensive income t o prof it or
loss when t hese are sold or when the investment are impaired and present ed as a
reclassif icat ion adjust ment wit hin other comprehensive income.
I n t he case of impairment , any loss previously recognized in ot her comprehensive income
is reclassif ied t o prof it or loss. Reversal of impairment losses are recognized in ot her
comprehensive income, except f or f inancial asset s that are debt securit ies which are
recognized in prof it or loss only if the reversal can be object ively relat ed t o an event
occurring af t er t he impairment loss was recognized.
The f air values of quot ed invest ment s in act ive market s are based on current closing prices.
I f the market f or a f inancial asset is not act ive and f or unlist ed securit ies, BD O Unibank
Group est ablishes t he f air value by using valuat ion t echniques, which include t he use of
recent arms length t ransact ions, discount ed cash f low analysis, opt ion pricing models and
ot her valuat ion techniques commonly used by market part icipant s.
Gains and losses arising f rom changes in the f air value of the f inancial asset s at FVTPL
cat egory are report ed as part of Trading Gain under Ot her Operat ing I ncome account in the
st at ement of income in the period in which t hese arise. Gains and losses arising f rom
changes in t he f air value of AFS securit ies are recognized in ot her comprehensive income
unt il t he f inancial asset is derecognized or impaired, at which t ime the cumulat ive gain or loss
previously recognized in ot her comprehensive income shall be reclassif ied t o prof it or loss.
H owever, interest calculat ed using t he ef f ect ive int erest met hod is recognized in prof it or
loss.
N on-compounding int erest, dividend income and other cash f lows result ing f rom holding
impaired f inancial asset s are recognized in prof it or loss when received, regardless of how t he
relat ed carrying amount of f inancial asset s is measured.
D erecognit ion of f inancial asset s occurs when the right to receive cash f lows f rom t he
f inancial inst rument s expire or are transf erred and subst ant ially all of t he risks and rewards of
ownership have been t ransf erred.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
2 . 0 7 D er i vat i ve F i n an ci al I n st r u men t s an d H edge A ccou n t i n g
BD O Unibank Group is a part y to various f oreign-currency f orward and swap cont ract s and
cross-currency and int erest rat e swaps. These cont ract s are ent ered into as a service to
cust omers and as a means of reducing or managing BD O Unibank Groups f oreign exchange
and int erest rat e exposures, as well as f or t rading purposes.
D erivat ives are init ially recognized at f air value on the dat e on which derivat ive cont ract is
ent ered int o and are subsequent ly measured at t heir f air val ue (except f or the embedded
derivat ives in CL N s linked to ROP bonds which BD O Unibank Group reclassif ied t o loans).
Fair val ues are obt ained f rom quot ed market prices in act ive market s, including recent market
t ransact ions, and valuat ion t echniques, including discount ed cash f low models and opt ion
pricing models, as appropriat e. All derivat ives are carried as asset s when f air value is posit ive
and as liabilit ies when f air value is negat ive.
The best evidence of t he f air value of a derivat ive at init ial recognit ion is t he transact ion price
(t he f air value of the considerat ion given or received) unless the f air value of t he inst rument is
evidenced by comparison with other observable current market transact ions in t he same
inst rument or based on a valuat ion t echnique whose variables include only dat a f rom
observable market s. When such evidence exist s, BD O Unibank Group recognizes prof it or
loss at init ial recognit ion.
For more complex instrument s, BD O Unibank Group uses propriet ary models, which usually
are developed f rom recognized valuat ion models. Some or all of t he input s int o these models
may not be market observable, and are derived f rom market prices or rates or are est imated
based on assumpt ions. When ent ering into a t ransact ion, t he f inancial inst rument is
recognized init ially at the t ransact ion price, which is t he best indicat or of f air value, alt hough
t he value obt ained f rom the valuat ion model may dif f er f rom t he t ransact ion price. This
init ial dif f erence in f air value indicat ed by valuat ion techniques is recognized as prof it or loss
depending upon the individual f act s and circumst ances of each t ransact ion and not lat er than
when t he market dat a becomes observable.
The value produced by a model or ot her valuat ion technique is adjust ed t o allow f or a number
of f actors as appropriat e, because valuat ion t echniques cannot appropriat ely ref lect all f act ors
market part icipant s t ake int o account when entering int o a t ransact ion. Valuat ion adjust ment s
are recorded to allow f or model risks, bid-ask spreads, liquidit y risks as wel l as ot her f actors.
Management believes t hat t hese valuat ion adjust ment s are necessary and appropriat e to f airly
st at e f inancial inst rument s carried at f air value in t he st at ement of f inancial posit ion.
Cert ain derivat ives embedded in other f inancial inst rument s are considered as separat e
derivat ives when their economic charact erist ics and risks are not closely relat ed to t hose of t he
host contract and t he host cont ract is not carried at f air val ue t hrough prof it or loss. These
embedded derivat ives are bif urcat ed f rom t he host contract s and are measured at f air value
wit h changes in f air value recognized in prof it or loss (except f or the embedded derivat ives in
CL N s linked t o ROP bonds which were not bif urcat ed f rom t he host contract s and were
reclassif ied t o loans as permitt ed f or prudent ial report ing).
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Cert ain derivat ives may be designat ed as either: (i ) hedges of the f air value of recognized asset s
or liabilit ies or f irm commitment s (f air value hedge); or, (i i ) hedges of highly probable f ut ure
cash f lows at t ribut able to a recognized asset or liabili t y, or a f orecast ed t ransact ion (cash f low
hedge). Changes in t he f air value of derivat ives are recognized in prof it or loss. The method
of recognizing t he result ing f air val ue gain or loss on derivat ives t hat qualif y as hedging
inst rument depends on t he hedging relat ionship designat ed by t he BD O Unibank Group.
2 . 0 8 N on - cu r r en t A sset s H el d f or Sal e
Asset s held f or sale include real and ot her propert ies acquired t hrough repossession or
f oreclosure t hat BD O Unibank Group int ends to sell wit hin one year f rom the dat e of
classi f icat ion as held f or sale.
Asset s classif ied as held f or sale are measured at the lower of their carrying amount s
immediat ely prior t o their classif icat ion as held f or sale and their f air value less cost s t o sell.
Asset s classif ied as held f or sale are not subject to depreciat ion or amort izat ion. The prof it or
loss arising f rom t he sale of held f or sale asset s is included as part of I ncome f rom Asset s
Acquired under Other Operat ing I ncome account in prof it or loss.
2 . 0 9 I n vest men t P r oper t i es
I nvest ment propert ies are st at ed at cost . The cost of an investment propert y comprises it s
purchase price and direct ly att ribut able cost incurred. This also includes land and building
acquired by BD O Unibank Group f rom def ault ing borrowers not held f or sale in t he next 12
mont hs. For t hese asset s, t he cost is recognized init ially at f air val ue. I nvestment propert ies
except land are depreciat ed on a st raight -line basis over a period of 10 years.
BD O Unibank Group adopted t he cost model in measuring it s invest ment propert ies; hence,
t hese are carried at cost less accumulat ed depreciat ion and any impairment in value.
D epreciat ion and impairment loss are recognized in t he same manner as in premises,
f urnit ure, f ixt ures and equipment.
I nvest ment propert ies are derecognized upon disposal or when permanent ly withdrawn f rom
use and no f ut ure economic benef it is expect ed f rom their disposal. Any gain or loss on the
ret irement or disposal of an invest ment property is recognized in prof it or loss in the year of
ret irement or disposal.
2 . 1 0 R eal P r oper t i es f or D evel opmen t an d Sal e
Real propert ies f or development and sale consist of subdivision land f or sale and
development , and land acquired f or home building, home development , and other t ypes of
real est at e development . These are carried at the lower of aggregat e cost and net realizable
val ue (N RV). Cost s include acquisit ion cost s and cost s incurred f or development ,
improvement and const ruct ion of subdivision land. N RV is the selling price less est imat ed
cost t o complet e, commissions and other market ing cost s.
L and acquired f or home building, home development and ot her types of real est at e
development is also carried at the lower of aggregat e cost and N RV. Cost include acquisit ion
cost s and, once land development commences, t he cost of these propert ies, including
development cost s incurred, will be classif ied t o Real Propert ies f or D evelopment and Sale.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
I n t he BD O Unibank Groups f inancial st at ement s, invest ment s in associat es are accounted
f or under t he equit y met hod of account ing and are init ially recognized at cost
(see N ote 2.24).
The BD O Unibank Groups share of it s associat es post-acquisit ion prof it s or losses is
recognized in prof it or loss, and it s share of post -acquisit ion movement s in reserves is
recognized in reserves. The cumulat ive post -acquisit ion movement s are adjust ed against the
carrying amount of t he invest ment . When BD O Unibank Groups share of losses in an
associat e equal s or exceeds it s int erest in the associat e, including any ot her unsecured
receivables, BD O Unibank Group does not recognize f urt her losses, unless it has incurred
obligat ions or made payment s on behalf of the associat e.
Unrealized gains on transact ions bet ween BD O Unibank Group and it s associat es are
eliminat ed to the ext ent of BD O Unibank Groups int erest in the associat es. Unrealized
losses are also eliminat ed unless the t ransact ion provides evidence of an impairment of t he
asset t ransf erred. Account ing policies have been changed where necessary t o ensure
consist ency wit h the policies adopt ed by BD O Unibank Group.
Associat es are all ent it ies over which BD O Unibank Group has signif icant inf luence but not
cont rol, generally accompanying a shareholding of bet ween 20% and 50% of t he vot ing right s.
I n t he Parent Banks f inancial st at ement s, the investment s in subsidiaries and associat es are
carried at cost , less any impairment in value.
2 . 1 2 P r emi ses, F u r n i t u r e, F i x t u r es an d E q u i pmen t
Premises, f urnit ure, f ixt ures and equipment are carried at acquisit ion cost less accumulat ed
depreciat ion and amort izat ion and any impairment in value. Propert y items of t he f ormer
EPCI B st at ed at appraised values were included in BD O Unibank Group balances at t heir
deemed cost s at date of transit ion to PFRS on January 1, 2005. The revaluat ion increment is
credit ed t o Revaluat ion I ncrement account in the Equit y sect ion, net of applicable def erred
t ax.
The cost of an asset comprises it s purchase price and direct ly at t ribut able cost s of bringing t he
asset t o working condit ion f or it s int ended use. Expendit ures f or addit ions, major
improvement s and renewals are capit alized; expenditures f or repairs and maint enance are
charged to expense as incurred. When asset s are sold, ret ired or otherwise disposed of , their
cost and relat ed accumulat ed depreciat ion and amortizat ion and impairment losses are
removed f rom t he account s and any result ing gain or loss is ref lected in prof it or loss f or the
period.
D epreciat ion is comput ed on a straight -line basis over the est imat ed usef ul li ves of the
depreciable asset s as f ollows:
Buildings 10 - 50 years
Furnit ure, f ixt ures and equipment 3 - 5 years
Leasehold right s and improvement s are amort ized over t he t erms of the leases or t he
est imat ed usef ul lives of t he improvement s, whichever is shorter.
An asset s carrying amount is writ t en down immediat ely to it s recoverable amount if the
asset s carrying amount is great er than it s est imat ed recoverable amount (see N ote 2.24).
2 . 1 1 E q u i t y I n vest men t s
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The residual values and est imat ed usef ul lives of premises, f urnit ure, f ixt ures and equipment
are reviewed and adjust ed, if appropriat e, at t he end of each report ing period.
An it em of premises, f urnit ure, f ixt ures and equipment is derecognized upon disposal or when
no f ut ure economic benef it s are expect ed to arise f rom t he cont inued use of the asset . Any
gain or loss arising on derecognit ion of t he asset (calculat ed as t he dif f erence bet ween the net
disposal proceeds and the carrying amount of t he it em) is included in prof it or loss in t he
period t he it em is derecognized.
2 . 1 3 B u si n ess C ombi n at i on
Except as indicat ed ot herwise, business acqui sit ions are account ed f or using t he acquisit ion
method of account ing.
Goodwill acquired in a business combinat ion is init ially measured at cost being t he excess of
t he cost of a business combinat ion over BD O Unibank Groups int erest in t he net f air value
of the ident if iable asset s, liabilit ies and cont ingent liabilit ies. Subsequent to init ial recognit ion,
goodwill is measured at cost less any accumulat ed impairment losses. Goodwill is reviewed
f or impairment annually or more f requent ly if event s or changes in circumst ances indicat e that
t he carrying value may be impaired (see N ot e 2.24).
I mpairment losses on goodwill are not reversed. N egat ive goodwil l, if any, which is the excess
of BD O Unibank Groups interest in t he net f air val ue of acquired ident if iable asset s,
liabi lit ies and cont ingent liabilit ies over cost is recognized direct ly in prof it or loss.
For t he purpose of impairment t est ing, goodwill is al locat ed to cash-generat ing unit s or
groups of cash-generat ing unit s t hat are expect ed to benef it f rom t he business combinat ion in
which the goodwill arose. The cash-generat ing unit s or groups of cash-generat ing unit s are
ident if ied according t o operat ing segment .
Gains and losses on the disposal of an int erest in a subsidiary include t he carrying amount of
goodwill relat ing t o it .
I f the business combinat ion is achieved in st ages, the acquirer is required t o remeasure it s
previously held equit y int erest in t he acquiree at it s acquisit ion-dat e f air value and recognize
t he result ing gain or loss, if any, in t he prof it or loss or other comprehensive income, as
appropriat e.
Any cont ingent considerat ion t o be transf erred by t he Group is recognized at f air value at the
acquisit ion dat e. Subsequent changes t o t he f air value of t he cont ingent considerat ion t hat is
deemed t o be an asset or liabilit y is recognized in accordance wit h PAS 37 eit her in prof it or
loss or as a change to other comprehensive income. Cont ingent considerat ion t hat is
classi f ied as equit y is not remeasured, and it s subsequent sett lement is accounted f or within
equit y.
Transf ers of asset s bet ween commonly-cont rolled ent it ies are account ed f or under hist orical
cost account ing.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
2 . 1 4 I n t an gi bl e A sset s
Goodwill represent s the excess of the cost of acquisi t ion over t he f air value of the net asset s
NOTES TO
FINANCIAL STATEMENT
acquired and branch licenses at t he dat e of acquisit ion. Goodwill is classif ied as int angible
asset wit h indef init e usef ul lif e, and t hus, not subject t o amort izat ion but to an annual t est f or
impairment (see N ot e 2.24). Goodwill is subsequent ly carried at cost less any accumulat ed
impairment losses.
Goodwill is allocat ed t o cash-generat ing unit s f or the purpose of impairment t est ing. Each of
t hose cash generat ing unit s is represent ed by each primary report ing segment .
Acquired comput er sof t ware licenses are capit alized on t he basis of the cost s incurred t o
acquire and inst all the specif ic sof t ware. These cost s are amort ized on st raight-line basis over
t he expect ed usef ul lif e of f ive years. Cost s associat ed wit h maint aining comput er sof t ware
are expensed as incurred.
2 . 1 5 F i n an ci al L i abi l i t i es
Financial li abilit ies include deposit liabilit ies, bills payable, derivat ive liabi lit ies, subordinat ed
notes payable and other liabilit ies.
Financial li abilit ies are recognized when t he BD O Unibank Group becomes a part y to the
cont ract ual t erms of the inst rument .
D eposit liabilit ies and ot her liabilit ies are recognized init ial ly at f air value and subsequent ly
measured at amort ized cost less set t lement payment s.
Bills payable and subordinated not es payable, except f or government f inancial assist ance are
recognized init ially at f air value, which is t he issue proceeds (f air value of considerat ion
received), net of direct issue cost s. Bills payable and subordinat ed not es payable are
subsequent ly measured at amort ized cost; any dif f erence bet ween proceeds, net of t ransact ion
cost s, and the redempt ion value is recognized in prof it or loss over the period of the
borrowings using t he ef f ect ive int erest method.
Pref erred shares, which carry a mandat ory coupon or are redeemable on a specif ic dat e or at
t he opt ion of the shareholder are classif ied as f inancial liabi lit ies and are presented as part of
Bills Payable in t he st at ement of f inancial posit ion. The dividends on t hese pref erred shares
are recognized in prof it or loss as int erest expense on an amort ized cost basis using t he
ef f ect ive int erest method.
The f air value of t he liabilit y port ion of a convert ible bond is det ermined using a market
int erest rat e f or an equivalent non-convert ible bond. This amount is recorded as a liabilit y on
an amort ized cost basis unt il ext inguished on conversion or mat urit y of the bond. The
remainder of t he proceeds is allocat ed t o the conversion opt ion. This is recognized and
included in equit y, net of income t ax ef f ect s.
D erivat ive liabi lit ies are recognized init ially and subsequent ly measured at f air value wit h
changes in f air value recognized in prof it or loss.
D ividend dist ribut ions t o shareholders are recognized as f inancial liabi lit ies when the
dividends are declared by BD O Unibank Group and are subject f or approval by the BSP.
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Financial assist ance f rom t he Philippine D eposit I nsurance Corporat ion (PD I C), arising f rom
t he acquisit ion of First e-Bank in 2002, is account ed f or under PAS 20, A ccount i ng for
G overnment G rant s and D i scl osure of G overnment A ssi st ance, whereby the loan received is init ially
recorded at the amount borrowed with no re-measurement t o f air value or imput at ion of
market int erest.
Financial li abilit ies are derecognized in t he st atement of f inancial posit ion only when t he
obligat ions are ext inguished eit her t hrough discharge, cancellat ion or expirat ion.
2 . 1 6 O f f set t i n g F i n an ci al I n st r u men t s
Financial asset s and liabil it ies are of f set and t he net amount is report ed in t he st at ement of
f inancial posit ion when there is a legally enf orceable right to of f set t he recognized amount s
and there is an int ent ion to set t le on a net basis or reali ze t he asset and sett le the liabilit y
simult aneously.
2 . 1 7 T er mi n al V al u e of L eased A sset s an d D eposi t s on F i n an ce L ease
The residual value of leased asset s, which approximat es the amount of guarant y deposit paid
by t he lessee at t he incept ion of t he lease, is the est imat ed proceeds f rom the disposal of t he
leased asset at the end of t he lease term. At t he end of the lease t erm, t he residual val ue of the
leased asset is generally applied against t he guarant y deposit of t he lessee. The residual val ue
of leased asset s is included as part of Other L iabilit ies account in t he BD O Unibank Group
st at ement of f inancial posit ion.
2 . 1 8 R el at ed P ar t y T r an sact i on s
Relat ed part y transact ions are t ransf ers of resources, services or obligat ions bet ween BD O
Unibank Group and it s relat ed part ies, regardless whet her a price is charged.
Part ies are considered to be relat ed if one part y has the abilit y t o cont rol the ot her part y or
exercise signif icant inf luence over t he ot her part y in making f inancial and operat ing decisions.
These include: (a) individuals owning, direct ly or indirect ly t hrough one or more
int ermediaries, cont rol or are controlled by, or under common cont rol wit h the BD O
Unibank Group; (b) associat es; and, (c) individuals owning, direct ly or indirect ly, an int erest in
t he vot ing power of the BD O Unibank Group that gives t hem signif icant inf luence over
BD O Unibank Group and close members of the f amily of any such individual.
I n considering each possible relat ed part y relat ionship, att ent ion is direct ed to t he subst ance
of the relat ionship and not merely on t he legal f orm.
2 . 1 9 E q u i t y
Capit al st ock represent s the nominal value of shares t hat have been issued.
Common stock opt ions pert ain to t he cumulat ive amount of st ock opt ion arising f rom t he
st ock opt ion plan grant ed by BD O Unibank Group t o it s qual if ied of f icers. The opt ions
under the st ock opt ion plan were f ully exercised and paid f or in 2010.
Addit ional paid-in capit al includes any premiums received on t he issuance of capit al st ock.
Any t ransact ion cost s associat ed wit h t he issuance of shares are deduct ed f rom addit ional
paid-in capit al.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
Surplus reserves pert ain t o a port ion of BD O Unibank Groups income f rom t rust operat ions
set -up on a yearly basis in compliance wit h BSP regulat ions. Surplus reserves also consist of
reserve f or cont ingencies and self -insurance.
Surplus f ree includes all current and prior period result s as disclosed in prof it or loss and
which are avail able and not restrict ed f or use by BD O Unibank Group.
N et unrealized f air val ue gains (losses) on AFS securit ies pert ains t o cumulat ive
mark-t o-market valuat ion of AFS f inancial asset s.
Reval uat ion increment consist s of gains arising f rom t he revaluat ion of land under bank
premises, f urnit ure, f ixt ures and equipment .
Accumulat ed t ranslat ion adjust ment pert ains t o exchange dif f erences arising on t ranslat ion of
t he asset s and liabilit ies of f oreign subsidiaries and overseas branch t hat are t aken t o ot her
comprehensive income.
N on-controlling int erest s represent s the port ion of the net asset s and prof it or loss not
at t ribut able t o BD O Unibank Group and are present ed separat ely in the BD O Unibank
Group st at ement of income and wit hin equit y in the BD O Unibank Group st at ement of
f inancial posit ion and changes in equit y.
2 . 2 0 R even u e an d E x pen se R ecogn i t i on
Revenue is recognized t o the ext ent that it can be reliably measured; it is probable t hat the
economic benef it s will f low t o BD O Unibank Group; and the expenses incurred or t o be
incurred can be measured reliably. The f ollowing specif ic recognit ion crit eria of income and
expenses must also be met bef ore revenue is recognized:
(a) I nt er est I nt erest income and expenses are recognized in prof it or loss f or all f inancial
asset s or inst rument s using the ef f ect ive int erest method.
The ef f ect ive interest met hod is a method of calculat ing t he amort ized cost of a f inancial
asset or a f inancial liabil it y and of allocat ing the int erest income or int erest expense over
t he relevant period. The ef f ect ive int erest rat e is t he rat e t hat exact ly discount s est imat ed
f ut ure cash payment s or receipt s through the expected lif e of t he f inancial inst rument or,
when appropriat e, a short er period t o the net carrying amount of t he f inancial asset or
f inancial li abilit y. When calculat ing t he ef f ect ive int erest rat e, BD O Unibank Group
est imat es cash f lows considering all contract ual t erms of t he f inancial inst rument but does
not consider f ut ure credit losses. The calculat ion includes al l f ees and point s paid or
received bet ween part ies to t he contract t hat are an int egral part of t he ef f ect ive int erest
rat e, t ransact ion cost s and all other premiums or discount s.
Once a f inancial asset or a group of similar f inancial asset s has been writt en down as a
result of an impairment loss, int erest income is recognized using t he rat e of int erest used
t o discount t he f ut ure cash f lows f or the purpose of measuring t he impairment loss.
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(b) Ser vi ce char ges, fees and commi ssi ons Service charges, f ees and commissions are generally
recognized when t he service has been provided. Loan syndicat ion f ees are recognized as
revenue when t he syndicat ion has been complet ed and BD O Unibank Group ret ained no
part of t he loan package f or it self or ret ained a part at the same ef f ect ive int erest rat e f or
t he ot her part icipant s. Commission and f ees arising f rom negot iat ing, or part icipat ing in
t he negot iat ion of a t ransact ion f or a third part y such as t he arrangement of the
acquisit ion of shares or other securit ies or the purchase or sale of businesses are
recognized at the complet ion of the underlying transact ion. Port f olio and other
management advisory and service f ees are recognized based on the applicable service
cont ract s, usual ly on a t ime-proport ionat e basis. Asset management f ees relat ed to
invest ment f unds are recognized rat ably over the period t he service is provided. The same
principle is applied f or wealt h management , f inancial planning and cust ody services t hat
are cont inuously provided over an extended period of t ime.
(c) T r adi ng gai n Trading gain is recognized when the ownership of t he securit ies is
t ransf erred t o t he buyer (at an amount equal t o the excess of t he selling price over t he
carrying amount of securit ies) and as a result of the mark-t o-market valuat ion of t he
securit ies at year-end. Only t rading gain arising f rom mark-t o-market valuat ion of
f inancial asset s at FVTPL is recognized in prof it or loss by the BD O Unibank Group.
(d) I ncome fr om asset s sol d or ex changed I ncome f rom assets sold or exchanged is recognized
when t he t it le t o the asset s is t ransf erred to the buyer or when t he collect abilit y of t he
ent ire sales price is reasonably assured. This is included as part of Other Operat ing
I ncome account in prof it or loss.
(e) D i vi dend i ncome D ividend income is recognized when BD O Unibank Groups right to
receive dividend is est ablished.
(f) Rent al i ncome Rent al income arising f rom leased propert ies is account ed f or on a st raight -
line basis over t he lease t erms on ongoing leases and is recorded in prof it or loss as part of
Ot her Operat ing I ncome.
(g) Commi ssi ons ear ned on cr edi t car ds Commissions earned on credit cards are t aken up as
income upon receipt f rom member est ablishment s of charges arising f rom credit
availment s by credit cardholders. These commissions are comput ed based on cert ain
agreed rat es and are deduct ed f rom amount s remit t able to member est ablishment s.
(h) I ncome on di rect fi nanci ng l eases and recei vabl es fi nanced I ncome on loans and receivables
f inanced wit h short -t erm mat urit ies is recognized using the ef f ect ive int erest met hod.
I nt erest and f inance f ees on f inance leases on loans and receivables f inanced wit h
long-t erm mat urit ies and t he excess of the aggregat e lease rent al plus t he est imat ed
t erminal value of the leased equipment over it s cost are credited to unearned discount and
amort ized over t he term of the not e or lease using t he ef f ect ive int erest method.
Unearned income ceases t o be amort ized when receivables become past due.
(i ) Real pr oper t y sal es Revenue is account ed f or using t he f ull accrual met hod. Under t his
method, sale is recognized when the earning process is virt ually complet e and collect abilit y
of the ent ire sales price is reasonably assured.
Collect ions f rom account s which did not qualif y f rom revenue recognit ion are treat ed as
cust omers deposit included in account s payable under Other L iabilit ies in the st at ement s
of f inancial posit ion.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
The BD O Unibank Group records it s revenue at gross and separat ely recognizes an expense
and liabilit y relat ive t o t he f air value of t he reward point s earned by client s and cust omers (see
N ote 3.02) since such point s are redeemable signif icant ly f rom t he goods or services provided
by a t hird part y part icipat ing in the program, f or example, SM Group
(a relat ed party) and rewards part ners of the Bank.
Cost and expenses are recognized in prof it or loss upon ut ilizat ion of t he asset s or services or
at the date these are incurred.
2 . 2 1 P r ovi si on s an d C on t i n gen ci es
Provisions are recognized when present obligat ions will probably lead to an out f low of
economic resources and these can be est imated reliably even if t he t iming or amount of the
out f low may st ill be uncert ain. A present obligat ion arises f rom the presence of a legal or
construct ive commitment that has resulted f rom past event s, f or example, legal disputes or
onerous contract s.
Provisions are measured at the est imated expendit ure required to sett le the present obligat ion,
based on the most reliable evidence available at t he end of report ing period, including the risks
and uncert aint ies associated with the present obligat ion. Where there are a number of similar
obligat ions, the likelihood that an out f low will be required in sett lement is determined by
considering the class of obligat ions as a whole. I n addit ion, long-t erm provisions are discount ed
to t heir present values, where t ime value of money is mat erial.
Provisions are reviewed at the end of each report ing period and adjusted to ref lect the current
best est imat e.
I n those cases where the possible out f low of economic resource as a result of present
obligat ions is considered improbable or remote, or the amount to be provided f or cannot be
measured reliably, no liability is recognized in the f inancial statement s. On the other hand, any
reimbursement expect ed to be received in the course of sett lement of the present obligat ion is
recognized, if virt ually cert ain, as a separate asset , not exceeding the amount of the relat ed
provision. Similarly, probable inf lows of economic benef it s that do not yet meet the recognit ion
criteria of an asset are considered cont ingent assets, hence, are not recognized in the f inancial
st atement s.
2 . 2 2 L eases
BD O Unibank Group account s f or it s leases as f ollows:
(a) BD O U ni bank G r oup as L essor
Leases, wherein BD O Unibank Group subst ant ially t ransf ers t o the lessee all risks and
benef it s incident al to ownership of t he leased it em, are classif ied as f inance leases and are
present ed as receivable at an amount equal t o BD O Unibank Groups net invest ment in
t he lease. Finance income is recognized based on the patt ern ref lect ing a const ant
periodic rat e of ret urn on BD O Unibank Groups net invest ment out st anding in respect
of the f inance lease.
L eases, which do not t ransf er to t he lessee subst ant ially al l t he risks and benef it s of
ownership of the asset , are classif ied as operat ing leases. Operat ing lease collect ions are
recognized as income in prof it or loss on a straight -line basis over the lease t erm.
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(b) BD O U ni bank G r oup as L essee
Leases, which do not t ransf er to BD O Unibank Group subst ant ially all t he risks and
benef it s of ownership of t he asset are classif ied as operat ing leases. Operat ing lease
payment s are recognized as expense in prof it or loss on a st raight -line basis over t he lease
t erm.
BD O Unibank Group det ermines whether an arrangement is, or cont ains a lease based on t he
subst ance of the arrangement . I t makes an assessment of whether t he f ulf illment of t he
arrangement is dependent on the use of a specif ic asset or asset s and the arrangement conveys
a right t o use t he asset .
2 . 2 3 I mpai r men t of F i n an ci al A sset s
BD O Unibank Group assesses at t he end of each report ing period whether there is object ive
evidence that a f inancial asset or group of f inancial asset s is impaired. A f inancial asset or a
group of f inancial asset s is impaired and impairment losses are incurred if , and only if , there is
object ive evidence of impairment as a result of one or more event s t hat occurred af t er the
init ial recognit ion of t he asset (a loss event ) and t hat loss event has an impact on t he est imated
f ut ure cash f lows of the f inancial asset or group of f inancial asset s t hat can be reliably
est imat ed. Object ive evidence t hat a f inancial asset or group of asset s is impaired includes
observable dat a t hat comes to t he at t ent ion of BD O Unibank Group about cert ain loss
event s, including, among ot hers: (i ) signif icant f inancial dif f icult y of t he issuer or debt or; (i i ) a
breach of contract , such as a def ault or delinquency in interest or principal payment s; (i i i ) t he
probabilit y that t he borrower will ent er bankrupt cy or ot her f inancial reorganizat ion; (i v) t he
disappearance of an act ive market f or t hat f inancial asset because of f inancial dif f icult ies; or,
(v) observable dat a indicat ing that t here is a measurable decrease in t he est imated f ut ure cash
f lows f rom a group of f inancial asset s since the init ial recognit ion of t hose asset s, alt hough the
decrease cannot yet be ident if ied wit h the individual f inancial asset s in t he group.
(a) A sset s car r i ed at amort i zed cost . BD O Unibank Group f irst assesses whet her object ive
evidence of impairment exist s individual ly f or f inancial asset s t hat are individually
signif icant and individual ly or collect ively f or f inancial asset s t hat are not individually
signif icant . I f BD O Unibank Group det ermines t hat no object ive evidence of impairment
exist s f or an individual ly assessed f inancial asset , whet her signif icant or not , BD O
Unibank Group includes the asset in a group of f inancial asset s wit h similar credit risk
charact erist ics and collect ively assesses t hem f or impairment . Asset s that are individually
assessed f or impairment and f or which an impairment loss is or cont inues t o be
recognized are not included in a collect ive assessment of impairment .
I f there is object ive evidence t hat an impairment loss on loans and receivable or H TM
invest ment s carried at amort ized cost has been incurred, t he amount of t he loss is
measured as t he dif f erence bet ween the asset s carrying amount and the present value of
est imat ed f ut ure cash f lows (excluding f ut ure credit losses t hat have not been incurred)
discount ed at the f inancial asset s original ef f ect ive int erest rat e. The carrying amount of
t he asset is reduced through t he use of an allowance account and t he amount of t he loss is
recognized in prof it or loss. I f a loan or H TM invest ment has a variable int erest rat e, the
discount rate f or measuring any impairment loss is the current ef f ect ive int erest rat e
det ermined under t he cont ract . When pract icable, BD O Unibank Group may measure
impairment on the basis of an inst rument s f air value using an observable market price.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
The calculat ion of t he present value of the est imat ed f ut ure cash f lows of a collat eralized
f inancial asset ref lect s the cash f lows that may result f rom f oreclosure less cost s f or
obt aining and selling t he collat eral, whet her or not f oreclosure is probable.
For t he purpose of a collect ive evaluat ion of impairment , f inancial asset s are grouped on
t he basis of similar credit risk characterist ics, i.e., on t he basis of BD O Unibank Groups
or BSPs grading process t hat considers asset t ype, indust ry, collat eral type, st at us and
ot her relevant f actors. Those charact erist ics are relevant to t he est imat ion of f ut ure cash
f lows f or groups of such asset s by being indicat ive of t he debtors abilit y t o pay all
amount s due according t o the contract ual t erms of the asset s being evaluat ed.
Fut ure cash f lows in a group of f inancial asset s t hat are collect ively evaluat ed f or
impairment are est imat ed on t he basis of the cont ract ual cash f lows of the asset s and
hist orical loss experience f or asset s wit h credit risk charact erist ics similar t o those in t he
group. H ist orical loss experience is adjust ed on the basis of current observable dat a t o
ref lect t he ef f ect s of current condit ions t hat did not af f ect the period on which t he
hist orical loss experience is based and t o remove t he ef f ect s of condit ions in the hist orical
period t hat do not exist current ly.
Est imat es of changes in f ut ure cash f lows f or groups of asset s should ref lect and be
consist ent wit h changes in relat ed observable dat a f rom period to period. The
methodologies and assumpt ions used f or est imat ing f ut ure cash f lows are reviewed
regularly by BD O Unibank Group to reduce any dif f erences bet ween loss est imates and
act ual loss experience.
