Disclosure No. 546-2011 - United Coconut Planters Bank - Financial Statements and Independent Auditors' Report As of December 31, 2010 and 2009

United Coconut Planters Bank and Subsidiaries
Financial Statements
December 31, 2010 and 2009
and
Independent Auditors Report
SyCip Gorres Velayo & Co.

SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax: (632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001

SEC Accreditation No. 0012-FR-2
INDEPENDENT AUDITORS REPORT
The Stockholders and the Board of Directors

United Coconut Planters Bank and Subsidiaries
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of United Coconut Planters
Bank and Subsidiaries (the Group) and the parent company financial statements of United Coconut
Planters Bank (the Bank or the Parent Company), which comprise the statements of financial position
as at December 31, 2010 and 2009, and the statements of income, statements of comprehensive
income, statements of changes in equity and statements of cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements
The Groups management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the Philippines for banks
(PGAAP for banks) as described in Note 2 to the financial statements, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditors judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entitys internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified audit opinion.
*SGVMC115862*
A member firm of Ernst & Young Global Limited
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Basis for Qualified Opinion
As discussed in Note 8 to the financial statements, the Bank has not determined the amount of interest
income that should be accreted under the effective interest method for certain impaired loan accounts
and its impact on the determination of required allowance for credit losses under PGAAP for banks.
In addition, as discussed in Note 11, the Bank has not determined the effect of accumulated
depreciation that should have been considered in the determination of the gain or loss on sale or
disposal of certain investment properties in 2010 and 2009. As such, we were unable to obtain
sufficient audit evidence on the propriety of interest income that should have been accreted on certain
impaired loan accounts and of the gain or loss on sale of certain investment properties that should have
been recognized as at and for the years ended December 31, 2010 and 2009, nor were we able to
satisfy ourselves by other audit procedures.
As discussed in Note 1 to the financial statements, the Bank embarked on a 10-year Rehabilitation
Plan (the Rehabilitation Plan) as part of the Financial Assistance Agreement entered into with the
Philippine Deposit Insurance Corporation (PDIC) on July 7, 2003. The Rehabilitation Plan was
approved by the Bangko Sentral ng Pilipinas (BSP) on January 10, 2005. On May 15, 2008, PDIC and
the Monetary Board of the BSP, in its Resolution No. 590, approved the amended Rehabilitation Plan
of the Bank with the following concessions: (a) issuance of = P12.0 billion Capital Notes to PDIC;
(b) authority to accept deposits from the National Government, Local Government Units and
Government-Owned and Controlled Corporations; (c) staggered booking of unbooked valuation
reserves and deferred charges for 10 years starting January 2008; (d) waiver of certain monetary
penalties; and (e) continued access to the BSP rediscounting facility. On February 26, 2009, the
Monetary Board of the BSP, in its Resolution No. 345, approved to defer the start of the staggered
booking of the unbooked valuation reserves and deferred charges to January 1, 2009 and exempt the
Bank from sanctions that may be imposed for its non-compliance with the 10.0% capital adequacy
ratio and all the capital-based regulatory ratios for the year 2008 until such time that the Banks
amended Rehabilitation Plan is fully implemented. Pursuant to the amended Rehabilitation Plan as at
December 31, 2008, the Bank did not book credit and impairment losses on available-for-sale
investments, loans and receivables, investment properties and other assets totaling = P13.4 billion, and
deferred the recognition of losses on sale and dacion en pago settlement totaling = P15.7 billion. These
=29.1 billion unbooked valuation reserves and deferred losses will be booked by the Bank on a
P
staggered basis starting in 2009. As discussed in Notes 1, 12 and 13, the Bank recognized
=291.1 million and P
P =259.7 million of the unbooked valuation reserves and deferred losses in 2010 and
2009, respectively, by a charge to surplus (deficit).
The unbooked valuation reserves and deferred losses referred to in the preceding paragraph were
determined based on BSP guidelines which differ in some respects from PGAAP for banks. As
discussed in Notes 12 and 13 to the financial statements, under PGAAP for banks, as at
December 31, 2010 and 2009, additional credit and impairment losses on available-for-sale
investments, loans and receivables, investment properties and other assets amounting to = P5.6 billion
and P=6.1 billion, respectively, and deferred losses on sale and dacion en pago settlement amounting to
=15.5 billion and =
P P15.2 billion, respectively, should have been charged against operations in the years
the losses were incurred.
*SGVMC115862*
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As discussed in Note 11 to the financial statements, the Bank did not recognize the related
accumulated depreciation on certain investment properties amounting to = P3.0 billion as at
December 31, 2010 and 2009. PGAAP for banks requires that depreciation expense be recognized on
depreciable investment properties.
As discussed in Note 23 to the financial statements, in 2003, PDIC granted financial assistance to the
Bank aggregating to = P12.0 billion payable in 2013 (the PDIC loan). When the Bank transitioned to
PGAAP for banks in 2005, the initial measurement of the PDIC loan was revisited and adjusted to its
fair value thereby recognizing a Day 1 gain of =P6.7 billion as a credit to surplus (deficit). On
March 31, 2009, the Banks PDIC loan was converted into Interim Tier 1 Capital Notes
(the Capital Notes). At the time of conversion, the carrying amount of the liability amounted to
=8.1 billion, net of unamortized Day 1 gain of =
P P3.9 bilion. Consequently, the Capital Notes was
recognized by the Bank at P=8.1 billion. However, in 2010, the Bank restated its prior year financial
statements to recognize the Capital Notes at its face amount of P12.0 billion consistent with the terms
and conditions of the Capital Notes as discussed in Notes 1 and 23. The P =3.9 billion unamortized
Day 1 gain was charged to surplus (deficit). Under PGAAP for banks, the Capital Notes should have
been measured at the carrying value of the liability converted instead of the liabilitys face amount.
Had the Bank booked (a) the losses discussed in the eighth paragraph in the years these were incurred
and (b) the depreciation on certain investment properties discussed in the ninth paragraph, deficit
would have increased, and equity and total assets would have decreased by P =24.1 billion and
=24.4 billion as at December 31, 2010 and 2009, respectively, inclusive of the decrease in net income
P
in 2010 and 2009 of P =56.0 million and P =842.5 million, respectively. The Bank did not recognize the
losses since it believes that the total unbooked valuation reserves and deferred losses referred to in the
seventh paragraph of P =28.6 billion and =P28.8 billion as at December 31, 2010 and 2009, respectively,
that will be recognized on a staggered basis is sufficient to cover the financial impact of the unbooked
adjustments for losses. Moreover, as discussed in the tenth paragraph, had the Bank recognized the
Capital Notes based on the carrying amount of the converted PDIC loan and not based on its face
amount, deficit as at December 31, 2010 and 2009 would have decreased by P =3.9 billion.
Qualified Opinion
In our opinion, except for the possible effects and effects of the matters described in the Basis for
Qualified Opinion paragraphs, the financial statements present fairly, in all material respects, the
financial position of the Group and of the Parent Company as at December 31, 2010 and 2009, and
their financial performance and their cash flows for the years then ended in accordance with PGAAP
for banks as described in Note 2 to the financial statements.
Emphasis of Matter
The financial statements have been prepared on a going concern basis. The Banks losses prior to
2005, including the losses not recognized by the Bank as discussed in the Basis for Qualified Opinion
paragraphs, brought the Banks capital below the required minimum capital requirement for a
universal bank. As discussed in Note 1 to the financial statements, the Banks management has taken
active steps in ensuring the continued liquidity of the Bank, and implemented its capital build-up plan
pursuant to the Financial Assistance Agreement with PDIC and the memorandum of agreement
(MOA) that was signed with the Republic of the Philippines, PDIC and the Presidential Commission
*SGVMC115862*
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on Good Government (PCGG) on July 25, 2008. As discussed fully in Note 1, the terms and
conditions of the MOA were implemented in March 2009. The Bank has also received the
=30.0 billion deposits of the National Government.
P
As discussed in Note 23 to the financial statements, a substantial portion of the outstanding shares of
the Bank remains sequestered by the PCGG. In addition, as discussed in Notes 10 and 27, the
Coconut Industry Investment Fund Companies have substantial investments in 14 Holding Companies
whose funds were invested in San Miguel Corporation (SMC) shares that were sequestered by the
PCGG in May 1986. The status of the related cases is discussed in Note 23 for the Bank shares and
Note 27 for the SMC shares. The impact of these matters on the financial statements cannot be
determined at this time.
Our opinion is not qualified in respect of the foregoing matters.
Report on the Supplementary Information Required Under Revenue Regulations No. 15-2010
Our audits were conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplementary information on taxes and licenses in Note 32 to the financial
statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required
part of the basic financial statements. Such information is the responsibility of the management of the
United Coconut Planters Bank. The information has been subjected to the auditing procedures applied
in our audit of the basic financial statements. In our opinion, the information is fairly stated in all
material respects in relation to the basic financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Josephine Adrienne A. Abarca

