2009 ANNUAL REPORT FINANCIAL SUPPLEMENTS - BDO

NOTES TO FINANCIAL STATEMENTSDecember 31, 2009, 2008 and 2007(Amounts in Millions of Philippine Pesos, Except Per Share Data or as Indicated)Dividends in arrears (recognized as interest expense) as of December 31, 2008 amounted to P31 computed using theexchange rate at year end and are presented as part of Bills Payable account in the statement of financial position.On October 19, 2009, the preferred shares were redeemed in full by the Parent Bank at P2,446 inclusive of remainingdividends in arrears of P77 (see Note 19.7).17. SUBORDINATED NOTES PAYABLEOn November 21, 2007, the Parent Bank issued P10,000 unsecured subordinated notes eligible as Lower Tier 2 Capitaldue on 2017, callable with step-up in 2012 (the Notes) pursuant to the authority granted by the BSP to the ParentBank on October 8, 2007 and BSP Circular No. 280 Series of 2001, as amended. The issuance was approved by theBoard of Directors, in its special meeting held on June 1, 2007.On May 20, 2008, the Parent Bank issued another tranche of P10,000 unsecured subordinated notes eligible as LowerTier 2 Capital due on 2018, callable with step-up in 2013 pursuant to the authority granted by the BSP to the ParentBank on April 3, 2008 and BSP Circular No. 280 Series of 2001, as amended. This issuance was approved by the Boardof Directors, in its special meeting held on February 23, 2008.On March 20, 2009, the Parent Bank issued the third tranche of unsecured subordinated debt qualifying asTier 2 Capital of the Parent Bank with face of P3,000. This issuance was approved by the Board of Directors onJanuary 31, 2009.The Notes represent direct, unconditional unsecured and subordinated peso-denominated obligations of the ParentBank, issued in accordance with the Terms and Conditions under the Master Note. The Notes, like other subordinatedindebtedness of the Parent Bank, are subordinated to the claims of depositors and ordinary creditors, are not a deposit,and are not guaranteed nor insured by the Parent Bank or any party related to the Parent Bank, such as its subsidiariesand affiliates, or the PDIC, or any other person. The Notes shall not be used as collateral for any loan made by theParent Bank or any of its subsidiaries or affiliates. The Notes carry interest rates based on prevailing market rates, with astep-up provision if not called on the fifth year from issue date. The Parent Bank has the option to call the Notes on thefifth year, subject to prior notice to Noteholders. The Notes were used further to expand the Parent Bank’s consumerloan portfolio and to refinance an existing issue of Lower Tier 2 debt. The Notes also increased and strengthened theParent Bank’s capital base, in anticipation of continued growth in the coming years.BDO ANNUAL REPORT 2009103As of December 31, 2009 and 2008, the outstanding balance of the Notes amounted to P23,152 and P20,146,respectively.Total interest expense on subordinated notes payable amounted to P1,725, P1,687 and P971 in 2009, 2008 and 2007,respectively, both in the BDO Unibank Group and Parent Bank financial statements (see Note 21).