When a loan is uncollect ible, it is writ t en of f against t he relat ed allowance f or loan
impairment . Such loans are writ t en of f af t er all t he necessary procedures, including
approval f rom t he management and the BOD , have been complet ed and the amount of
t he loss has been det ermined. Subsequent recoveries of amount s previously writ t en of f
decrease the amount of the impairment loss in prof it or loss. I f in a subsequent period
t he amount of the impairment loss decreases and t he decrease can be relat ed object ively t o
an event occurring af t er t he impairment was recognized (such as an improvement in t he
debtors credit rat ing), t he previously recognized impairment loss is reversed by adjust ing
t he allowance account . The amount of t he reversal is recognized in prof it or loss.
(b) A sset s car r i ed at fai r val ue wi t h changes r ecogni zed i n ot her compr ehensi ve i ncome. I n t he case of
invest ment s classif ied as AFS securit ies, a signif icant or prolonged decline in t he f air value
of the securit y below it s cost is considered in det ermining whet her t he asset s
are impaired. I f any such evidence exist s f or AFS securit ies, t he cumulat ive
loss measured as t he dif f erence bet ween t he acquisit ion cost and the current f air value,
less any impairment loss on t hat f inancial asset previously recognized in prof it or loss is
reclassif ied f rom ot her comprehensive income to prof it or loss as a reclassif icat ion
adjust ment . I mpairment losses recognized in prof it or loss on equit y inst rument s are not
reversed through prof it or loss. I f , in a subsequent period, t he f air value of a debt
inst rument classif ied as AFS increases and the increase can be object ively relat ed t o an
event occurring af t er t he impairment loss was recognized in prof it or loss, the impairment
loss is reversed through prof it or loss.
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(c) A sset s car r i ed at cost . BD O Unibank Group assesses at the end of each report ing period
whet her t here is object ive evidence t hat any of t he unquot ed equit y securit ies and
derivat ive asset s linked t o and required to be set t led in such unquoted equit y instrument s,
which are carried at cost , may be impaired. The amount of impairment loss is t he
dif f erence bet ween t he carrying amount of t he equit y securit y and the present value of the
est imat ed f ut ure cash f lows discounted at the current market rat e of ret urn of a similar
asset . I mpairment losses on asset s carried at cost cannot be reversed.
When possible, BD O Unibank Group seeks t o rest ruct ure loans rat her t han to t ake
possession of collat eral. This may involve ext ending t he payment arrangement s and t he
agreement of new loan condit ions. Once t he t erms have been renegot iat ed, t he loan is no
longer considered past due. Management cont inuously reviews rest ruct ured loans to
ensure that all crit eria are met and t hat f ut ure payment s are likely t o occur. The loans
cont inue to be subject to an individual or collect ive impairment assessment , calculat ed
using t he loans original ef f ect ive interest rat e. The dif f erence bet ween t he recorded sale
of the original loan and the present value of t he rest ruct ured cash f lows, discount ed at the
original ef f ect ive int erest rat e, is recognized as part of I mpairment L osses account in
prof it or loss.
2 . 2 4 I mpai r men t of N on - f i n an ci al A sset s
BD O Unibank Groups real propert ies f or development and sale, equit y invest ment s,
goodwill, int angible asset s (recorded as part of Other Resources), premises, f urnit ure, f ixt ures
and equipment and invest ment propert ies are subject to impairment t est ing. I nt angible asset s
wit h an indef init e usef ul lif e, such as goodwill are t est ed f or impairment at least annually. All
ot her individual asset s or cash-generat ing unit s are t est ed f or impairment whenever event s or
changes in circumst ances indicat e t hat the carrying amount may not be recoverable.
For purposes of assessing impairment , asset s are grouped at t he lowest levels f or which there
are separat ely ident if iable cash f lows (cash-generat ing unit s). As a result , asset s are t est ed f or
impairment either individually or at t he cash-generat ing unit level.
An impairment loss is recognized f or t he amount by which the asset s or cash-generat ing
unit s carrying amount exceeds it s recoverable amount s which is the higher of it s f air value
less cost s to sell and it s value in use. I n det ermining val ue in use, management est imat es the
expect ed f ut ure cash f lows f rom each cash-generat ing unit and det ermines t he suit able int erest
rat e in order t o calculat e t he present value of t hose cash f lows. D iscount f actors are
det ermined individual ly f or each cash-generat ing unit and ref lect managements assessment of
respect ive risk prof iles, such as market and asset -specif ic risk f act ors.
All asset s are subsequent ly reassessed f or indicat ions t hat an impairment loss previously
recognized may no longer exist and the carrying amount of the asset is adjust ed t o the
recoverable amount result ing in the reversal of t he impairment loss.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
The f inancial st at ement s of t he FCD Us of BD O Unibank Group and f oreign subsidiaries are
t ranslat ed at the prevailing current exchange rat es (f or st at ement of f inancial posit ion
account s) and average exchange rat e during the period (f or st at ement of income account s) f or
consolidat ion purposes.
The account ing records of BD O Unibank Group are maint ained in Philippine pesos except
f or t he FCD Us and f oreign subsidiaries which are maint ained in US dollars or European
Union Euro (Euro). BD O Remitt ance, an overseas branch, and Express Padala H K are
maint ained in H ong K ong dollars. Foreign currency t ransact ions during t he period are
t ranslat ed int o t he f unct ional currency at exchange rat es which approximat e those prevailing
on t ransact ion dat es.
Foreign exchange gains and losses result ing f rom t he set t lement of such t ransact ions and f rom
t he t ranslat ion at period-end exchange rat es of monet ary asset s and liabilit ies denominat ed in
f oreign currencies are recognized in prof it or loss.
The operat ing result s and f inancial posit ion of f oreign subsidiaries and an overseas branch,
which are measured using the US dollar or Euro and H ong K ong dollars, respect ively, are
t ranslat ed to Philippine pesos, t he BD O Unibank Groups f unct ional currency, as f ollows:
(a) Asset s and liabilit ies are t ranslat ed at the closing rat e at t he end of the report ing period;
(b) I ncome and expenses are t ranslat ed at t he mont hly average exchange rat es (unless t his
average is not reasonable approximat ion of t he cumulat i ve ef f ect of the rat es prevail ing on
t he t ransact ion dat es, in which case income and expenses are t ranslat ed at t he dat es of t he
t ransact ions), except f or FCD U which uses the book rat e or the previous mont h-end
Philippine D ealing Syst em closing rat e in t ranslat ing income and expenses and the
overseas branch which used t he mont h-end Philippine D ealing Syst em closing rate in
t ranslat ing income and expenses; and,
(c) All result ing exchange dif f erences are recognized as a separat e component of other
comprehensive income.
On consolidat ion, exchange dif f erences arising f rom t he t ranslat ion of t he net invest ment in
f oreign subsidiaries and an overseas branch is recognized t o ot her comprehensive income as
part of Accumulat ed Translat ion Adjust ment . When a f oreign operat ion is sold, such
exchange dif f erences are recognized in prof it or loss.
The t ranslat ion of the f inancial st at ement s int o Philippine peso should not be const rued as a
represent at ion t hat the US dollar, Euro or Hong K ong dollar amount s could be convert ed
int o Philippine peso amount s at the t ranslat ion rat es or at any ot her rat es of exchange.
2.25 Foreign Currency Transactions and Translations
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2 . 2 6 E mpl oyee B en ef i t s
Post -employment benef it s are provided to employees t hrough a def ined benef it plan, as well
as def ined contribut ion plan.
(a) Post -empl oyment D efi ned Benefi t
A def ined benef it plan is a post -employment plan t hat def ines an amount of
post-employment benef it that an employee will receive on ret irement , usual ly dependent
on one or more f act ors such as age, years of service and expect ed rate of salary increases.
The legal obligat ion f or any benef it s f rom t his kind of post-employment plan remains
wit h BD O Unibank Group, even if plan asset s f or f unding t he def ined benef it plan have
been acquired. Plan asset s may include asset s specif ically desi gnat ed to a long-t erm benef it
f und, as well as quali f ying insurance policies. BD O Unibank Groups def ined benef it
post -employment plan covers all regular f ul l-t ime employees. The post -employment plan
is t ax-qualif ied, noncontribut ory and administ ered by a t rust ee.
The asset recognized in t he st atement of f inancial posit ion f or def ined benef it
post-employment plans is t he f air value of plan assets at the end of report ing period less
t he present value of the def ined benef it obligat ion (D BO), toget her wit h adjust ment s f or
unrecognized act uarial gains or losses and past service cost s. The D BO is calculat ed by
independent act uaries using t he project ed unit credit met hod. The present value of t he
D BO is det ermined by discount ing the est imat ed f uture cash out f lows using int erest
rat es of high qualit y corporat e bonds t hat are denominat ed in t he currency in which t he
benef it s will be paid and t hat have t erms to mat urit y approximat ing to t he t erms of t he
relat ed post -employment liabilit y.
Act uarial gains and losses are not recognized as an expense unless t he tot al unrecognized
gain or loss exceeds 10% of the great er of t he obligat ion and relat ed plan asset s. The
amount exceeding t his 10% corridor is charged or credit ed to prof it or loss over t he
employees expect ed average remaining working lives. Act uarial gains and losses wit hin
t he 10% corridor are disclosed separat ely. Past service cost s are recognized immediat ely
in prof it or loss, unless t he changes to t he post-employment plan are condit ional on the
employees remaining in service f or a specif ied period of t ime (the vest ing period). I n t his
case, t he past service cost s are amort ized on a st raight -line basis over t he vest ing period.
(b) D efi ned Cont r i but i on Pl an
A def ined cont ribut ion plan is a post-employment plan under which BD O Unibank
Group pays f ixed contribut ions int o an independent ent it y, such as t he Social Securit y
Syst em (SSS). BD O Unibank Group has no legal or const ruct ive obligat ions to pay
f urt her contribut ions af t er payment of the f ixed contribut ion. The cont ribut ions
recognized in respect of def ined cont ribut ion plans are expensed as they f all due.
Liabilit ies and asset s may be recognized if underpayment or prepayment has occurred.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(c) T er mi nat i on Benefi t s
Terminat ion benef it s are payable when employment is t erminated by BD O Unibank
Group bef ore the normal ret irement dat e, or whenever an employee accept s volunt ary
redundancy in exchange f or these benef it s. BD O Unibank Group recognizes
t erminat ion benef it s when it is demonstrably commit t ed t o either: (i ) t erminat ing t he
employment of current employees according t o a detailed f ormal plan wit hout possibilit y
of wit hdrawal; or, (i i ) providing t erminat ion benef it s as a result of an of f er made to
encourage volunt ary redundancy. Benef it s f alling due more than 12 mont hs af ter t he end
of report ing period are discount ed to present value.
(d) Bonus Pl ans
BD O Unibank Group recognizes a liabil it y and an expense f or bonuses based on t he
Groups bonus policy. BD O Unibank Group recognizes a provision where it is
cont ract ually obliged to pay the benef it s.
(e) E x ecut i ve Stock Opt i on Pl an
BD O Unibank Group grant s stock opt ion plan t o it s senior of f icers (f rom
vice-president up) f or their cont ribut ion t o BD O Unibank Groups perf ormance and
at t ainment of t eam goals. The amount of st ock opt ion allocat ed to t he quali f ied of f icers
is based on the perf ormance of t he individual of f icers as det ermined by the management
and is det ermined based on BD O Unibank Groups perf ormance in the preceding year
and amort ized over f ive years st art ing f rom the date of the approval of t he BOD . The
number of of f icers qual if ied at t he grant dat e is regularly evaluat ed during t he vest ing
period (at least annually) and t he amount of st ock opt ion is decreased in case t here are
changes in t he number of qualif ied employees arising f rom resignat ion or
disqual if icat ion. The annual amort izat ion of st ock opt ion is included as part of
Employee Benef it s in prof it or loss and the cumulat i ve balance is shown as Common
St ock Opt ions in t he st atement of changes in equit y (nil in 2011 and 2010).
(f) Compensat ed A bsences
Compensat ed absences are recognized f or t he number of paid leave days
(including holiday ent it lement ) remaining at t he end of report ing period. These are
included in Ot her L iabilit ies account at the undiscount ed amount t hat BD O Unibank
Group expect s to pay as a result of t he unused ent it lement .
2 . 2 7 I n come T ax es
Tax expense recognized in prof it or loss comprise t he sum of def erred t ax and current t ax not
recognized in ot her comprehensive income or directly in equit y, if any.
Current t ax asset s or liabilit ies comprise t hose claims f rom, or obligat ions t o, f iscal aut horit ies
relat ing t o the current or prior report ing period, t hat are uncollect ed or unpaid at the end of
t he report ing period. They are calculat ed according t o t he t ax rat es and t ax laws applicable t o
t he f iscal periods to which t hey relat e, based on t he taxable prof it f or the period. All changes
t o current t ax asset s or liabilit ies are recognized as a component of t ax expense in prof it or
loss.
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D ef erred t ax is provided, using t he liabilit y met hod, on t emporary dif f erences at t he end of
t he report ing period bet ween the t ax base of asset s and liabilit ies and t heir carrying amount s
f or f inancial report ing purposes. Under t he liabilit y method, wit h cert ain except ions, def erred
t ax liabilit ies are recognized f or all t axable temporary dif f erences and def erred t ax asset s are
recognized f or all deduct ible t emporary dif f erences and the carryf orward of unused t ax losses
and unused t ax credit s t o the ext ent that it is probable that t axable prof it will be available
against which the def erred t ax asset can be ut ilized.
The carrying amount of def erred t ax asset s is reviewed at t he end of each report ing period and
reduced to t he ext ent t hat it is probable t hat suf f icient t axable prof it will be avail able t o allow
all or part of the def erred t ax asset t o be ut ilized.
D ef erred t ax asset s and liabilit ies are measured at the t ax rat es t hat are expect ed t o apply to
t he period when t he asset is realized or t he liabilit y is set t led, based on t ax rat es and t ax laws
t hat have been enact ed or subst ant ively enact ed at t he end of each report ing period.
Most changes in def erred t ax asset s or liabilit ies are recognized as a component of t ax expense
in t he st atement of income. Only changes in def erred t ax asset s or liabilit ies t hat relat e t o a
change in value of resources or liabilit ies relat e t o it ems recognized in other comprehensive
income or direct ly in equit y are recognized in ot her comprehensive income or direct ly in
equit y.
2 . 2 8 E ar n i n gs P er Sh ar e ( E P S)
Basic earnings per common share is det ermined by dividing net prof it by t he weight ed average
number of common shares subscribed and issued during t he period, af t er ret roact ive
adjust ment f or any stock dividend declared in the current period.
The dilut ed earnings per common share is also comput ed by dividing net prof it by t he
weight ed average number of common shares subscribed and issued during t he period.
H owever, net prof it att ribut able t o common shares and the weight ed average number of
common shares out st anding are adjust ed t o ref lect the ef f ect s of potent ially dilut ive
convert ible pref erred shares and st ock opt ion plan grant ed by BD O Unibank Group t o t he
qualif ied of f icers. Convert ible pref erred shares are deemed t o have been convert ed t o
common shares at t he issuance of pref erred shares. The st ock opt ion plan is deemed to have
been convert ed int o common st ock in t he year the stock opt ion is grant ed.
2 . 2 9 T r u st A ct i vi t i es
BD O Unibank Group commonly act s as t rust ee and in ot her f iduciary capacit ies that result in
t he holding or placing of asset s on behalf of individuals, t rust s, ret irement benef it plans and
ot her inst it ut ions. Asset s and income arising t hereon are excluded f rom t hese f inancial
st at ement s, as t hese are neither asset s nor income of BD O Unibank Group.
2 . 3 0 E ven t A f t er t h e R epor t i n g P er i od
Any post-year-end event t hat provides addit ional inf ormat ion about BD O Unibank Groups
posit ion at t he end of report ing period (adjust ing event) is ref lect ed in the f inancial
st at ement s. Post-year-end event s that are not adjust ing event s, if any, are disclosed when
mat erial t o the f inancial st at ement s.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
3. SIGN IFICAN T ACCOUN TIN G JUDGMEN TS AN D ESTIMATES
BD O Unibank Groups f inancial st at ement s prepared in accordance wit h FRSP f or banks
require management t o make judgment s and est imates t hat af f ect the amount s report ed in t he
f inancial st at ement s and relat ed not es. Judgment s and est imates are cont inually evaluat ed and
are based on historical experience and other f act ors, including expect at ions of f ut ure event s
t hat are believed t o be reasonable under t he circumstances. Act ual result s may ult imat ely
dif f er f rom these est imat es and t he dif f erences could be signif icant .
3 . 0 1 C r i t i cal M an agemen t Ju dgmen t s i n A ppl yi n g A ccou n t i n g P ol i ci es
I n t he process of applying BD O Unibank Groups account ing policies, management has made
t he f ollowing judgment s, apart f rom those involving est imat ion, which have the most
signif icant ef f ect on t he amount s recognized in the f inancial st at ement s:
(a) H T M I nvest ment s
BD O Unibank Group f ollows t he guidance of PAS 39 in classif ying non-derivat ive
f inancial asset s wit h f ixed or determinable payment s and f ixed mat urit y as H TM. This
classi f icat ion requires signif icant judgment . I n making this judgment , BD O Unibank
Group considers it s int ent ion and abilit y t o hold such invest ment s to mat urit y.
Management has conf irmed it s int ent ion and det ermined it s abilit y to hold t he
invest ment s up t o mat urit y.
I f BD O Unibank Group f ails t o keep t hese invest ment s at mat urit y (other than f or t he
allowed specif ic circumst ances, e.g., selling more than an insignif icant amount close to
mat urit y), it will be required t o reclassif y t he ent ire class t o AFS securit ies. The
invest ment s would t heref ore be measured at f air value and not at amort ized cost .
H owever, the t aint ing provision will not apply if t he sales or reclassif icat ions of H TM
invest ment s: (i ) are so close to mat urit y or the f inancial asset s cal l dat e that changes in the
market rat e of int erest would not have a signif icant ef f ect on t he f inancial asset s f air
val ue; (i i ) occur af t er BD O Unibank Group has collect ed subst ant ially all of t he f inancial
asset s original principal through scheduled payments or prepayment s; or,
(i i i ) are at tribut able to an isolat ed event that is beyond t he cont rol of BD O Unibank
Group, is nonrecurring and could not have been reasonably ant icipat ed by BD O Unibank
Group.
(b) I mpai r ment of A F S Secur i t i es
BD O Unibank Group f ollows t he guidance of PAS 39 in det ermining when an invest ment
is permanent ly impaired. This det erminat ion requires signif icant judgment . I n making
t his judgment , BD O Unibank Group evaluat es, among ot her f actors, t he durat ion and
ext ent t o which the f air value of an invest ment is less t han it s cost ; and t he f inancial healt h
of and near-t erm business out look f or the investee, including f act ors such as indust ry and
sect or perf ormance, changes in t echnology and operat ional and f inancing cash f low. For
invest ment s issued by counterpart y under bankrupt cy, BD O Unibank Group det ermines
permanent impairment based on t he price of t he most recent transact ion and on lat est
indicat ions obt ained f rom reput able count erpart ies (which regularly quot e prices f or
dist ressed securit ies) since current bid prices are no longer avail able.
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(c) D i st i nct i on Bet ween I nvest ment Proper t i es and Owner -occupi ed Pr oper t i es
BD O Unibank Group det ermines whether a property quali f ies as invest ment propert y. I n
making it s judgment , BD O Unibank Group considers whether the propert y generat es
cash f lows largely independent of the other asset s held by BD O Unibank Group. Owner-
occupied propert ies generat e cash f lows that are att ribut able not only to other asset s used
in t he product ion or supply process.
Some propert ies comprise a port ion t hat is held t o earn rent al or f or capit al appreciat ion
and anot her port ion that is held f or use in the product ion and supply of goods and
services or f or administ rat ive purposes. I f t hese port ions can be sold separat ely (or leased
out separat ely under f inance lease), BD O Unibank Group account s f or t hose port ions
separat ely. I f t he port ion cannot be sold separat ely, t he property is account ed f or as
invest ment propert y only if an insignif icant port ion is held f or use in the product ion or
supply of goods or services f or administ rat ive purposes. Judgment is applied in
det ermining whet her ancillary services are so signif icant t hat a propert y does not qualif y as
invest ment propert y. BD O Unibank Group considers each property separat ely in making
it s judgment .
(d) Operat i ng and F i nance L eases
BD O Unibank Group has ent ered int o various lease agreement s eit her as a lessor or
lessee. Crit ical judgment was exercised by management to dist inguish each lease
agreement as either an operat ing or f inance lease by looking at t he transf er or ret ent ion of
signif icant risks and rewards of ownership of the propert ies covered by the agreement s.
Fail ure t o make the right judgment will result in either overst at ement or underst at ement
of resources and liabilit ies.
(e) Cl assi fi cat i on of A cqui r ed Pr oper t i es and F ai r V al ue D eter mi nat i on of N on-cur r ent A sset s H el d for
Sal e and I nvest ment Pr opert i es
BD O Unibank Group classif ies it s acquired propert ies as Premises, Furnit ure, Fixt ures
and Equipment if used in operat ions, as N on-current Asset s Held f or Sale if expect ed that
t he propert ies will be recovered t hrough sale rather than use, as I nvest ment Propert ies if
int ended to be held f or capit al appreciat ion or as Financial Asset s if qualif ied as such in
accordance wit h PAS 39. At init ial recognit ion, BD O Unibank Group det ermines the f air
val ue of the acquired propert ies through int ernally or ext ernally generat ed appraisal. The
appraised value is det ermined based on the current economic and market condit ions as
well as t he physical condit ion of t he propert ies.
(f) Pr ovi si ons and Cont i ngenci es
Judgment is exercised by management to dist inguish bet ween provisions and
cont ingencies. Policies on recognit ion and disclosure of provisions and cont ingencies are
discussed in N ot e 2.21 and relevant disclosures are presented in N ot e 31.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
3 . 0 2 K ey Sou r ces of E st i mat i on U n cer t ai n t y
The f ollowing are the key assumpt ions concerning the f ut ure, and other key sources of
est imat ion uncert aint y at t he end of the report ing period, that have a signif icant risk of causing
a mat erial adjust ment t o the carrying amount s of resources and liabilit ies wit hin the next
f inancial year:
(a) I mpai r ment L osses on F i nanci al A ssets (A F S Secur i t i es, H T M I nvest ments and L oans and
Recei vabl es)
BD O Unibank Group reviews it s AFS, H TM and loans and receivables port f olios t o
assess impairment at least on a quart erly basis. I n det ermining whether an impairment
loss should be recorded in prof it or loss, BD O Unibank Group makes judgment s as to
whet her t here is any observable dat a indicat ing that there is a measurable decrease in the
est imat ed f ut ure cash f lows f rom the f inancial asset or a port f olio of similar f inancial
asset s. This evidence may include observable dat a indicat ing t hat t here has been an
adverse change in the payment st at us of borrowers or issuers in a group, or nat ional or
local economic condit ions t hat correlat e wit h def ault s on asset s in t he group.
Management uses est imat es based on historical loss experience f or asset s wit h credit risk
charact erist ics and object ive evidence of impairment similar t o t hose in the port f olio when
scheduling it s f ut ure cash f lows. The met hodology and assumpt ions used f or est imat ing
both t he amount and t iming of f ut ure cash f lows are reviewed regularly t o reduce any
dif f erences bet ween loss est imat es and act ual loss experience.
BD O Unibank Group carries cert ain f inancial asset s at f air value, which requires t he
ext ensive use of account ing est imates and judgment . Signif icant component s of f air value
measurement are determined using verif iable object ive evidence such as f oreign exchange
rat es, interest rat es and volat ilit y rat es. However, t he amount of changes in f air value
would dif f er if BD O Unibank Group had ut ilized di f f erent valuat ion methods and
assumpt ions. Any change in f air value of t hese f inancial asset s and liabil it ies would af f ect
prof it or loss and ot her comprehensive income.
For t he tot al impairment losses on f inancial asset s recognized in prof it or loss, see
N ote 14.
(b) F ai r V al ue of F i nanci al A sset s and L i abi l i t i es
As at D ecember 31, the f ollowing t able summarizes t he carrying amount s and f air values
of those f inancial resources and liabilit ies not present ed in the st at ement s of f inancial
posit ion at t heir f air value.
Cost Fair Value Cost Fair Value
December 31, 2011
Financial A sset s:
D ue f rom ot her banks and BSP P 149,613 P 149,655 P 138,769 P 138,811
AFS secur it i es unquot ed 570 * 310 *
H TM invest ment s 93,670 106,032 85,742 97,761
Loans and ot her recei vabl es 673,927 680,546 653,857 663,057
Ot her resources 2,427 2,427 2,318 2,318
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Cost Fair Value Cost Fair Value
Financial L iabi li t ies:
D eposit liabi lit ies 858,569 861,289 838,748 841,447
Bi lls payable 59,474 59,495 51,378 51,460
Subordinat ed not es payable 38,255 41,549 38,255 41,549
Ot her l iabi li t i es 41,494 41,494 34,930 34,930
D ecember 31, 2010
Financial A sset s:
D ue f rom ot her banks and BSP P 160,259 P 160,260 P 150,151 P 150,152
AFS secur it i es unquot ed 927 * 662 *
H TM invest ment s 104,241 115,245 95,569 106,175
Loans and ot her recei vabl es 566,021 567,808 548,618 554,063
Ot her resources 2,552 2,552 2,886 2,886
Financial L iabi li t ies:
D eposit liabi lit ies 782,635 784,917 762,634 765,289
Bi lls payable 65,861 65,378 56,081 55,679
Subordinat ed not es payable 23,152 25,120 23,152 25,120
Ot her l iabi li t i es 37,898 37,898 32,403 32,403
* D at a not avai l abl e
(i ) D ue fr om Ot her Bank s and BSP
D ue f rom BSP pert ains t o deposit s made by BD O Unibank Group t o BSP f or
clearing and reserve requirement s. D ue f rom ot her banks includes int erbank
placement s and it ems in the course of collect ion. The f air value of f loat ing rat e
placement s and overnight deposit s is t heir carrying amount . The est imated f air value
of f ixed int erest-bearing deposit s is based on discount ed cash f lows using prevail ing
money market int erest rat es f or debt s wit h similar credit risk and remaining mat urit y,
which f or short -term deposit s approximat e t he nominal value.
(i i ) A F S Secur i t i es
The f air value of AFS securit ies is det ermined by direct ref erence to published price
quot ed in an act ive market f or t raded securit ies. On t he ot her hand, unquot ed AFS
securit ies are carried at cost because the f air value cannot be reliably det ermined either
by ref erence t o similar f inancial inst rument s or t hrough valuat ion t echnique.
Current ly, there is no available market to sell the unquot ed equit y AFS securit ies. The
Bank will hold int o the investment s unt il management decides to sell them when t here
wil l be of f ers to buy out such invest ment s on the appearance of an available market
where t he invest ment s can be sold.
(i i i ) H T M I nvest ment s
The f air value f or held-t o-mat urit y asset s is based on market prices. Where this
inf ormat ion is not available, f air value has been est imat ed using quot ed market prices
f or securit ies wit h similar credit , mat urit y and yield charact erist ics or t hrough valuat ion
t echniques using discount ed cash f low analysis.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
(i v) L oans and Ot her Recei vabl es
Loans and ot her receivables are net of provisions f or impairment . The est imat ed f air
val ue of loans and receivables represent s the discount ed amount of est imat ed f ut ure
cash f lows expect ed to be received. Expect ed cash f lows are discount ed at current
market rat es to det ermine f air value.
(v) D eposi t s and Bor r owi ngs
The est imat ed f air value of demand deposit s wit h no st at ed mat urit y, which includes
non-int erest-bearing deposit s, is t he amount repayable on demand. The est imat ed f air
val ue of long-t erm f ixed int erest -bearing deposit s and other borrowings wit hout
quot ed market price is based on discounted cash f lows using int erest rat es f or new
debt s with similar remaining mat urit y.
(c) F ai r V al ue of D er i vat i ves
The f air value of derivat ive f inancial inst rument s t hat are not quot ed in an act ive market is
det ermined t hrough valuat ion t echniques using t he net present value comput at ion.
Valuat ion t echniques are used t o det ermine f air values which are validat ed and periodically
reviewed. To the ext ent pract icable, models use observable dat a, however, areas such as
count erpart y credit risk, volat ilit ies and correlat ions require management to make est imat es.
Changes in assumpt ions could af f ect t he report ed f air value of f inancial inst rument s. BD O
Unibank Group uses judgment to select a variet y of methods and make assumpt ions t hat
are mainly based on market condit ions exist ing at t he end of each report ing period.
(d) F i nanci al I nst rument s M easured at F ai r V al ue
Financial asset s and liabil it ies measured at f air value are cat egorized in accordance wit h the
f air val ue hierarchy. This hierarchy groups f inancial asset s and liabilit ies int o three
levels based on t he signif icance of input s used in measuring t he f air value of t he f inancial
asset s and liabilit ies. The f air value hierarchy has the f ollowing levels:
% Level 1: quot ed prices (unadjust ed) in act ive market s f or ident ical asset s
or liabilit ies;
% Level 2: input s ot her t han quot ed prices included wit hin Level 1 that are observable
f or t he asset or liabilit y, eit her direct ly (i.e., as prices) or indirect ly
(i.e., derived f rom prices); and,
% Level 3: input s f or t he asset or liabilit y t hat are not based on observable
market dat a (unobservable input s).
The level wit hin which t he f inancial asset or liabilit y is classif ied is det ermined based on
t he lowest level of signif icant input t o the f air value measurement .
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The f inancial asset s and liabilit ies measured at f air value in t he st at ement s of f inancial
posit ion as of D ecember 31, 2011 and 2010 are grouped int o the f air value hierarchy as
present ed in t he f ollowing t able. For t he purpose of t his disclosure, t he invest ment s in
unquot ed equit y securit ies classif ied as AFS amount ing to P570 and P927 in 2011 and
2010, respect ively, in t he BD O Unibank Group f inancial st at ement s and P310 and P662 in
2011 and 2010, respect ively in the Parent Bank f inancial st at ement s are measured at cost
less impairment charges because t he f air value cannot be reliably measured and t heref ore
are not included. Unquot ed equit y securit ies consist of pref erred shares and common
shares of various unlist ed local companies.
BDO Unibank Group
N ot es Level 1 Level 2 Total
December 31, 2011
Resources
Financial asset s at FVTPL 9.01
D erivat i ve f i nancial asset s P 1,890 P 1,849 P 3,739
Government bonds 949 - 949
Ot her debt securit ies 58 - 58
Equit y securit ies - quot ed 77 - 77
2,974 1,849 4,823
AFS secur it i es 9.02
Government debt securi t ies 55,065 56 55,121
Ot her debt securit ies-quot ed 28,279 - 28,279
Equit y securit ies 5,516 439 5,955
88,860 495 89,355
P 91,834 P 2,344 P 94,178
Liabi lit ies
D erivat i ves wit h negat ive
f air val ues 18 P 1,877 P 1,443 P 3,320
D ecember 31, 2010
Resources
D erivat i ve f i nancial asset s P 3,380 P 1,730 P 5,110
Government bonds 1,640 - 1,640
Equit y securit ies 12 - 12
5,642 1,730 7,372
Ot her debt securit ies-quot ed 26,211 - 26,211
84,650 97 84,747
P 90,292 P 1,827 P 92,119
Liabi lit ies
f air val ues 18 P 3,168 P 1,547 P 4,715
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
NOTES TO
FINANCIAL STATEMENT
Parent Bank
N ot es Level 1 Level 2 Total
December 31, 2011
Resources
D erivat i ve f i nancial asset s P 1,890 P - P 1,890
2,408 - 2,408
Ot her debt securit ies - quot ed 27,722 - 27,722
82,126 495 82,621
P 84,534 P 495 P 85,029
Liabi lit ies
f air val ues 18 P 1,877 P - P 1,877
D ecember 31, 2010
Resources
D erivat i ve f i nancial asset s P 3,379 P - P 3,379
4,347 - 4,347
Ot her debt securit ies - quot ed 24,348 - 24,348
76,965 98 77,063
P 81,312 P 98 P 81,410
Liabi lit ies
f air val ues 18 P 3,168 P - P 3,168
The BD O Unibank Group and Parent Bank have no f inancial inst rument as of
D ecember 31, 2011 and 2010 whose f air value was measured under level 3. The methods
and val uat ion t echniques used f or t he purpose of measuring f air val ues are unchanged
compared t o the previous report ing periods.
There have been no signif icant t ransf ers among levels 1 and 2 in the report ing periods.
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(e) U seful L i ves of Premi ses, F ur ni t ur e, F i x t ur es and E qui pment and I nvest ment Proper t i es
BD O Unibank Group est imat es t he usef ul li ves of premises, f urnit ure, f ixt ures and
equipment and invest ment propert ies based on the period over which the asset s are
expect ed t o be available f or use. The est imat ed usef ul li ves of premises, f urnit ure, f ixt ures
and equipment and invest ment propert ies are reviewed periodically and are updated if
expect at ions dif f er f rom previous est imat es due to physical wear and tear, t echnical or
commercial obsolescence and legal or other limit s on the use of t he asset s. The carrying
amount s of premises, f urnit ure, f ixt ures and equipment are analyzed in N ot e 11. On the
ot her hand, the carrying amount s of investment propert ies are analyzed in N ot e 12. Based
on management s assessment as at D ecember 31, 2011 and 2010, t here is no change in
est imat ed usef ul lives of premises, f urnit ure, f ixt ures and equipment and invest ment
propert ies during the year. Act ual result s, however, may vary due t o changes in est imat es
brought about by changes in f act ors ment ioned above.
(f) Real i zabl e A mount of D efer r ed T ax A sset s
BD O Unibank Group reviews it s def erred t ax asset s at t he end of each report ing period
and reduces t he carrying amount t o the ext ent that it is no longer probable t hat suf f icient
t axable prof it will be available t o allow all or part of the def erred t ax asset s t o be ut ilized.
The carrying value of def erred t ax asset s, which management assessed t o be f ully ut ili zed
wit hin the next t wo to t hree years, as of D ecember 31, 2011 and 2010 is di sclosed in
N ot e 27.01.