Partner
CPA Certificate No. 92126
SEC Accreditation No. 0466-AR-1
Tax Identification No. 163-257-145
BIR Accreditation No. 08-001998-61-2009,
June 1, 2009, Valid until May 31, 2012
PTR No. 2641501, January 3, 2011, Makati City
April 28, 2011
*SGVMC115862*
UNITED COCONUT PLANTERS BANK AND SUBSIDIARIES
STATEMENTS OF FINANCIAL POSITION
(In Thousands)
Consolidated Parent Company

As of December 31
2010 2009 2010 2009
ASSETS
Cash and Other Cash Items (Note 14) P
=5,080,842 P5,140,215
= P
=4,934,052 P4,891,510
=
Due from Bangko Sentral ng Pilipinas (Note 14) 22,601,760 13,584,792 22,480,433 13,461,441
Due from Other Banks 2,154,600 2,884,253 1,959,230 2,768,396
Interbank Loans Receivable and Securities
Purchased Under Resale Agreements (Note 6) 1,354,696 7,586,000 1,070,696 7,125,000
Financial Assets at Fair Value Through Profit or
Loss (Note 7) 1,816,740 1,090,684 1,756,577 1,030,239
Available-for-Sale Investments (Note 7) 14,501,586 9,112,318 14,355,390 8,917,634
Held-to-Maturity Investments (Note 7) 34,020,203 34,044,549 33,876,053 33,869,460
Loans and Receivables (Notes 8 and 26) 61,988,567 51,858,715 56,239,693 47,218,284
Property and Equipment (Note 9) 1,766,560 1,424,805 1,680,677 1,344,194
Investments in Subsidiaries, Associates and Joint
Venture (Note 10) 6,955,249 6,302,280 3,913,415 3,903,415
Investment Properties (Note 11) 9,212,833 9,831,447 8,977,897 9,603,549
Deferred Tax Assets (Note 22) 48,385 25,597
Intangible and Other Assets (Note 12) 22,280,720 19,920,006 18,955,529 16,908,241
P
=183,782,741 =162,805,661
P P
=170,199,642 =151,041,363
P
LIABILITIES AND EQUITY

LIABILITIES
Deposit Liabilities (Notes 14 and 26)
Demand P
=8,779,761 P7,949,172
= P
=8,702,472 P7,906,463
=
Savings 93,372,107 79,395,810 91,171,412 77,349,850
Time 47,217,436 44,518,013 45,574,723 43,260,127
Long Term Negotiable Certificate of Deposits 4,466,765 4,466,765
153,836,069 131,862,995 149,915,372 128,516,440
Bills Payable and Securities Sold Under
Repurchase Agreements (Note 15) 7,226,095 6,034,826 6,999,942 5,927,198
Accrued Taxes, Interest and Other Expenses
(Note 16) 1,216,993 3,596,124 1,176,913 3,553,854
Income Tax Payable 38,183 197,273 22,286 167,367
Deferred Tax Liabilities (Note 22) 67,941 72,916 34,791 49,098
Other Liabilities (Note 17) 6,702,360 8,593,343 6,191,491 8,198,409
169,087,641 150,357,477 164,340,795 146,412,366
EQUITY
Equity Attributable to Equity Holders of the
Parent Company
Common stock (Note 23) 1,484,843 1,484,843 1,484,843 1,484,843
Capital notes (Notes 1 and 23) 12,000,000 12,000,000 12,000,000 12,000,000
Surplus reserves (Note 24) 896,483 896,483 896,483 896,483
Surplus (Deficit) (Notes 13 and 23) 191,024 (1,960,546) (8,572,808) (9,720,160)
Net unrealized gain (loss) on available-for-sale
investments (Note 7) 139,896 14,405 115,768 (3,913)
Equity in net unrealized gain (loss) on available-for-
sale investments of associates (Note 10) 168 (66)
Translation adjustment (65,439) (28,256) (65,439) (28,256)
(Forward)
*SGVMC115862*
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As of December 31
2010 2009 2010 2009
Equity in translation adjustment of associates
(Note 10) P
=2,643 =2,971
P P
= =
P
14,649,618 12,409,834 5,858,847 4,628,997
Non-controlling Interest 45,482 38,350
14,695,100 12,448,184 5,858,847 4,628,997
P
=183,782,741 =162,805,661
P P
=170,199,642 =151,041,363
P
See accompanying Notes to Financial Statements.
*SGVMC115862*
STATEMENTS OF INCOME
(In Thousands)

