2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTSChanges in the Bank’s holdings of held-to-maturity investments are summarized below.2011 2010Balance at beginning of year P 8,626,118,034 P 8,688,992,308Additions 1,615,544,438 2,815,297,411Impairment recovery (loss) 41,395,481 ( 41,456,760 )Maturities ( 2,401,866,831 ) ( 2,291,933,588 )Foreign currency revaluation - ( 544,781,337 )Balance at end of year P 7,881,191,122 P 8,626,118,034Held-to-maturity investments earn effective interest at rates ranging from 0.0% to 13.0% perannum in 2011 and 0.0% to 9.1% per annum in 2010.In 2006, the Bureau of Treasury (BTr) tendered an exchange offer to the holders of certainmaturing government securities to exchange these securities into new Benchmark Bonds. Inrelation to the exchange offer of the BTr, the SEC and BSP issued their respective circularswhich allowed the exchange transaction to be exempted from the tainting provision of PAS 39,provided that the participating banks chose to retain the held-to-maturity classification of theBenchmark Bonds received.The BSP Circular further required that the difference between the fair value of the BenchmarkBonds and the carrying amount of the maturing government securities shall not be recognizedas gains or losses in the statement of income but shall be amortized over the life of theBenchmark Bonds.On September 4, 2006, the Bank participated in the exchange offer of the BTr by exchangingP328,247,292 in held-to-maturity government securities. The fair value of the BenchmarkBonds received amounted to P351,718,874, resulting in a gain of P23,471,582. In compliancewith the SEC and BSP, the Bank deferred the recognition of the gain and amortized it overthe life of the Benchmark Bonds. Total amount of gain amortized amounted to P2,346,416and P2,346,415 in 2011 and 2010, respectively (included as part of Trading and Securities Gain– net in the statements of income). The deferred gain from this bond exchange amountedto P10,967,081 and P13,313,497 in 2011 and 2010, respectively, and is presented as part ofAccrued Taxes and Other Liabilities in the statements of financial position.On October 6, 2010, the Bank participated in the exchange offer of the BTr by exchanging$36,117,000 ROP bonds booked under held-to-maturity securities. The fair value of theBenchmark bonds received amounted to $39,866,000 resulting to a gain of $2,193,613 orP96,168,004. The Bank deferred the recognition of gain and amortized it over the life ofthe Benchmark bonds. The total amount of gain amortized in 2011 and 2010 amounted to$263,730 or P9,350,378 and $50,447 or P2,211,615, respectively (also shown as part of Tradingand Securities Gain – net in the statements of income). The remaining deferred gain from