(g) I mpai rment of N on-fi nanci al A sset s
Except f or int angible asset s wit h indef init e usef ul lives, PFRS requires t hat an impairment
review be perf ormed when cert ain impairment indicat ors are present . BD O Unibank
Groups policy on est imat ing the impairment of non-f inancial asset s is discussed in det ail
in N ot e 2.24. Though management believes t hat t he assumpt ions used in the est imat ion
of f air values ref lect ed in t he f inancial st at ement s are appropriat e and reasonable,
signif icant changes in t hese assumpt ions may mat erially af f ect t he assessment of
recoverable values and any result ing impairment loss could have a mat erial adverse ef f ect
on t he result s of operat ions.
I mpairment losses recognized in prof it or loss are disclosed in N ote 14.
(h) Ret i r ement Benefi t s
The det erminat ion of BD O Unibank Groups obligat ion and cost of post -employment
and ot her ret irement benef it s is dependent on the select ion of cert ain assumpt ions used by
act uaries in calculat ing such amount s. Those assumpt ions are described in N ot e 23 and
include, among others, discount rat es, expect ed rat e of ret urn on plan asset s and salary
increase rat es. I n accordance wit h PFRS, act ual result s t hat dif f er f rom the assumpt ions
are accumulat ed and amort ized over f ut ure periods and theref ore, generally af f ect the
recognized expense and recorded obligat ion in such f ut ure periods.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The ret irement benef it asset and net unrecognized act uarial losses of BD O Unibank
Group amount ed t o P1,494 and P4,520, respect ively, in 2011 while t he ret irement benef it
asset and net unrecognized act uarial losses of BD O Unibank Group amount ed to P998
and P3,821, respect ively, in 2010. On t he ot her hand, t he ret irement benef it asset and net
unrecognized act uarial losses of t he Parent Bank amount ed to P1,519 and P4,252,
respect ively, in 2011 while t he ret irement benef it asset and net unrecognized act uarial
losses amount ed to P1,026 and P3,650, respect ively, in 2010 (see N ot e 23.02).
(i ) Reward Poi nt s
The BD O Unibank Group provides rewards point s t o it s banking client s and cust omers
each t ime t hey avail of t he pre-ident if ied product s and services of t he Bank and t he
companies which the Bank has ident if ied as partners in the rewards program. Reward
point s are redeemable in a wide select ion of reward cat egories, including t ravel,
merchandise of third part ies, reward credit s and gif t cert if icat es. Cert ain loyalt y point s f or
credit card have no expirat ion dat e unless t he credit card is cancelled but f or ot her
rewards program, unredeemed point s may expire at some f ut ure dat e.
The BD O Unibank Group est ablishes reserves to cover t he cost of f ut ure reward
redempt ions f or point s earned t o dat e. The provision f or t he cost of rewards is based
upon point s earned by bank client s and the current cost per point of redempt ion. The
est imat ed point s to be redeemed are measured and adjust ed based on many f act ors
including but not limit ed t o past redempt ion behavior of bank client s, product t ype on
which the point s are earned and their ult imat e redempt ion rate on t he point s earned t o
dat e but not yet redeemed.
The BD O Unibank Group cont inually evaluat es it s reserve met hodology f or rewards
based on development s in redempt ion pat t erns, cost per point redeemed and ot her
f act ors. The reserve f or unredeemed point s is impact ed over t ime by enrollment levels,
amount of point s earned and redeemed, weight ed-average cost per point , redempt ion
choices made by bank client s and other membership rewards program changes. The
calcul at ion is most sensit ive t o changes in t he est imat ed ult imat e redempt ion rat e. This
rat e is based on the expect at ion t hat a large majority of all point s earned will event ually be
redeemed and the awards will be redeemed through goods or services supplied by a third
part y based on BD O Unibank Groups past experience.
The carrying value of t he rewards point s accrued by t he BD O Unibank Group and the
Parent Bank is present ed as part of Accrued expenses under Ot her Liabilit ies in t he
st at ement s of f inancial posit ion as disclosed in N ote 18.
4. RISK MAN AGEMEN T
By their nat ure, BD O Unibank Groups act ivit ies are principally relat ed to t he use of f inancial
inst rument s including derivat ives. BD O Unibank Group accept s deposit s f rom cust omers at
f ixed and f loat ing rates f or various periods, and seeks t o earn above-average int erest margins
by invest ing t hese f unds in high-qualit y asset s. BD O Unibank Group seeks t o increase these
margins by consolidat ing short -t erm f unds and lending f or longer periods at higher rates,
while maint aining suf f icient liquidit y t o meet all clai ms that might f all due. BD O Unibank
Group also trades in f inancial inst rument s where it takes posit ions in traded and over-t he-
count er instrument s, including derivat ives, t o t ake advant age of short -term market movement s
in equit ies and bonds and in currency and interest rat e prices.
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57
To manage the risk f or holding f inancial asset s and liabilit ies, BD O Unibank Group operat es
an int egrated risk management syst em t o address the risks it f aces in it s banking act ivit ies,
including li quidit y, int erest rat e, credit and market risks. BD O Unibank Groups risk
management object ive is t o adequat ely and consist ent ly evaluat e, manage, control, and
monitor the risk prof ile of BD O Unibank Groups st at ement s of f inancial posit ion to
opt imize t he risk-reward balance and maximize ret urn on BD O Unibank Groups capit al.
BD O Unibank Groups Risk Management Commit tee (RMC) has overall responsibilit y f or
BD O Unibank Groups risk management syst ems and set s risk management policies across
t he f ull range of risks t o which BD O Unibank Group is exposed. Specif ically, BD O Unibank
Groups RMC places trading limit s on the level of exposure t hat can be t aken in relat ion t o
both overnight and intra-day market posit ions. Wit h t he except ion of specif ic hedging
arrangement s, f oreign exchange and int erest rat e exposures associat ed wit h t hese derivat ives
are normally of f set by ent ering into count erbalancing posit ions, thereby cont rolling t he
variabi lit y in the net cash amount s required to liquidat e market posit ions.
Wit hin BD O Unibank Groups overall risk management syst em, t he Asset s and L iabilit ies
Commit t ee (AL CO) is responsible f or managing the Groups st at ement of f inancial posit ion,
including BD O Unibank Groups liquidit y, int erest rat e and f oreign exchange relat ed risks. I n
addit ion, ALCO f ormulat es invest ment and f inancial policies by det ermining the asset
allocat ion and f unding mix st rat egies t hat are likely t o yield the t arget ed f inancial result s.
Separat ely, t he Risk Management Group (RMG) is mandat ed t o adequat ely and consist ent ly
evaluat e, manage, cont rol, and monit or the over-all risk prof ile of t he Banks act ivit ies across
t he dif f erent risk areas (i.e., credit , market , liquidit y, and operat ional) to opt imize the risk-
reward balance and maximize ret urn on capit al.
RMG has responsibilit y f or the set t ing of risk policies across the f ull range of risks t o which
BD O Unibank Group is exposed to.
I n t he perf ormance of it s f unct ion, RMG observes the f ollowing f ramework:
I t is responsible f or policy f ormulat ion in coordinat ion with t he relevant
businesses/ f unct ions and ensures t hat proper approval f or t he manuals/ policies is
obt ained f rom t he appropriat e body.
I t t hen disseminat es the approved policies t o the relevant businesses/ f unct ions af ter
which, pert inent aut horit ies are delegat ed down t o t he businesses/ f unct ions t o guide
t hem in the conduct of their businesses/ f unct ions. RMG then perf orms compliance
monitoring and review t o ensure approved policies are adhered t o.
I t is responsible f or clarif ying int erpret at ions of risk policies/ guidelines raised by the
Business H eads/ Unit s.
When adverse t rends are observed in the account / port f olio, RMG is responsible f or
f lagging t hese trends and ensuring relevant policies f or problem account s/ port f olio
management are properly applied.
RMG is responsible f or the direct management of account s in BD O Unibank Groups
N on-Perf orming L oan (N PL)/ property-relat ed it ems in lit igat ions port f olio and
ensures that appropriat e st rat egies are f ormulat ed to maximize collect ion and/ or
recovery of these asset s.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
I t is also responsible f or regular review and monit oring of account s under it s
supervision and ensuring t hat the account s loan classif icat ion is assessed t imely and
accurat ely.
4 . 0 1 L i q u i di t y R i sk
Liquidit y risk is t he risk t hat t here could be insuf f icient f unds avail able t o adequat ely meet the
credit demands of BD O Unibank Groups customers and repay deposit s on mat urit y. BD O
Unibank Group manages liquidit y risk by holding suf f icient liquid asset s of appropriat e qualit y
t o ensure short -t erm f unding requirement s are met and by maint aining a balanced loan
port f olio which is repriced on a regular basis. I n addit ion, BD O Unibank Group seeks t o
maint ain suf f icient liquidit y t o t ake advant age of int erest rat e and exchange rat e opport unit ies
when t hey arise.
The analysis of t he mat urit y groupings of resources, liabi lit ies and of f -book it ems as of
D ecember 31, 2011 and 2010 in accordance wit h account classif icat ion of t he BSP, are
present ed below. The amount s disclosed in t he maturit y analysis are t he cont ract ual
undiscount ed cash f lows using t he primary cont ract ual mat urit ies or behavioral assumpt ions
on core levels (e.g., core deposit liabilit ies and core deposit subst it ut es wit h mat urit ies wit hin
one year have been classif ied in t he more t han t hree years cat egory), if the lat ter is more
relevant f or purposes of prof iling t he liquidit y gap. Such undiscount ed cash f lows may dif f er
f rom the amount s included in t he st at ement of f inancial posit ion because the st at ement of
f inancial posit ion amount s are based on discount ed cash f lows.
BDO Unibank Group
2011
More
One to than three More than More
three months to one year to than three
months one year three years years Total
Resources:
Cash and ot her
cash it ems P 33,129 P - P - P - P 33,129
D ue f rom BSP/
ot her banks 149,613 - - - 149,613
Loans and ot her
recei vabl es 196,509 79,198 110,138 288,082 673,927
Trading and i nvest ment
securit ies 6,248 9,576 25,382 147,212 188,418
Ot her r esources - 6,772 - 45,490 52,262
Tot al Resour ces 385,499 95,546 135,520 480,784 1,097,349
Liabi lit ies and Equit y:
D eposit l iabi l it i es 247,847 7,954 5,957 596,811 858,569
Bil ls and subordi nat ed
not es payable 31,613 16,983 20,309 28,824 97,729
Ot her l iabi lit ies 6,793 29,158 2,951 5,187 44,089
Tot al Li abi lit i es 286,253 54,095 29,217 630,822 1,000,387
Equit y - - - 96,962 96,962
Tot al Li abi lit i es and Equit y 286,253 54,095 29,217 727,784 1,097,349
On-book gap
(bal ance car r i ed for ward) P 99,246 P 41,451 P 106,303 (P 247,000) P -
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2011
More
On-book gap
(bal ance br ought for war d) P 99,246 P 41,451 P 106,303 (P 247,000) P -
Cumulat ive on-book gap 99,246 140,697 247,000 - -
Cont ingent asset s 236,326 38,544 23,717 15,321 313,908
Cont ingent l iabil it i es 251,414 38,495 23,627 15,232 328,768
Of f -book gap ( 15,088 ) 49 90 89 ( 14,860)
N et Per iodi c Gap 84,158 41,500 106,393 ( 246,911) ( 14,860)
Cumulat ive T ot al Gap P 84,158 P 125,658 P 232,051 (P 14,860) P -
2010
More
Resources:
Cash and ot her
cash it ems P 26,673 P - P - P - P 26,673
D ue f rom BSP/
ot her banks ` 160,056 - 203 - 160,259
Loans and ot her
recei vabl es 194,732 47,730 85,579 237,980 566,021
securit ies 11,995 13,939 29,484 141,869 197,287
Ot her r esources - 10,142 - 40,487 50,629
Tot al Resour ces 393,456 71,811 115,266 420,336 1,000,869
not es payable 37,694 277 30,861 20,181 89,013
Ot her l iabi lit ies 5,245 22,857 6,316 6,071 40,489
Tot al Li abi lit i es 221,765 26,915 47,315 616,142 912,137
Equit y - - - 88,732 88,732
On-book gap 171,691 44,896 67,951 ( 284,538) -
Of f -book gap ( 3,013 ) ( 308) ( 81) 54 ( 3,348)
N et Per iodi c Gap 168,678 44,588 67,870 ( 284,484) ( 3,348)
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Parent Bank
2011
More
Resources:
Cash and ot her
cash it ems P 33,102 P - P - P - P 33,102
D ue f rom BSP/
ot her banks ` 138,769 - - - 138,769
Loans and ot her
recei vabl es 186,687 78,505 106,294 282,371 653,857
securit ies 4,079 5,984 18,766 142,252 171,081
Ot her r esources 8 6,832 368 51,241 58,449
Tot al Resour ces 362,645 91,321 125,428 475,864 1,055,258
not es payable 31,274 16,200 13,335 28,824 89,633
Ot her l iabi lit ies 6,470 29,505 1,153 166 37,294
Equit y - - - 89,583 89,583
On-book gap 85,863 39,098 106,970 ( 231,931) -
Of f -book gap ( 15,164 ) ( 19) ( 110) 6 ( 15,287)
N et Per iodi c Gap 70,699 39,079 106,860 ( 231,925) ( 15,287)
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2010
More
Resources:
Cash and ot her
cash it ems P 26,660 P - P - P - P 26,660
D ue f rom BSP/
ot her banks 150,151 - - - 150,151
Loans and ot her
recei vabl es 189,156 44,487 80,805 234,170 548,618
securit ies 8,853 12,356 27,874 128,558 177,641
Ot her r esources - 10,142 - 45,991 56,133
Tot al Resour ces 374,820 66,985 108,679 408,719 959,203
not es payable 35,333 252 25,916 17,732 79,233
Ot her l iabi lit ies 4,583 24,671 5,397 136 34,787
Equit y - - - 82,549 82,549
Tot al Li abi lit i es and Equit y 218,100 28,559 40,863 671,681 959,203
On-book gap 156,720 38,426 67,816 ( 262,962) -
Of f -book gap ( 3,068 ) ( 291) ( 133) 4 ( 3,488 )
N et Per iodi c Gap 153,652 38,135 67,683 ( 262,958) ( 3,488 )
4 . 0 2 M ar k et R i sk
BD O Unibank Groups exposure to market risk, t he risk of f ut ure loss f rom changes in t he
price of a f inancial inst rument, relat es primarily t o it s holdings in f oreign exchange
inst rument s, debt securit ies, equit y securit ies and derivat i ves. BD O Unibank Group manages
it s risk by ident if ying, analyzing and measuring relevant or likely market risks. Market Risk
Management recommends market risk limit s based on relevant act ivit y indicat ors f or approval
by BD O Unibank Groups RMC and BOD .
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
4 . 0 2 . 0 1 F or ei gn E x ch an ge R i sk
BD O Unibank Group manages it s exposure t o ef f ect s of f luct uat ions in the f oreign currency
exchange rat es by maint aining f oreign currency exposure wit hin the exist ing regulat ory
guidelines and at a level that it believes t o be relat ively conservat ive f or a f inancial inst it ut ion
engaged in that t ype of business.
BD O Unibank Groups net f oreign exchange exposure is comput ed as it s f oreign currency
asset s less f oreign currency liabilit ies. BSP regulat ions impose a cap of 20% of unimpaired
capit al or US$50 million, whichever is lower, on the group excess f oreign exchange holding of
banks in the Philippines. BD O Unibank Groups f oreign exchange exposure is primarily
limit ed t o the day-t o-day, over-t he-count er buying and selling of f oreign exchange in BD O
Unibank Groups branches as well as f oreign exchange t rading wit h corporat e account s and
ot her f inancial inst it ut ions. BD O Unibank Group, being a major market part icipant in the
Philippine D ealing Syst em, may engage in propriet ary t rading t o t ake advant age of f oreign
exchange f luct uat ions.
BD O Unibank Groups f oreign exchange exposure during t he day is guided by t he limit s set
f orth in BD O Unibank Groups Risk Management Manual. These limit s are wit hin the
prescribed ceilings mandat ed by the BSP. At the end of each day, BD O Unibank Group
report s t o the BSP on it s compliance wit h t he mandat ed f oreign currency exposure limit s. I n
addit ion, it also report s to t he BSP on the respect ive f oreign currency posit ions of it s
subsidi aries.
The breakdown of the f inancial asset s and liabilit ies as t o f oreign and peso-denominat ed
balances as of D ecember 31, 2011 and 2010 f ollows:
BDO Unibank Group
2011 2010
Foreign Forei gn
Currency Peso Total Currency Peso Tot al
Resources:
Cash and ot her cash i t ems
and due f rom BSP P 24 P 157, 999 P 158, 023 P 12 P 165,143 P 165,155
D ue f rom ot her banks 24,137 582 24, 719 21,738 39 21,777
Tradi ng and i nvest ment
securi t i es:
At FVTPL 2,071 2,752 4,823 3,743 3,629 7,372
AFS securi t i es 66,152 23, 773 89, 925 48,040 37,634 85,674
H TM 77, 940 15,730 93, 670 84,361 19,880 104,241
Loans and ot her recei vabl es 124,178 549,749 673,927 133,032 432,989 566,021
Ot her resources 2,002 425 2,427 2,194 358 2,552
P 296,504 P 751, 010 P 1,047,514 P 293,120 P 659,672 P 952,792
Li abi l i t ies:
D eposi t l i abi l i ti es P 206,618 P 651, 951 P 858,569 P 217,049 P 565,586 P 782,635
Bi l l s payabl e 44, 565 14,909 59, 474 39,825 26,036 65,861
Subordi nat ed not es payabl e - 38, 255 38, 255 - 23,152 23,152
Ot her l i abi l i ti es 2,455 39, 039 41,494 5,080 32,818 37,898
P 253,638 P 744,154 P 997,792 P 261,954 P 647,592 P 909,546
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63
Parent Bank
2011 2010
Foreign Forei gn
Currency Peso Total Currency Peso Tot al
Resources:
Cash and ot her cash i t ems
and due f rom BSP P - P 149, 094 P 149, 094 P - P 156,378 P 156,378
D ue f rom ot her banks 22, 741 36 22, 777 20,396 37 20,433
Tradi ng and i nvest ment
securi t i es:
At FVTPL 1,864 544 2,408 3,203 1,144 4,347
AFS securi t i es 63, 023 19,908 82, 931 44,791 32,934 77,725
H TM 73, 092 12,650 85, 742 79,168 16,401 95,569
Loans and ot her recei vabl es 123, 685 530,172 653,857 131,914 416,704 548,618
Ot her resources 2,002 316 2,318 2,194 692 2,886
P 286,407 P 712, 720 P 999,127 P 281,666 P 624,290 P 905,956
Li abi l i t ies:
D eposi t l i abi l i ti es P 200,000 P 638,748 P 838,748 P 209,524 P 553,110 P 762,634
Bi l l s payabl e 44, 565 6,813 51,378 39,605 16,476 56,081
Subordi nat ed not es payabl e - 38, 255 38, 255 - 23,152 23,152
Ot her l i abi l i ti es 2,017 32, 913 34, 930 4,842 27,561 32,403
P 246,582 P 716, 729 P 963,311 P 253,971 P 620,299 P 874,270
4 . 0 2 . 0 2 I n t er est R at e R i sk
BD O Unibank Group prepares gap analysis t o measure t he sensit ivit y of it s resources,
liabi lit ies and of f -book it ems to int erest rat e f luct uat ions. The f ocus of analysis is t he impact
of changes in int erest rat es on accrual or report ed earnings. This analysis would give
management a glimpse of mat urit y and re-pricing prof ile of it s int erest sensit ive resources and
liabi lit ies. An int erest rate gap report is prepared by classi f ying all asset s and liabilit ies int o
various t ime bucket s according t o contract ed mat urities or ant icipat ed repricing dat es, and
ot her applicable behavioral assumpt ions. The dif f erence in the amount of resources and
liabi lit ies mat uring or being repriced in any t ime period cat egory would t hen give BD O
Unibank Group an indicat ion of the ext ent t o which it is exposed t o the risk of potent ial
changes in net int erest income.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The analyses of t he groupings of resources, liabilit ies and of f -book it ems as of
D ecember 31, 2011 and 2010 based on the expect ed int erest realizat ion or recognit ion are
present ed below.
BDO Unibank Group
2011
More More
One to than three than one More
three months to year to than five N on-rate
months one year five years years sensitive Total
Resources:
Cash and ot her
cash it ems P - P - P - P - P 33,129 P 33,129
D ue f rom BSP/
ot her banks 33,313 - - - 116,300 149,613
Loans and ot her
recei vabl es 422,094 55,037 66,314 130,482 - 673,927
securit ies 3,979 6,947 21,593 151,071 4,828 188,418
Ot her r esources 3 1 9 38 52,211 52,262
Tot al Resour ces 459,389 61,985 87,916 281,591 206,468 1,097,349
D eposit l iabi l it i es 276,466 25,253 22,025 34,437 500,388 858,569
not es payable 37,822 16,996 14,086 28,825 - 97,729
Ot her l iabi lit ies 674 1,347 701 99 41,268 44,089
Tot al Li abi lit i es 314,962 43,596 36,812 63,361 541,656 1,000,387
Equit y - - - - 96,962 96,962
Tot al Li abi lit i es and Equit y 314,962 43,596 36,812 63,361 638,618 1,097,349
On-book gap 144,427 18,389 51,104 218,230 ( 432,150) -
Cumulat ive on-book gap 144,427 162,816 213,920 432,150 - -
Cont ingent asset s 36,142 1,843 23,273 15,322 - 76,580
Cont ingent l iabil it i es 4,791 1,094 15,955 12,601 - 34,441
Of f -book gap 31,351 749 7,318 2,720 - 42,139
N et Per iodi c Gap 175,778 19,138 58,422 220,951 ( 432,150) 42,139
Cumulative Total Gap P 175,778 P 194,916 P 253,338 P 474,289 P 42,139 P -
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65
BDO Unibank Group
2010
More More
Resources:
Cash and ot her
cash it ems P 26,673 P - P - P - P - P 26,673
D ue f rom BSP/
ot her banks 85,204 135 - - 74,920 160,259
Loans and ot her
recei vabl es 332,314 44,523 83,456 100,169 5,559 566,021
securit ies 11,926 16,911 44,184 122,730 1,536 197,287
Ot her r esources 4,152 3,798 1,154 - 41,525 50,629
Tot al Resour ces 460,269 65,367 128,794 222,899 123,540 1,000,869
not es payable 55,492 2,816 29,237 1,468 - 89,013
Ot her l iabi lit ies 1,365 3,053 1,385 56 34,630 40,489
Tot al Li abi lit i es 303,785 26,141 119,694 3,805 458,712 912,137
Equit y - - - - 88,732 88,732
On-book gap 156,484 39,226 9,100 219,094 ( 423,904) -
Cont ingent asset s 35,448 20,471 15,047 6,377 2,420 79,763
Cont ingent l iabil it i es 35,238 20,206 15,228 6,371 1,207 78,250
Of f -book gap 210 265 ( 181) 6 1,213 1,513
N et Per iodi c Gap 156,694 39,491 8,919 219,100 ( 422,691) 1,513
Cumulat ive T ot al Gap P 156,694 P 196,185 P 205,104 P 424,204 P 1,513 P -
Parent Bank
2011
More More
Resources:
Cash and ot her
cash it ems P - P - P - P - P 33,102 P 33,102
D ue f rom BSP/
ot her banks 25,431 - - - 113,338 138,769
Loans and ot her
recei vabl es 418,656 51,715 58,681 124,805 - 653,857
securit ies 3,565 5,984 18,766 140,452 2,314 171,081
Ot her r esources - - - - 58,449 58,449
Tot al Resour ces
(bal ance car ri ed for war d) P 447,652 P 57,699 P 77,447 P 265,257 P 207,203 P 1,055,258
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Parent Bank
2011
More More
Tot al Resour ces
(bal ance br ought for war d) P 447,652 P 57,699 P 77,447 P 265,257 P 207,203 P 1,055,258
not es payable 31,625 15,849 13,335 28,824 - 89,633
Ot her l iabi lit ies 351 685 - - 36,258 37,294
Equit y - - - - 89,583 89,583
On-book gap 148,590 19,517 44,791 201,996 ( 414,894) -
Cont ingent asset s 31,451 841 7,119 5,248 - 44,659
Cont ingent l iabil it i es 175 160 - 2,612 - 2,947
Of f -book gap 31,276 681 7,119 2,636 - 41,712
N et Per iodi c Gap 179,866 20,198 51,910 204,632 ( 414,894) 41,712
Cumulat ive T ot al Gap P 179,866 P 200,064 P 251,974 P 456,606 P 41,712 P -
2010
More More
Resources:
Cash and ot her
cash it ems P 26,660 P - P - P - P - P 26,660
D ue f rom BSP/
ot her banks 82,323 135 - - 67,693 150,151
Loans and ot her
recei vabl es 326,196 41,280 76,583 98,910 5,649 548,618
securit ies 8,817 15,576 39,213 114,035 - 177,641
Ot her r esources 4,152 3,798 1,154 - 47,029 56,133
Tot al Resour ces 448,148 60,789 116,950 212,945 120,371 959,203
not es payable 46,051 2,790 28,923 1,469 - 79,233
Ot her l iabi lit ies 702 2,538 - - 31,547 34,787
Equit y - - - - 82,549 82,549
Tot al Li abi lit i es and Equit y
(bal ance car ri ed for war d) P 283,062 P 24,155 P 112,099 P 3,442 P 536,445 P 959,203
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Parent Bank
2010
More More
Tot al Li abi lit i es and Equit y
(bal ance br ought for war d) P 283,062 P 24,155 P 112,099 P 3,442 P 536,445 P 959,203
On-book gap 165,086 36,634 4,851 209,503 ( 416,074) -
Cont ingent asset s 21,587 14,789 6,248 3,957 - 46,581
Cont ingent l iabil it i es 21,428 14,527 6,540 3,954 - 46,449
Of f -book gap 159 262 ( 292) 3 - 132
N et Per iodi c Gap 165,245 36,896 4,559 209,506 ( 416,074) 132
Cumulat ive T ot al Gap P 165,245 P 202,141 P 206,700 P 416,206 P 132 P -
BD O Unibank Groups market risk management limit s are generally cat egorized as limit s on:
Value-at -risk The RMG comput es the value-at -risk benchmarked at a level which is
a percent age of project ed earnings. BD O Unibank Group uses t he value at risk (VaR)
model t o est imat e the daily pot ent ial loss that BD O Unibank Group can incur f rom
it s t rading book, based on a number of assumpt ions wit h a conf idence level of 99%.
The measurement is designed such t hat except ions over dealing limit s should only
arise in very except ional circumst ances.
St op loss The RMG set s the amount of each risk-bearing act ivit y at a percent age of
t he budget ed annual income f or such act ivit y.
N ominal posit ion The RMG set s t he nominal amount to prevent over-t rading,
excessive concentrat ion, and to limit f inancial loss supplement ing other already
est ablished limit s.
Trading volume The RMG set s t he volume of transact ions that any employee may
execut e at various levels based on the rank of the personnel making the
risk-bearing decision.
Earnings-at -risk The RMG comput es the earnings-at -risk based on a percent age of
project ed annual net interest income.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
VaR is one of t he key measures in BD O Unibank Groups management of market risk. VaR
is def ined as a st at ist ical est imat e of t he maximum possible loss on a given posit ion during a
t ime horizon wit hin a given conf idence interval. BD O Unibank Group uses a 99%
conf idence level and a 260-day observat ion period in VaR calculat ion. BD O Unibank
Groups VaR limit is est ablished as a percent age of project ed earnings and is used to alert
senior management whenever t he pot ent ial losses in BD O Unibank Groups port f olios exceed
t olerable levels. Because t he VaR measure is t ied t o market volat ilit y, it t heref ore allows
management t o react quickly and adjust it s port f olio st rat egies in dif f erent market condit ions
in accordance with it s risk philosophy and appet it e. The VaR model is validat ed t hrough
back-t est ing.
Alt hough VaR is an import ant tool f or measuring market risk, t he assumpt ions on which t he
model is based do give rise t o some limit at ions, including t he f ollowing:
A 1-day holding period assumes that it is possible t o hedge or dispose of posit ions
wit hin that period. This is considered t o be a realist i c assumpt ion in almost all cases
but may not be the case in sit uat ions in which there is severe market illiquidit y f or a
prolonged period;
A 99% conf idence level does not ref lect losses that may occur beyond t his level. Even
wit hin the model used, t here is a one percent probabilit y t hat losses could exceed the
VaR;
VaR is calcul at ed on an end-of -day basis and does not ref lect exposures that may arise
on posit ions during the t rading day;
The use of hist orical dat a as a basis f or det ermining the possible range of f ut ure
out comes may not always cover all possible scenarios, especially t hose of an
except ional nat ure; and,
The VaR measure is dependent upon BD O Unibank Groups posit ion and t he
volat il it y of market prices. The VaR of an unchanged posit ion reduces if the market
price volat ilit y declines and vice-versa.
The limit at ions of the VaR met hodology are recognized by supplement ing VaR limit s wit h
ot her posit ion and sensit ivit y limit st ruct ures, including limit s t o address potent ial
concentrat ion risks wit hin each t rading port f olio. I n addit ion, t he Bank uses a wide range of
st ress t est s to model t he f inancial impact of a variet y of except ional market scenarios on
individual t rading port f olios and t he Banks overall posit ion. Stress VaR is also perf ormed on
all port f olios as a complement ary measure of risk. While VaR deals wit h risk during t imes of
normalit y, st ress t est ing is used t o measure t he pot ent ial ef f ect of a crisis or low probabilit y
event .
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A summary of t he VaR posit ion of the t rading port f olios at D ecember 31 f ollows:
BDO Unibank Group
2011 2010
VaR Stres s VaR VaR St ress VaR
Forei gn currency r isk (P 8) (P 80) (P 12) (P 108)
I nt erest rat e r isk Peso ( 17) ( 73) ( 136) ( 969)
I nt erest rat e r isk USD ( 6) ( 132) ( 14) ( 206)
(P 31) (P 285) (P 162) (P 1,283)
Parent Bank
2011 2010
VaR Stres s VaR VaR St ress VaR
Forei gn currency r isk (P 8) (P 80) (P 11) (P 102)
I nt erest rat e r isk Peso ( 8) ( 17) ( 115) ( 779)
I nt erest rat e r isk USD ( 2) ( 34) ( 2) ( 42)
(P 18) (P 131) (P 128) (P 923)
The earnings-at -risk bef ore t ax in a rising and declining int erest rat e scenario f or f inancial
asset s and liabilit ies repriced during 2011 and 2010 i s shown below.
BDO Unibank Group
2011
Change in interest rates (in basis points)
-100 + 100 -50 + 50
Change on annualized
net int er est income (P 1,515) P 1,515 (P 758) P 758
As a percent age of BD O
Uni bank Groups net
int er est income f or 2011 ( 4.5%) 4.5% ( 2.2%) 2.2%
Earnings-at -r isk P 1,918
2010
Change in int erest rat es (i n basis point s)
-100 + 100 -50 + 50
As a percent age of BD O
Uni bank Groups net
int er est income f or 2010 ( 3.2%) 3.2% ( 1.6%) 1.6%
Earnings-at -r isk P 386
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Parent Bank
2011
Change in interest rates (in basis points)
-100 + 100 -50 + 50
As a percent age of Parent
Bank s net int erest
income f or 2011 ( 5.1%) 5.1% ( 2.6%) 2.6%
Earnings-at -r isk P 1,918
2010
Change in int erest rat es (i n basis point s)
-100 + 100 -50 + 50
As a percent age of Parent
Bank s net int erest
income f or 2010 ( 4.3%) 4.3% ( 2.2%) 2.2%
Earnings-at -r isk P 419
4 . 0 2 . 0 3 P r i ce R i sk
BD O Unibank Group is exposed to equit y securit ies price risk because of invest ment s held by
BD O Unibank Group and classif ied on t he st at ement of f inancial posit ion eit her as AFS or at
FVTPL. BD O Unibank Group is not exposed t o commodity price risk. To manage it s price
risk arising f rom invest ment s in equit y securit ies, BD O Unibank Group diversif ies it s
port f olio. D iversif icat ion of the port f olio is done in accordance wit h t he limit s set by BD O
Unibank Group.
The t able below summarizes the impact of increases of the f inancial asset s at FVTPL and AFS
securit ies on BD O Unibank Groups net prof it af t er t ax and equit y as of
D ecember 31. The analysis is based on the assumpt ion t hat the correlat ed equit y indices have
increased by 3.04% in 2011 and increased by 17.2% in 2010 f or securit ies classif ied as FVTPL
and AFS securit ies wit h all other variables held constant and all BD O Unibank Groups equit y
inst rument s moved according t o t he hist orical correlat ion wit h the index.
BDO Unibank Group
Impact on Impact on other
net profit after tax comprehensive income
increas e (decreas e) increas e (decreas e)
2011 2010 2011 2010
Financial asset s at FVTPL P 2 P 1 P - P -
AFS secur it i es - - 115 540
P 2 P 1 P 115 P 540
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Parent Bank
Impact on Impact on other
net profit after tax comprehensive income
increas e (decreas e) increase (decrease)
2011 2010 2011 2010
AFS secur it i es P - P - P 38 P 150
4 . 0 2 . 0 4 C r edi t R i sk
Credit risk is t he risk t hat the count erpart y in a t ransact ion may def ault and arises f rom
lending, t rade f inance, t reasury, derivat ives and other act ivit ies undert aken by t he
BD O Unibank Group. BD O Unibank Group manages it s credit risk and loan port f olio
t hrough the RMG, which undert akes several f unct ions wit h respect t o credit risk
management .
The RMG undert akes credit analysis and review t o ensure consist ency in BD O Unibank
Groups risk assessment process. The RMG perf orms risk rat ings f or corporate account s and
assist s t he design and development of scorecards f or consumer account s. I t also ensures t hat
BD O Unibank Groups credit policies and procedures are adequat e to meet the demands of
t he business. The RMG is also responsible f or developing procedures t o st reamline and
expedit e the processing of credit applicat ions.