Years Ended December 31
2010 2009 2010 2009
INTEREST INCOME ON
Loans and other receivables (Notes 8 and 26) P
=4,912,796 P4,080,595
= P
=4,164,798 P3,465,519
=
Trading and investment securities (Note 7) 3,246,315 2,842,973 3,211,426 2,800,201
Due from BSP and other banks 479,994 439,595 473,204 430,141
Interbank loans receivable and securities purchased
under resale agreements (Note 6) 144,906 104,929 130,848 95,827
8,784,011 7,468,092 7,980,276 6,791,688
INTEREST AND FINANCE CHARGES ON
Deposit liabilities (Notes 14 and 26) 2,452,766 2,711,861 2,378,680 2,659,781
Bills payable (Note 15) 286,197 474,104 234,545 464,358
2,738,963 3,185,965 2,613,225 3,124,139
NET INTEREST INCOME 6,045,048 4,282,127 5,367,051 3,667,549
Trading and securities gain - net (Notes 7 and 26) 1,091,021 710,538 1,060,746 706,747
Service charges, fees and commissions 732,003 795,285 586,133 634,011
Foreign exchange gain - net 191,731 101,528 191,815 101,608
Income from trust operation 83,625 63,332 83,366 63,332
Miscellaneous income (Note 20) 311,670 130,399 256,707 178,271
TOTAL OPERATING INCOME 8,455,098 6,083,209 7,545,818 5,351,518
Compensation and fringe benefits (Notes 25 and 26) 1,496,217 1,470,969 1,335,823 1,312,878
Provision for credit and impairment losses (Note 13) 1,301,224 378,334 1,250,001 287,911
Taxes and licenses (Note 22) 672,867 596,747 595,900 537,239
Occupancy expense (Note 19) 611,090 631,360 576,126 598,560
Depreciation and amortization (Note 11) 421,647 209,941 369,814 183,509
Insurance 335,167 296,419 321,181 286,971
Security, clerical and messengerial 224,700 218,089 206,757 202,122
Litigation and assets acquired 168,078 178,226 160,922 162,132
Loss (gain) on sale of acquired assets (67,924) (54,538) (13,994) 6,602
Miscellaneous expense (Note 21) 746,169 725,479 649,431 619,302
TOTAL OPERATING EXPENSES 5,909,235 4,651,026 5,451,961 4,197,226
INCOME BEFORE SHARE IN NET INCOME
OF ASSOCIATES 2,545,863 1,432,183 2,093,857 1,154,292
SHARE IN NET INCOME OF ASSOCIATES
(Note 10) 653,063 2,170,083
DILUTION LOSS (Note 10) (1,229,952)
INCOME BEFORE INCOME TAX 3,198,926 2,372,314 2,093,857 1,154,292
PROVISION FOR INCOME TAX (Note 22) 749,207 713,973 655,432 589,815
NET INCOME P
=2,449,719 =1,658,341
P P
=1,438,425 =564,477
P
Attributable to:
Equity holders of the Parent Company P
=2,442,643 =1,654,182
P
P
=2,449,719 =1,658,341
P
*SGVMC115862*
STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)

2010 2009 2010 2009
Net Income P
=2,449,719 =1,658,341
P P
=1,438,425 =564,477
P
Other Comprehensive Income (Loss):
Net unrealized gain on available-for-sale
investments (Note 7) 125,547 281,662 119,681 272,375
Equity in net unrealized gain (loss) on available-for-
sale investments of associates (Note 10) 234 (47)
Translation adjustment (37,183) (49,828) (37,183) (49,828)
Equity in translation adjustment of associates
(Note 10) (328) (295,391)
Equity in revaluation increment of associates (680)
Other Comprehensive Income (Loss), net of tax 88,270 (64,284) 82,498 222,547
Total Comprehensive Income P
=2,537,989 =1,594,057
P P
=1,520,923 =787,024
P
Total Comprehensive Income attributable to:

Equity holders of the Parent Company P
=2,530,857 =1,589,999
P
P
=2,537,989 =1,594,057
P
*SGVMC115862*
STATEMENTS OF CHANGES IN EQUITY
(In Thousands)
Consolidated
Equity Attributable to Equity Holders of the Parent Company
Equity in
Net Unrealized
Net Unrealized Gain (Loss) on
Gain (Loss) on Available- Equity in Equity in
Available- for-Sale Translation Revaluation
Common Preferred Capital Surplus Surplus for-Sale Investments Adjustment Increment of
Stock Stock Notes Reserves (Deficit) Investments of Associates Translation of Associates Associates Equity Non-controlling Total
(Note 23) (Note 23) (Notes 1 and 23) (Note 24) (Note 13) (Note 7) (Note 10) Adjustment (Note 10) (Note 10) Adjustments Total Interest Equity
Balance at January 1, 2010, as

previously reported = 1,484,843
P =
P = 8,063,593
P = 896,483
P P1,263,968
= = 14,405
P (P
= 66) (P
= 28,256) = 2,971
P =
P = 711,893
P = 12,409,834
P = 38,350
P = 12,448,184
P
Restatement (Note 23) 3,936,407 (3,936,407)
Reclassification 711,893 (711,893)
Balance at January 1, 2010, as restated 1,484,843 12,000,000 896,483 (1,960,546) 14,405 (66) (28,256) 2,971 12,409,834 38,350 12,448,184
Amortization of unbooked valuation
reserves and losses (Notes 1 and 13) (291,073) (291,073) (291,073)
Total comprehensive income (loss) 2,442,643 125,491 234 (37,183) (328) 2,530,857 7,132 2,537,989
Balance at December 31, 2010 = 1,484,843
P =
P = 12,000,000
P = 896,483
P = 191,024
P = 139,896
P = 168
P (P
= 65,439) = 2,643
P =
P =
P = 14,649,618
P = 45,482
P = 14,695,100
P
Balance at January 1, 2009 =734,843

P P750,000
= =
P =896,483
P (P
= 130,485) (P
= 267,358) (P
= 19) =21,572
P =298,362
P =680
P =711,893
P =3,015,971
P =37,441
P =3,053,412
P
Conversion to common stock 750,000 (750,000)
Conversion to capital notes 8,063,593 8,063,593 8,063,593
Cash dividend (3,149) (3,149)
reserves and losses (Notes 1 and 13) (259,729) (259,729) (259,729)
Total comprehensive income (loss) 1,654,182 281,763 (47) (49,828) (295,391) (680) 1,589,999 4,058 1,594,057
Balance at December 31, 2009, as
previously reported 1,484,843 8,063,593 896,483 1,263,968 14,405 (66) (28,256) 2,971 711,893 12,409,834 38,350 12,448,184
Restatement (Note 23) 3,936,407 (3,936,407)
Reclassification 711,893 (711,893)
Balance at December 31, 2009, as restated =1,484,843
P =
P =12,000,000
P =896,483
P (P
= 1,960,546) =14,405
P (P
= 66) (P
= 28,256) =2,971
P =
P =
P =12,409,834
P =38,350
P =12,448,184
P
*SGVMC115862*
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Parent Company
Net Unrealized
Gain (Loss) on
Common Preferred Capital Surplus Available-for-Sale
Stock Stock Notes Reserves Deficit Investments Translation Total
(Note 23) (Note 23) (Notes 1 and 23) (Note 24) (Note 13) (Note 7) Adjustment Equity
Balance at January 1, 2010, as previously reported = 1,484,843

P P
= P8,063,593
= = 896,483
P (P
= 5,783,753) (P
= 3,913) (P
= 28,256) = 4,628,997
P
Restatement (Note 23) 3,936,407 (3.936,407)
Balance at January 1, 2010, as restated 1,484,843 12,000,000 896,483 (9,720,160) (3,913) (28,256) 4,628,997
Amortization of unbooked valuation reserves and losses
(Notes 1 and 13) (291,073) (291,073)
Total comprehensive income (loss) 1,438,425 119,681 (37,183) 1,520,923
Balance at December 31, 2010 = 1,484,843
P =
P = 12,000,000
P = 896,483
P (P
= 8,572,808) = 115,768
P (P
= 65,439) = 5,858,847
P
Balance at January 1, 2009 =734,843

