Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)The fair values of the held-to-maturity investments are as follows:GroupParent Bank2008 2007 2008 2007Government debt securities P 77,295 P 45,994 P 68,959 P 40,646Other debt securities 32,485 23,450 32,136 23,095P 109,780 P 69,444 P 101,095 P 63,741The fair value is determined through valuation techniques by determining the net present value of estimated future cash flows. Annual interestrates on these investments range from 0% to 16.5% in 2008, 0.9% to 18% in 2007 and 4% to 18% in 2006 for both the Group and the ParentBank accounts.9.4 Reclassification of Investment SecuritiesThe Group recognized the deterioration of the world’s financial markets that occurred in the third quarter of 2008. The enormity and extentof the global credit crisis was crystallized by the substantial government programs instituted by major economies in response to the crisis,including temporary liquidity facilities, outright purchase of commercial papers and mortgaged-baked securities, guarantee of new unsecureddebt issued by banks and purchase of equity stakes in financial institutions.Related to above in 2008, the Group chose to avail of the regulatory relief on specific financial assets granted by the BSP under the governingprovisions of Circular No. 628, which permitted the reclassification of certain financial assets to help banks cope with the adverse impact ofthe global financial crisis.Presented below are the reclassifications made by the Group and the Parent Bank in 2008:GroupAt Reclassification Date At December 31, 2008Carrying Estimated CarryingValue Fair Value Cash Flows Amount Fair ValueReclassification fromFVTPL to HTM P 6,297 P 6,297 P 9,174 P 6,400 P 6,219Reclassification of CLNsfrom AFS to Loans 18,590 18,590 22,591 19,973 19,232Reclassification of embeddedderivatives of CLNs fromFVTPL to Loans ( 183 ) ( 183 ) - - -Reclassification of debt securitiesfrom AFS to HTM 25,540 25,540 * 27,223 25,093Reclassification from FVTPL to AFS 102 102 * 36 36Parent BankAt Reclassification Date At December 31, 2008Carrying Estimated CarryingValue Fair Value Cash Flows Amount Fair ValueReclassification fromFVTPL to HTM P 6,297 P 6,297 P 9,174 P 6,400 P 6,219Reclassification ofCLNs from AFS to Loans 14,166 14,166 18,728 15,211 14,845Reclassification of embeddedderivatives of CLNs fromFVTPL to Loans ( 70 ) ( 70 ) - - -Reclassification debt securitiesfrom AFS to HTM 22,474 22,474 * 24,182 22,173* Not required to be disclosedTrading losses of FVTPL transferred to AFS amounted to P39. The net trading loss that would have been recognized in the period followingthe reclassification during 2008 if the reclassification had not been made would have amounted to P66.Total trading losses of FVTPL reclassified to HTM both in the Group and Parent Bank financial statements which were recognized in profit orloss amounted to P199. On the other hand, the net trading loss that would have been recognized in the period following the reclassificationduring 2008 if the reclassifications had not been made would have amounted to P125. Effective interest rates of FVTPL reclassified to HTMrange from 7% to 8.8% in the Group and Parent Bank financial statements.Unrealized fair value losses in equity of debt securities reclassified from AFS to HTM at reclassification dates amounted to P102 and P46 in theGroup and Parent Bank financial statements, respectively. The net trading loss that would have been recognized in equity during the periodfollowing the reclassification in 2008 if the reclassifications had not been made amounted to P2,132.48Thinking Ahead To Get You Ahead • Annual Report 2008