The RMG also undert akes port f olio management by reviewing BD O Unibank Groups loan
port f olio, including the port f olio risks associat ed wit h part icular indust ry sect ors, loan size and
mat urit y, and development of a st rat egy f or BD O Unibank Group t o achieve it s desired
port f olio mix and risk prof ile.
BD O Unibank Group st ruct ures t he levels of credit risk it undert akes by placing limit s on t he
amount of risk accept ed in relat ion to one borrower, or groups of borrowers, and to indust ry
segment s. Such risks are monitored on a revolving basis and subject to an annual or more
f requent review.
Exposure t o credit risk is managed t hrough regular analysis of t he abilit y of borrowers and
potent ial borrowers t o meet int erest and capit al repayment obligat ions and by changing t hese
lending limit s when appropriat e. Exposure t o credit risk is also managed in part by obt aining
collat eral and corporat e and personal guarant ees.
4 . 0 2 . 0 4 . 0 1 E x posu r e t o C r edi t R i sk
L oan classif icat ion and credit risk rat ing are an int egral part of the BD O Unibank Groups
management of credit risk. On an annual basis, loans are reviewed, classif ied and rat ed based
on int ernal and ext ernal f act ors that af f ect it s perf ormance. On a quart erly basis, loan
classi f icat ions of impaired account s are assessed and t he result s are used as basis f or t he
review of loan loss provisions.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The BD O Unibank Groups def init ion of it s loan classif icat ion and corresponding credit risk
rat ings are as f ollows:
Current / Unclassif ied : Grades AAA to B
Wat chlist ed : Grade B
L oans Especially Ment ioned : Grade C
Subst andard : Grade D
D oubt f ul : Grade E
L oss : Grade F
Once an account is Wat chlist ed or Adversely Classif i ed, the result ing risk rat ing grade is
ali gned based on the above classif icat ion.
(i ) U ncl assi fi ed
These are individual credit s t hat do not have a great er-than-normal risk and do not
possess the charact erist ics of adversely classif ied loans as to be def ined below. These are
credit s that have the apparent abilit y to sat isf y their obligat ions in f ull and theref ore no
loss in ult imat e collect ion is ant icipat ed. These are adequat ely secured by readily
market able collat eral or other f orms of support securit y or are support ed by suf f icient
credit and f inancial inf ormat ion of f avorable nat ure to assure repayment as agreed.
(i i ) W at chl i sted
Since early ident if icat ion of t roublesome or pot ent ial account s is vit al in port f olio
management , a Wat chlist ed classif icat ion of credit account s is maint ained. These
account s are not adversely classif ied but t hey require more t han normal at t ent ion t o
prevent t hese account s f rom det eriorat ing t o said category.
Past due or individually impaired comprise account s under the f ollowing risk rat ings:
(i i i ) A dver sel y Cl assi fi ed
a. L oans E speci al l y M ent i oned (L E M )
Account s classif ied as L oans Especially Ment ioned (LEM) are individual credit s
t hat have potent ial weaknesses part icularly on document at ion or credit administ rat ion
t hat deserve management s close at tent ion. These pot ent ial weaknesses, if lef t
uncorrect ed, may af f ect t he repayment prospect s of t he loan and thus heighten the
credit risk to t he BD O Unibank Group.
A credit may also be classif ied as L oans Especially Ment ioned if t here is evidence
of weakness in t he borrowers f inancial condit ion or credit worthiness, or t he credit is
subject to an unrealist ic repayment program or inadequat e source of f unds.
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b. Subst andard
Account s classif ied as Subst andard are individual credit s or port ions thereof , which
appear t o involve a subst ant ial and unreasonable degree of risk to t he Bank because
of unf avorable record or unsat isf act ory characterist ics. There exist s in such account s
t he possibilit y of f ut ure loss t o the BD O Unibank Group unless given closer
supervision. Those classif ied as Subst andard must have a well-def ined weakness or
weaknesses t hat jeopardize their liquidat ion. Such well-def ined weaknesses may
include adverse t rends or development of f inancial, managerial, economic or polit ical
nat ure, or a signif icant weakness in collat eral.
c. D oubt ful
Account s classif ied as D oubt f ul are individual credit s or port ions t hereof which
have t he weaknesses inherent in those classif ied as Subst andard , wit h t he added
charact erist ics t hat exist ing f act s, condit ions and values make collect ion or liquidat ion
in f ull highly improbable and in which subst ant ial loss is probable. Posit ive and
vigorous act ion is required t o avert or minimize losses.
d. L oss
Account s classif ied as L oss are individual credit s or port ions t hereof which are
considered uncollect ible or wort hless and of such lit tle value t hat their cont inuance as
bankable asset s is not warrant ed alt hough t he loans may have some recovery or
salvage value. The amount of loss is dif f icult t o measure and it is not pract ical or
desirable t o def er writ ing of f these basically wort hless asset s even t hough part ial
recovery may be obt ained in t he f ut ure.
I n addit ion to t he above, credit port f olio review is another integral part of t he BD O Unibank
Groups management of credit risk. This exercise involves t he conduct of periodical post
approval review of individual credit s whose main object ive is t o help monitor and maint ain
sound and healt hy risk asset port f olio. Parameters of t he credit port f olio review are
st ruct ured so as to ref lect bot h sides of t he risk management equat ion such as credit qualit y
and process. This f unct ion act uat es t he philosophy that credit qualit y is derived f rom sound
risk management process. The credit qualit y of f inancial asset s is managed by the BD O
Unibank Group using int ernal credit rat ings.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The f ollowing t able shows the exposure to credit risk as of D ecember 31, 2011 and 2010 f or
each int ernal risk grade and the relat ed allowance f or impairment :
BDO Unibank Group
2011
Loans and Trading and
Other Due from Investment
Receivables Other Banks Securities
Carrying Amount P 673,927 P 24,719 P 181,816
Individually Impaired
Grade C: LEM P 10,715 P - P -
Grade D : Subst andard 3,538 - -
Grade E: D oubt f ul 5,168 - 1,006
Grade F: L oss 6,390 - 888
Gross amount 25,811 1,894
Allowance f or impairment ( 12,385) - ( 1,894)
Carrying amount 13,426 - -
Collectively Impaired
Unclassi f ied 28 - 11,104
Grade C: LEM 3,622 - -
Grade E: D oubt f ul 535 - -
Grade F: L oss 6,174 - -
Gross amount 12,692 - 11,104
Allowance f or impairment ( 7,268) - ( 147)
Carrying amount 5,424 - 10,957
Past Due But N ot Impaired
Unclassi f ied 6,187 - -
N either Past Due N or Impaired
Unclassi f ied 648,890 24,719 170,859
Accounts with N egotiated Terms - - -
Total Carrying Amount P 673,927 P 24,719 P 181,816
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BDO Unibank Group
2010
L oans and Trading and
Ot her D ue f rom I nvest ment
Receivables Ot her Banks Securit ies
Unclassi f ied P - P - P 2,439
Grade C: LEM 2,386 - 219
Grade F: L oss 7,852 - 1,253
Gross amount 19,740 7,225
Unclassi f ied 18 - -
Gross amount 12,366 - -
Allowance f or impairment ( 7,419) - -
Unclassi f ied 549,773 21,777 188,017
Accounts with N egotiated Terms - - -
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
An aging of past due but not impaired account s of BD O Unibank Group f ollows:
Loans and
Other Receivables
2011 2010
Below 30 days P 6,107 P 4,963
30 t o 60 days 17 23
61 t o 90 days 3 20
91 t o 180 days 29 10
More than 180 days 31 167
P 6,187 P 5,183
Parent Bank
2011
Other Due from Investment
Receivables Other Banks Securities
Grade C: LEM P 10,676 - P -
Grade F: L oss 6,330 - 888
Gross amount 25,375 - 1,894
Allowance f or impairment ( 7,264) - -
Unclassi f ied 628,985 22,777 168,455
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Parent Bank
2010
Ot her D ue f rom I nvest ment
Receivables Ot her Banks Securit ies
Unclassi f ied P - P - P 2,439
Grade F: Loss 7,704 - 1,114
Gross amount 18,298 - 6,867
Allowance f or impairment ( 13,286 ) - ( 4,752)
Grade F: Loss 6,508 - -
Allowance f or impairment ( 7,418 ) - -
Unclassi f ied 533,555 20,433 172,026
An aging of past due but not impaired account s of the Parent Bank f ollows:
Loans and
Other Receivables
2011 2010
Below 30 days P 6,107 P 4,953
30 t o 60 days 17 20
61 t o 90 days 3 15
91 t o 180 days 18 9
More than 180 days 31 125
P 6,176 P 5,122
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Exposure t o credit risk also includes unused commercial let t ers of credit s and committ ed
credit lines amount ing t o P33,391 and P111,469, respect ively, f or 2011 and P30,991 and
P89,694, respect ively, f or 2010 in t he BD O Unibank Group f inancial st at ement s and P33,391
and P110,148, respect ively, f or 2011 and P30,991 and P89,618, respect ively, f or 2011 in t he
Parent Bank f inancial st at ement s (see N ot e 31.03).
4 . 0 2 . 0 4 . 0 2 C ol l at er al H el d as Secu r i t y an d O t her C r edi t E n h an cemen t s
BD O Unibank Group holds collat eral against loans and receivables f rom cust omers in the
f orm of mort gage int erest s over propert y, ot her regist ered securit ies over asset s, and
guarant ees. Est imates of f air value are based on t he val ue of collat eral assessed at t he t ime of
borrowing and are updated periodically, e.g., annuall y f or real est at e propert ies, as provided in
t he Parent Banks Credit Policy Manual. Collat eral generally is not held over due f rom ot her
banks, int erbank loans and invest ment securit ies, except when securit ies are held as part of
reverse repurchase and securit ies borrowing act ivit y. BD O Unibank Group holds collat eral
against loans and ot her receivables in the f orm of propert y, debt securit ies, equit ies and
ot hers.
Est imat e of the f air value of collat eral and other securit y enhancement s held against t he
f ollowing loans and ot her receivables risk groupings as of D ecember 31 f ollows:
2011 2010 2011 2010
I ndividually impaired
Propert y P 16,358 P 20,821 P 16,290 P 20,678
Equit y 709 118 398 -
Ot hers 19,968 6,776 19,894 6,372
37,035 27,715 36,582 27,050
Collect ively impaired
Propert y 5,069 4,636 5,069 4,636
Ot hers 1,262 200 1,262 200
6,331 4,836 6,331 4,836
Past due but not impaired
Propert y 5,300 6,574 5,299 6,573
Equit y 1 1 - -
Ot hers 2,755 863 2,746 854
8,056 7,438 8,045 7,427
N eit her past due nor impaired
Propert y 264,652 267,958 264,161 267,148
D ebt securit y 1,314 1,027 1,203 899
Equit y 96,380 5,472 87,458 -
Ot hers 397,615 130,754 391,625 123,002
759,961 405,211 744,447 391,049
P 811,383 P 445,200 P 795,405 P 430,362
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4 . 0 2 . 0 4 . 0 3 C on cen t r at i on s of C r edi t R i sk
The BD O Unibank Group monitors concent rat ions of credit risk by sector and by geographic
locat ion. An analysis of concent rat ions of credit risk (gross of allowance) at t he report ing date
is shown below.
BDO Unibank Group
2011 2010
Receivables Recei vabl es
Cash and Cash from Investment Cash and Cash f rom I nvest ment
Equivalents Customers Securities Equi val ent s Cust omer s Securi t i es
Concent rat i on by sect or:
Fi nanci al i nt ermedi ari es P 182, 742 P 84, 668 P 124,158 P 186,932 P 79,058 P 137,745
Whol esal e and ret ai l t rade - 105, 905 1 - 76,592 541
Manuf act uri ng - 101,468 15,753 - 90,555 17,151
Real est at e, rent i ng and
ot her rel at ed act i vi t i es - 77, 624 5,388 - 55,842 4,320
Ot her communi t y, soci al
and personal act i vi t i es - 58, 315 - - 39,474 -
Transport at i on and
communi cat i on - 51,378 7,671 - 36,295 6,946
Agri cul t ure, f i shi ng and
f orest ry - 8,037 - 9,592 717
Ot hers - 182, 751 30, 886 154,104 27,822
P 182, 742 P 670,146 P 183, 857 P 186,932 P 541,512 P 195,242
Concent rat i on by l ocat i on:
Phi l i ppi nes P 159, 982 P 650,516 P 150, 939 P 166,404 P 535,335 P 158,756
Ot hers 22, 760 19,630 32, 918 20,528 6,177 36,486
P 182, 742 P 670,146 P 183, 857 P 186,932 P 541,512 P 195,242
Parent Bank
2011 2010
Receivables Recei vabl es
Cash and Cash from Investment Cash and Cash f rom I nvest ment
Equivalents Customers Securities Equi val ent s Cust omer s Securi t i es
Concent rat i on by sect or:
Fi nanci al i nt ermedi ari es P 171,871 P 86,169 P 110,700 P 176,811 P 78,142 P 123,773
Whol esal e and ret ai l t rade - 104,115 1 - 75,211 541
Manuf act uri ng - 97, 730 15,746 - 86,861 15,546
Real est at e, rent i ng and
ot her rel at ed act i vi t i es - 75, 364 5,370 - 53,887 4,113
Ot her communi t y, soci al
and personal act i vi t i es - 55, 560 - - 39,291 -
Transport at i on and
communi cat i on - 48, 203 7,671 - 33,845 6,946
Agri cul t ure, f i shi ng and
f orest ry - 7,536 - 8,254 717
Ot hers - 181,690 30, 861 - 151,462 27,257
P 171,871 P 656,367 P 170, 349 P 176,811 P 526,953 P 178,893
Concent rat i on by l ocat i on:
Phi l i ppi nes P 150, 543 P 636,737 P 138, 891 P 157,949 P 520,776 P 143,680
Ot hers 21,328 19,630 31,458 18,862 6,177 35,213
P 171,871 P 656,367 P 170, 349 P 176,811 P 526,953 P 178,893
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
4 . 0 3 O per at i on al R i sk
Operat ional risk is t he risk of loss due t o BD O Unibank Groups:
Fail ure t o comply with def ined operat ional procedures;
I nabilit y to address f raud commit t ed internally or externally;
I nabilit y to handle syst em f ailures; and,
I nabilit y to cope wit h the impact of ext ernal event s.
BD O Unibank Group manages it s operat ional risks by inst it ut ing policies t o minimize it s
expect ed losses, allocat ing capit al f or t he unexpect ed losses, and having insurance and/ or a
business cont inuit y plan t o prepare f or cat ast rophic losses.
F r amewor k
True to it s commit ment t o sound management and corporate governance, BD O Unibank
Group considers operat ional risk management as a crit ical element in t he conduct of it s
business. Under BD O Unibank Groups Operat ional Risk Management (ORM) f ramework,
t he BOD has t he ult imat e responsibilit y f or providing leadership in t he management of risk
in BD O Unibank Group. I n 2011, t he Group adopted a process-driven approach whereby
it f ocuses on mapping operat ional risks along crit ical/ key business processes. The business
process owners, as risk owners, are responsible f or ident if ying, assessing and limit ing t he
impact of risk in t heir businesses/ operat ions. The RMG provides t he common risk
language and management tools across BD O Unibank Group as well as monitors t he
implement at ion of the ORM f ramework and policies.
Alongside t he shif t t o the process-driven ORM approach in 2011, t he Group also adopt ed
t he periodic Risk and Control Self -Assessment (RCSA) process so t hat business process
owners could document both t heir operat ional risks and control mechanisms they have put
in place t o manage t hose risks. This ORM t ool allows t he Group t o ident if y risks t he
business/ operat ion f aces, assess the severity of those risks, evaluat e t he adequacy of key
cont rols associat ed t o the ident if ied risks, and t ake proact ive act ion t o address any
def iciencies ident if ied.
The BD O Unibank Group also cont inues t o use K ey Risk I ndicat ors (K RI ) as alert s f or
operat ional risk vulnerabilit ies.
The BD O Unibank Group cont inues t o expand it s operat ional loss dat abase to cover more
loss event cat egories as def ined by Basel I I .
Operat ional risks arising f rom healt h, saf et y and environment al issues are appropriat ely
managed through policies and measures that are int egrat ed into t he BD O Unibank Groups
day-t o-day operat ions. These include Environment al Consciousness, Occupat ional H ealt h
and Saf et y, and Communit y H ealt h and Saf ety.
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81
5. SEGMEN T REPORTIN G
The BD O Unibank Groups main operat ing businesses are organized and managed separat ely
according to t he nat ure of services provided and the dif f erent market s served, wit h each
segment represent ing a st rat egic business unit . These are also t he basis of BD O Unibank
Group in report ing to it s chief operat ing decision-maker f or it s st rategic
decision-making act ivit ies.
Management current ly ident if ies the BD O Unibank Groups three service lines as primary
operat ing segment s. I n addit ion, minor operat ing segment s, f or which quant it at ive t hresholds
have not been met , as described in PFRS 8, Oper at i ng Segments, are combined below as Others.
(a) C ommer ci al b an k i n g handles the ent ire lending (corporat e and consumer), trade
f inancing and cash management services f or corporat e and ret ail cust omers;
(b) I n vest men t ban k i n g provides services t o corporate client s out side the t radit ional loan
and deposit product s. These services include loan syndicat ions, underwrit ing and placing
of debt and equit y securit ies, and f inancial advisory services;
(c) P r i vat e ban k i n g provides t radit ional and non-t radit ional invest ment and st ruct ured
product s to high net worth individuals and inst it ut ional account s; and,
(d) O t h er s includes asset management , insurance brokerage, realt y management , leasing,
f inancing, remitt ance, account ing service, credit card service and comput er service, none
of which individually const it ut es a separat e report able segment .
These segment s are t he basis on which BD O Unibank Group report s it s segment
inf ormat ion. Transact ions bet ween the segment s are on normal commercial t erms and
condit ions. I nt er-segment t ransact ions are eliminat ed in consolidat ion.
Funds are ordinarily allocat ed bet ween segment s, result ing in f unding cost t ransf ers disclosed
in operat ing income. I nt erest charged f or t hese f unds is based on BD O Unibank Groups
cost of capit al. There are no ot her mat erial it ems of income or expense bet ween t he
segment s.
Segment asset s and liabilit ies comprise operat ing asset s and liabilit ies including it ems such as
t axat ion and borrowings.
Segment revenues and expenses that are direct ly att ribut able to primary operat ing segment
and the relevant port ions of BD O Unibank Groups revenues and expenses t hat can be
allocat ed t o that operat ing segment are accordingly ref lect ed as revenues and expenses of that
operat ing segment . Revenue sharing agreement s are used t o allocat e ext ernal cust omer
revenues to a segment on a reasonable basis.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Segment inf ormat ion (by service lines) as of and f or t he years ended D ecember 31, 2011 and
2010 f ollows:
Commercial Investment Private
Banking Banking Banking Others Eliminations Group
December 31, 2011
Tot al i nt erest i ncome
Ext ernal P 47,972 P 56 P 1,006 P 1,433 P - P 50,467
I nt er-segment 115 9 51 18 ( 193) -
48,087 65 1,057 1,451 ( 193) 50,467
Tot al i nt erest expense
Ext ernal 16,013 - 385 290 - 16,688
I nt er-segment 26 29 1 87 ( 143) -
16,039 29 386 377 ( 143) 16,688
N et i nt erest i ncome 32,048 36 671 1,074 ( 50) 33,779
Ot her operat i ng i ncome
I nvest ment banki ng f ees - 730 - - - 730
Ot hers 17,976 172 650 2,034 ( 663) 20,169
17,976 902 650 2,034 ( 663) 20,899
Ot her operat i ng expenses
D epreci at i on and
amort i zat i on 2,502 4 22 322 - 2,850
I mpai rment l osses 5,945 - 30 169 - 6,144
Ot hers 31,375 320 650 1,197 ( 76) 33,466
39,822 324 702 1,688 ( 76) 42,460
Prof i t bef ore t ax 10,202 614 619 1,420 ( 637) 12,218
Tax expense 1,212 176 73 169 - 1,630
N et prof i t P 8,990 P 438 P 546 P 1,251 ( P 637) P 10,588
Statements of Financial Pos ition
Tot al resources
Segment asset s P 1,050,750 P 4,091 P 28,160 P 25,377 ( P 16,958) P 1,091,420
I nt angi bl e asset s 433 10 - 1 - 444
D ef erred t ax asset s
(l i abi li t i es) 5,586 ( 30 ) 37 ( 108) - 5,485
P 1,056,769 P 4,071 P 28,197 P 25,270 ( P 16,958) P 1,097,349
Tot al l i abi l i t i es P 965,678 P 2,462 P 23,153 P 14,440 ( P 5,346) P 1,000,387
Other segment information
Capi t al expendi t ures P 2,915 P 1 P 53 P 409 P - P 3,378
I nvest ment i n associ at es
under equi t y met hod 4,678 68 - - - 4,746
Share i n t he prof i t
of associ at es 681 - - - - 681
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Commercial Investment Private
Banking Banking Banking Others Eliminations Group
D ecember 31, 2010
Tot al i nt erest i ncome
Ext ernal P 46,764 P 22 P 1,267 P 1,877 P - P 49,930
I nt er-segment 1 13 - 20 ( 34) -
46,765 35 1,267 1,897 ( 34) 49,930
Tot al i nt erest expense
Ext ernal 14,998 - 480 294 - 15,772
I nt er-segment 32 1 1 - ( 34) -
15,030 1 481 294 ( 34) 15,772
N et i nt erest i ncome 31,735 34 786 1,603 - 34,158
Ot her operat i ng i ncome
I nvest ment banki ng f ees - 392 - - - 392
Ot hers 16,429 188 681 1,130 ( 979) 17,449
16,429 580 681 1,130 ( 979) 17,841
Ot her operat i ng expenses
D epreci at i on and
amort i zat i on 2,004 4 24 848 - 2,880
I mpai rment l osses 6,376 - 58 316 ( 52 ) 6,698
Ot hers 30,036 237 653 1,066 ( 83) 31,909
38,416 241 735 2,230 ( 135) 41,487
Prof i t bef ore t ax 9,748 373 732 503 ( 844) 10,512
Tax expense 1,310 82 84 162 ( 7) 1,631
N et prof i t P 8,438 P 291 P 648 P 341 ( P 837) P 8,881
Statements of Financial Pos ition
Tot al resources
Segment asset s P 954,185 P 2,148 P 30,590 P 22,701 ( P 15,155) P 994,469
I nt angi bl e asset s 805 10 1 - - 816
D ef erred t ax asset s
(l i abi li t i es) 5,687 ( 32 ) 29 ( 100) - 5,584
P 960,677 P 2,126 P 30,620 P 22,601 ( P 15,155) P 1,000,869
Tot al l i abi l i t i es P 876,657 P 934 P 26,149 P 15,973 ( P 7,576) P 912,137
Other segment information
Capi t al expendi t ures P 2,493 P 2 P 8 P 285 P - P 2,788
I nvest ment i n associ at es
under equi t y met hod 3,858 68 - - - 3,926
Share i n t he prof i t
of associ at es 16 - - - - 16
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
6. FIN AN CIAL ASSETS AN D LIABILITIES
These consist of t he f ollowing:
BDO Unibank Group
2011
Classes
At Amorti zed At Fair Carrying Fair
Cost Value Amount Value
Financial A sset s
Cash and ot her cash it ems P - P 33,129 P 33,129 P 33,129
D ue f rom BSP 124,894 - 124,894 124,936
D ue f rom ot her banks 24,719 - 24,719 24,719
Financial asset s at FVTPL - 4,823 4,823 4,823
AFS secur it i es - 89,925 89,925 89,925
H TM invest ment s 93,670 - 93,670 106,032
Loans and ot her recei vabl es 673,927 - 673,927 680,546
Ot her resources 2,427 - 2,427 2,427
P 919,637 P 127,877 P 1,047,514 P 1,066,537
At Amorti zed Carrying Fair
Cost Amount Value
Financial L iabi li t ies
D eposit liabi lit ies P 858,569 P 858,569 P 861,289
Bi lls payable 59,474 59,474 59,495
Subordinat ed not es payable 38,255 38,255 41,549
Ot her l iabi li t i es 41,494 41,494 41,494
P 997,792 P 997,792 P 1,003,827
2010
Classes
At Amort ized At Fair Carrying Fair
Financial A sset s
D ue f rom BSP 138,482 - 138,482 138,483
AFS secur it i es - 85,674 85,674 85,674
H TM invest ment s 104,241 - 104,241 115,245
Ot her resources 2,552 - 2,552 2,552
P 833,073 P 119,719 P 952,792 P 965,584
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At Amort ized Carrying Fair
Cost Amount Value
Bi lls payable 65,861 65,861 65,378
P 909,546 P 909,546 P 913,313
Parent Bank
2011
Classes
At Amorti zed At Fair Carrying Fair
Financial A sset s
D ue f rom BSP 115,992 - 115,992 116,034
AFS secur it i es - 82,931 82,931 82,931
H TM invest ment s 85,742 - 85,742 97,761
Ot her resources 2,318 - 2,318 2,318
P 880,686 P 118,441 P 999,127 P 1,020,388
At Amorti zed Carrying Fair
Cost Amount Value
Bi lls payable 51,378 51,378 51,460
P 963,311 P 963,311 P 969,386
2010
Classes
At Amort ized At Fair Carrying Fair
Financial A sset s
D ue f rom BSP 129,718 - 129,718 129,719
AFS secur it i es - 77,725 77,725 77,725
H TM invest ment s 95,569 - 95,569 106,175
Ot her resources 2,886 - 2,886 2,886
P 797,224 P 108,732 P 905,956 P 922,008
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
(see N ote 20).
At Amort ized Carrying Fair
Cost Amount Value
Bi lls payable 56,081 56,081 55,679
P 874,270 P 874,270 P 878,491
7. CASH AN D BALAN CES WITH THE BSP
These account s are composed of the f ollowing:
2011 2010 2011 2010
Cash and other cash items P 33,129 P 26,673 P 33,102 P 26,660
D ue f rom BSP:
Mandat ory reserves 30,566 70,237 28,006 68,166
Ot her than mandatory
reserves 94,328 68,245 87,986 61,552
124,894 138,482 115,992 129,718
P 158,023 P 165,155 P 149,094 P 156,378
Mandat ory reserves represent the balance of the deposit account maint ained wit h the BSP t o
meet reserve requirement s and to serve as clearing account f or interbank claims. D ue f rom
BSP bears annual int erest rat es of 0.1% to 4.8% in 2011 and 3.2% t o 4.2% in 2010, except f or
t he amount s wit hin the required reserve as det ermined by BSP. Tot al int erest income earned
amount ed to P2,025, P2,714 and P1,988 in 2011, 2010 and 2009, respect ively, in the BD O
Unibank Group f inancial st at ement s and P1,866, P2,631 and P1,941 in 2011, 2010 and 2009,
respect ively, in the Parent Banks f inancial st at ements
Cash and other cash items and balances wit h t he BSP are included in cash and cash
equi valent s f or st atement s of cash f lows purposes.
Under Sect ion 254 of the Manual of Regulat ions f or Banks (MORB), a bank is required to
maint ain at least 25 percent of it s st at utory reserve requirement s in t he f orm of deposit wit h
t he BSP as among t he allowable inst rument s f or reserve cover. Sect ion 254.1 of the MORB
f urt her provides t hat such deposit account with the BSP is not considered as a regular current
account as BSP checks f or drawings against such deposit shall be limit ed t o: (i ) set t lement of
obligat ions wit h t he BSP; and, (i i ) wit hdrawals t o meet cash requirement s.
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8. DUE FROM OTHER BAN KS
The balance of this account represent s deposit s wit h t he f ollowing:
2011 2010 2011 2010
Foreign banks P 22,601 P 20,144 P 21,311 P 18,848
L ocal banks 2,118 1,633 1,466 1,585
P 24,719 P 21,777 P 22,777 P 20,433
The breakdown of this account as to currency f ollows:
2011 2010 2011 2010
US dollar P 20,875 P 18,051 P 19,775 P 17,582
Ot her currencies 3,262 3,687 2,966 2,814
Peso 582 39 36 37
P 24,719 P 21,777 P 22,777 P 20,433
Annual int erest rat es on these deposit s range f rom 0% t o 4.6% in 2011, 0% t o 4.1% in 2010,
and 0% to 10% in 2009 in t he BD O Unibank Group f inancial st at ement s and 0% to 2.6% in
2011, 0% t o 2.6% in 2010, and 0% to 5% in 2009 in t he Parent Banks f inancial st at ement s.
D ue f rom other banks are included in cash and cash equi valent s f or st atement s of cash f lows
purposes.
9. TRADIN G AN D IN VESTMEN T SECURITIES
The component s of t his account are shown below.
2011 2010 2011 2010
Financial asset s at FVTPL P 4,823 P 7,372 P 2,408 P 4,347
AFS securit ies 89,925 85,674 82,931 77,725
H TM investment s 93,670 104,241 85,742 95,569
P 188,418 P 197,287 P 171,081 P 177,641
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
9 . 0 1 F i n an ci al A sset s at F V T P L
This account is composed of t he f ollowing:
2011 2010 2011 2010
D erivat ive f inancial asset s P 3,739 P 5,110 P 1,890 P 3,379
Government bonds 949 1,640 518 866
Ot her debt securit ies 58 610 - 102
4,746 7,360 2,408 4,347
Equit y securit ies - quot ed 77 12 - -
P 4,823 P 7,372 P 2,408 P 4,347
All f inancial asset s at FVTPL are held f or t rading. For government bonds and other debt
securit ies, t he amount s present ed have been determined direct ly by ref erence to published
prices quot ed in an act ive market . On the other hand, t he f air value of derivat ive f inancial
asset s is det ermined t hrough valuat ion t echnique usi ng net present value of f ut ure cash f lows
method. BD O Unibank Group recognized tot al f air value gain (loss) on f inancial asset s at
FVTPL amount ing t o P378, (P131) and P1,814 in 2011, 2010 and 2009, respect ively, in the
BD O Unibank Group f inancial st at ement s and P359, (P270) and P1,778 in 2011, 2010 and
2009, respect ively, in t he Parent Bank f inancial st at ement s. These are included as part of
Trading gain net under Ot her Operat ing I ncome in the st at ement s of income (see N ot e 22).
Foreign currency-denominat ed securit ies amount ed to P2,071 and P3,743 as of
D ecember 31, 2011 and 2010, respect ively, in the BD O Unibank Group f inancial st at ement s
and P1,864 and P3,203 as of D ecember 31, 2011 and 2010, respect ively, in the Parent Bank
D erivat ive inst rument s used by BD O Unibank Group include f oreign currency and int erest
rat e f orwards/ f ut ures, f oreign currency and int erest rat e swaps. Also in 2007, derivat i ves
included embedded credit def ault swaps bif urcat ed f rom CLN s or credit -linked deposit s
(CLD s) (which were reclassif ied t o Loans and Other Receivables t ogether wit h t heir host
cont ract s in 2008). Foreign currency and int erest rate f orwards/ f ut ures represent
commit ment s t o purchase/ sell or are cont ract ual obligat ions t o receive or pay a new amount
based on changes in currency rat es or int erest rat es on a f ut ure dat e at a specif ied price.
Foreign currency and int erest rat e swaps are commitment s to exchange one set of cash f lows
f or another. The credit def ault swaps represent commit ment of t he count erparty t o swap the
note and deposit wit h high yielding securit ies upon the occurrence of t he ref erence event by
t he ref erence ent it y.
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The aggregat e cont ract ual or not ional amount of derivat i ve f inancial inst rument s and t he tot al
f air val ues of derivat ive f inancial asset s and liabil it ies are shown below.
BDO Unibank Group
2011 2010
N otional Fair Values N ot i onal Fai r Val ues
Amount Assets Liabilities Amount Asset s Li abi l i t ies
Currency f orwards/ f ut ures P 262,018 P 1,617 P 1,765 P 272,670 P 2,110 P 2,200
Currency swaps 78, 474 1,899 1,320 70,016 2,474 1,899
I nt erest rat e swaps 17,415 183 229 15,490 475 575
Credi t def aul t swaps 2,195 14 5 2,077 1 2
Ot hers - 26 1 1,320 50 39
P 360,102 P 3,739 P 3,320 P 361,573 P 5,110 P 4,715
Parent Bank
2011 2010
N otional Fair Values N ot i onal Fai r Val ues
Amount Assets Liabilities Amount Asset s Li abi l i t ies
Currency f orwards/ f ut ures P 261, 585 P 1,020 P 1,165 P 217,077 P 1,509 P 1,564
Currency swaps 26, 417 649 496 33,565 1,373 1,059
I nt erest rat e swaps 16,088 181 210 10,961 448 504
Credi t def aul t swaps 2,195 14 5 440 - 2
Ot hers - 26 1 1,320 49 39
P 306,285 P 1,890 P 1,877 P 263,363 P 3,379 P 3,168
I n 2008, BD O Unibank Group reclassif ied cert ain equit y securit ies f rom FVTPL t o AFS and
debt securit ies and embedded derivat ives of CL N s f rom FVTPL t o H TM and Loans and
Ot her Receivables, respect ively (see N ot e 9.04).
D erivat ives embedded in CL N s and CL D s amount ing to P183 and P70 in BD O Unibank
Group and Parent Bank f inancial st at ement s, respectively, as of reclassif icat ion dat e, were
reclassif ied t o Loans and Ot her Receivables t ogether wit h t heir relat ed host cont ract s
(see N ote 9.04).