P P750,000
= =
P =896,483
P (P
=6,088,501) (P
=276,288) =21,572
P (P
=3,961,891)
Conversion to common stock 750,000 (750,000)
Conversion to capital notes 8,063,593 8,063,593
Amortization of unbooked valuation reserves and losses
(Notes 1 and 13) (259,729) (259,729)
Total comprehensive income (loss) 564,477 272,375 (49,828) 787,024
Balance at December 31, 2009, as previously reported 1,484,843 8,063,593 896,483 (5,783,753) (3,913) (28,256) 4,628,997
Restatement (Note 23) 3,936,407 (3.936,407)
Balance at December 31, 2009, as restated =1,484,843
P =
P =12,000,000
P =896,483
P (P
=9,720,160) (P
=3,913) (P
=28,256) =4,628,997
P
*SGVMC115862*
STATEMENTS OF CASH FLOWS
(In Thousands)

2010 2009 2010 2009
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax P
=3,198,926 =2,372,314
P P
=2,093,857 =1,154,292
P
Adjustments for:
Provision for credit and impairment losses (Note 13) 1,301,224 378,334 1,250,001 287,911
Depreciation and amortization (Note 11) 421,647 209,941 369,814 183,509
Loss (gain) on sale of acquired assets (67,924) (54,538) (13,994) 6,602
Loss (gain) on foreclosure (Note 20) 18,353 (5,283) 18,353 (5,283)
Unrealized gain on financial assets FVPL (5,661) (226,454) (6,830) (228,557)
Trading gain on available-for-sale investments
(Note 7) (653,099) (220,252) (639,532) (216,874)
Share in net income of associates (Note 10) (653,063) (2,170,083)
Dilution loss (Note 10) 1,229,952
Accretion of bills payable and unsecured
subordinated debt (Note 15) 173,966 173,966
Gain from settlement of loans receivable (Note 10) (20,864)
Changes in operating assets and liabilities:
Decrease (increase) in the amounts of:
Financial assets at fair value through profit
or loss (720,394) (511,313) (719,509) (551,365)
Loans and receivables (11,917,506) (10,310,717) (10,720,072) (8,226,039)
Other assets (2,527,837) 133,112 (2,156,492) 29,068
Increase (decrease) in the amounts of:
Deposit liabilities 17,506,309 36,086,570 16,932,168 35,001,656
Accrued taxes, interest and other expenses (2,379,131) 240,162 (2,376,941) 254,900
Other liabilities (1,824,494) 2,672,008 (2,006,919) 2,163,651
Net cash generated from operating activities 1,697,350 29,997,719 2,003,040 30,027,437
Income taxes paid (937,569) (476,399) (814,820) (417,514)
Net cash provided by operating activities 759,781 29,521,320 1,188,220 29,609,923
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions of:
Available-for-sale investments (54,454,681) (22,749,871) (53,878,875) (22,177,569)
Held-to-maturity investments (523,582) (22,235,976) (523,582) (22,235,976)
Property and equipment (Note 9) (899,423) (821,819) (865,227) (761,961)
Software costs (Note 12) (101,031) (340,043) (100,811) (323,936)
Proceeds from sale of:
Available-for-sale investments 49,911,745 20,098,106 49,267,838 19,630,142
Property and equipment 244,530 211,915 239,055 207,392
Investments properties 890,520 689,113 852,131 593,146
Proceeds from maturity of HTM investments 547,928 67,548 516,989 10,310
Net cash used in investing activities (4,383,994) (25,081,027) (4,492,482) (25,058,452)
CASH FLOWS FROM FINANCING
ACTIVITIES
Settlements of bills payable (170,387,159) (15,560,961) (170,242,943) (15,603,589)
Availments of bills payable 171,578,428 18,925,845 171,315,687 18,925,845
Issuance of Long Term Negotiable Certificate of
Deposits (Note 14) 4,466,765 4,466,765
Net cash provided by financing activities 5,658,034 3,364,884 5,539,509 3,322,256
(Forward)
*SGVMC115862*
-2-

2010 2009 2010 2009
TRANSLATION ADJUSTMENT (P
= 37,183) (P
=49,828) (P
= 37,183) (P
=49,828)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,996,638 7,755,349 2,198,064 7,823,899
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
Cash and other cash items 5,140,215 3,403,508 4,891,510 3,287,466
Due from Bangko Sentral ng Pilipinas 13,584,792 11,163,876 13,461,441 10,788,481
Due from other banks 2,884,253 2,259,480 2,768,396 2,129,454
Interbank loans receivable and Securities purchased
under repurchasing agreements (Note 6) 7,586,000 4,613,047 7,125,000 4,217,047
29,195,260 21,439,911 28,246,347 20,422,448
CASH AND CASH EQUIVALENTS AT
END OF YEAR
Cash and other cash items 5,080,842 5,140,215 4,934,052 4,891,510
Due from Bangko Sentral ng Pilipinas 22,601,760 13,584,792 22,480,433 13,461,441
Interbank loans receivable and Securities purchased
under repurchasing agreements (Note 6) 1,354,696 7,586,000 1,070,696 7,125,000
P
=31,191,898 =29,195,260
P P
=30,444,411 =28,246,347
P
OPERATIONAL CASH FLOWS FROM INTEREST

2010 2009 2010 2009
Interest paid P
=4,970,522 =2,864,982
P P
=4,846,356 =2,838,054
P
Interest received 8,875,818 6,746,677 8,057,611 6,093,568
*SGVMC115862*
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
United Coconut Planters Bank (the Bank or the Parent Company) is a universal bank incorporated
in the Philippines on May 10, 1963. The Parent Company and its subsidiaries (the Group) are
engaged in all aspects of financial services such as banking, financing, leasing, real estate and
stock brokering. As a bank, the Parent Company is organized to provide expanded commercial
banking services such as deposit products, loans and trade finance, domestic and foreign fund
transfers, treasury, foreign exchange, investment banking and trust services. In addition, the Bank
is licensed to enter into regular financial derivatives. The Bank was authorized to engage in trust
operations in June 1963 and in foreign currency deposit operations in October 1977. At the end of
2010, the Bank has 184 branches and 242 automated teller machines, located nationwide. The
Banks registered address and main office is at UCPB Building, Makati Avenue, Makati City.
As a banking institution, the Banks operations are regulated and supervised by the Bangko
Sentral ng Pilipinas (BSP). In this regard, the Bank is required to comply with the rules and
regulations of the BSP such as those relating to maintenance of reserve requirements on deposit
liabilities and deposit substitutes and those relating to the adoption and use of safe and sound
banking practices as promulgated by the BSP. The Bank is subject to the provisions of the
General Banking Law of 2000 (Republic Act No. 8791).
Rehabilitation Plan
On July 7, 2003, the Bank entered into a Financial Assistance Agreement (the Agreement or FAA)
with the Philippine Deposit Insurance Corporation (PDIC). The financial assistance from PDIC
amounting to =P20.0 billion has three components:
a. =
P8.0 billion direct purchase of nonperforming loans;
b. P
=7.0 billion in Tier 2 capital with a cost to the Bank of 5.0% due in 2013 (referred to as Asset
Pool A); and
c. P
=5.0 billion purchase of nonperforming loans with buyback by 2013 (referred to as Asset
Pool B).
On February 26, 2004, PDIC endorsed to the BSP for approval the Banks 10-year
Business/Rehabilitation Plan (the Plan). Part of the Plan is the Banks business strategy that has
the following elements: (1) separation of bad bank 1 from the good bank; (2) right-sizing and
streamlining of operations to reduce costs; and (3) capital raising which aims to withstand the
limitation brought about by the unresolved ownership issues (see Note 23). The BSP approved the
Plan on January 10, 2005, including the following concessions: (a) temporary relief by reducing
the risk-weighted capital ratio to 8.0% for a period of three years up to 2007 or until such time that
the Bank is able to comply with the required 10.0% capital adequacy ratio, whichever comes
earlier; and (b) staggered booking of required valuation reserves for 10 years.
1
Non-performing assets wherein the required valuation reserves were approved by the BSP for staggered booking are considered bad
bank assets.
*SGVMC115862*
-2-
Conversion of PDIC financial assistance to Interim Tier 1 Capital Notes

