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)If BDO Unibank Group fails to keep these investments at maturity (other than for the allowed specificcircumstances, e.g., selling more than an insignificant amount close to maturity), it will be required toreclassify the entire class to AFS securities. The investments would therefore be measured at fair valueand not at amortized cost. However, the tainting provision will not apply if the sales or reclassificationsof HTM investments: (i) are so close to maturity or the financial asset’s call date that changes in themarket rate of interest would not have a significant effect on the financial asset’s fair value; (ii) occur afterBDO Unibank Group has collected substantially all of the financial asset’s original principal throughscheduled payments or prepayments; or, (iii) are attributable to an isolated event that is beyond thecontrol of BDO Unibank Group, is nonrecurring and could not have been reasonably anticipated byBDO Unibank Group.(b)Impairment of AFS Securities(c)BDO Unibank Group follows the guidance of PAS 39, Financial Instruments: Recognition andMeasurement, in determining when an investment is permanently impaired. This determination requiressignificant judgment. In making this judgment, BDO Unibank Group evaluates, among other factors,the duration and extent to which the fair value of an investment is less than its cost; and the financialhealth of and near-term business outlook for the investee, including factors such as industry and sectorperformance, changes in technology and operational and financing cash flow. For investments issuedby counterparty under bankruptcy, BDO Unibank Group determines permanent impairment based onthe price of the most recent transaction and on latest indications obtained from reputable counterparties(which regularly quote prices for distressed securities) since current bid prices are no longer available.Distinction Between Investment Properties and Owner-occupied PropertiesBDO Unibank Group determines whether a property qualifies as investment property. In makingits judgment, BDO Unibank Group considers whether the property generated cash flows largelyindependent of the other assets held by BDO Unibank Group. Owner-occupied properties generatecash flows that are attributable not only to other assets used in the production or supply process.BDO ANNUAL REPORT 200943(d)Some properties comprise a portion that is held to earn rental or for capital appreciation and anotherportion that is held for use in the production and supply of goods and services or for administrativepurposes. If these portions can be sold separately (or leased out separately under finance lease), BDOUnibank Group accounts for those portions separately. If the portion cannot be sold separately, theproperty is accounted for as investment property only if an insignificant portion is held for use inthe production or supply of goods or services for administrative purposes. Judgment is applied indetermining whether ancillary services are so significant that a property does not qualify as investmentproperty. BDO Unibank Group considers each property separately in making its judgment.Operating and Finance LeasesBDO Unibank Group has entered into various lease agreements either as a lessor or lessee. Criticaljudgment was exercised by management to distinguish each lease agreement as either an operating orfinance lease by looking at the transfer or retention of significant risks and rewards of ownership of theproperties covered by the agreements.