A CLN is an inst rument under which the issuer issues a not e to t he invest or whereby both
part ies agree t hat upon t he occurrence of a credit event in relat ion t o the ref erence ent it y, the
CLN accelerat es and t he invest or is delivered the def ault ed asset of the ref erence ent it y, or
paid a net sett lement amount equal t o t he market price of the def ault ed asset or ref erence
obligat ion adjust ed f or any t ransact ion unwind cost s.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
9 . 0 2 A F S Secu r i t i es
AFS securit ies consist of t he f ollowing:
N ot e 2011 2010 2011 2010
Government debt
securi t i es P 55,267 P 52,580 P 52,583 P 49,958
Ot her debt securi t i es:
Quot ed 29,508 30,366 28,951 28,364
N ot quot ed 253 243 253 243
Equi t y securi t i es:
Quot ed 5,555 6,197 1,877 2,960
N ot quot ed 2,292 2,099 925 726
92,875 91,485 84,589 82,251
Al l owance f or
i mpai rment 14 ( 2,950) ( 5,811) ( 1,658) ( 4,526 )
P 89,925 P 85,674 P 82,931 P 77,725
As t o currency, t his account is composed of t he f ollowing:
2011 2010 2011 2010
Foreign currencies P 66,152 P 48,040 P 63,023 P 44,791
Peso 23,773 37,634 19,908 32,934
P 89,925 P 85,674 P 82,931 P 77,725
Government debt securit ies issued by t he ROP and f oreign sovereigns and ot her debt
securit ies issued by resident and non-resident corporat ions earn int erest at annual rat es
ranging f rom 0% t o 13% in 2011, 0% t o 12% in 2010, and 0% t o 13% in 2009 bot h in t he
BD O Unibank Group and Parent Bank f inancial st at ement s.
As of D ecember 31, 2011 and 2010, ot her debt securit ies also include invest ment s in f oreign
f inancial inst it ut ions under bankrupt cy amount ing t o P1,229 and P4,016, respect ively, wit h
allowance f or impairment on such invest ment s amount ed t o P1,229 and P4,016, respect ively,
in t he Parent Bank f inancial st at ement s (see N ot e 10 f or t he relat ed int erbank loan receivables
f rom t hese f inancial inst it ut ions). I n 2011, t he Parent Bank disposed f ully impaired debt
securit ies issued by a f oreign f inancial inst it ut ion under bankrupt cy amount ing t o P2,295.
The sale result ed t o a gain of P640 and is present ed as part of Trading gain net under Ot her
Operat ing I ncome and Expenses (see N ot e 22). Also, in 2011, collat eralized debt obligat ions
amount ing t o P477, wit h f ull allowance f or impairment losses, in t he Parent bank f inancial
st at ement s, respect ively, were redeemed at zero.
Unquot ed equit y securit ies consist of pref erred shares and common shares of various unlist ed
local companies.
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The f air values of government debt and quot ed AFS securit ies (ot her debt securit ies and
equit y shares) have been det ermined direct ly by ref erence t o published prices generated in an
act ive market . For unquot ed AFS securit ies, t he f air value is not reliably det erminable either
by ref erence t o similar f inancial inst rument s or t hrough valuat ion t echnique using t he net
present value of t he f ut ure cash f lows. Accordingly, unquot ed AFS securit ies are carried at
cost .
Changes in AFS securit ies are present ed below.
2011 2010 2011 2010
Bal ance at begi nni ng of year P 85, 674 P 47,033 P 77, 725 P 39,327
Addi t i ons 400,320 487,648 397,304 485,044
D i sposal s ( 399,954) ( 450,925) ( 396,247 ) ( 447,710 )
Forei gn currency reval uat i on 178 ( 1,803) 185 ( 1,793 )
Unreal i zed f ai r val ue gai ns 846 3,020 1,096 1,951
I mpai rment recovery - net 2,861 701 2,868 906
P 89, 925 P 85,674 P 82, 931 P 77,725
9 . 0 3 H el d- t o- M at u r i t y I n vest men t s
The balance of this account is composed of t he f ollowing:
N ote 2011 2010 2011 2010
Government debt
securit ies P 83,240 P 90,514 P 75,312 P 82,202
Ot her debt securit ies:
List ed 9,625 13,035 9,625 12,681
N ot quot ed 1,217 1,145 1,217 1,098
94,082 104,694 86,154 95,981
Allowance f or
impairment 14 ( 412) ( 453) ( 412) ( 412)
P 93,670 P 104,241 P 85,742 P 95,569
On October 6, 2010, t he BD O Unibank Group part icipat ed in t he Global Bond Exchange
of f ered by the ROP wherein cert ain U.S. dollar denominat ed government bonds due bet ween
2011 t o 2016 were exchanged by t he Parent Bank f or newly issued U.S. dollar denominat ed
global bonds due 2021. The BD O Unibank Group and Parent Bank exchanged Republic of
Philippine (ROP) bonds with f ace value of US$111.5 million and US$75.4 million,
respect ively. The f air value of the Benchmark bonds received by BD O Unibank Group and
Parent Bank amount ed to US$134.6 mil lion and US$94.1 mil lion, respect ively, result ing t o a
gain of US$18.8 mil lion or P824 and US$16.6 million or P728, respect ively, to be def erred
and amort ized over the remaining lif e of the Benchmark bonds. The t ot al amount of gain
amort ized by BD O Unibank Group and Parent Bank amount ed to US$1.73 mill ion or P73
and US$1.47 mil lion or P64 in 2011, respect ively, and US$0.41 mil lion or P18 and
US$0.36 million or P16 in 2010, respect ively, shown as part of Trading Gains net present ed
under Ot her Operat ing I ncome in t he st at ement s of income.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Unamort ized def erred gain f rom t he transact ion, which is included as part of Unearned
I ncome under Ot her L iabilit ies account , amount ed to P733 and P806 as of
D ecember 31, 2011 and 2010, respect ively, in the BD O Unibank Group f inancial st at ement s
and P648 and P712 as of D ecember 31, 2011 and 2010, respect ively, in t he Parent Bank
st at ement s of f inancial posit ion (see N ot e 18). As of D ecember 31, 2011 and 2010,
out st anding balance of the Benchmark bonds of BD O Unibank Group amount ed t o P5,863
and P5,860, respect ively, and of t he Parent Bank amount ed to P4,128 and P4,125,
respect ively.
As ment ioned in N ot e 25, cert ain government debt securit ies are deposit ed with t he BSP.
As t o currency, H TM invest ment s consist of the f ollowing:
2011 2010 2011 2010
Forei gn currencies P 77,940 P 84,361 P 73,092 P 79,168
Peso 15,730 19,880 12,650 16,401
P 93,670 P 104,241 P 85,742 P 95,569
The mat urit y prof ile of HTM investment s is presented below.
2011 2010 2011 2010
Less t han one year P 10,946 P 16,334 P 9,809 P 14,320
One t o f i ve years 32,080 25,206 27,075 22,397
Beyond f i ve years 50,644 62,701 48,858 58,852
P 93,670 P 104,241 P 85,742 P 95,569
Changes in t he H TM account are summarized below.
2011 2010 2011 2010
Balance at beginning of year P 104,241 P 116,177 P 95,569 P 107,440
Addit ions 12,205 25,446 10,589 22,632
Mat ur it i es ( 22,746) ( 32,656) ( 20,344) ( 30,171)
Forei gn currency reval uat i on ( 72) ( 4,653) ( 72) ( 4,300)
I mpairment l oss (recovery) - net 42 ( 73) - ( 32)
P 93,670 P 104,241 P 85,742 P 95,569
The f air values of the H TM invest ment s f ollow:
2011 2010 2011 2010
Government debt securi t ies P 94,799 P 100,405 P 86,528 P 91,667
Ot her debt securit ies 11,233 14,840 11,233 14,508
P 106,032 P 115,245 P 97,761 P 106,175
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The f air values are determined t hrough valuat ion t echniques by det ermining the net present
val ue of est imated f ut ure cash f lows. Annual int erest rates on t hese invest ment s range f rom
0% t o 14% in 2011, 0% t o 14% in 2010 and 0% t o 11.4% in 2009 both in the BD O Unibank
Group and t he Parent Bank f inancial st at ement s.
9 . 0 4 R ecl assi f i cat i on of I n vest men t Secu r i t i es
BD O Unibank Group recognized t he det eriorat ion of the worlds f inancial market s t hat
occurred in t he third quart er of 2008. The enormit y and extent of the global credit crisis was
cryst allized by the subst ant ial government programs inst it ut ed by major economies in
response t o the crisis, including t emporary liquidit y f acilit ies, out right purchase of commercial
papers and mort gaged-backed securit ies, guarant ee of new unsecured debt issued by banks
and purchase of equit y st akes in f inancial inst it ut ions.
I n 2008, BD O Unibank Group chose to avail of the regulat ory relief on specif ic f inancial
asset s grant ed by t he BSP under the governing provisions of Circular N o. 628, which
permitt ed t he reclassif icat ion of cert ain f inancial asset s to help banks cope wit h t he adverse
impact of t he global f inancial crisis.
Present ed below are t he det ails of the reclassif icat ions made by BD O Unibank Group in 2008
and the relat ed det ails at t he end of 2011 and 2010.
BDO Unibank Group
At
Reclassi f icat ion D at e
Carrying Fair
Value Value
Reclassi f icat ion f r om FVTPL t o H TM P 6,297 P 6,297
Reclassi f icat ion of debt secur it ies f rom AFS t o H TM 25,540 25,540
Reclassi f icat ion of embedded deri vat i ves of CLN s
f rom FVTPL t o Loans and Other Recei vables ( 183) ( 183)
Reclassi f icat ion of CL N s f rom AFS t o Loans and Ot her Receivables 18,520 18,520
Balances at
December 31, 2011 D ecember 31, 2010
Carrying Fair Carrying Fair
Value Value Value Value
Reclassi f ication f r om FVTPL t o H TM P 1,547 P 1,960 P 1,635 P 1,885
Reclassi f icat ion of debt secur it ies
f rom A FS t o H TM 17,960 20,768 20,184 22,696
Reclassi f icat ion of CL N s f rom AFS
t o Loans and Ot her Recei vables 7,287 7,959 13,037 14,224
Parent Bank
At
Reclassi f icat ion D at e
Carrying Fair
Value Value
Reclassi f icat ion f r om FVTPL t o H TM P 6,297 P 6,297
Reclassi f icat ion of debt secur it ies f rom AFS t o H TM 22,474 22,474
Reclassi f icat ion of embedded deri vat i ves of CLN s
f rom FVTPL t o Loans and Other Recei vables ( 70) ( 70)
Reclassi f icat ion of CL N s f rom AFS t o Loans and Ot her Receivables 14,096 14,096
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Balances at
December 31, 2011 D ecember 31, 2010
Carrying Fair Carrying Fair
Value Value Value Value
Reclassi f ication f r om FVTPL t o H TM P 1,547 P 1,960 P 1,635 P 1,885
Reclassi f icat ion of debt secur it ies
f rom A FS t o H TM 16,107 18,743 18,248 20,539
Reclassi f icat ion of CL N s f rom AFS
t o Loans and Ot her Recei vables 7,287 7,959 12,159 13,351
Est imat ed cash f lows on instrument s reclassif ied f rom FVTPL to HTM at t he dat e of
reclassif icat ion amount ed t o P9,174 both f or BD O Unibank Group and Parent Bank. On t he
ot her hand, est imat ed cash f lows on CLN s reclassif i ed f rom AFS to L oans and Ot her
Receivables at t he dat e of reclassif icat ion amount ed t o P22,591 and P18,728 f or BD O
Unibank Group and Parent Bank, respect ively.
R ecl assi f i cat i on f r om F V T P L t o H T M
Tot al trading losses on FVTPL reclassif ied t o H TM both in the BD O Unibank Group and
Parent Bank f inancial st at ement s which were recognized in prof it or loss amount ed to
P199 in 2008. On the other hand, t he net t rading gain (loss) t hat would have been recognized
in t he period f ollowing t he reclassif icat ion during 2011, 2010 and 2009 if t he reclassif icat ions
had not been made would have amount ed t o P151, P84 and P396, respect ively, f or both
BD O Unibank Group and Parent Bank. Ef f ect ive int erest rat es of FVTPL reclassif ied t o
H TM range f rom 7.0% t o 8.6% in 2011, 2010 and 2009 in t he BD O Unibank Group and
Parent Bank f inancial st at ement s. Amort izat ion of premium due t o change in ef f ect ive
int erest rat es recognized as part of int erest income in prof it or loss on reclassif ied securit ies
amount ed to (P9) in bot h the BD O Unibank Group and Parent Bank f inancial st at ement s in
2011 and 2010. N o impairment recovery or loss was booked on reclassif ied inst rument s in
both t he BD O Unibank Group and Parent Bank f inancial st at ement s in 2011 and 2010.
R ecl assi f i cat i on of D ebt Secu r i t i es f r om A F S t o H T M
Unrealized f air value losses in equit y of debt securit ies reclassif ied f rom AFS to H TM at
reclassif icat ion dat es amounted t o P102 and P46 in the BD O Unibank Group and Parent
Bank f inancial st at ement s, respect ively, in 2008. The net t rading gain (loss) t hat would have
been recognized in other comprehensive income during t he period f ollowing t he
reclassif icat ion if the reclassif icat ions had not been made would have amount ed to P635,
P1,395, and 3,395 in 2011, 2010 and 2009, respect ively, in the BD O Unibank Group f inancial
st at ement and P463, P1,175 and P3,190 in 2011, 2010 and 2009, respect ively, in t he Parent
Bank f inancial st at ement . Trading gain (loss) booked on the redempt ion of t he reclassif ied
securit ies both in BD O Unibank Group and Parent Bank f inancial st at ement s are (P5) in 2011
and P98 in 2010. On the ot her hand, amort izat ion of f air value loss previously recognized in
ot her comprehensive income t o prof it or loss due to reclassif icat ion amounted to P71 and
P30 in t he BD O Unibank Group f inancial st at ement and P62 and P20 in t he Parent Bank
f inancial st at ement s in 2011 and 2010, respect ively.
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R ecl assi f i cat i on of C L N s f r om A F S t o L oan s an d O t h er R ecei vabl es
Unrealized f air value losses in equit y of CL N s linked t o ROP bonds reclassif ied f rom AFS t o
Loans and Other Receivables at reclassif icat ion dat es amount ed t o P627 and P624 in t he
BD O Unibank Group and Parent Bank f inancial st atement s, respect ively, in 2008. The
ef f ect ive int erest rat es on reclassif ied invest ment s range f rom 5.44% t o 12.54%, 1.64% t o
12.55%, and 4.3% t o 12.55% in the BD O Unibank Group f inancial st at ement s, in 2011, 2010
and 2009, respect ively, and 5.44% t o 12.54% in 2011 and 2.78% t o 12.55% in 2010 and 1.1%
t o 12.55% in 2009 in t he Parent Bank f inancial st at ement s. I nt erest income recognized in
prof it or loss on reclassif ied securit ies amount ed t o P178 and P254 in 2011 and 2010,
respect ively, in the BD O Unibank Group f inancial st at ement s and P167 and P125 in 2011 and
2010, respect ively, in t he Parent Bank f inancial st at ement s.
Addit ional unrealized f air val ue gain (losses) recognized in ot her comprehensive income in t he
period f ollowing t he reclassif icat ion had t he CL N s not been reclassif ied t o Loans and Other
Receivables would have amount ed t o (P371), P444 and P643 in 2011, 2010 and 2009,
respect ively, in the BD O Unibank Group f inancial st at ement s and (P371), P469 and P623 in
2011, 2010 and 2009, respect ively, in the Parent Bank f inancial st at ement s. Addit ional trading
gain (loss) to be recognized in prof it or loss had the embedded derivat ives not been
reclassif ied t ot aled t o (P208), P152 and P1,597 in 2011, 2010 and 2009, respect ively, in the
BD O Unibank Group f inancial st at ement s and (P202), P148 and P1,274 in 2011, 2010 and
2009, respect ively, in t he Parent Bank f inancial st at ement s.
I n 2011, t he BD O Unibank Group unwound the out st anding CL D s and CL N s wit h cert ain
f inancial inst it ut ions amount ing to P437 and P5,454, respect ively. On t he ot her hand, t he
Parent Bank unwound the out st anding CL N s wit h cert ain f inancial inst it ut ions amount ing to
P5,009. The BD O Unibank Group and Parent Bank recognized loss amount ing t o P13 and
P7, respect ively, in t he unwinding of CLN s and is presented as part of t he
Trading gain net under Ot her Operat ing I ncome in the 2011 st at ement of income. Also,
t he unwinding of CL N by t he Parent Bank result ed to reversal of net unrealized loss
amount ing t o (P25) and is presented as part of Trading net under Ot her Operat ing I ncome in
t he 2011 st at ement of income.
Af t er t he reclassif icat ion, amort izat ion of unrealized f air val ue losses on out st anding CL D s
and CLN s previously recognized direct ly in the st at ement s of comprehensive income
amount ed to P157 and P82 in 2011 and 2010, respect ively, f or t he BD O Unibank Group and
P157 and P98 in 2011 and 2010, respect ively, f or t he Parent Bank.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
10. LOAN S AN D OTHER RECEIVABLES
This account consist s of the f ollowing:
N ot es 2011 2010 2011 2010
Recei vabl es f rom cust omers:
Loans and di scount s 24 P 591, 323 P 470,461 P 577,544 P 455,902
Cust omers l i abi l i t i es
under l et t ers of credi t
and t rust recei pt s 38, 085 34,104 38, 085 34,104
Bi l l s purchased 10,697 9,356 10,697 9,356
Ot hers 30, 041 27,591 30, 041 27,591
670,146 541,512 656,367 526,953
Al l owance f or i mpai rment 14 ( 24, 358) ( 23,507) ( 24, 077) ( 23,276)
645,788 518,005 632,290 503,677
Ot her recei vabl es:
I nt erbank l oans recei vabl es 7,325 26,151 7,325 26,151
UD SCL 9.04 8,452 13,386 8,452 12,505
Account s recei vabl e 13, 24 7,628 6,002 6,171 6,861
SPURRA 4,989 2,912 - -
Sal es cont ract recei vabl es 2,347 2,107 2,259 1,954
Ot hers 67 95 - -
30, 808 50,653 24, 207 47,471
Al l owance f or i mpai rment 14 ( 2,669) ( 2,637) ( 2,640) ( 2,530)
28,139 48,016 21,567 44,941
P 673,927 P 566,021 P 653,857 P 548,618
I n 2011, t o execut e the deed of assignment made on January 13, 2008, t he Parent Bank agreed
t o t ransf er, cede and convey absolut ely to SM K eppel Land, I nc. (SM K eppel) the out st anding
advances t ot aling P364 recognized as part of Account s receivable under Loans and Ot her
Receivables in exchange f or 36,401,500 pref erred shares of SM K eppel f or a subscript ion
price of P364 (see N ot e 13.01).
I ncluded in t he tot al loan port f olio are non-perf orming loans, net of account s in t he loss
cat egory and f ully provided wit h allowance (excluded under BSP Circular 351), as f ollows:
2011 2010 2011 2010
N onperf orming loans P 25,332 P 24,937 P 24,909 P 24,400
Loss cat egory loans,
f ul ly provided wit h al lowance* ( 11,919) ( 6,087) ( 11,839) ( 5,973)
P 13,413 P 18,850 P 13,070 P 18,427
* L oans cl assi fi ed as l oss and ful l y provi ded wi t h al l owance as per l at est appl i cabl e BSP Resul t s of
E x ami nat i on as of D ecember 31, 2011 and 2010. T he 2011 l oans cl assi fi ed as l oss i s i ncl usi ve of the
Recei vabl e fr om SPV pr esented under Ot her Resour ces i n t he 2011 st at ement of fi nanci al posi t i on.
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Per MORB, non-perf orming loans shall, as a general rule, ref er to loan account s whose
principal and/ or int erest is unpaid f or 30 days or more af t er due dat e or af t er t hey have
become past due in accordance wit h exist ing rules and regulat ions. This shall apply to loans
payable in lump sum and loans payable in quart erly, semi-annual or annual inst allment s, in
which case, t he tot al out st anding balance thereof shall be considered non-perf orming. I n t he
case of loans payable in mont hly inst allment s, t he t ot al out st anding balance thereof shall be
considered nonperf orming when three or more inst allment s are in arrears. I n the case of
loans payable in daily, weekly or semi-mont hly inst all ment s, the ent ire out st anding balance of
t he loan/ receivable shall be considered as past due when t he tot al amount of arrearages
reaches 10% of the t ot al loan/ receivable balance. Rest ruct ured loans shall be considered non-
perf orming except when as of restruct uring dat e, it has an updat ed principal and interest
payment s and it is f ully secured by real est at e wit h loan value of up to 60% of the appraised
val ue of real est at e securit y and the insured improvement s and such ot her f irst class
collat erals.
As of D ecember 31, 2010, int erbank loans receivables include loans to a f oreign f inancial
inst it ut ion under bankrupt cy amount ing t o P19 wit h relat ed allowance f or impairment of P19
(see N ote 9.02 f or t he investment in ot her debt securit ies in that f oreign f inancial inst it ut ion).
I n 2011, t he Parent Bank disposed t he loan through a sale at a gain of P0.2 and is presented as
part of Trading gain net in t he st at ement of income.
The concent rat ion credit of t he tot al loan port f olio as t o indust ry f ollows:
2011 2010 2011 2010
Wholesale and ret ai l t rade P 105,905 P 76,592 P 104,115 P 75,211
Manuf act uring (vari ous indust ri es) 101,468 90,555 97,730 86,861
Financial int ermediar ies 84,668 79,058 86,169 78,142
Real est at e, rent ing and ot her
relat ed act i vi t i es 77,624 55,842 75,364 53,887
Ot her communit y, social and
personal act i vit ies 58,315 39,474 55,560 39,291
Transport at ion and communi cat i on 51,378 36,295 48,203 33,845
Agri cult ure, f ishing and f or est ry 8,037 9,592 7,536 8,254
Ot hers 182,751 154,104 181,690 151,462
P 670,146 P 541,512 P 656,367 P 526,953
The breakdown of tot al loan port f olio as to secured and unsecured f ollows:
2011 2010 2011 2010
Secured:
Real est at e mort gage P 115,833 P 93,722 P 115,296 P 93,309
Chat t el mort gage 61,452 42,566 53,100 34,738
Ot her securit ies 137,259 104,142 131,166 103,961
314,544 240,430 299,562 232,008
Unsecured 355,602 301,082 356,805 294,945
P 670,146 P 541,512 P 656,367 P 526,953
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The breakdown of tot al loans as t o t ype of int erest rat e f ollows:
2011 2010 2011 2010
Variabl e int er est rat es P 483,438 P 364,479 P 469,209 P 355,991
Fixed int erest rat es 186,708 177,033 187,158 170,962
P 670,146 P 541,512 P 656,367 P 526,953
Loans and ot her receivables bear annual int erest rat es of 0% (primarily non-perf orming loans)
t o 43.7% (f or credit card inst allment receivables) per annum in 2011, 2010 and 2009 in both
t he BD O Unibank Group and Parent Bank f inancial st at ement s.
The BD O Unibank Groups receivables f rom cust omers amount ing t o P960 and P1,448 as of
D ecember 31, 2011 and 2010, respect ively, are pledged as collat erals wit h t he BSP t o secure
borrowings under rediscount ing privileges (see N ot e 16).
11. PREMISES, FURN ITURE, FIXTURES AN D EQUIPMEN T
The gross carrying amount s and accumulat ed depreciat ion and amort izat ion of premises,
f urnit ure, f ixt ures and equipment at the beginning and end of 2011 and 2010 are shown
below.
Leasehold Furniture,
Rights and Fixtures and
Land Buildings Improvements Equipment Total
BDO Unibank Group
December 31, 2011
Cost P 5,130 P 7,701 P 2,858 P 12,750 P 28,439
Accumul at ed
depreci at i on and
amort i zat i on - ( 2,498) ( 1,635) ( 8,616) ( 12,749)
N et carrying amount P 5,130 P 5,203 P 1,223 P 4,134 P 15,690
D ecember 31, 2010
Cost P 5,079 P 6,620 P 2,673 P 15,185 P 29,557
Accumul at ed
depreci at i on and
amort i zat i on - ( 2,167) ( 1,268) ( 11,065) ( 14,500)
N et carryi ng amount P 5,079 P 4,453 P 1,405 P 4,120 P 15,057
January 1, 2010
Cost P 4,780 P 5,568 P 2,293 P 16,475 P 29,116
Accumul at ed
depreci at i on and
amort i zat i on - ( 1,685) ( 880) ( 11,811) ( 14,376)
Al l owance
f or i mpai r ment - - ( 4) ( 4) ( 8)
Parent Bank
December 31, 2011
Cost P 5,130 P 7,642 P 2,715 P 11,713 P 27,200
Accumul at ed
depreci at i on and
amort i zat i on - ( 2,459) ( 1,558) ( 8,109) ( 12,126)
N et carrying amount P 5,130 P 5,183 P 1,157 P 3,604 P 15,074
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D ecember 31, 2010
Cost P 5,079 P 6,561 P 2,611 P 12,170 P 26,421
Accumul at ed
depreci at i on and
amort i zat i on - ( 2,131) ( 1,255) ( 8,920) ( 12,306)
January 1, 2010
Cost P 4,780 P 5,509 P 2,125 P 13,487 P 25,901
Accumul at ed
depreci at i on and
amort i zat i on - ( 1,651) ( 803) ( 10,389) ( 12,843)
A reconciliat ion of t he carrying amount s, at the beginning and end of 2011 and 2010, of
premises, f urnit ure, f ixt ures and equipment is shown below.
BDO Unibank Group
Bal ance at January 1, 2011,
net of accumul at ed
depreci at i on and
amort i zat i on P 5,079 P 4,453 P 1,405 P 4,120 P 15,057
Addi t i ons 76 994 247 1,772 3,089
D i sposal s ( 79) ( 3) - ( 449) ( 531)
Recl assi f i cat i ons 54 67 ( 1) - 120
D epreci at i on and amort i zat i on
charges f or t he year - ( 308) ( 428) ( 1,309) ( 2,045)
Bal ance at D ecember 31,
2011, net of accumul at ed
depreci at i on and
depreci at i on and
Addi t i ons 89 564 474 1,334 2,461
D i sposal s ( 15) ( 15) ( 37) ( 155) ( 222)
Recl assi f i cat i ons 225 253 5 - 483
depreci at i on and
Parent Bank
depreci at i on and
Addi t i ons 76 994 205 1,474 2,749
D i sposal s ( 79) ( 3) - ( 69) ( 151)
Recl assi f i cat i ons 54 67 ( 1) - 120
depreci at i on and
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Parent Bank
depreci at i on and
Addi t i ons 89 564 447 1,100 2,200
D i sposal s ( 15) ( 15) ( 6) ( 59) ( 95)
Recl assi f i cat i ons 225 252 5 - 482
charges f or t he year - ( 229) ( 412) ( 889) ( 1,530)
depreci at i on and
Under BSP rules, invest ment s in premises, f urnit ure, f ixt ures and equipment should not exceed
50% of a banks unimpaired capit al. As of D ecember 31, 2011 and 2010, t he BD O Unibank
Group has complied wit h t his requirement .
12. IN VESTMEN T PROPERTIES
I nvest ment propert ies include land and buildings held f or capit al appreciat ion and f or rent al.
I ncome earned f rom invest ment propert ies under rent al arrangement s amount ed t o P68 and
P62 in 2011 and P81 and P78 in 2010 and are present ed as part of I ncome f rom asset s
acquired under other Operat ing I ncome in t he BD O Unibank Group and Parent Bank
f inancial st at ement s, respect ively (see N ote 22). D irect expenses incurred f rom these
propert ies amount ed t o P45 and P17 in 2011 and P32 and P22 in 2010 in t he BD O Unibank
Group and Parent Bank f inancial st at ement s, respectively.
The gross carrying amount s and accumulat ed depreciat ion and impairment at t he beginning
and end of 2011 and 2010 are shown below.
Land Buildings Total
BDO Unibank Group
December 31, 2011
Cost P 10,231 P 3,839 P 14,070
Accumulat ed depr eciat ion - ( 1,658) ( 1,658)
All owance f or impairment
(see N ot e 14) ( 2,206) ( 69) ( 2,275)
N et carrying amount P 8,025 P 2,112 P 10,137
D ecember 31, 2010
Cost P 11,342 P 4,077 P 15,419
(see N ot e 14) ( 1,765) ( 175) ( 1,940)
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January 1, 2010
Cost P 12,123 P 4,537 P 16,660
(see N ot e 14) ( 1,251) ( 20) ( 1,271)
Parent Bank
December 31, 2011
Cost P 9,694 P 3,611 P 13,305
Accumulat ed depr eciat ion - ( 1,566 ) ( 1,566)
(see N ot e 14) ( 2,143) ( 25 ) ( 2,168)
D ecember 31, 2010
Cost P 10,566 P 3,840 P 14,406
(see N ot e 14) ( 1,719) ( 118 ) ( 1,837)
January 1, 2009
Cost P 11,312 P 4,225 P 15,537
All owance f or impairment ( 1,233) ( 20 ) ( 1,253)
A reconciliat ion of t he carrying amount s, at the beginning and end of 2011 and 2010, of
invest ment propert ies is shown below.
BDO Unibank Group
Balance at Januar y 1, 2011,
net of accumulat ed
depreciat ion and impairment P 9,577 P 2,402 P 11,979
Addit ions 209 80 289
D isposals ( 1,531 ) ( 256 ) ( 1,787 )
Reclassi f icat ions ( 73 ) 320 247
D epreciat i on f or t he year - ( 397 ) ( 397 )
I mpairment ( 157 ) ( 37 ) ( 194 )
Balance at December 31, 2011,
net of accumulated
depreciation and impairment P 8,025 P 2,112 P 10,137
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
BDO Unibank Group
net of accumulat ed
D isposals ( 1,385 ) ( 177 ) ( 1,562 )
Reclassi f icat ions 25 ( 186 ) ( 161 )
I mpairment ( 100 ) ( 57 ) ( 157 )
Balance at D ecember 31, 2010,
net of accumulat ed
Parent Bank
net of accumulat ed
D isposals ( 1,208 ) ( 224 ) ( 1,432 )
Reclassi f icat ion ( 35 ) 250 215
I mpairment ( 157 ) - ( 157 )
Balance at December 31, 2011,
net of accumulated
depreciation and impairment P 7,551 P 2,020 P 9,571
net of accumulat ed
D isposals ( 1,346 ) ( 100 ) ( 1,446 )
Reclassi f icat ion 54 ( 186 ) ( 132 )
I mpairment ( 85 ) - ( 85 )
Balance at D ecember 31, 2010,
net of accumulat ed
The f air value of investment propert ies as of D ecember 31, 2011 and 2010, det ermined based
on t he present value of t he est imated f ut ure cash f lows discount ed at the current market rat e,
amount ed to P16,414 and P17,393, respect ively, f or BD O Unibank Group account s and
P15,494 and P16,225, respect ively, f or the Parent Bank account s.
The BD O Unibank Group has no contract ual obligat ions t o purchase, construct or develop
invest ment propert ies, or t o repair, maint ain or enhance t he same nor are there any
rest rict ions on t he f ut ure use or realizabilit y of t he invest ment propert ies.
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Real and other propert ies acquired (ROPA) in set t lement of loans t hrough f oreclosure or
dacion in payment are signif icant ly account ed f or as eit her: f inancial asset s, invest ment
propert ies, non-current asset s held f or sale or AFS. As of D ecember 31, 2011 and 2010,
ROPA, gross of allowance, comprise of t he f ollowing:
2011 2010 2011 2010
I nvest ment propert ies P 11,421 P 12,796 P 10,918 P 12,044
N on-current asset s held f or sale 2,612 2,295 2,612 2,295
AFS securit ies 1,584 3,731 1,468 3,731
Ot her resources - ot hers 122 66 - -
P 15,739 P 18,888 P 14,998 P 18,070
13. OTHER RESOURCES
The component s of t his account are shown below.
N otes 2011 2010 2011 2010
D ef erred t ax asset s - net 27.01 P 5,485 P 5,584 P 5,586 P 5,687
Equi ty investment s 13.01 4,746 3,926 19,277 14,548
Recei vables f rom special
purpose vehicles (SPVs) 13.02 3,440 3,440 3,440 3,440
Real propert ies f or
development and sale 3,384 3,453 - -
D eposi ts under escrow 13.03 2,931 2,931 2,931 2,931
N on-cur rent asset s
held f or sale 13.04 2,612 2,328 2,612 2,295
For ei gn curr ency notes and
coins on hand 1,989 2,182 1,989 2,182
I nter of f ice f loat items net 1,617 716 1,517 1,084
Ret irement asset 23.02 1,494 998 1,519 1,026
Goodwi ll 13.05, 26 1,247 1,247 1,247 1,247
Ret urned checks and
ot her cash items 348 341 348 341
Prepaid document ary stamps 314 210 295 197
D ividend receivable 168 96 316 691
Computer sof t ware net 13.06 144 367 144 366
Advances t o subsidi ar ies 24 - - - 3,183
Ot her s 13.06 5,487 4,314 4,502 3,160
35,406 32,133 45,723 42,378
Allowance f or impairment 14 ( 8,971) ( 8,540) ( 11,919) ( 11,512)
P 26,435 P 23,593 P 33,804 P 30,866
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
11 3 3 . 001 E q u i t y I n vest men t s
Equit y invest ment s consist of the f ollowing:
%
Interest
Held 2011 2010 2011 2010
Philippine Subsidiaries
BD O Pri vat e Bank, I nc. (BD O Pri vat e) 100% P - P - P 2,579 P 2,579
BD O St rat egi c H ol di ngs, I nc. (BD OSH I ) 100% - - 8,184 2,135
BD O Leasi ng and Fi nance, I nc. (BD O Leasi ng) 87% - - 1,878 1,878
BD O El i t e Savi ngs Bank, I nc.