The Monetary Board (MB), in its Resolution No. 590 dated May 15, 2008, decided to:
1. Approve the amended Ten-Year Rehabilitation/Business Plan (2008-2017) of the Bank and
grant to the Bank (the Issuer) the authority to issue P
=12.0 billion Interim Tier 1 Capital Notes
(the Capital Notes or Notes) to PDIC which will qualify as Interim Tier 1 capital (see Note
23), provided that:
a. The Capital Notes to be issued meet the minimum features under Circular No. 595 dated
January 11, 2008; and,
b. UCPBs Articles of Incorporation shall be amended to:

i. Increase its authorized capital of P
=3.25 billion to an amount that will cover the
amount of the Capital Notes; and
ii. Remove the ownership limitation in the Bank, which is 1.0% of the issued and
outstanding preferred and common shares, for a stockholder who is not a stockholder
as of December 31, 1979.
2. Grant to UCPB the following concessions:
a. Authority to accept deposit from the National Government (NG), Local Government Units
and Government-Owned and Controlled Corporations, with the ceiling of = P5.9 billion
increased by the amount that the NG will deposit with the Bank.
b. Consider the government securities (GS) purchased out of the = P30.0 billion deposit of the
NG as alternative/eligible compliance with the liquidity reserves and liquidity floor
requirement;
c. Stagger the booking of the unbooked valuation reserves and deferred charges aggregating
to =
P27.9 billion consistent with the Banks approved 10-Year Business/Rehabilitation
Plan: Provided, that subsequent valuation reserves to be required in excess of the
=27.9 billion shall be immediately booked and no dividend shall be declared while the
P
concession is in effect;
d. Waiver of certain monetary penalties; and
e. Continued access to the BSP Rediscounting Facility, subject to a rediscount ceiling of
=1.5 billion.
P
The aforementioned MB approval was further clarified under MB Resolution No. 687 issued on
June 17, 2008, which states that UCPBs Articles of Incorporation shall be amended prior to the
conversion of the Capital Notes to capital stock.
On May 15, 2008, the PDIC Board, in its Resolution No. 2008-05-073, approved the conversion of
PDICs P
=12.0 billion Financial Assistance into Capital Notes eligible as Interim Tier 1 capital.
On July 25, 2008, the Republic of the Philippines (ROP), PDIC, Presidential Commission on
Good Government (PCGG) and the Bank executed a Memorandum of Agreement (MOA), for the
strengthening of the Banks capital through the issuance of capital notes consistent with BSP rules
and regulations, and subscription thereof by PDIC via the conversion of PDICs outstanding 2003
Financial Assistance of =
P12.0 billion. In addition, the MOA provides for the maintenance by the
ROP of at least =
P25.0 billion but not to exceed =
P30.0 billion of deposits in the Bank.
*SGVMC115862*
-3-
On March 31, 2009, the 2003 FAA and the Subscription Agreement have been amended and
signed, respectively, by the PDIC. On the same date, the Bank issued the Capital Notes, which
has no maturity date and has the following features:
1. Dividend/Coupon Rate - Dividend/Coupon rates as follows:
2.0% from April 1, 2009 to March 31, 2011;

12.0% from April 1, 2015 to March 31, 2017 and;
14.0% from April 1, 2017 onwards.
The Issuer shall have full and absolute discretion (i) whether or not to declare and pay
coupons on the Notes, and (ii) over the amount and timing of coupon payments, in the event
that, in the the exercise of its discretion, the Issuer decides to declare and pay coupons. The
Issuer shall, everytime it declares and pays dividends on its common shares, likewise pay
coupons on the Notes. Coupons on the Notes may be declared and paid only (i) to the extent
that the Issuer has sufficient profits and /or retained earnings distributable; and (ii) if, after
such declaration and payment, the Issuer shall be able to meet the capital adequacy and
liquidity thresholds, determined in accordance with BSP regulations prevailing at the time of
declaration and payment of coupons.
Coupons on the Notes shall be non-cumulative. Moreover, the Issuer shall have full control
and access to any waived coupon payments. The Notes have no step-up provisions in the
coupon rate in conjunction with the redemption option.
2. Repayment/Redemption of the Capital Notes - Redemption of the Notes shall be subject to

prior written BSP approval. The Capital Notes may be redeemed, in whole or in part, at the
sole option of the Issuer, anytime after five (5) years from the date of issuance of the Notes.
However, the option granted to the Issuer may be exercised within five (5) years from the date
of issuance of the Notes upon the infusion of sufficient capital which is neither smaller in size
nor lower in quality than the Notes, unless the Issuers capital adequacy ratio remains more
than adequate after redemption of the Notes. In the event of insolvency of the Issuer, the
Holder shall be, immediately and without need for demand, entitled to repayment of the Notes.
3. Assignability - The Holder may assign or transfer the Capital Notes to any person or entity
provided prior written notice of such assignment or transfer is given to the Issuer.
4. Conversion Right - At any time, the Holder of the Notes shall have the right to convert the
Notes, in whole or in part, to Special Preferred Shares of the Issuer which, in turn, shall be
convertible into Common Shares. The Issuer shall ensure that its Articles of Incorporation and
By-laws shall be amended to accommodate all the rights of the Holder under the Notes. The
conversion right provided herein shall be superior to the redemption option of the Issuer.
Accordingly, in the event the Issuer serves notice to the Holder of the exercise of a redemption
option, the Holder shall have 45 days to notify the Issuer and the BSP in writing that instead of
being repaid pursuant to the redemption, the Holder shall instead convert the Notes to Special
Preferred Shares.
5. Conversion Price - The Notes shall be convertible to Special Preferred Shares or Common
Shares with an aggregate par value of =
P12.0 billion at the time of conversion.
*SGVMC115862*
-4-
6. Failure to Comply with Obligations In case the Issuer fails to perform any of its material
obligations under the Notes, including the conversion of the Notes into Special Preferred
Shares or Common Shares, then the Notes shall become due and demandable, and the Holder
shall have the following rights:
i. Collect the principal of the Notes in the amount of P=12.0 billion and interest at the rate of
14.0%; and
ii. Institute such proceedings to enforce any of the obligations of the Issuer if the Issuer
continues to fail to perform its material obligation within 30 days from written notice of
the Holder.
The Subscription Agreement includes Insolvency of the Issuer clause with the following
consequences:
a) If the Issuer becomes insolvent, PDIC shall, within fifteen (15) days after it acquires
knowledge of the occurrence of the Issuers Insolvency, give the Issuer a written notice
declaring all the Notes then outstanding, including all accrued coupon thereon, to be due and
payable immediately, and upon any such declaration the same shall be immediately due and
payable, subject only to subordination.
b) Paragraph (a) is further subject to the condition that PDIC may rescind and annul such
declaration and its consequences, upon such terms, conditions, and agreements, if any, as it
may determine, but no such rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right of PDIC consequent thereto.
Subordination mentioned under paragraph (a) means that the Notes are not deposits of the Issuer
and are not guaranteed or insured by the Issuer or any party related to the Issuer or covered by any
other arrangement that legally or economically enhances the priority of the claim of the Holder as
against the depositors, other creditors and holders of Lower Tier 2 and Upper Tier 2 capital
instruments, if any, of the Issuer.
In order to accommodate the conversion of the Capital Notes to Special Preferred Shares or
Common Shares, should the Holder of the Capital Notes decide to convert, the proposed
amendment to the Banks Articles of Incorporation was approved at the regular BOD meeting on
April 28, 2009 with the written assent of at least 2/3 of the Banks stockholders. The proposed
amendments include:
a) Reclassifying (i) 1,002,829,769 unissued common shares of the Bank and (ii) 750,000,000
unissued preferred shares of the Bank, all with a par value of =
P1.0 per share, into
1,752,829,769 Special Preferred Shares;
b) Denying pre-emptive right over the issuance of special preferred and common shares for the
conversion of special preferred shares and the Capital Notes; and
c) Deletion of ownership limitation in the Bank, which is 1.0% of the issued and outstanding
preferred and common shares, for a stockholder who is not a stockholder as of
December 31, 1979.
In March 2011, the Bank filed with the SEC the application for the amended Articles of
Incorporation to address these proposed amendments.
*SGVMC115862*
-5-
Staggered booking of required valuation reserves and deferred charges