(f ormerl y GE Money Bank, I nc. or GEMB) 99% - - 1,500 1,500
EBC St rat egi c H ol di ngs Corporat i on (ESH C) 100% - - - 1,421
BD O Capi t al & I nvest ment Corpor at i on
(BD O Capi t al ) 100% - - 300 300
BD O Technol ogy Cent er, I nc. (BD O Technol ogy) 100% - - - 47
Equi mar k - N FC D evel opment Corp. 60% - - 45 45
PCI B Securi t i es, I nc. 100% - - 39 39
PCI Real t y Corporat i on 100% - - 34 34
BD O I nsurance Brokers, I nc. (BD OI ) 100% - - 11 11
PCI I nsurance Brokers, I nc. (PCI I nsurance) 100% - - 8 8
Equi t abl e Card N et work, I nc. 100% - - - -
Tot al subsi di ari es - - 14,578 9,997
Foreig n Subsidiaries
PCI Express Padal a (H K ) Lt d. 100% - - - 215
Express Padal a H K Lt d. 100% - - 28 28
BD O Remi t t ance (USA), I nc 100% - - 26 26
PCI B Europe, S.P.A. 100% - - 1 1
Express Padal a Frankf urt GmbH 100% - - 1 1
Equi t abl e PCI Express Padal a (N ederl and) B.V. 100% - - - 1
- - 56 272
Associates
Mani l a N ort h Tol l ways Corporat i on (MN TC) 12% 1,405 1,405 1,405 1,405
SM K eppel Land, I nc. 50% 1,658 1,294 1,658 1,294
General i Pi l i pi nas H ol di ngs, I nc. (General i ) 40% 1,235 1,235 1,168 1,168
N ort hpi ne Land I ncorporat ed 20% 232 232 232 232
Taal Land 33% 170 170 170 170
Ot hers * 10 10 10 10
4,710 4,346 4,643 4,279
Accumul at ed equi t y i n net l osses:
Bal ance at begi nni ng of year ( 420 ) ( 436 ) - -
Equi t y i n net prof i t duri ng t he year 681 16 - -
261 ( 420 ) - -
D i vi dends recei ved ( 225) - - -
N et i nvest ment s i n associ at es 4,746 3,926 4,643 4,279
Gross 4,746 3,926 19,277 14,548
Al l owance f or i mpai rment ( 559 ) ( 539 ) ( 4,375 ) ( 4,355)
N et P 4,187 P 3,387 P 14,902 P 10,193
* T hi s consi sts of var i ous i nsi gni fi cant i nvestments i n associ at es, thus, per cent age hel d i s no l onger di scl osed.
The BD O Unibank Groups percent age of int erest held in each subsidiary and associat e is the
same as t hat of the Parent Bank, except f or Generali which is at 40% at the BD O Unibank
Group and 37.5% at t he Parent Bank.
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The BD O Unibank Groups subsidiaries and associat es are all incorporated in t he Philippines,
except f or t he f ollowing:
Subsidiaries Country of Incorporation
PCI Express Padala (H K ) Lt d. H ong K ong
Express Padala H K Lt d. H ong K ong
BD O Remit t ance (USA), I nc. Unit ed St at es of Ameri ca
Express Padala Frankf urt GmbH Germany
PCI B Eur ope, S.P.A I t aly
Equit able PCI Express Padala (N ederland) B.V. t he N et her lands
The f ollowing t able present s t he aggregat ed unaudit ed f inancial inf ormat ion of BD O Unibank
Groups associat es as of and f or t he years ended D ecember 31, 2011, 2010 and 2009:
2011 2010 2009
Asset s P 23,932 P 22,819 P 3,941
Liabilit ies 12,313 11,890 799
Equit y 11,619 10,929 3,142
Revenues 7,138 8,101 ( 9)
N et prof it (loss) 2,329 1,750 ( 352 )
1 3 . 0 1 . 0 1 D i vi den d D ecl ar at i on s
I n 2011 and 2010, t he Parent Banks share in t he cash dividends declared by BD O Unibank
Group's subsidiaries amount ed t o P411 and P791, respect ively. These are present ed as part of
D ividend income under Ot her Operat ing I ncome in t he Parent Bank st at ement s of income
(see N ote 22). Out of the t ot al dividends declared, the Parent Bank received P95 and P102 in
2011 and 2010, respect ively.
1 3 . 0 1 . 0 2 M er ger s A mon g Su bsi di ar i es
On April 30, 2011, t he Parent Banks BOD approved t he f ive-way merger (the Merger) of
wholly-owned subsidiaries: BD OSH I , Equit able Card N et work (ECN ), I nc., ESHC, BD O
Technology, and St rat egic Propert y H oldings, I nc. (SPH I ), wit h BD OSH I as t he surviving
corporat ion. The Merger has been undert aken as part of t he st reamlining of t he BD O
Unibank Groups organizat ional st ruct ure. The Merger was approved by t he BSP and t he
SEC on N ovember 29, 2011 and D ecember 29, 2011, respect ively, and was account ed f or
using t he pooling-of -int erest s met hod. The Parent Banks invest ment in it s subsidiaries did
not increase as a result of this exercise except f or the f ollowing: (a) dacion en pago of
3,621,159 pref erred shares and 2,000,001 common shares of BD OSH I by ESH C f or the P557
advances f rom the Parent Bank present ed as part of Advances t o subsidiaries under Ot her
Resources in 2010 st at ement of posit ion, and (b) subscript ion of addit ional 40,231,915
pref erred shares of BD OSH I t hrough conversion of advances of BD OSH I and ESH C
t ot aling P2,626 (recognized as part of Advances to subsidiar ies under Ot her Resources in
2010 st at ement of posit ion) and advances of SPH I amount ing t o P1,397 (recognized as part
of Account s receivable under Loans and Receivables in 2010 st at ement of posit ion )
(see N otes 10 and 26).
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
1 3 . 0 1 . 0 3 A cq u i si t i on s
I n 2011, t o execut e the deed of assignment made on January 13, 2008, t he Parent Bank agreed
t o t ransf er, cede and convey absolut ely to SM K eppel t he out st anding advances tot aling P364
recognized as part of Ot hers under Loans and Other Receivables in exchange f or 36,401,500
pref erred shares of SM K eppel f or a subscript ion price of P364 (see N ote 10).
As a result , the investment in SM K eppel as of D ecember 31, 2011 increased t o P1,658.
On February 11, 2010, BSP approved the acquisit ion by BD O of the 12.4% equit y int erest in
MN TC equivalent to 2,197,800 common shares held by Global Fund H oldings, I nc. (Global
Fund) in MN TC f or a purchase price of P1,405. The purchase of 12.4% was previously
approved by the BOD on July 25, 2009. I nvest ment in MN TC is recognized as Equit y
I nvest ment s and is present ed as part of Other Resources in t he st atement s of f inancial
posit ion. The Parent Bank is properly represent ed in the board of direct ors of MN TC.
I n response t o the capit al inf usion call of Generali t o cover it s 2007 and 2008 capit al
def iciency, BD O Unibank Groups BOD separat ely approved on January 9, 2010 and
July 31, 2010 addit ional invest ment of P114 and P156, respect ively. The approval of the BSP
was made on March 5, 2010 and Sept ember 21, 2010, respect ively. I nvest ment in Generali
has a carrying value of P1,168 and allowance f or impairment loss amount ing to P898 as of
D ecember 31, 2011 and 2010. The invest ment is recognized as Equit y I nvestment s and is
present ed as part of Other Resources account .
1 3 . 0 1 . 0 4 D i ssol u t i on of Su bsi di ar i es
On Sept ember 30, 2011, t he Parent Bank approved the dissolut ion of PCI Express Padala
(H ong K ong) Limited ef f ect ive Sept ember 20, 2011. Capit al amount ing t o P248 was f ully
ret urned to t he Parent Bank on D ecember 5, 2011.
On April 30, 2010 by virt ue of a proxy lett er, the Parent Bank approved the liquidat ion of
PCI B Europe S.P.A wit h cut-of f f inancial st at ement dat e of D ecember 31, 2009. PCI B
Europe S.P.A made part ial ret urns of capit al amounting t o P23 and P1 on July 16, 2010 and
Oct ober 6, 2010, respect ively. As of D ecember 31, 2011, t ot al equit y of PCI B Europe S.P.A.
amount ed to P0.5.
11 3 33 . 002 R ecei vabl es f r om SP V s
Receivables f rom SPVs represent t he amount due f rom sale of cert ain non-perf orming asset s
t o SPVs. I n 2005, t he f ormer EPCI B (now part of BD O Unibank Group) sold cert ain
nonperf orming asset s wit h book value of P15,069 t o Philippine I nvest ment One, Philippine
I nvest ment Two and Cameron Granville Asset Management , I nc. (CGAM) f or a
considerat ion of P4,134. Cash received f rom t he SPVs amounted t o P98 in 2005 and t he
balance of P3,336, t hrough issuance of SPV N ot es, shall be paid based on a cash f low
wat erf all arrangement and int erest rat e of 20% and 50% per annum on the P2,776 and P560,
respect ively. Also, in 2005, t he f ormer Equit able Savings Bank, I nc. (ESB) ent ered into sale
and purchase agreement s wit h CGAM and L N C (SPV-AMC) Corporat ion (LN C) f or t he sale
of the f ormer ESBs loans to CGAM f or P621 and f or t he sale of it s invest ment propert ies t o
LN C f or P98. The f ormer ESB received SPV N ot es amount ing to P60 f or loans f rom
CGAM and P39 f or invest ment propert ies f rom LN C, in addit ion to cash received amount ing
t o P23 f rom CGAM and P4 f rom L N C.
F
D ecember 31, 2011 and 2010.
ul l allowance f or impairment on the receivables f rom SPVs amounted to P3,440 as of
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1 3 . 03 D eposi t s U n der E scr ow
D eposit s under escrow pert ain t o the port ion of t he cash received by BD O Unibank Group in
considerat ion f or it s assumpt ion of First e-Bank Corporat ions deposit s and other liabilit ies in
Oct ober 2002. This amount is held in escrow pending compliance by BD O Unibank Group
wit h cert ain terms and condit ions, part icularly t he transf er of t it les, as st ipulat ed in the
Memorandum of Agreement (MOA). D eposit s under escrow earn an annual ef f ect ive int erest
of 5.8% and 5.7% in 2011 and 2010, respect ively.
1 3 . 0 4 N on - cu r r en t A sset s H el d f or sal e
N on-current asset s held f or sale consist of real and ot her propert ies acquired t hrough
repossession or f oreclosure t hat BD O Unibank Group int ends to sell wit hin one year f rom
t he dat e of classif icat ion as held f or sale. I mpairment loss recognized by t he BD O Unibank
Group and t he Parent Bank on non-current asset s held f or sale in 2011, 2010 and 2009
amount ed to P131, P128 and P5, respect ively (see N ot e 14).
1 3 . 0 5 G oodwi l l
Goodwill represent s the excess of the cost of acquisi t ion of t he Parent Bank over the f air
val ue of the net asset s acquired and branch licenses at the date of acquisit ion. This is
signif icant ly f rom the acquisit ion of BD O Card Corporat ion, Unit ed Overseas Bank
Philippines (UOBP), American Express Bank, Lt d. and GE Money Bank (see N ot e 26.02),
which were acquired in 2005, 2006, 2007 and 2009, respect ively. The BD O Unibank Group
and the Parent Bank recognized impairment loss of P150, P271 and P171 in 2011, 2010 and
2009, respect ively (see N ote 14).
1 3 . 0 6 O t h er s
Amort izat ion expense on comput er sof t ware licenses amounted to P373, P170, and P125 in
2011, 2010 and 2009, respect ively, in the BD O Unibank Group f inancial st at ement s and
P371, P173, and P134 in 2011, 2010 and 2009, respect ively, in the Parent Bank f inancial
st at ement s. These are included as part of Miscellaneous under Ot her Operat ing Expenses
account in the st at ement s of income (see N ot e 22).
D epreciat ion expense on cert ain asset s amount ing t o P35, P11 and P11 in 2011, 2010 and
2009, respect ively, in t he BD O Unibank Group f inancial st at ement s, and are present ed as
part of Occupancy under Other Operat ing Expenses account in t he st atement s of income
(see N ote 22).
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
14. ALLOWAN CE FOR IMPAIRMEN T
Changes in t he allowance f or impairment are summarized below.
2011 2010 2011 2010
Balance at begi nning of year:
AFS securit ies P 5,811 P 6,526 P 4,526 P 5,432
H TM invest ment s 453 737 412 737
Loans and ot her recei vables 26,144 22,496 25,806 21,364
I nvest ment propert ies 1,940 1,271 1,837 1,253
Ot her r esources 8,540 8,111 11,512 10,895
42,888 39,141 44,093 39,681
I mpai rment losses - net 6,144 6,698 5,945 6,374
Reclassi f i cat i on/ wr it e-of f / f oreign
cur r ency revaluat ion ( 7,397) ( 2,951) ( 7,164) ( 1,962 )
Balance at end of year:
AFS securit ies 2,950 5,811 1,658 4,526
H TM invest ment s 412 453 412 412
Loans and ot her recei vables 27,027 26,144 26,717 25,806
I nvest ment propert ies 2,275 1,940 2,168 1,837
Ot her r esources 8,971 8,540 11,919 11,512
P 41,635 P 42,888 P 42,874 P 44,093
Tot al impairment losses on f inancial asset s amount ed t o P5,372, P6,141, and P5,261 in 2011,
2010 and 2009, respect ively, in the BD O Unibank Group f inancial st at ement s and P5,225,
P5,777, and P4,892 in 2011, 2010 and 2009, respect ively, in the Parent Bank f inancial
st at ement s.
Tot al impairment losses on non-f inancial asset s amount ed t o P772, P557, and P892 in 2011,
2010 and 2009, respect ively, in the BD O Unibank Group f inancial st at ement s and P720,
P597, and P883 in 2011, 2010 and 2009, respect ively, in t he Parent Bank f inancial st at ement s.
15. DEPOSIT LIABILITIES
The breakdown of this account f ollows:
2011 2010 2011 2010
D emand P 48,499 P 45,445 P 36,059 P 33,489
Savings 482,517 426,024 483,147 426,687
Time 327,553 311,166 319,542 302,458
P 858,569 P 782,635 P 838,748 P 762,634
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This account is composed of t he f ollowing (by count erpart ies):
2011 2010 2011 2010
D ue to ot her banks
D emand P 841 P 714 P 788 P 702
Savings 1,959 2,874 1,959 2,874
Time 1,796 4,334 1,796 1,950
4,596 7,922 4,543 5,526
D ue to cust omers
D emand 47,658 44,731 35,271 32,787
Savings 480,558 423,150 481,188 423,813
Time 325,757 306,832 317,746 300,508
853,973 774,713 834,205 757,108
P 858,569 P 782,635 P 838,748 P 762,634
The breakdown of deposit liabilit ies, as t o currency, f ollows:
2011 2010 2011 2010
Foreign currencies P 206,618 P 217,049 P 200,000 P 209,524
Peso 651,951 565,586 638,748 553,110
P 858,569 P 782,635 P 838,748 P 762,634
The mat urit y prof ile of t his account is present ed below.
2011 2010 2011 2010
L ess t han one year P 792,225 P 708,223 P 774,462 P 693,130
One t o f ive years 55,100 59,469 53,042 54,561
Beyond f ive years 11,244 14,943 11,244 14,943
P 858,569 P 782,635 P 838,748 P 762,634
The BD O Unibank Groups and Parent Banks deposit liabil it ies are in the f orm of demand,
savings and t ime deposit account s bot h bearing annual int erest rat es of 0% to 8.3% in 2011
and 0% to 9.7% in 2010. D emand and savings deposit s usually have both f ixed and variable
int erest rat es while t ime deposit has f ixed int erest rate except f or one t ranche of the peso-
denominat ed long-term negot iable cert if icat es of deposit s (L TN CD s) which are repriced every
quart er.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
On D ecember 23, 2004, t he BSP approved t he Parent Banks applicat ion to issue in t wo or
more tranches of up t o P5,000 wort h of peso-denominat ed L TN CD s within one year f rom
dat e of approval. The f irst tranche amount ing t o P2,100 was issued on June 1, 2005 and
mat ured on June 2, 2010 and t he second t ranche amount ing t o P2,900 was issued on
N ovember 23, 2005 and mat ured on N ovember 24, 2010. The f irst t ranche paid a variable
int erest based on 3M PD ST-F (f ormerly MART 1) plus 0.25% spread while t he second t ranche
paid a f ixed rat e of 9.73%. Also, on September 25, 2006, t he BSP approved t he Parent Banks
applicat ion t o issue anot her P5,000 L TN CD s in one t ranche. The P5,000 L TN CD s, wit h a
f ixed int erest rate of 8.25% per annum, were issued on October 4, 2006 and mat ured on
N ovember 3, 2011. These are present ed as part of Time D eposit s under D eposit L iabilit ies
account in the 2010 st at ement of f inancial posit ion.
Also on April 26, 2007, t he Monet ary Board (MB) of t he BSP aut horized BD O Privat e to
issue up t o P5,000 wort h of f ixed rat e or zero coupon LTN CD s in one or more t ranches.
The f irst tranche, consist ing of P2,191 in zero coupon LTN CD s, was issued on
June 18, 2007 and will mat ure on D ecember 18, 2012. These LTN CD s are present ed, net of
discount and included P17 in capit alized t ransact ion cost s, as part of t he Time D eposit
L iabilit ies account in t he st at ement s of f inancial posit ion.
Under exist ing BSP regulat ions, non-FCD U deposit liabi lit ies of t he BD O Unibank Group
are subject t o liquidit y reserve requirement equivalent to 11.0% bot h in 2011 and 2010 and
st at ut ory reserve equivalent to 10.0% and 8.0% in 2011 and 2010, respect ively. As of
D ecember 31, 2011, t he BD O Unibank Group is in compliant wit h t hese regulat ions.
16. BILLS PAYABLE
This account is composed of t he f ollowing:
2011 2010 2011 2010
D eposit subst it ut es P 17,152 P 8,304 P 17,149 P 8,031
Foreign banks 13,694 26,096 13,694 25,876
Senior not es 13,210 13,202 13,210 13,202
PD I C 4,472 4,483 4,472 4,483
BSP 968 1,445 968 1,445
L ocal banks 132 131 132 131
Ot hers 9,846 12,200 1,753 2,913
P 59,474 P 65,861 P 51,378 P 56,081
The breakdown of this account as to currency f ollows:
2011 2010 2011 2010
Peso P 14,909 P 26,036 P 6,813 P 16,476
Foreign currencies 44,565 39,825 44,565 39,605
P 59,474 P 65,861 P 51,378 P 56,081
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The mat urit y prof ile of t his account is present ed below.
2011 2010 2011 2010
L ess t han one year P 42,767 P 43,976 P 35,430 P 34,477
One t o f ive years 15,718 6,788 14,959 6,514
Beyond f ive years 989 15,097 989 15,090
P 59,474 P 65,861 P 51,378 P 56,081
Bills payable bear annual int erest rates of 0.2% t o 12.0% in 2011 and 0.3% t o 12.0% in 2010.
Cert ain bills payable to local banks and t he BSP are collat eralized by cert ain receivables f rom
cust omers (see N ot e 10).
The f ollowing comprise t he int erest expense included as part of I nt erest Expense on bills
payable and other liabilit ies in t he st at ement s of income (see N ot e 21):
BDO Unibank Group
2011 2010 2009
Senior not es P 511 P 98 P -
D eposit subst it ut es 277 312 635
Foreign banks 182 69 112
PD I C 175 175 175
L ocal banks 29 1 29
BSP 27 121 254
SMPH I - - 126
Ot hers 322 575 459
P 1,523 P 1,351 P 1,790
Parent Bank
2011 2010 2009
Senior not es P 511 P 98 P -
PD I C 175 175 175
Foreign banks 182 69 112
D eposit subst it ut es 172 285 422
BSP 27 121 254
SMPH I - - 127
L ocal banks - - 27
Ot hers 158 243 303
P 1,225 P 991 P 1,420
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Sen i or N ot es
On October 22, 2010, BD O Unibank Group issued Senior N ot es with a f ace value of US$300
million at a price of 99.632 or a tot al price of US$299 million. The Senior N ot es, which will
mat ure on April 22, 2016, bear a f ixed int erest rat e of 3.875% per annum,
wit h an ef f ect ive rat e of 3.95% per annum, and will be payable semi-annually every
April 22 and October 22 st art ing in 2011. The net proceeds f rom t he issuance are int ended to
support business expansion plans, and general banking and relending act ivit ies. As of
D ecember 31, 2011 and 2010, t he Senior N otes have a carrying amount of P13,210 and
P13,202, respect ively, and are present ed as part of Bills Payable in t he st at ement s of f inancial
posit ion. I nt erest on Senior N otes incurred amounted to P511 in 2011 and P98 in 2010
recognized in prof it or loss and included as part of I nt erest Expense on Bills Payable and
Ot her Liabilit ies account on an amort ized cost basis using t he ef f ect ive int erest method
(see N ote 21).
P D I C
This represent s t he f inancial assist ance t o Unit ed Overseas Bank Philippines (UOBP) f rom
PD I C amount ing to P4,420 which was t ransf erred by UOBP to t he Parent Bank. The
t ransf er was covered by the MOA relat ive t o the Parent Bank's acquisit ion of UOBP branches
in 2005. The f inancial assi st ance, which is recorded as part of Bills Payable in t he st at ement s
of f inancial posit ion will mat ure on D ecember 19, 2012 and bears annual int erest rat e of
3.9%. The proceeds of t he f inancial assist ance f rom PD I C are invest ed in government
securit ies as provided f or in the MOA.
SM P H I ( P r ef er r ed Sh ar es)
As required under PAS 32, F i nanci al I nst rument s: Pr esent at i on and D i scl osure, t he Parent Bank
recognized as f inancial liabilit y 25,000,000 shares of redeemable, cumulat ive and
non-part icipat ing pref erred shares wit h a par value of P10 per share issued to SMPHI on
Oct ober 18, 2004. The pref erred shares were issued at US$2 per share or an aggregat e
subscript ion price of US$50 mill ion. The pref erred shares ent it led SMPHI t o cumulat ive
dividends, payable in US dollars semi-annually in arrears, equal t o 6.5% of t he issue price per
annum.
As required by BSP, t he Parent Bank set up a sinking f und on Oct ober 17, 2005 f or t he
redempt ion of the pref erred shares. The balance of t he sinking f und as of
D ecember 31, 2008 amount ed t o P2,110 and was invest ed in debt securit ies, shown as part of
H TM investment s.
On October 19, 2009, t he pref erred shares were redeemed in f ull by t he Parent Bank at
P2,446 inclusive of remaining dividends in arrears of P77.
17. SUBORDIN ATED N OTES PAYABLE
On June 27, 2011, t he Parent Bank issued P8,500 unsecured subordinated not es eligible as
Lower Tier 2 Capit al due on September 27, 2021, cal lable on 2016 (the Series 4 N ot es) bearing
an int erest rat e of 6.50% per annum, pursuant t o t he aut hority grant ed by t he BSP to t he Bank
on April 7, 2011 and BSP Circular N o. 280 Series of 2001, as amended, and BSP Circular N o.
709 Series of 2011. The issuance was approved by the BOD on August 28, 2010.
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On October 7, 2011, t he Parent Bank issued another P6,500 unsecured subordinat ed not es
eligible as Lower Tier 2 Capit al due on January 7, 2022, call able on 2016 (t he Series 5 N otes)
bearing an int erest rat e of 6.375% per annum, pursuant t o t he aut horit y grant ed by t he BSP t o
t he Bank on April 7, 2011 and BSP Circular N o. 280 Series of 2001, as amended, and BSP
Circular N o. 709 Series of 2011. The issuance was approved by t he BOD on
August 28, 2010.
On N ovember 21, 2007, t he Parent Bank issued P10,000 unsecured subordinat ed not es
eligible as Lower Tier 2 Capit al due on N ovember 21, 2017 bearing an int erest of 7.0% per
annum, callable wit h step-up in 2012 (t he Series 1 N ot es) pursuant t o the aut hority grant ed by
t he BSP t o the Parent Bank on October 8, 2007 and BSP Circular N o. 280 Series of 2001, as
amended. The issuance was approved by the BOD , in it s special meet ing held on
June 1, 2007.
On May 30, 2008, t he Parent Bank issued t he second t ranche of P10,000 unsecured
subordinat ed not es eligible as Lower Tier 2 Capit al due on May 30, 2018 bearing an int erest of
8.5% per annum, callable wit h st ep-up in 2013 (t he Series 2 N ot es) pursuant t o the aut horit y
grant ed by t he BSP to t he Parent Bank on April 3, 2008 and BSP Circular N o. 280 Series of
2001, as amended. This issuance was approved by the BOD , in it s special meet ing held on
February 23, 2008.
On March 20, 2009, t he Parent Bank issued t he t hird t ranche of unsecured subordinat ed debt
qualif ying as Tier 2 Capit al of the Parent Bank wit h f ace of P3,000 due March 20, 2019 wit h
coupon int erest of 7.5% per annum callable wit h st ep-up in 2014 (t he Series 3 N ot es). This
issuance was approved by t he BOD on January 31, 2009.
The N ot es represent direct , uncondit ional unsecured and subordinat ed peso-denominat ed
obligat ions of t he Parent Bank, issued in accordance wit h the Terms and Condit ions under
t he Mast er N ot e. The N ot es, like other subordinat ed indebt edness of t he Parent Bank, are
subordinat ed t o the claims of deposit ors and ordinary creditors, are not a deposit , and are not
guarant eed nor insured by the Parent Bank or any part y relat ed t o the Parent Bank, such as it s
subsidi aries and af f il iat es, or t he PD I C, or any ot her person. The N ot es shall not be used as
collat eral f or any loan made by the Parent Bank or any of it s subsidiaries or af f iliat es. The
N otes carry interest rat es based on prevailing market rat es, with a step-up provision if not
called on t he f if t h year f rom issue dat e. The Parent Bank has the opt ion to call t he N ot es on
t he f if t h year, subject to prior not ice to N ot eholders. The N ot es were used f urther to expand
t he Parent Banks consumer loan port f olio and to ref inance an exist ing issue of Lower Tier 2
debt . The N ot es also increased and strengthened the Parent Banks capit al base, in
ant icipat ion of cont inued growt h in t he coming years.
The out st anding balance of the N ot es amount ed t o P38,255 and P23,152 as of
D ecember 31, 2011 and 2010, respect ively.
Tot al interest expense on subordinat ed not es payable included as part of I nt erest Expenses on
bills payable and ot her liabilit ies in t he st at ement s of income amount ed to P2,154, P1,775, and
P1,725 in 2011, 2010 and 2009, respect ively, bot h in t he BD O Unibank Group and Parent
Bank st at ement s of income (see N ot e 21).
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
18. OTHER LIABILITIES
Ot her liabilit ies consist of t he f ollowing:
N ot e 2011 2010 2011 2010
Bi lls purchased-cont ra P 10,287 P 9,162 P 10,287 P 9,162
Account s payable 7,436 5,125 5,504 4,481
Managers checks 6,558 4,609 6,473 4,586
Accrued expenses 5,088 4,222 4,790 3,985
f air val ues 3,320 4,715 1,877 3,168
Out st anding accept ances
payabl e 1,569 1,214 1,569 1,214
Unearned i ncome 9.03 989 1,083 893 976
Wi t hholdi ng t axes payable 899 760 859 729
Capit alized i nt erest and
ot her charges 602 677 602 677
Payment order payable 252 266 252 266
D ue t o pr incipal 230 236 - -
D ue t o BSP and Treasur er
of t he Phil ippines 166 357 163 354
Ot hers 6,693 8,063 4,025 5,189
P 44,089 P 40,489 P 37,294 P 34,787
The liabilit y f or unredeemed reward point s amount ing to P1,176 and P800 as of
D ecember 31, 2011 and 2010, respect ively, present ed under Accrued Expenses represent s the
f air val ue of point s earned which are redeemable signif icant ly f or goods or services provided
by t hird part ies, which t he Parent Bank ident if ied as part ners in the rewards program (see
N ote 2.20).
19. EQUITY
1 9 . 01 C api t al M an agemen t an d R egu l at or y C a pi t al
On January 15, 2009, t he BSP issued Circular N o. 639 art iculat ing t he need f or Banks to adopt
and document an I nt ernal Capit al Adequacy Assessment Process (I CAAP). All universal and
commercial banks are expect ed to perf orm a t horough assessment of all their mat erial risks
and maint ain adequat e capit al t o support these risks. This is intended to complement t he
current regulat ory capit al requirement of at least 10% of risk asset s, which covered only credit ,
market and operat ional risks. On D ecember 29, 2009, BSP issued Circul ar N o. 677 ef f ect ively
ext ending the implement ion of I CAAP f rom January 2010 t o January 2011.
I n Oct ober 2009, t he BD O Unibank Group presented it s I CAAP and submit ted t he init ial
draf t of it s I CAAP document t o the BSP. Based on comment s f rom the BSP,
BD O Unibank Group subsequent ly revised it s I CAAP document and secured approval f rom
it s BOD on January 8, 2011.
The I CAAP document art iculat es the BD O Unibank Groups capit al planning strat egy and
discusses governance, risk assessment , capit al assessment and planning, capit al adequacy
monitoring and report ing, as well as int ernal cont rol reviews.
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115
The lead regulat or of the banking indust ry, the BSP, set s and monit ors capit al requirement s
f or t he BD O Unibank Group. I n implement ing current capit al requirement s, t he BSP
requires BD O Unibank Group t o maint ain a prescribed rat io of qualif ying capit al t o risk-
weight ed asset s.
Under current banking regulat ions, the combined capit al account s of a bank should not be
less t han an amount equal t o ten percent of it s risk asset s. The qualif ying capit al of t he BD O
Unibank Group f or purposes of determining t he capit al-t o-risk asset s rat io is t ot al equit y
excluding:
(a) Unbooked valuat ion reserves and ot her capit al adjust ment s as may be required by t he
BSP;
(b) Tot al out st anding unsecured credit accommodat ions t o direct ors, of f icers, st ockholders
and relat ed int erest s (D OSRI );
(c) D ef erred t ax asset or liabilit y;
(d) Goodwill;
(e) Sinking f und f or redempt ion of redeemable pref erred shares; and,
(f) Ot her regulat ory deduct ions.
Risk asset s consist of t ot al asset s af t er exclusion of cash on hand, due f rom BSP, loans
covered by hold-out on or assignment of deposit s, loans or accept ances under lett ers of credit
t o t he ext ent covered by margin deposit s, and other non-risk it ems as det ermined by the MB
of the BSP.
The amount of surplus f unds avail able f or dividend declarat ion is det ermined also on the
basis of regulat ory net wort h af t er considering cert ain adjust ment s.
The BD O Unibank Groups policy is t o maint ain a st rong capit al base t o promot e investor,
credit or and market conf idence and to sust ain f ut ure development of the business. The
impact of t he level of capit al on shareholders ret urn is also recognized and BD O Unibank
Group recognizes the need to maint ain a balance between the higher ret urns t hat might be
possible wit h great er gearing and t he advant ages and securit y af f orded by a sound capit al
posit ion.
The regulat ory capit al is analyzed int o t wo t iers, which are Tier 1 Capit al plus Tier 2 Capit al
less deduct ions f rom t he t ot al of Tier 1 and Tier 2 capit al f or t he f ollowing:
(a) I nvest ment s in equit y of unconsolidat ed subsidiary banks and ot her f inancial allied
undert akings, but excluding insurance companies;
(b) I nvest ment s in debt capit al inst rument s of unconsolidat ed subsidiary banks;
(c) I nvest ment s in equit y of subsidiary insurance companies and non-f inancial allied
undert akings;
(d) Reciprocal invest ment s in equit y of ot her banks/ enterprises; and,
(e) Reciprocal invest ment s in unsecured subordinat ed t erm debt inst rument s of ot her
banks/ quasi-banks qualif ying as H ybrid Tier 1, Upper Tier 2 and Lower Tier 2, in excess
of the lower of : (i ) an aggregat e ceiling of 5% of tot al Tier 1 capit al of the bank excluding
H ybrid Tier 1; or, (i i ) 10% of t he tot al out st anding unsecured subordinat ed t erm debt
issuance of t he other bank/ quasi-banks.
Provided t hat any asset deduct ed f rom the qualif ying capit al in comput ing the numerat or of
t he risk-based capit al rat io shall not be included in the risk-weight ed asset s in comput ing t he
denominat or of the rat io.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
At the end of each report ing period, BD O Unibank Group has complied wit h t he prescribed
rat io of qualif ying capit al t o risk-weight ed asset s.
Under an exist ing BSP circular, expanded commercial banks are required to comply wit h the
minimum capit al requirement of P4,950. At the end of each report ing period, t he Parent
Bank has complied wit h the above capit alizat ion requirement .
There have been no mat erial changes in BD O Unibank Groups management of capit al
during t he period.
The Banks regulat ory capit al posit ion (computed using balances prepared under FRSP f or
banks) as of D ecember 31, 2011 and 2010 f ollows:
2011 2010 2011 2010
Tier 1 Capit al P 90,978 P 83,474 P 84,619 P 78,201
Tier 2 Capit al 46,004 28,967 43,929 28,823
Tot al Regulat ory Capit al 136,982 112,441 128,548 107,024
D educt ions ( 10,771) ( 10,229 ) ( 25,554) ( 21,957 )
Tot al Qualif ying Capit al P 126,211 P 102,212 P 102,994 P 85,067
Tot al Risk Weight ed Asset s P 798,936 P 738,416 P 756,567 P 700,510
Capit al rat ios
Tot al regulat ory capit al expressed
as percent age of t ot al risk
weight ed asset s 15.8% 13.8% 13.6% 12.1%
Tot al Tier 1 expressed
as percent age of t ot al risk
weight ed asset s 10.2% 10.0% 8.7% 8.6%
Tier 1 Capit al P 90,978 P 83,474 P 84,619 P 78,201
Tier 1 Capit al D educt ions ( 9,777) ( 9,394) ( 18,931) ( 17,698 )
N et Tier 1 Capit al P 81,201 P 74,080 P 65,688 P 60,503
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117
1 9 . 02 C api t al A l l ocat i on
The allocat ion of capit al bet ween specif ic operat ions and act ivit ies is, t o a large ext ent , driven
by opt imizat ion of the ret urn achieved on the capit al allocat ed. The amount of capit al
allocat ed t o each operat ion or act ivit y is based primarily upon the regulat ory capit al, but in
some cases t he regulat ory requirement s do not ref lect f ully t he varying degree of risk
associat ed wit h dif f erent act ivit ies. I n such cases the capit al requirement s may be f lexed t o
ref lect dif f ering risk prof iles subject t o the overall level of capit al to support a part icular
operat ion or act ivit y not f alling below the minimum required f or regulat ory purposes.