On February 26, 2009, the MB, in its Resolution No. 345, decided to:
1. Consider the year 2009 as the start of the 10-year rehabilitation period (2009-2018) of the
Bank instead of 2008 as contained in the Banks Rehabilitation Plan approved by the MB
under Resolution No. 590 dated May 15, 2008;
2. Exempt the Bank from sanctions that may be imposed for its non-compliance with the 10.0%
Capital Adequacy Ratio (CAR) and all the capital-based regulatory ratios for the year 2008
until such time that the Banks Rehabilitation Plan is fully implemented; and
3. Approve the following requests of the Bank:
a. Reversal of all previous staggered bookings of unbooked valuation reserves and

amortization of deferred losses, based on the Special Purpose Vehicle (SPV) formula that
the Bank has been providing starting 2007 in accordance with the original rehabilitation
program approved by the BSP on January 10, 2005 (the Banks Surplus as of
January 1, 2008 was restated for the effect of the amortization of valuation reserves);
b. Deferment of any staggered booking or amortization of unbooked valuation reserves and

deferred losses until the Banks recapitalization is completely in place starting
January 2009 and to accordingly revise the schedule of the staggered booking of
unbooked valuation reserves and amortization of deferred losses following the concept of
affordability per the latest approved business plan by the BSP; and
c. Temporary relief from full compliance with the required 10.0% CAR as provided under
Section 34 of Republic Act No. 8791 (the General Banking Law of 2000) by reducing the
Banks CAR to 8.0% for a period of three years up to 2011 or until such time that the
Bank is able to comply with the required 10.0% CAR, whichever comes first.
On May 20, 2010, the MB, in its Resolution No. 697 confirmed the implementation of the Banks
approved amortization of unbooked valuation reserves and deferred losses as follows:
1. Any excess valuation reserves resulting from assets pertaining to the bad bank shall be
allowed for re-allocation to another asset requiring additional valuation as long as these assets
are part of the bad bank assets and within the =P29.1 billion approved for staggered booking;
and,
2. Any actual losses from the sale of real and other properties acquired from the bad bank
assets shall be booked as deferred losses provided the total losses to be deferred shall not
exceed the unbooked valuation reserves for that property subject to the condition that the Bank
shall submit quarterly monitoring report for the status of the bad bank assets and allocation
of valuation reserves for each asset pool.
As of December 31, 2008, the unbooked valuation reserves that the Parent Company will
recognize on a staggered basis starting January 2009, as allowed by the BSP, amounted to
=29.1 billion. This consists of the (a) P
P =27.9 billion unbooked valuation reserves and deferred
charges allowed to be staggered in the MB Resolution No. 590 dated May 15, 2008, and
(b) P
=1.2 billion additional unbooked valuation reserves that will be recognized on a staggered
basis arising from the reversal of previously amortized valuation reserves due to the resetting of
the start of amortization of the unbooked valuation reserves and deferred charges as allowed under
MB Resolution No. 345 dated February 26, 2009. The unbooked valuation reserves were
*SGVMC115862*
-6-
determined based on the criteria set by the BSP which differs from accounting principles generally
accepted in the Philippines for banks (PGAAP for banks) in certain respects. As of
December 31, 2010 and 2009, the balance of unbooked valuation reserves and deferred charges
amounted to =P28.6 billion and P=28.8 billion, respectively, net of the P
=291.1 million and
=259.7 million amortization recognized in 2010 and 2009, respectively, which were added directly
P
to negative surplus (see Note 13).
As discussed in Notes 12 and 13, the = P29.1 billion valuation reserves and losses allowed by BSP
to be deferred consist of =
P13.4 billion impairment and credit losses on loans and receivables, AFS
investments, investment properties and other assets, and P=15.7 billion losses on sale and dacion en
pago settlement.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared on a historical cost basis except for
financial assets and liabilities at fair value through profit or loss (FVPL) and available-for-sale
(AFS) investments that are measured at fair value. The financial statements are presented in
Philippine peso, and all values are rounded to the nearest thousand pesos (P =000) except when
otherwise indicated.
The financial statements of the Parent Company reflect the accounts maintained in the Regular
Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The financial statements
individually prepared for these units are combined after eliminating inter-unit accounts.
The functional currency of RBU and FCDU is Philippine Peso and United States Dollar (USD),
respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominated
accounts in the RBU are translated into their equivalents in Philippine peso (see accounting policy
on Foreign Currency Translation).
Each entity in the Group determines its own functional currency and items included in the
financial statements of each entity are measured using that functional currency. The respective
functional currencies of the subsidiaries are presented under Basis of Consolidation.
Statement of Compliance
The accompanying financial statements have been prepared in accordance with PGAAP for banks
particularly the following, which are permitted by the BSP for prudential regulation and the SEC
for financial reporting purposes:
a. the Parent Companys reclassification in 2008 of certain investments in ROP credit-linked

notes (CLN) from AFS investments to loans and receivables without bifurcating the embedded
derivatives (see Note 7);
b. retroactive adjustment of dilution loss on the conversion of redeemable preferred shares to
common shares of certain associates of the Parent Company (see Note 10); and
c. the presentation of the Capital Notes of the Parent Company under the equity section of the
statements of financial position (see Note 23),
except for the following departures from PGAAP for banks:
a. staggered booking of required credit and impairment losses on loans and receivables, AFS
investments, investment properties and other assets, and losses on sale and dacion en pago
settlement, which were allowed separately by the BSP (see Note 1);
*SGVMC115862*
-7-
b. non-accretion of interest on certain impaired loans (see Note 8);

c. non-recognition of depreciation on certain investment properties and its impact on the gain or
loss on sale or disposal of such properties (see Note 11); and
d. initial recognition of Interim Tier 1 Capital Notes at the face amount of the liability settled
rather than at the liabilitys carrying amount at the time of settlement (see Note 23).
Basis of Consolidation and Investments in Subsidiaries