The process of allocat ing capit al t o specif ic operat ions and act ivit ies is undert aken
independent ly of t hose responsible of t he operat ion and is subject t o review by the ALCO.
Alt hough maximizat ion of the ret urn on risk-adjust ed capit al is t he principal basis used in
det ermining how capit al is allocat ed wit hin BD O Unibank Group t o part icular operat ions or
act ivit ies, it is not the sole basis used f or decision making. Account also is t aken of synergies
wit h ot her operat ions and act ivit ies, the availabil it y of management and other resources and
t he f it of the act ivit y wit h t he longer t erm st rategic object ives. The policies in respect of
capit al management and allocat ion are reviewed regularly by the BOD .
1 9 . 03 C api t al St ock
Capit al st ock consist s of the f ollowing:
N umber of Shares
2011 2010
Common shares P10 par val ue
Aut hori zed 4,500,000,000 shares
I ssued, f ul l y pai d and out st andi ng
Balance at begi nni ng of year 2,607,437,907 2,339,768,510
I ssued duri ng t he year - 267,669,397
Balance at end of year 2,607,437,907 2,607,437,907
Pref er red shares P10 par val ue
Aut hori zed 2,000,000,000 shares
I ssued, f ul l y pai d and out st andi ng 500,000,000 500,000,000
Amount
2011 2010
Common shares
Balance at begi nni ng of year P 26,074 P 23,397
I ssued duri ng t he year - 2,677
Balance at end of year P 26,074 P 26,074
Pref er red shares I ssued, f ul l y pai d and out st andi ng P 5,000 P 5,000
The Parent Banks applicat ion f or list ing of it s common stock was approved by t he PSE on
April 24, 2002. The applicat ion is f or the init ial list ing of up t o 952,708,650 common shares,
wit h par value of P10 per share, at an of f er price range of P17.80 t o P23.8 per share. The
proceeds f rom the sale of the Banks list ed shares amounted to about P2,200.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The hist or y of shares issuances f rom t he initial public of f ering (I PO) and subsequent ly,
privat e placements exempt f r om regist rat ion pursuant to Section 10.1 of t he Securit ies
Regul ation Code, is as f ol l ows:
As of D ecember 31, 2011, there are 13,517 holders of the listed shares equivalent to 100% of
the Parent Banks tot al out st anding shares. Such list ed shares closed at P59 per share as of
D ecember 29, 2011.
On March 19, 2010, the Banks BOD appr oved a capital raising program t hat would allow the
Bank to raise between US$250 mill ion t o US$300 million wort h of common shares, wit h the
I FC and t he I FC Equity Fund, as anchor invest ors. Subsequent ly, on A pril 26, 2010, the Bank
issued 24,033,253 shares to t he I FC and 136,315,662 shares to t he I FC Capit alizat ion Fund at
P41.50 per shar e f or a tot al subscription price of P997 and P5,657, respectively. For eign
inst it ut ional invest ors part icipat ed in t his capit al raisi ng t hrough a t op-up of f ering, result ing in
the issuance of an addit ional 107,320,482 common shares at the same of f er price. The Bank
was able t o raise a t ot al of P10,994 f rom this capit al raising exer ci se.
I n 2009, the Parent Bank issued t o GE Capit al 37,735,849 common shares wor th P377 in line
with t he latt ers st rat egic investment in the Parent Bank (see N ote 26.02).
On August 30, 2008, the BOD approved the issuance of up to 500,000,000 perpet ual, voting,
non-cumulat ive, convert ible, non-par t icipat ing, peso-denominat ed Series A pref erred shares
qualif ying as Tier 1 capital of BD O Unibank Group. The conversion right is at t he option of
the hol der af ter t hree years fr om the issue dat e or at t he option of BD O Unibank Gr oup at
any t ime af ter issue dat e upon the occurrence of cert ain t rigger event s such as: (i ) a change in
t ax st at us of t he pref erred shares; or, (i i ) the pref er red shares do not qualif y as Tier 1 capital of
BD O Unibank Gr oup as deter mined by t he BSP or other applicable laws and regulat ions.
D ividend rat e is at 6.5% per annum of the par value. Subsequent ly, on September 30, 2008,
the Parent Bank issued 500,000,000 pref erred shares at P10 per shar e or a t ot al value of
P5,000.
Transact ion Subscriber I ssue D at e
N umber of Shares
I ssued
I PO May 21, 2002 908,189,550
Privat e placement
Corporat ion (I FC) June 21, 2005 31,403,592
Privat e placement February 8, 2006 22,429,906
BD O-EPCI B Merger May 31, 2007 1,308,606,021
Privat e placement August 23, 2007 31,403,592
Privat e placement
H oldings Corporat ion
(GE Capit al) August 20, 2009 37,735,849
Privat e placement
Corporat ion April 23, 2010 107,320,482
Privat e placement April 26, 2010 24,033,253
Privat e placement
(Equit y) Fund, L.P.
(I FC Equit y Fund) April 26, 2010 136,315,662
2,607,437,907
GE Capit al I nt ernat ional
Mult i Realty D evelopment
I FC Capit alizat ion
I FC
Various
UOBP
BD O-EPCI B Merger
I FC
I nt ernat ional Finance
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119
On various dat es in 2006, Primebridge H oldings, I nc. (Primebridge), a st ockholder owning
22.1% of t he Parent Banks t ot al out st anding shares as of D ecember 31, 2005, of f ered and
sold in aggregat e 9,399,700 global deposit ary receipt s (GD Rs) wit h each GD R represent ing 20
shares of t he Parent Banks common stock.
The GD Rs const it ut e an of f ering in t he Unit ed St ates only t o qualif ied inst it ut ional buyers in
reliance on Rule 144A under the US Securit ies Act of 1993 (t he Securit ies Act) and an of f ering
out side t he Unit ed St ates in reliance on Regulat ion under t he Securit ies Act . The of f ered
price f or each GD R was US$12.70 on January 25, 2006 and February 14, 2006; and US$14.55
on May 15, 2006. The GD Rs are list ed and are being t raded at the London St ock Exchange.
As part of the of f ering, Primebridge, while remaining as t he regist ered holder of t he BD O
Unibank Group shares underlying t he GD Rs, transf erred all right s and int erest s in t he Banks
shares underlying t he GD Rs to t he deposit ory on behalf of the holders of the GD Rs and the
lat t er are ent it led t o receive dividends paid on t he shares. However, GD R holders have no
vot ing right s or ot her direct right s of a shareholder wit h respect to t he Parent Banks shares.
As of D ecember 31, 2006, 4,724,214 GD Rs issued, covering shares originally held by
Primebridge, were convert ed int o 94,484,280 shares of the Parent Bank. As of
D ecember 31, 2011 and 2010, 9,600 GD Rs equivalent t o 192,000 shares of t he Parent Bank
remained unconvert ed.
1 9 . 05 R ecl assi f i cat i on of A u t h or i z ed C api t al St ock
On April 25, 2009 and May 29, 2009, t he BOD and st ockholders approved t he reclassif icat ion
in t he Parent Banks aut horized capit al stock of 1,000,000,000 unissued common shares into
1,000,000,000 Series A pref erred shares wit hout af f ect ing the f eat ures of unissued shares of
t he Parent Bank, both common and pref erred, and wit hout modif ying the right s of current
st ockholders. On March 8, 2010, t he SEC approved t he Parent Bank's Amended Art icles of
I ncorporat ion t o implement the reclassif icat ion.
1 9 . 06 Su r pl u s F r ee
On May 27, 2011, t he BOD of the Parent Bank approved the declarat ion of annual cash
dividends amount ing to P1.00 per common share or a tot al of P2,607 payable t o st ockholders
of record as of August 16, 2011. The cash dividends were approved by t he BSP on
June 23, 2011 and were paid t o the st ockholders on August 26, 2011.
On January 29, 2011, t he BOD of the Parent Bank approved the declarat ion of annual
dividends on peso denominat ed pref erred shares at the rat e of 6.5% per annum f or a tot al
dividend of P330. The declarat ion was approved by BSP on March 3, 2011 and was paid on
March 15, 2011.
On May 28, 2010, t he BOD of the Parent Bank approved the declarat ion of annual cash
dividends amount ing to P0.80 per common share or a tot al of P2,085 payable t o st ockholders
of record as of August 17, 2010. The cash dividends were approved by BSP on July 1, 2010
and were paid to t he st ockholders on August 27, 2010.
On January 9, 2010, t he BOD approved t he declarat ion of annual cash dividends on peso
denominat ed pref erred shares at t he rat e of 6.5% per annum amount ing t o P330. The
declarat ion was approved by BSP on February 19, 2010 and was paid on March 19, 2010.
19.04 Issuance of Global Depositary Receipts by Primebridge
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
On May 23, 2009, t he BOD approved the declarat ion of cash dividends amount ing t o P0.28
per common share or a tot al of P645 payable to stockholders of record as of
August 11, 2009. The cash dividends were approved by the BSP on July 17, 2009 and were
paid t o the stockholders on August 28, 2009.
On February 28, 2009, t he BOD approved the declarat ion of annual dividend on peso
denominat ed and semi-annual dividend on U.S. dollar denominat ed pref erred shares at the
rat e of 6.5% per annum each f or a tot al dividend of P84 f or the peso denominat ed pref erred
shares and US$1,625 t housand f or the U.S. dollar denominat ed pref erred shares. The
dividends were approved by t he BSP on July 17, 2009 and were paid to t he stockholders on
July 23, 2009.
On D ecember 7, 2011, t he BOD of Equimark-N FC D evelopment Corp., a subsidiary of
BD O Unibank Group, approved t he declarat ion of cash dividends at P160.00 per share on
t he 750,000 shares out st anding at the dat e of declarat ion or f or P120. The dividends were
declared to stockholders on record as of D ecember 29, 2011 and payable on
January 2, 2012. Tot al dividends paid to st ockholders not wit hin BD O Unibank Group
amount ed to P48.
On D ecember 7, 2011, t he BOD of BD O L easing, a subsidiary of BD O Unibank Group,
approved the declarat ion of cash dividends at P0.10 per share on the 2,162,475,312 shares
out st anding at the dat e of declarat ion or f or P216. The dividends were declared t o
st ockholders on record as of D ecember 26, 2011 and payable on January 18, 2012, of which,
t ot al dividends paid to non-cont rolling int erest s amount ed t o P27.
On June 29, 2011, t he BOD of BD O L easing approved t he declarat ion of cash dividends at
P0.05 per share on t he 2,162,475,312 shares out st anding at the dat e of declarat ion or f or a
t ot al of P108. The dividends were declared t o st ockholders on record as of July 14, 2011 and
payable on July 29, 2011. Tot al dividends paid t o non-controlling int erest s amount ed to P13.
On D ecember 8, 2010, t he BOD of BD O L easing, a subsidiary of BD O Unibank Group,
approved the declarat ion of cash dividends at P0.10 per share on the 2,162,475,312 shares
out st anding at the dat e of declarat ion or f or P216. The dividends were declared t o
st ockholders on record as of D ecember 22, 2010 and payable on January 18, 2011. Tot al
dividends paid t o non-cont rolling int erest s amounted t o P27.
On May 31, 2010, t he BOD of BD O Leasing approved t he declarat ion of cash dividends at
P0.05 per share on t he 2,162,475,312 shares out st anding at the dat e of declarat ion or f or a
t ot al of P108. The dividends were declared t o st ockholders on record as of June 30, 2010 and
payable on July 26, 2010. Tot al dividends paid t o non-controlling int erest s amount ed to P13.
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121
20. IN TEREST IN COME
I nt erest income consist s of t he f ollowing:
BDO Unibank Group
N otes 2011 2010 2009
Loans and ot her receivables 10 P 37,354 P 35,923 P 33,561
Trading and investment
securit ies 9 10,588 10,203 11,345
D ue f rom other banks 7, 8 2,049 2,739 2,531
Ot hers 476 1,065 1,373
P 50,467 P 49,930 P 48,810
Parent Bank
2011 2010 2009
Loans and ot her receivables 10 P 36,128 P 34,389 P 32,238
Trading and investment
securit ies 9 9,848 9,379 10,123
D ue f rom other banks 7, 8 1,884 2,646 2,473
Ot hers 164 130 177
P 48,024 P 46,544 P 45,011
21. IN TEREST EXPEN SE
I nt erest expense is composed of the f ollowing:
BDO Unibank Group
N otes 2011 2010 2009
D eposit liabilit ies 15 P 13,006 P 12,645 P 14,735
Bills payable and ot her
liabi lit ies 16, 17, 18 3,682 3,127 3,516
P 16,688 P 15,772 P 18,251
Parent Bank
2011 2010 2009
D eposit liabilit ies 15 P 12,659 P 12,224 P 14,034
Bills payable and ot her
liabi lit ies 16, 17, 18 3,380 2,766 3,147
P 16,039 P 14,990 P 17,181
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
BDO Unibank Group
N otes 2011 2010 2009
Service charges, f ees and
commissions 24 P 10,528 P 8,930 P 8,351
Trading gain - net 9 3,907 5,585 3,340
Trust f ees 25 1,727 1,474 1,218
Foreign exchange gains - net 1,714 261 294
I ncome f rom asset s acquired 12 947 140 512
D ividend 13 256 239 71
Miscellaneous - net 1,820 1,212 1,697
P 20,899 P 17,841 P 15,483
Parent Bank
N otes 2011 2010 2009
Service charges, f ees and
commissions 24 P 9,063 P 7,952 P 7,155
Trading gain - net 9 3,400 5,185 3,041
Foreign exchange gains
(losses) - net 1,572 31 ( 71)
Trust f ees 25 1,489 1,273 1,089
I ncome f rom asset s acquired 12 879 118 491
D ividend income 13 653 820 1,286
Miscellaneous - net 24 920 1,025 1,384
P 17,976 P 16,404 P 14,375
22. OTHER OPERATIN G IN COME AN D EXPEN SES
Ot her operat ing income is composed of the f ollowing:
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123
Other operating expenses consist of the following:
BDO Unibank Group
N otes 2011 2010 2009
Employee benef it s 23 P 14,002 P 13,619 P 12,399
Occupancy 31 4,365 4,467 4,334
Taxes and licenses 3,662 3,510 3,424
Advert ising 2,172 2,022 1,278
Securit y, clerical, messengerial
and janit orial 1,952 1,894 1,881
I nsurance 1,694 1,515 1,367
Fees and commissions 1,537 1,335 1,110
Represent at ion and ent ert ainment 872 859 730
Power, light and wat er 803 740 601
L it igat ion/ asset s acquired 754 607 557
Repairs and maint enance 737 671 638
Travelling 602 537 583
I nf ormat ion t echnology 460 621 585
Supplies 442 413 351
Amort izat ion of int angibles 375 176 136
Miscellaneous 13.06 1,887 1,803 2,155
P 36,316 P 34,789 P 32,129
Parent Bank
N otes 2011 2010 2009
Employee benef it 23 P 13,107 P 12,776 P 11,520
Occupancy 31 3,944 3,473 3,081
Taxes and licenses 3,399 3,243 3,106
Advert ising 2,082 1,954 1,209
Securit y, clerical, messengerial
and janit orial 1,909 1,845 1,832
I nsurance 1,647 1,467 1,313
Fees and commissions 1,321 1,172 968
Power, light and wat er 766 702 573
Represent at ion and ent ert ainment 763 755 666
L it igat ion/ asset s acquired 729 577 533
Repairs and maint enance 721 644 620
Travelling 545 492 534
I nf ormat ion t echnology 439 610 570
Supplies 414 385 326
Amort izat ion of int angibles 371 174 134
Miscellaneous 13.06 1,706 1,585 1,826
P 33,863 P 31,854 P 28,811
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
23. EMPLOYEE BEN EFITS
2 3 . 0 1 E mpl oyee B en ef i t s E x pen se
BDO Unibank Group
2011 2010 2009
Salaries and wages P 8,154 P 7,415 P 6,977
Bonuses 2,734 2,367 2,217
Ret irement def ined benef it plan 1,319 1,336 1,309
Social securit y cost s 357 325 309
Ot her benef it s 1,438 2,176 1,587
P 14,002 P 13,619 P 12,399
Parent Bank
2011 2010 2009
Salaries and wages P 7,616 P 6,895 P 6,385
Bonuses 2,557 2,201 2,079
Ret irement def ined benef it plan 1,237 1,264 1,239
Social securit y cost s 340 307 291
Ot her benef it s 1,357 2,109 1,526
P 13,107 P 12,776 P 11,520
2 3 . 0 2 P ost - empl oymen t B en ef i t s
The BD O Unibank Group maint ains a part ially f unded, t ax-qualif ied noncontribut ory
ret irement plan that is being administ ered by t he Parent Banks trust and invest ment group
covering all regular f ul l-t ime employees. Act uarial valuat ions are made annually t o update t he
post-employment benef it cost s and t he amount of contribut ions.
The amount s of ret irement benef it asset recognized as part of Ret irement asset under Other
Resources (see N ot e 13) are det ermined as f ollows:
2011 2010 2011 2010
Present val ue of t he obl igat ion (P 12,070 ) (P 10,130 ) (P 11,422) (P 9,658 )
Fair val ue of plan asset s 9,044 7,390 8,689 7,106
D ef i ci ency of plan asset s ( 3,026 ) ( 2,740 ) ( 2,733) ( 2,552 )
Unr ecognized act uari al losses 4,520 3,821 4,252 3,650
Transf er f rom t he plan asset s - ( 72 ) - ( 72 )
Unr ecognized net t r ansit i on obl igat ion - ( 11 ) - -
P 1,494 P 998 P 1,519 P 1,026
Expenses recognized f or employee benef it s are present ed below.
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125
2011 2010 2011 2010
The movement s in t he present value of t he ret irement benef it obligat ion recognized in the
books f ollows:
Current ser vi ce and i nt erest cost s 1,609 1,490 1,524 1,413
Act uarial losses 959 856 838 837
Transf er t o (f r om) plan asset s 5 ( 141 ) 5 4
Benef it s paid by t he plan ( 633) ( 534 ) ( 603 ) ( 509 )
Balance at end of year P 12,070 P 10,130 P 11,422 P 9,658
The movement s in t he f air value of plan asset s are presented below.
2011 2010 2011 2010
Cont r ibut ions paid int o t he plan 1,815 2,435 1,730 2,357
Benef it s paid by t he plan ( 633) ( 534 ) ( 603 ) ( 509 )
Act uarial gai ns 69 857 67 813
Transf er t o plan asset s 5 11 5 77
Expect ed ret urn on plan asset s 398 264 384 254
Balance at end of year P 9,044 P 7,390 P 8,689 P 7,106
As at D ecember 31, the composit ion (in percent ages) of plan asset s is present ed below.
2011 2010 2011 2010
Placement s in debt inst r ument s 65.4% 55.4% 65.5% 55.1%
D eposit s in ot her banks 8.2% 11.8% 8.2% 11.2%
Loans and ot her recei vabl es 8.4% 5.4% 8.4% 5.4%
Ot her propert i es 18.0% 27.4% 17.9% 28.3%
100.0% 100.0% 100.0% 100.0%
Act ual ret urns on plan asset s were P477 and P451 in 2011 and P1,087 and P1,067 in 2010 in
t he BD O Unibank Group and the Parent Bank f inancial st at ement s, respect ively.
The amount s of ret irement benef it s recognized in prof it or loss are as f ollows:
BDO Unibank Group
2011 2010 2009
Current service cost s P 774 P 725 P 515
I nt erest cost s 835 771 818
Expect ed ret urn on plan asset s ( 399) ( 264) ( 259)
N et act uarial losses recognized 109 112 111
N et t ransit ion obligat ion (asset ) recognized - ( 8) 124
P 1,319 P 1,336 P 1,309
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
1 1 1
I nt erest cost s 797 734 761
Expect ed ret urn on plan asset s ( 384) ( 254) ( 245)
N et act uarial gain recognized 97 105 104
N et t ransit ion obligat ion recognized - - 139
P 1,237 P 1,264 P 1,239
The movement s in t he ret irement benef it asset (liabil it y) recognized in the books f ollows:
2011 2010 2011 2010
Balance at begi nni ng of year P 998 ( P 97 ) P 1,026 (P 67)
Expense r ecogni zed ( 1,319 ) ( 1,336 ) ( 1,237) ( 1,264 )
Ret i rement benef i t l i abi l i t y of
acqui r ed subsi di ari es - ( 4) - -
Cont ri but i ons paid 1,815 2,435 1,730 2,357
Balance at end of year P 1,494 P 998 P 1,519 P 1,026
Present ed below are t he hist orical inf ormat ion relat ed t o the present value of the
ret irement benef it obligat ion, f air value of plan assets and def icit in the plan as well as
experienced adjust ment s arising on plan asset s and liabilit ies.
BDO Unibank Group
2011 2010 2009 2008
Present value of the obli gati on P 12,070 P 10,130 P 8,459 P 7,086
Fair val ue of t he pl an asset s 9,044 7,390 4,357 3,460
D ef ici t in the plan P 3,026 P 2,740 P 4,102 P 3,626
Experience adj ustment s
ari sing on pl an l iabil it ies P 417 P 316 P 985 P 967
ari sing on pl an asset s P 78 P 845 P 148 (P 179 )
Current service cost s
2011 2010 2 2010 2009
679 7 P 727 P 480 P
Parent Bank
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Parent Bank
2011 2010 2009 2008
Present value of the obli gati on P 11,422 P 9,658 P 7,913 P 6,684
Fair val ue of t he pl an asset s 8,689 7,106 4,114 3,277
D ef ici t in the plan P 2,733 P 2,552 P 3,799 P 3,407
ari sing on pl an l iabil it ies P 337 P 351 P 930 P 919
ari sing on pl an asset s P 67 P 813 P 137 (P 170 )
The BD O Unibank Group expect to pay P81 as cont ribut ions t o ret irement benef it plans in
2012.
I n det ermining the amount s of ret irement benef it s, the f ollowing act uarial assumpt ions were
used:
2011 2010 2011 2010
D i scount r at es 6.33% 8.25% 6.33% 8.3%
Expected rate of retur n
on pl an asset s 5.0% 5.0% 5.0% 5.0%
Expected rate of salary increases 10.0% 10.0% 10.0% 10.0%
Assumpt ions regarding f ut ure mort alit y experience are based on published st at ist ics and
mort alit y t ables. The average remaining working lives of an individual ret iring at t he age of 60
is 27.
The overall expect ed long-term rate of ret urn on asset s is 5%. The expect ed long-t erm rat e of
ret urn is based on the port f olio as a whole and not on the sum of the ret urns on individual
asset cat egories. The ret urn is based exclusively on hist orical ret urns, wit hout adjust ment s.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
24. RELATED PARTY TRAN SACTION S
I n t he ordinary course of business, BD O Unibank Group has loans, deposit s and other
t ransact ions wit h it s relat ed part ies and wit h cert ain direct ors, of f icers, st ockholders and
relat ed interest (D OSRI ) as described below.
Transact ions wit h and bet ween subsidiaries have been eliminat ed in t he consolidat ed f inancial
st at ement s.
(a) L oans to Rel at ed Par t i es
Under exist ing policies of BD O Unibank Group, these loans are made on subst ant ially
t he same t erms as loans grant ed t o ot her individuals and businesses of comparable risks.
The General Banking Act and BSP regulat ions limit t he amount of the loans grant ed by a
bank to a single borrower to 25% of equit y. The amount of individual loans t o D OSRI ,
of which 70% must be secured, should not exceed the amount of the unencumbered
deposit and book value of t he investment in the BD O Unibank Group. I n t he aggregat e,
loans t o D OSRI generally should not exceed the t otal equit y or 15% of t he tot al loan
port f olio of BD O Unibank Group, whichever is lower.
The f ollowing addit ional inf ormat ion relat es t o t he D OSRI loans:
2011 2010 2011 2010
Tot al D OSRI l oans P 42,814 P 35,453 P 42,814 P 35,413
Unsecur ed D OSRI loans 2,601 2,146 2,601 2,126
% of D OSRI loans to total
loan por t f ol io 6.4% 6.6% 6.5% 6.7%
% of unsecured D OSRI loans to
tot al D OSRI loans 6.0% 6.1% 6.1% 6.0%
% of past due D OSRI l oans t o
tot al D OSRI loans 0.0% 0.0% 0.0% 0.0%
% of non-perf or mi ng D OSRI loans
to tot al D OSRI loans 0.0% 0.0% 0.0% 0.0%
D OSRI loans bear int erest rat es of 0% (St andby L etters of Credit s or LCs) t o 9.1% in
2011 and 0% (St andby L Cs) to 11.0% f or both 2010 and 2009 f or both BD O Unibank
Group and Parent Bank f inancial st at ement s.
(b) D eposi t s from Rel ated Par t i es
As of D ecember 31, 2011 and 2010, t ot al deposit s made by t he relat ed part ies to BD O
Unibank Group amount ed to P415,744 and P194,625, respect ively. The relat ed int erest
expense f rom deposit s amount ed t o P38, P10, and P6 in 2011, 2010 and 2009,
respect ively.
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129
(c) Ot her T r ansact i ons wi t h Rel at ed Par t i es
A summary of other transact ions of t he Parent Bank wit h subsidiaries and associat es is
shown below.
(i ) L oans and A dvances to Subsi di ari es
The Parent Bank grant s nonint erest -bearing advances t o subsidiaries f or working
capit al requirement s, which are unsecured and wit hout f ixed repayment t erms.
Out st anding advances t o subsidiaries recognized as part Advances to subsidiaries
under Other Resources in t he Parent Bank st at ement s of f inancial posit ion amount ed
t o P3,183 as of D ecember 31, 2010 (nil in 2011) (see N ot e 13). On t he ot her hand,
out st anding advances to subsidiaries recognized as part of Account s receivable under
Loans and Other Receivables amount ed t o P198 and P1,397 as of D ecember 31, 2011
and 2010, respect ively.
The Parent Bank also grant s int erest -bearing loans to subsidiaries wit h out st anding
balance of P3,238 and P351 as of D ecember 31, 2011 and 2010, respect ively, and are
present ed as part of Loans and discount s under L oans and Ot her Receivables in t he
Parent Banks st at ement s of f inancial posit ion. I nt erest income recognized on t he
loans amount ed t o P115 in 2011, P1 in 2010 and P16 in 2009 and is present ed as part
of N et I nt erest I ncome in t he Parent Banks st at ement s of income.
(i i ) L oans and A dvances to A ssoci at es
As of D ecember 31, 2011 and 2010, out st anding loans and advances t o associat es
amount ed to P814 and 421, respect ively, in the BD O Unibank Group f inancial
st at ement s and P44 and P414, respect ively, in the Parent Bank f inancial st at ement s,
present ed as part of Loans and discount and Account s receivable under Loans and
Ot her Receivables in the st at ement s of posit ion (see N ote 10). The BD O Unibank
Group recognized P41 int erest income on the loans in 2011 (nil in 2010 and 2009).
(i i i ) I ncome to t he Par ent Bank
i . BD OSH I engaged the Parent Bank t o provide various support such as human
resources management , audit , preparat ion and issuance of checks f or and in behalf
of BD OSH I , document at ion and saf ekeeping/ cust odianship of securit ies and
collat eral document s, account ing f unct ions and review of f inancial st at ement s f or
BD OSH I . The service agreement shall cont inue t o be in f orce unless terminat ed
by either part y t hrough a writ t en not ice of eit her part y at least 60 days prior t o dat e
int ended f or terminat ion. I n 2011 and 2010, t ot al service f ees bot h amount ed to
P692 t housand and is present ed as part of Service charges, f ees and commissions
under Other Operat ing I ncome in t he Parent Banks st at ement s of income(see
N ote 22). BD OSHI also leases it s of f ice space f rom Parent Bank at P1.6 per year,
shown as part of Rent al income under Ot her Operating I ncome in t he Parent
Banks st at ement s of income (see N ot e 22).
i i . Generali has an exist ing I nvest ment Management Agreement with the BD O
Unibank Group. For services rendered, Generali shall pay BD O Unibank Group
management f ees equivalent to 0.25% of managed f unds and 0.10% of direct ed
invest ment s and cust odianship which shall be based on t he average daily balance of
t he f und type and shall be deducted quart erly f rom the f und. I n 2011 and 2010,
t ot al service f ees amount ed to P24 and P22, respect ively.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
There are no out st anding balances arising f rom these t ransact ions as of
D ecember 31, 2011 and 2010.
(i v) E x penses of t he Par ent Bank
i . On May 30, 2007, ECN , merged wit h BD OSHI in 2011 (see N ot e 26.01), ent ered
int o a service agreement wit h the Parent Bank. Under this agreement , ECN agreed
t o provide market ing, cent ral operat ions, systems credit and collect ion support and
f inance services to t he Parent Bank in connect ion wit h t he operat ions of t he credit
card business. This agreement is pursuant t o the t erms and condit ions of t he MOA
where ECN agreed t o sell it s right s, int erest s and obligat ions on it s receivables and
liabi lit ies t o the Parent Bank.
i i . BD O Technology, merged wit h BD OSHI in 2011 (see N ot e 26.01), renders
t echnical services and/ or management consult at ion to the Parent Bank and
af f il iat es at subst ant ially t he same terms as t ransact ions wit h t hird part ies. The
t ransact ions amount ed t o P5 each in 2011 and 2010.
i i i . BD O Unibank Group leases space f rom relat ed parties f or it s branch operat ions.
For t he years ended D ecember 31, 2011, 2010 and 2009, t ot al rent expense paid t o
relat ed part ies amount ed t o P426, P349 and P315, respect ively, and is included as
part of Occupancy account (see N ot e 22).
(v) Ot hers
The Parent Bank has cost sharing agreement s wit h subsidiar ies as f ollows:
i . The Parent Bank shall provide BD O Capit al wit h various support services
consist ing of the f ollowing:
1) Tradit ional bank transact ion processing f unct ions;
2) Preparat ion and maint enance of BD O Capit al's books of account s;
3) Generat ion of required ext ernal regulat ory report s and int ernal management
inf ormat ion;
4) General and periodic examinat ion of t he books of BD O Capit al's account s;
5) Advert ising and market ing services;
6) I nf ormat ion t echnology support services;
7) Recruit ment and select ion of personnel;
8) Preparat ion of payroll and benef it administ rat ion; and,
9) Ot her administ rat ive and general services.
i i . On January 31, 2008, BD O Securit ies ent ered into a service agreement wit h the
Parent Bank. Under this agreement , t he Parent Bank shall provide various support
services such as general account ing, int ernal audit , human resources management ,
advert ising and market ing services, inf ormat ion t echnology systems/ processing,
legal support and administ rat ive and general services.
Out st anding balances arising f rom t hese t ransact ions as of D ecember 31, 2011 and
2010 both amount ed to P6.
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131
(vi ) The salaries and other compensat ion given to BD O Unibank Groups key
management are as f ollows:
BDO Unibank Group
2011 2010 2009
Salaries and wages P 533 P 513 P 504
Bonuses 262 255 239
Social securit y cost s and
ot her benef it s 28 33 34
P 823 P 801 P 777
Parent Bank
2011 2010 2009
Salaries and wages P 376 P 349 P 326
Bonuses 189 178 165
Social securit y cost s and
ot her benef it s 20 25 19
P 585 P 552 P 510
25. TRUST OPERATION S
The f ollowing securit ies and ot her propert ies held by BD O Unibank Group in f iduciary or
agency capacit y (f or a f ee) f or it s cust omers are not included in the accompanying BD O
Unibank Group st atement s of f inancial posit ion since these are not propert ies of BD O
Unibank Group (see N ot e 31.03).
2011 2010 2011 2010
I nvest ment s P 692,480 P 531,025 P 584,740 P 464,093
Ot hers 18,931 38,932 17,609 3,552
P 711,411 P 569,957 P 602,349 P 467,645
I n compliance wit h the requirement s of t he General Banking Act relat ive t o the Bank's trust
f unct ions:
(a) I nvest ment in government securit ies (shown as part of H eld-to-mat urit y I nvestment s)
wit h a tot al f ace value of P7,043 and P5,887 as of D ecember 31, 2011 and 2010,
respect ively, in BD O Unibank Group and P5,939 and P4,791 as of D ecember 31, 2011
and 2010, respect ively, in t he Parent Bank are deposit ed wit h the BSP as securit y f or the
Bank's f ait hf ul compliance wit h it s f iduciary obligat i ons; and,
(b) A cert ain percent age of t he t rust income is t ransf erred t o surplus reserve. This yearly
t ransf er is required unt il t he surplus reserve f or trust f unct ion is equivalent t o 20% of t he
BD O Unibank Groups aut horized capit al stock. As of D ecember 31, 2011 and 2010, t he
reserve f or t rust f unct ions amount ed t o P106 and P89, respect ively, and is included as
part of Surplus Reserves in BD O Unibank Group equit y.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
I ncome f rom t rust operat ions, shown as Trust Fees under Other Operat ing I ncome,
amount ed to P1,727, P1,474, and P1,218, f or t he years ended December 31, 2011, 2010 and
2009, respect ively, in t he BD O Unibank Group st at ement s of income and P1,489, P1,273 and
P1,089 f or the years ended D ecember 31, 2011, 2010 and 2009, respect ively, in t he Parent
Bank st at ement s of income.
26. MERGERS AN D ACQUISITION S
2 6 . 0 1 M er ger s A mon g Su bsi di ar i es
As discussed in N ot e 13.01, t he Parent Bank approved the f ive-way merger of
wholly-owned subsidiaries: BD OSH I , ECN , ESH C, BD O Technology, and SPHI , a subsidiary
of ESH C, wit h BD OSHI as the surviving corporat ion. The Merger was account ed f or using
t he pooling-of -int erest s method since t he merging ent it ies are under the common cont rol of
t he BD O Unibank Group (see N ote 13.01.02).
2 6 . 0 2 A cq u i si t i on of G E M on ey B an k
I n May 2009, t he Parent Bank and GE Capit al, a f inancial services unit of the General Elect ric
Company, announced the signing of a def init ive agreement t o t ransf er GEMB in t he
Philippines int o the Parent Bank. As part of the agreement , GE Capit al will also make an
invest ment in t he Parent Bank by acquiring a st ake of approximat ely 1.5%. The transact ion
consolidat ed GEMBs business into t he Parent Bank, including 30,000 cust omers, 350
employees, a net work of 31 branch licenses and 38 ATMs nat ionwide. On August 24, 2009,
t he Parent Bank completed the purchase of 98.81% of the issued and out st anding common
st ock and 100% of t he pref erred st ock of GEMB f or a considerat ion of P2,000.
The agreed price f or t he net asset s of GEMB at the closing dat e amount ed to P1,500. H ence,
t he Parent Bank recognized goodwill of P500 represent ing t he excess of purchase price over
t he f air value of GEMBs net asset s. The goodwill is included in the Ot her Resources account
in t he st atement of f inancial posit ion. The acquisit ion was approved by t he BOD and by t he
BSP on May 27, 2009 and July 30, 2009, respect ively. On August 12, 2010, GEMB amended
it s Art icles of I ncorporat ion and adopt ed the name BD O Elit e Savings Bank, I nc.
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133
27. TAXES
2 7 . 01 C u r r en t an d D ef er r ed T ax es
The component s of t ax expense f or the years ended D ecember 31 f ollow:
BDO Unibank Group
2011 2010 2009
Repor t ed i n pr ofi t or l oss
Current t ax expense:
Regul ar cor por ate i ncome t ax (RCI T) at 30% P 337 P 203 P 231
Minimum corpor ate income t ax (MCI T ) at 2% 417 384 297
Fi nal taxes at 20%, 15%, 10% and 7.5% 759 965 980
1,513 1,552 1,508
D ef erred t ax expense relat i ng t o
ori gi nation and rever sal
of t empor ary dif f erences 117 79 151
P 1,630 P 1,631 P 1,659
Repor t ed i n other compr ehensi ve i ncome
Movement s in f air value of AFS secur it ies P 2 P 29 P 2
Movement s in revaluat ion i ncrement ( 20) ( 6) ( 59)
(P 18) P 23 ( P 57)
Parent Bank
2011 2010 2009
Repor t ed i n pr ofi t or l oss
Current t ax expense MCI T at 2% P 369 P 359 P 273
Current tax expense RCI T at 30% 57 - -
Fi nal taxes at 20%, 15%, 10% and 7.5% 652 879 903
1,078 1,238 1,176
D ef erred t ax expense relat i ng t o
ori gi nation and rever sal of
t emporary dif f erences 121 59 87
P 1,199 P 1,297 P 1,263
Repor t ed i n other compr ehensi ve i ncome
Movement s in revaluat ion i ncrement (P 20 ) ( P 6) (P 54)
Movement s in f air value of AFS secur it ies - - ( 26)
( P 20) (P 6) ( 80)
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The reconciliat ion of the t ax on pret ax prof it comput ed at the st at ut ory t ax rat es to t ax expense
is shown below.
BDO Unibank Group
2011 2010 2009
Tax on pret ax prof i t at 30% P 3,665 P 3,154 P 2,328
Adjust ment f or income subj ect ed t o lower
income t ax rat es ( 191) ( 444) ( 633)
Tax ef f ect s of :
I ncome exempt f rom t ax ( 3,253) ( 3,037) ( 1,010)
N on-deduct ible expenses 2,208 2,439 585
D educt ible t emporary di f f erences not r ecognized ( 1,043 ) 489 51
N et operat i ng l oss carryover (N OLCO)
not recognized ( 114) ( 1,374) 14
Tax-exempt income of FCD U - - ( 1,314)
Ot hers 358 404 1,638
Tax expense r eport ed i n prof it or loss P 1,630 P 1,631 P 1,659
Parent Bank
2011 2010 2009
Tax on pret ax prof i t at 30% P 3,046 P 2,919 P 2,286
Adjust ment f or income subj ect ed t o lower
income t ax rat es ( 133) ( 404) ( 531)
Tax ef f ect s of :
D educt ible t emporary di f f erences not r ecognized ( 995) 477 1,439
I ncome exempt f rom t ax ( 2,966) ( 2,960) ( 1,015)
N on-deduct ible expenses 1,993 2,266 542
N OLCO not recognized (appli ed) ( 115) ( 1,360) ( 458)
Tax-exempt income of FCD U - - ( 1,314)
Ot hers 369 359 314
Tax expense r eport ed i n prof it or loss P 1,199 P 1,297 P 1,263
The component s of t he net def erred t ax asset s (see N ote 13) as of D ecember 31 f ollow:
Statements of Financial Positi on
2011 2010 2011 2010
D ef erred t ax asset s:
All owance f or impairment P 6,024 P 6,012 P 5,916 P 5,916
Unamort ized past servi ce cost 577 564 576 560
Lease income dif f erent ial 82 74 82 74
N OLCO 43 9 - -
Ot hers 13 36 - -
6,739 6,695 6,574 6,550
D ef erred t ax liabi lit ies:
Reval uat i on incr ement 480 499 477 497
Lease income dif f erent ial 189 180 - -
Changes in f air values of AFS 63 62 - -
Capit alized i nt erest 56 58 56 58
Ot hers 466 312 455 308
1,254 1,111 988 863
N et D ef erred Tax Asset s P 5,485 P 5,584 P 5,586 P 5,687
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Movement s in net def erred t ax asset s f or t he year ended D ecember 31 f ollows:
2011 2010 2009
BDO Unibank Group
Lease income dif f erent ial P 1 P 31 P 169
All owance f or impairment ( 12) ( 24) 34
Capit alized i nt erest ( 2) ( 2) ( 2 )
Unamort ized past servi ce cost s ( 13) ( 240) 56
N OLCO ( 34) - 50
Ot hers 177 314 ( 156 )
D ef erred Tax Expense P 117 P 79 P 151
Parent Bank
Unamort ized past servi ce cost s ( P 16) ( P 241) P 56
All owance f or impairment - 1 22
Capit alized i nt erest ( 2) ( 2) ( 2 )
N OLCO - - 11
Ot hers 139 301 -
D ef erred Tax Expense P 121 P 59 P 87
Statements of Comprehensive Income
2011 2010 2011 2010
Movement s in f air value
of A FS secur it ies P 2 P 29 P - P -
Movement s in revaluat ion
increment ( 20) ( 6) ( 20) ( 6 )
D ef erred Tax Expense (I ncome) ( P 18) P 23 ( P 20) ( P 6 )
BD O Unibank Group is subject to MCI T, which is comput ed at 2% of gross income, as
def ined under t ax regulat ions or RCI T, whichever is higher.
The breakdown of N OLCO wit h the corresponding validit y periods f ollows:
BDO Unibank
Year Group Parent Bank Valid Until
2011 P 301 P - 2014
2010 6 - 2013
2009 39 - 2012
I n 2011 and 2010, N OL CO amount ing t o P383 and P4,534, respect ively, were applied by t he
Parent Bank.
follow:
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
The breakdown of MCI T with the corresponding validit y periods f ollow:
BDO Unibank
Year Group Parent Bank Valid Until
2011 P 369 P 369 2014
2010 367 359 2013
2009 283 273 2012
P 1,019 P 1,001
The amount s of unrecognized def erred t ax asset s arising f rom N OLCO and ot her t emporary
dif f erences as of D ecember 31, 2011 and 2010 are as f ollows:
BDO Unibank Group
2011 2010
Tax Base Tax Effect Tax Base Tax Ef f ect
Allowance f or impairment P 25,160 P 7,548 P 26,033 P 7,810
N OLCO 203 61 1,793 538
MCI T 1,019 1,019 713 713
Ot hers 3,782 1,134 677 203
P 30,164 P 9,762 P 29,216 P 9,264
Parent Bank
2011 2010
Tax Base Tax Effect Tax Base Tax Ef f ect
Allowance f or impairment P 23,153 P 6,946 P 24,373 P 7,312
N OLCO - - 1,711 513
MCI T 1,001 1,001 710 710
Ot hers 3,781 1,134 599 180
P 27,935 P 9,081 P 27,393 P 8,715
2 7 . 02 O pt i on al St an dar d D edu ct i on s
Ef f ect ive July 2008, RA N o. 9504 was approved giving corporat e t ax payers an opt ion to
claim it emized deduct ion or opt ional st andard deduct ion (OSD ) equivalent t o 40% of gross
sales. Once t he opt ion is made at the beginning of the t axable year, it shall be irrevocable f or
t he t axable year f or which t he opt ion was made. BD O Unibank Group claims it emized
deduct ion f or t ax purposes.
2 7 . 03 C h an ge i n A ppl i cabl e T ax R at e
Ef f ect ive January 1, 2009, in accordance wit h RA N o. 9337, RCI T rate was reduced f rom 35%
t o 30% and non-allowable deduct ions f or int erest expense f rom 42% to 33% of int erest
income subject ed to f inal t ax.
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2 7 . 04 G r oss R ecei pt s T ax ( G R T ) / V al u e- ad ded T ax ( V A T )
Beginning January 1, 2003, t he imposit ion of VAT on banks and f inancial inst it ut ions became
ef f ect ive pursuant t o the provisions of RA N o. 9010. The Parent Bank and BD O Privat e
became subject t o VAT based on their gross receipt s, in lieu of t he GRT under Sect ions 121
and 122 of the Tax Code which was imposed on banks, non-bank f inancial int ermediaries and
f inance companies in prior years.
H owever, on January 29, 2004, RA N o. 9238 revert ed t he imposit ion of GRT on banks and
f inancial inst it ut ions.
On May 24, 2005, t he amendment s on RA N o. 9337 was approved amending, among others,
t he gross GRT on royalt ies, rent als of propert y, real or personal, prof it s f rom exchange and on
net t rading gains wit hin t he t axable year on f oreign currency, debt securit ies, derivat ives and
ot her similar f inancial inst rument s f rom 5% to 7% ef f ect ive N ovember 1, 2005.
2 7 . 05 D ocu men t ar y St amp T ax ( D ST )
D ocument ary st amp t axes (at varying rat es) are imposed on the f ollowing:
(a) Bank checks, draf t s, or cert if icat e of deposit not bearing int erest , and ot her inst rument s;
(b) Bonds, loan agreement s, promissory not es, bills of exchange, draf t s, inst rument s and
securit ies issued by t he Government or any of it s inst rument alit ies, deposit subst it ut e debt
inst rument s, cert if icat es of deposit s bearing int erest and ot her not payable on sight or
demand;
(c) Accept ance of bills of exchange and let ters of credit ; and,
(d) Bills of lading or receipt .
On February 7, 2004, RA N o. 9243 was passed amending the rat es of D ST, t he signif icant
provisions of which are summarized below.
(a) On every issue of debt inst rument s, t here shall be collect ed a D ST of one peso on each
t wo hundred pesos or f ract ional part t hereof of the issue price of any such debt
inst rument . Provided, t hat f or such debt instruments wit h terms of less t han one year, t he
D ST t o be collect ed shall be of a proport ional amount in accordance wit h t he rat io of it s
t erm in number of days t o 365 days. Provided f urther that only one D ST shall be
imposed on either loan agreement or promissory notes t o secure such loan.
(b) On all sales or transf er of shares or cert if icat es of stock in any corporat ion, t here shall be
collect ed a D ST of 75 cent avos on each t wo hundred pesos, or f ract ional part t hereof , of
t he par value of such stock.
(c) On all bills of exchange or draf t s, there shall be collect ed a D ST of 30 cent avos on each
t wo hundred pesos, or f ract ional part t hereof , of the f ace value of any such bill of
exchange or draf t .
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
(d) The f ollowing inst rument s, document s and papers shall be exempt f rom D ST:
Borrowings and lending of securit ies execut ed under t he Securit ies Borrowing and
L ending Program of a regist ered exchange, or in accordance wit h regulat ions
prescribed by t he appropriat e regulat ory aut horit y;
Loan agreement s or promissory notes, the aggregat e of which does not exceed P250
t housand or any such amount as may be det ermined by t he Secret ary of Finance,
execut ed by an individual f or his purchase on inst allment f or his personal use;
Sale, bart er or exchange of shares of stock list ed and t raded through t he local stock
exchange f or a period of f ive years f rom t he af f ect ivit y of RA N o. 9243;
Fixed income and ot her securit ies t raded in the secondary market or through an
exchange;
D erivat ives including repurchase agreement s and reverse repurchase agreement s;
Bank deposit account s wit hout a f ixed t erm or mat urit y; and,
I nt erbank call loans wit h mat urit y of not more than seven days to cover def iciency in
reserve against deposit liabilit ies.
2 7 . 0 6 Su ppl emen t ar y I n f or mat i on R eq u i r ed by t h e B u r eau of I n t er n al R even u e
On D ecember 9, 2011, t he Bureau of I nt ernal Revenue (BI R) issued RR 19-2011 which
prescribes the new f orm that will be used f or income t ax f iling covering and st art ing wit h
periods ending D ecember 31, 2011 and onwards. This recent RR requires schedules of
t axable revenues and ot her non-operat ing income, cost s of sales and services, and it emized
deduct ions, t o be disclosed in t he not es to f inancial st at ement s.
On N ovember 25, 2010, t he BI R issued RR N o. 15-2010, which requires cert ain inf ormat ion
on t axes, dut ies and license f ees paid or accrued during the t axable year to be disclosed as part
of the not es t o f inancial st at ement s.
The Parent Bank, however, present ed t his t ax inf ormat ion required by the BI R as a
supplement ary schedule f iled separat ely f rom the basic f inancial st at ement s.
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139
28. EARN IN GS PER SHARE
Basic earnings per share were comput ed as f ollows:
BDO Unibank Group
2011 2010 2009
N et prof it at tri butable to shareholders
of t he Parent Bank P 10,531 P 8,825 P 6,035
D ividends on pref er red shares ( 330) ( 330) ( 84)
N et prof it avail able t o common shares 10,201 8,495 5,951
D ivided by t he weighted average number
of out st andi ng common shares (i n mil li ons) 2,607 2,522 2,315
Basic earni ngs per share P 3.91 P 3.37 P 2.57
D ilut ed earnings per share were comput ed as f ollows:
BDO Unibank Group
2011 2010 2009
N et prof it at tri butable to shareholders
of t he Parent Bank P 10,201* P 8,495* P 6,035
of out st andi ng common shares (i n mil li ons):
Outstanding common shares 2,607 2,522 2,315
Potent ial common shares f rom assumed
conversion of pr ef erred shar es * * 128
conversion of stock opt ion pl an - - 1
Tot al weighted average number
of common shares af ter assumed
conversion of conver t i ble pref erred shares 2,607 2,522 2,444
D il uted earni ngs per share P 3.91 P 3.37 P 2.47
* N et profi t at t r i but abl e t o sharehol ders of t he Parent Bank i s reduced by di vi dends on preferred shares as t hese were
not assumed t o be conver ted. Pot ent i al common shar es fr om assumed conver si on of t hese pr efer r ed shar es ar e ant i -
di l ut i ve i n 2011 and 2010.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Basic earnings per share were comput ed as f ollows:
Parent Bank
2011 2010 2009
N et prof it P 8,954 P 8,433 P 6,356
D ividends on pref er red shares ( 330) ( 330) ( 84 )
N et prof it avail able t o common shares 8,624 8,103 6,272
of out st andi ng common shares (i n mil li ons) 2,607 2,522 2,315
Basic earni ngs per share P 3.31 P 3.21 P 2.71
D ilut ed earnings per share were comput ed as f ollows:
Parent Bank
2011 2010 2009
N et prof it P 8,624* P 8,103* P 6,356
of out st andi ng common shares (i n mil li ons):
Outstanding common shares 2,607 2,522 2,315
conversion of conver t i ble pref erred shares * * 128
conversion of stock opt ion pl an - - 1
Tot al weighted average number of
common shares af ter assumed conver si on
of conver t i ble pref erred shares 2,607 2,522 2,444
D il uted earni ngs per share P 3.31 P 3.21 P 2.60
* N et profi t att r i but abl e t o sharehol ders of t he Parent Bank i s reduced by di vi dends on preferred shares as
t hese were not assumed t o be convert ed. Pot ent i al common shar es from assumed conver si on of t hese pr efer r ed
shares are ant i -di l ut i ve i n 2011 and 2010.
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141
29. SELECTED FIN AN CIAL PERFORMAN CE IN DICATORS
(a) The f ollowing are some measures of t he BD O Unibank Group and Parent Banks
f inancial perf ormance:
2011 2010 2009
BDO Unibank Group
Ret urn on average equit y:
N et prof it 11.4% 11.3% 9.7%
Average t ot al capit al account s
Ret urn on average resources:
N et prof it 1.0% 1.0% 0.7%
Average t ot al resources
N et int erest margin:
N et int erest income 3.5% 4.1% 4.1%
Average int erest earning resources
Ret urn on common equit y:*
N et prof it 11.7% 11.7% 10.4%
Average common equit y
Capit al t o risk asset s rat io*
Combined credit , market and
operat ional risks 15.8% 13.8% 12.2%
* Comput ed usi ng bal ances prepared under F RSP for bank s
Parent Bank
Ret urn on average equit y:
N et prof it 10.4% 11.6% 11.0%
Average t ot al capit al account s
Ret urn on average resources:
N et prof it 0.9% 1.0% 0.8%
Average t ot al resources
N et int erest margin:
N et int erest income 3.5% 4.0% 4.0%
Average int erest earning resources
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
2011 2010 2009
Parent Bank
Ret urn on common equit y:
N et prof it 10.6% 12.0% 11.9%
Average common equit y
Capit al t o risk asset s rat io* :
* Comput ed usi ng bal ances pr epar ed under F RSP for bank s
Combined credit , market and
operat ional risk 13.6% 12.1% 10.4%
(b) Secured liabilit ies and resources pledged as securit y are shown below.
2011 2010 2011 2010
Aggregat e amount
of secured l i abi l i t i es P 14,939 P 23,997 P 14,939 P 23,997
Aggregat e amount of resources
pl edged as securi t y P 17,336 P 26,988 P 17,336 P 26,988
30. EVEN TS AFTER THE REPORTIN G PERIOD
On February 16, 2012, BD O Unibank Group issued Senior N ot es wit h a f ace value of
US$300 million at a price of 99.448 or a t ot al price of US$298 million. The Senior N ot es,
which will mat ure in February 16, 2017, bear a coupon rat e of 4.5% per annum, wit h
ef f ect ive yield of 4.625% per annum, and will be payable semi-annually every February 16
and August 16 st art ing on August 16, 2012. The net proceeds f rom t he issuance of Senior
N ot es are int ended f or general f unding and re-lending purposes.
On January 28, 2012, t he Parent Bank's BOD approved t he declarat ion of annual cash
dividends on peso denominat ed pref erred shares at t he rat e of 6.5% per annum f or a t ot al
dividend of P330 which was approved by BSP on February 20, 2012.
31. COMMITMEN TS AN D CON TIN GEN CIES
3 1 . 0 1 L i t i gat i on s
BD O Unibank Group has pending claims and/ or is a def endant in various legal act ions
arising f rom t he ordinary course of business operat ions. As of D ecember 31, 2011,
management believes t hat no such legal proceedings are expect ed t o have mat erial adverse
ef f ect on t he BD O Unibank Groups f inancial posit ion. The Parent Bank is a respondent in
t wo arbit rat ion proceedings under t he I nt ernat ional Chamber of Commerce (I CC) arising
f rom isolat ed t ransact ions, i.e., t he sale of it s equit y invest ment s.
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143
Sal e of B an k ar d
BD O (as successor in int erest of EPCI B), as respondent , and RCBC Capit al Corporat ion
( RCBC Capit al ), as claimant , were involved in int ernat ional arbit rat ion proceedings.
The arbit rat ion proceedings arose f rom the Sale and Purchase Agreement ( SPA ) execut ed
bet ween RCBC Capit al and EPCI B in May 2000, whereby EPCI B sold t o RCBC Capit al it s
67% st ake in t he out st anding capit al stock of Bankard, I nc. ( Bankard ). RCBC Capit al
claims an alleged breach of t he BD Os warrant y on Bankards f inancial st at ement s and asked
f or rescission of it s purchase and rest it ut ion of all amount s paid to EPCI B wit h damages or, if
rescission cannot be grant ed, damages of at least P586. EPCI B was of t he posit ion t hat
RCBC Capit als claim is one f or overpayment or price reduct ion t hat is t ime-barred since the
SPA requires t hat demand f or price reduct ion be present ed in writ ing on or bef ore D ecember
31, 2000. D espit e act ual due diligence, no such demand had been submitt ed.
Wit h one of t he three arbitrat ors dissent ing, t he Arbit ral Tribunal issued t wo part ial awards
(dat ed September 27, 2007 and May 28, 2008) and a Final Award dat ed June 16, 2010
awarding t o RCBC P349 and reimbursement of arbitrat ion cost s.
I n D ecember 2010, t he Court of Appeals (CA) reversed and set aside the conf irmat ion of the
Second Part ial Award, which ordered BD O to reimburse t he cost s advanced by RCBC and
deemed BD Os count erclaim waived due t o alleged non-payment of cost s. RCBC Capit al has
appealed this reversal to the Supreme Court where the mat t er remains pending.
On July 1, 2010, BD O f iled a pet it ion t o vacat e the Final Award in accordance with law and
t he rules of court applicable t o arbit rat ion. The Final Award was vacat ed or set aside by t he
Regional Trial Court of Makat i (RTC Makat i) in February 2011. RCBC Capit al has appealed
t his to t he Court of Appeals where t he case remains pending.
RCBC Capit al sought to conf irm t he same Final Award in a separat e proceeding in RTC
Makat i on July 28, 2010. D espit e quest ions on jurisdi ct ion, RTC Makat i (Branch 148)
conf irmed the f inal award last N ovember 10, 2010. I t also denied BD Os mot ion f or
reconsiderat ion in August 2011 and added int erest charges not awarded by the Arbitrat ion
Tribunal. Execut ion pending appeal was also swif t ly awarded and implement ed last
Sept ember 2011 in highly quest ionable and irregular procedure. BD O appealed the
conf irmat ion and quest ioned the execut ion of the Final Award bef ore the CA. I n order to
st op the implement at ion of the said writ of execut ion, BD O opt ed t o t ender on
Sept ember 13, 2011 t he amount of P638, present ed as part of Account s receivable under
Loans and Other Receivables (see N ot e 10), wit hout prejudice to t he outcome of t he pending
appeals and cases.
Management believes t hat RCBC Capit als claim is baseless and wit hout merit and t hat BD Os
posit ion will be sust ained in t he f inal resolut ion of the cases pending wit h the CA. I n any
case, t he result ing liabilit y, if any, f rom such a claim, wil l not have a mat erial adverse ef f ect on
t he f inancial posit ion and perf ormance of the BD O Unibank Group.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
Sal e of M ax i car e
BD O Unibank is a def endant / respondent in legal proceedings arising f rom t he sale of it s 60%
st ake in Maxicare in 2007. I n January 2008, claimant s f iled a pet it ion in the RTC Makat i f or
t he issuance of a writ of preliminary I njunct ion and that wit h respect t o respondent s Pin-An
H oldings Corporat ion and Antonio L . Go, in the remote event t hat a D eed of
Assignment / Sale has been execut ed, t o declare such D eed null and void and t o direct said
respondent s t o deliver t he af orement ioned st ock cert if icat es represent ing the 120,000 shares
in Maxicare t o Pet it ioners [Claimant s].
The RTC Makat i denied the TRO and writ of replevin on the ground t hat t he Claimant s have
no clear and unmist akable right over t he shares, as there was no perf ected cont ract of sale
bet ween t he Bank and the claimant s. I n April 2008, t he RTC Makat i also ruled t hat the
Banks sale of the shares t o Pin-An Holdings is val id and it s order declaring t he validit y of the
sale of Maxicare shares has become f inal under said I nt erim Rules. The claimant s did not
appeal the dismissal. Their pet it ion f or cert iorari wit h the CA was also dismissed and t he CA
held that t here was no grave abuse of discret ion in the issuance of the RTC Makat i ruling.
The claimant s f iled t heir pet it ion f or review wit h the Supreme Court in July 2010. L ast
D ecember 7, 2011, claimant s wit hdrew this pet it ion.
Af t er an unf avourable decision had been rendered against t hem in April 2008, t he Claimant s
f iled a Request f or Arbit rat ion wit h the I CC I nt ernat ional Court of Arbit rat ion in Singapore
in May 2008 on t he same issue of the pet it ioners right t o buy t he shares. As of N ovember 25,
2009, t he Singapore arbitrat ion hearing has been suspended by virt ue of a writ of injunct ion
issued by t he RTC Makat i restraining t he part ies, and t heir respect ive represent at ives f rom
part icipat ing and perf orming any act in connect ion wit h the arbit rat ion case. The injunct ion
has been issued in connect ion wit h t he pet it ion f iled by Maxicare f or a declarat ion as t o t he
right f ul shareholder of it s 60% out st anding shares. Claimant s have quest ioned t he issuance of
t he writ of preliminary injunct ion in the CA where their case remains pending.
L ast D ecember 2011, a Second Request f or Arbit rat ion was f iled by claimant s against BD O,
Maxicare, Pin An Go H oldings and several ot her individual respondent s bef ore t he I CC
involving t he same sale of 120,000 shares. Claimant s sought t o nullif y a series of purport ed
t ransf ers of shares in Maxicare H ealt hcare Corporat ion ( Maxicare ) t hat were made bet ween
2007 and 2009 by BD O and other Original St ockholders to Pin-An H oldings Corporat ion
( Pin-An ) which are null and void because they cont ravene provisions of t he Stockholders
Agreement dat ed 13 February 1998 ( SA ). Claimant s also argued t hat in N ovember 2011,
Maxicare directors approved illegit imat e amendments t o Maxicares Art icles of I ncorporat ion
and By-laws so as t o indirect ly circumvent Claimant s right s under t he stockholders
agreement .
BD O has writ t en t he I CC raising it s object ions on jurisdict ion, f orum shopping and the
exist ence of a Philippine ruling on t he validit y of the sale of shares. The RTC also recent ly
issued an order extending t he injunct ion t o t he second request f or arbit rat ion. To dat e the
I CC has not yet direct ed t he const it ut ion of an arbitral t ribunal.
Management cont inues to believe t hat the above claim is baseless and without merit or t hat
t he result ing liabil it y, if any, f rom such a claim, will not have a mat erial adverse ef f ect on t he
BD O Unibank Groups f inancial posit ion and f inancial perf ormance.
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145
P E A C e Bon ds
On October 18, 2001, t he Bureau of Treasury (BTr), t hrough an auct ion, of f ered
t en-year zero coupon t reasury bonds, called t he Povert y Eradicat ion and Alleviat ion
Cert if icat es Bonds (PEACe Bonds), to Government Securit ies Eligible D ealers.
Rizal Commercial Banking Corporat ion (RCBC) won the bid in the same year and was
awarded approximat ely P35,000 wort h of government bonds. The PEACe Bonds were
subsequent ly purchased by investors, including t he BD O Unibank, who relied in good f ait h
on represent at ions that t he same are not subject to 20% Final Wit hholding Tax (20% FWT).
On July 16, 2004, t he Commissioner of I nternal Revenue ruled that t he mere issuance of
government debt inst rument s and securit ies is deemed as f alling wit hin t he coverage of
deposit subst it ut e irrespect ive of the number of lenders at t he t ime of originat ion.
Accordingly, government debt inst rument s and securit ies are not exempt f rom t axes.
On October 7, 2011, or nearly t en years af t er the auct ion, t he Commissioner of I nternal
Revenue, upon the request of the Secret ary of Finance, issued a ruling st at ing t hat the PEACe
Bonds are not exempt f rom t he 20% FWT.
Oct ober 16, 2011, Ei ght Banks t hat purchased the PEACe Bonds f iled a case in t he Supreme
Court t o enjoin t he BTr and BI R f rom wit hholding or collect ing the 20% f inal wit hholding
t ax, upon payment at mat urit y, as well as f rom enf orcing t he 2011 ruling.
On October 17, 2011, t he BI R issued a second ruling st at ing that t he 20% FWT should be
imposed upon all subsequent holders of the PEACe Bonds.
On October 18, 2011, t he Supreme Court unanimously resolved, and issued a Temporary
Rest raining Order (TRO) which enjoined t he government f rom implement ing 2011 rul ings
t hat t he Peace Bonds were subject to 20% f inal wit hholding t ax. The Supreme Court
inst ruct ed t hat the disput ed amount should be placed in escrow by t he pet it ioning banks.
On October 27, 2011, RCBC and RCBC Capit al, as t he original purchasers of t he PEACe
Bonds f iled a Mot ion f or Leave of Court to I ntervene, which was grant ed by the Supreme
Court on N ovember 15, 2011
On N ovember 15, 2011, t he Supreme Court required t he Government to show cause why
t hey f ailed t o comply with the October 18, 2011 TRO and, required t hem t o comply wit h said
TRO wit hin 10 days f rom not ice, which would cause t he ret urn of the f unds t o the pet it ioning
banks, f or the lat ter t o place in escrow.
The Government has request ed addit ional t ime wit hin which t o f ile t heir Comment on the
Pet it ions-in-int ervent ion.
Management believes t hat t he pet it ioning banks have a st rong case, and t hat t he probabilit y of
recovery is high.
NOTES TO
DECEMBER 31, 2011, 2010 AND 2009
O t h er s
The BD O Unibank Group is also a def endant in various cases pending in court s f or alleged
claims against t he BD O Unibank Group, t he out comes of which are not f ully det erminable at
present . As of D ecember 31, 2011, management believes t hat , liabilit ies or losses, if any,
arising f rom t hese claims would not have a mat erial ef f ect on the f inancial posit ion and result s
of operat ions of BD O Unibank Group and will be recognized if and when a f inal resolut ion
by t he court s is made on each claim.
3 1 . 0 2 L eases
BD O Unibank Group leases the premises of it s head of f ice and most of it s branch of f ices f or
periods ranging f rom one to 15 years f rom t he dat e of the cont ract s; terms are renewable
upon t he mut ual agreement of the part ies. Rent expense, reported as part of Occupancy
under Other Operat ing Expenses account in the st atement s of income, amount ed t o P1,889
in 2011, P1,759 in 2010, and P1,651 in 2009 in t he BD O Unibank Group f inancial st at ement s
and P1,812 in 2011, P1,659 in 2010, and P1,531 in 2009 in t he Parent Bank f inancial
st at ement s (see N ot e 22).
The est imat ed minimum f ut ure annual rent als f or the next f ive years f ollow:
BDO
Year Unibank Group Parent Bank
2012 P 1,475 P 1,412
2013 1,675 1,606
2014 1,900 1,828
2015 2,158 2,084
2016 2,456 2,379
P 9,664 P 9,309
3 1 . 0 3 O t h er s
I n t he normal course of BD O Unibank Groups operat ions, t here are various out st anding
commit ment s and cont ingent liabilit ies such as guarant ees, commitment s to ext end credit ,
et c., which are not ref lect ed in the BD O Unibank Group f inancial st at ement s. BD O Unibank
Group recognizes in it s books any losses and liabilit i es incurred in the course of it s operat ions
as soon as these become det erminable and quant if iable. Management believes t hat , as of
D ecember 31, 2011 and 2010, no addit ional mat erial losses or liabilit ies are required t o be
recognized in the accompanying f inancial st at ement s of BD O Unibank Group as a result of
t he above commitment s and cont ingencies.
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147
Following is a summary of BD O Unibank Groups commitment s and cont ingent account s:
N ote 2011 2010 2011 2010
Trust depart ment account s 25 P 711,411 P 569,957 P 602, 349 P 467,645
For ward exchange sold 188, 610 162,503 162, 359 134,715
For ward exchange bought 151,892 143,723 125, 642 115,927
Committed credit li nes 111,469 89,694 110,148 89,618
Unused commercial
letters of credi t 33,391 30,991 33,391 30,991
Republ ic of t he Phi lippi nes war rant s 15,021 15,021 15,021 15,021
I nt erest r ate swap receivabl e 8,832 25,971 8,044 5,481
I nterest r ate swap payable 8,582 25,923 8,044 5,481
Bil ls f or collecti on 6,029 5,523 6,029 5,523
Spot exchange sold 4,457 4,162 4,418 4,123
Spot exchange bought 7,828 3,617 7,828 3,617
Late deposit s/ payment s
recei ved 2,208 1,
,
538 2,208 1,538
Credit def ault swap 2,195 1 708 2,195 889
Outstanding guar antees
issued 1,220 862 1,220 862
Export l et t ers of credi t
conf ir med 97 130 97 130
Fi nanci al opt i ons sold - 1,320 - 1,320
Ot her contingent accounts 5,775 5,123 5,773 5,123
--- o ---
COMPANY HEADQUARTERS
STOCKHOLDER INQUIRIES
INVESTOR INQUIRIES
BDO Unibank, Inc.
BDO Corporate Center
7899 Makati Avenue, Makati City 0726, Philippines
BDO Unibank, Inc.s common stock is listed and traded
in the Philippine Stock Exchange under the symbol BDO.
Inquiries regarding dividend payments, account status, address
changes, stock certicates, and other pertinent matters should
be addressed to the companys transfer agent:
Stock Transfer Service, Inc.
34th Floor, Unit D, Runo Pacic Tower
6784 Ayala Ave., Makati City, 1200 Philippines
Tel. (+632) 403-2410 to 12 Fax (+632) 403-2414
BDO Unibank, Inc. welcomes inquiries from analysts,
investors and the nancial community.
Please visit www.bdo.com.ph or contact
BDO Investor Relations & Corporate Planning
4th Floor, South Tower, BDO Corporate Center
7899 Makati Avenue, Makati City 0726, Philippines
Tel. (+632) 840-7000 local 6069 or 4809
Email: irandcorplan@bdo.com.ph

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