The consolidated financial statements of the Group are prepared for the same reporting year as the
Parent Company, using consistent accounting policies.
The following are the wholly and majority-owned subsidiaries of the Parent Company:
Effective
Percentage Country of Functional
Subsidiary of Ownership Incorporation Currency
Financial Markets:
UCPB Leasing and Finance Corporation (ULFC) 100.00 Philippines Philippine Peso
UCPB Securities, Inc. (USI) 100.00 Philippines Philippine Peso
UCPB Savings Bank, Inc. (USB) 97.37 Philippines Philippine Peso
Real Estate:
UCPB Properties, Inc. (UPI) 100.00 Philippines Philippine Peso
Balmoral Resources Corporation (BRC) 100.00 Philippines Philippine Peso
Green Homes Development Corporation (GHDC) 100.00 Philippines Philippine Peso
Subsidiaries are all entities over which the Parent Company has the power to govern the financial
and operating policies generally accompanying a shareholding of more than one half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Parent Company controls another entity.
All significant intra-group balances, transactions, income and expenses, and profits and losses
resulting from intra-group transactions are eliminated in full.
Subsidiaries are consolidated from the date on which control is transferred to the Parent Company.
Control is achieved when the Parent Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. Consolidation of subsidiaries
ceases when control is transferred out of the Group.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of income from the date of acquisition up to the date of disposal, as appropriate. When
a change in ownership interest in a subsidiary occur which result in loss of control over the
subsidiary, the Parent Company:
derecognizes the assets (including goodwill) and liabilities of the subsidiary;

derecognizes the carrying amount of any non-controlling interest;
derecognizes the related other comprehensive income recorded in equity and recycle the same
to profit or loss or surplus (deficit);
recognizes the fair value of the consideration received;
recognizes the fair value of any investment retained; and,
recognizes any surplus or deficit in profit or loss.
In the Parent Companys separate financial statements, investments in subsidiaries are carried at
cost, less accumulated impairment in value. Dividends earned are reported as dividend income
when the right to receive the payment is established.
*SGVMC115862*
-8-
Non-controlling Interests
Non-controlling interests represent the portion of profit or loss and the net assets not owned
directly or indirectly, by the Group and are presented separately in the consolidated statement of
income, consolidated statement of comprehensive income and within equity in the consolidated
statement of financial position, separately from equity attributable to the Parent Company. Any
losses applicable to the non-controlling interests are allocated against the interests of the non-
controlling interest even if this results in the non-controlling interests having a deficit balance.
Acquisitions of non-controlling interests that does not result in a loss of control are accounted for
as an equity transaction whereby the difference between the consideration and the fair value of the
share of the net assets acquired is recognized as an equity transaction and attributed to the owners
of the Parent Company.
Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year except for
the adoption of the following new and amended Philippine Financial Reporting Standards (PFRS)
and Philippine Interpretations which became effective on January 1, 2010:
New standards and interpretations

PFRS 3, Business Combinations (Revised)
Philippine Accounting Standards (PAS) 27, Consolidated and Separate Financial
Statements (Amended)
Philippine Interpretation of International Financial Reporting Interpretations Committee
(IFRIC) 17, Distributions of Non-cash Assets to Owners
Amendments to standards
PFRS 2 Amendments, Share-based Payment: Group Cash-settled Share-based Payment
Transactions
PAS 39 Amendment, Financial Instruments: Recognition and Measurement - Eligible
Hedged Items
Improvements to PFRSs
The omnibus amendments to PFRSs issued in 2008 and 2009 were issued primarily with a view of
removing inconsistencies and clarifying wordings. There are separate transitional provisions for
each standard. The adoption of the amendments did not have any impact in the accounting
policies, financial position or performance of the Group.
PFRS 2, Share-based Payment

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
PFRS 8, Operating Segments
PAS 1, Presentation of Financial Statements
PAS 7, Statement of Cash Flows
PAS 17, Leases
PAS 34, Interim Financial Reporting
PAS 36, Impairment of Assets
PAS 38, Intangible Assets
PAS 39, Financial Instruments: Recognition and Measurement
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
*SGVMC115862*
-9-
Standards that have been adopted and that are deemed to have an impact on the financial
statements or performance of the Group are described below:
PFRS 3, Business Combinations (Revised) and PAS 27, Consolidated and Separate Financial
Statements (Amended)
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations
occurring after this becomes effective. Changes affect the valuation of non-controlling interest,
the accounting for transaction costs, the initial recognition and subsequent measurement of a
contingent consideration, and business combinations achieved in stages. These changes will
impact the amount of goodwill recognized, the reported results in the period that an acquisition
occurs and future reported results.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss
of control) is accounted for as a transaction with owners in their capacity as owners. Therefore,
such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss.
Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as
well as the loss of control of a subsidiary.
The changes by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of control of
subsidiaries and transactions with non-controlling interests after January 1, 2010. The change in
accounting policy was applied prospectively and had no material impact on the financial
statements of the Group.
Significant Accounting Policies
Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents consist of Cash and other cash
items, Due from BSP and other banks, and Interbank loans receivable and Securities purchased
under resale agreements (SPURA) with the BSP that are convertible to known amounts of cash,
with original maturities of three months or less from dates of placements and that are subject to
insignificant risk of changes in value.
Repurchase and Reverse Repurchase Agreements

Securities sold under agreements to repurchase at a specified future date (repos) are not
derecognized from the statement of financial position. The corresponding cash received, including
accrued interest, is recognized in the statement of financial position as Securities sold under
repurchase agreements (SSURA) and is considered as a loan to the Group, reflecting the economic
substance of such transaction.
Conversely, securities purchased under agreements to resell at a specified future date (reverse
repos) are not recognized in the statement of financial position. The corresponding cash paid
including accrued interest, is recognized in the statement of financial position as SPURA, and is
considered a loan to the counterparty. The difference between the purchase price and resale price
is treated as interest income and is accrued over the life of the agreement using the effective
interest method.
Foreign Currency Translation

Transactions and balances
The books of accounts of the RBU are maintained in Philippine pesos, while those of the FCDU
are maintained in USD. For financial reporting purposes, the foreign currency-denominated
monetary assets and liabilities in the RBU are translated in Philippine pesos based on the
Philippine Dealing System (PDS) closing rate prevailing at the statement of financial
*SGVMC115862*
- 10 -
position date, and foreign currency-denominated income and expenses at the PDS weighted
average rate (PDSWAR) for the year. Foreign exchange differences arising from revaluation and
translation of foreign currency-denominated monetary assets and liabilities are credited to or
charged against operations in the year in which the rates changed.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates as at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined.
The assets and liabilities of the FCDU of the Parent Company are translated into the Parent
Companys presentation currency (the Philippine peso) at PDS closing rate prevailing at the
statement of financial position date, and its income and expenses are translated at PDSWAR for
the year. Exchange differences arising on translation are taken directly to other comprehensive
income and accumulated as a separate component of equity in the statement of financial position
as Translation adjustment.
Financial Instruments - Recognition and Measurement

Date of recognition
Regular way purchases and sales of financial assets that require delivery of assets within the time
frame generally established by regulation or convention in the market, except for derivatives, are
recognized on the settlement date. Settlement date is the date on which the transaction is settled
by delivery of the assets that are the subject of the agreement. Settlement date accounting refers to
(a) the recognition of an asset on the day it is received by the Group, and (b) the derecognition of
an asset and recognition of any gain or loss on disposal on the day that it is delivered by the
Group. Any change in the fair value of the financial asset to be received is recognized in the
statement of income for financial assets at FVPL and in other comprehensive income for AFS
investments. Deposits, amounts due to banks and customers, loans and receivables and spot
transactions are recognized when cash is received by the Group or advanced to the borrowers.
Derivatives are recognized on trade date - the date that the Group becomes a party to the
contractual provisions of the instrument. Trade date accounting refers to (a) the recognition of an
asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an
asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable
from the buyer for payment on the trade date.
Initial recognition of financial instruments

The classification of financial instruments at initial recognition depends on the purpose for which
the financial instruments were acquired and their characteristics. All financial assets and financial
liabilities are recognized initially at fair value plus any directly attributable cost of acquisition or
issue, except in the case of financial assets and financial liabilities at FVPL. The Group
categorizes its financial assets as: financial assets at FVPL, differentiating those that are held-for-
trading (HFT) and those designated as such, held-to-maturity (HTM) investments, AFS
investments, and loans and receivables. Financial liabilities are categorized into financial
liabilities at FVPL and other financial liabilities carried at cost or amortized cost. Management
determines the classification of these instruments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every statement of financial position date.
*SGVMC115862*
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Determination of fair value

The fair value for financial instruments traded in active markets at the statement of financial
position date is based on their quoted market price or dealer price quotations (bid price for long
positions and ask price for short positions), without any deduction for transaction costs. When
current bid and ask prices are not available, the price of the most recent transaction is used since it
provides evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models.
Day 1 difference
Where the transaction price is different from the fair value of other observable current market
transactions in the same instrument or based on a valuation technique whose variables include
only data from observable market, the Group immediately recognizes the difference between the
transaction price and fair value (a Day 1 difference) in the statement of income unless it qualifies
for recognition as some other type of asset. In cases where the data used is not observable, the
difference between the transaction price and model value is only recognized in the statement of
income when the inputs become observable or when the instrument is derecognized. For each
transaction, the Group determines the appropriate method of recognizing the Day 1 difference
amount.
Financial assets or financial liabilities held for trading

Held-for-trading (HFT) financial assets or financial liabilities are recorded in the statement of
financial position at fair value. Changes in fair value relating to the HFT positions are recognized
in the statement of income as Trading and securities gain - net. Interest earned or incurred is
recognized as Interest income or Interest expense, respectively, in the statement of income, while
dividends earned are recognized as Dividends (included under Miscellaneous income in the
statement of income) when the right to receive payment has been established. Quoted market
prices, when available, are used to determine the fair value of these financial instruments. If
quoted market prices are not available, their fair values are estimated based on inputs provided by
the BSP, Bureau of Treasury and investment bankers.
Included in this classification are the Groups investments in debt and equity securities which have
been acquired principally for the purpose of selling or repurchasing in the near term.
Derivative instruments
The Parent Company is counterparty to derivative contracts, such as forward foreign exchange
contracts and warrants. These derivatives are entered into as a service to customers and as a
means for reducing or managing the Parent Companys respective foreign exchange exposures, as
well as for trading purposes. Such derivative instruments are initially recorded at fair value on the
date at which the derivative contract is entered into and are subsequently remeasured at fair value.
Derivatives are carried as assets when the fair value is positive and as liabilities when the fair
value is negative. Any gains or losses arising from changes in fair value of derivatives are taken
directly to the statement of income and are included in Trading and securities gain - net for
warrants and in Foreign exchange gain - net for forward foreign exchange contracts.
*SGVMC115862*
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Embedded derivatives
Embedded derivatives are bifurcated from their host contracts and carried at fair value with fair
value changes being recognized in the statement of income and are included in Trading and
securities gain-net, when the entire hybrid contracts (composed of both the host contract and the
embedded derivative) are not accounted for as financial assets or financial liabilities at FVPL,
when their economic risks and characteristics are not closely related to those of their respective
host contracts, and when a separate instrument with the same terms as the embedded derivatives
would meet the definition of a derivative. As of December 31, 2010 and 2009, the Parent
Companys embedded derivatives comprise of credit default swaps, call and index-linked options,
and range accrual.
The Group assesses the existence of an embedded derivative on the date it first becomes a party to
the contract, and performs re-assessment only where there is a change to the contract that
significantly modifies the contractual cash flows.
Financial assets or liabilities designated at FVPL

Financial assets and liabilities classified in this category are designated by management on initial
recognition. Management may only designate an instrument at FVPL upon initial recognition
when the following criteria are met, and designation is determined on an instrument-by-instrument
basis:
The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis; or
The assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or
The financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
As of December 31, 2010 and 2009, the Group does not have financial assets or financial
liabilities designated at FVPL.
HTM investments
HTM investments are quoted non-derivative financial assets with fixed or determinable payments
and fixed maturities for which the Groups management has the positive intention and ability to
hold to maturity. After initial measurement, these investments are carried at amortized cost using
the effective interest method, less any impairment in value. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees that are an integral part of the
effective interest rate (EIR). The amortization is included in Interest income in the statement of
income. The losses arising from impairment of such investments are recognized in the statement
of income under Provision for credit and impairment losses. The effects of restatement on foreign
currency-denominated HTM investments are recognized in the statement of income.
If the Group were to sell more than an insignificant amount of HTM investments before maturity
(other than in certain specific circumstances), the entire category would be tainted and would have
to be reclassified as AFS investments. Furthermore, the Group would be prohibited to classify any
financial assets as HTM investments for the following two years.
*SGVMC115862*
- 13 -
Loans and receivables, amounts due from BSP and other banks, interbank loans receivable and
SPURA
These are financial assets with fixed or determinable payments and fixed maturities that are not
quoted in an active market. They are not entered into with the intention of immediate or short-
term resale and as such are not categorized as financial assets at FVPL or AFS investments. They
also do not include those for which the Group may not recover substantially all of its initial
investments, other than because of credit deterioration.
After initial measurement, Loans and receivables, Due from BSP, Due from other banks and
Interbank loans receivable and SPURA are subsequently measured at amortized cost using the
effective interest method, less allowance for credit losses. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees and costs that are an integral part of
the EIR. The amortization is included in Interest income in the statement of income. The losses
arising from impairment are recognized in Provision for credit and impairment losses in the
statement of income.
AFS investments
AFS investments are those which are designated as such or do not qualify to be classified as
designated at FVPL, HTM investments or loans and receivables. These are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. Included in this classification are the Groups investments in government and private
debt securities and quoted and unquoted equity securities.
After initial measurement, AFS investments are subsequently measured at fair value. The
effective yield component of AFS debt securities, as well as the impact of restatement on foreign
currency-denominated AFS debt securities, is reported in the statement of income. The unrealized
gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from
reported earnings and are recognized as other comprehensive income and accumulated in Net
unrealized gain (loss) on AFS investments in the equity section of the statement of financial
position.
When the instrument is disposed of, the cumulative gain or loss previously recognized in other
comprehensive income is recognized as Trading and securities gain - net in the statement of
income as a reclassification adjustment. Where the Group holds more than one investment in the
same security, these are deemed to be disposed of on a weighted average basis.
Interest earned on holding AFS investments are reported as Interest income using the effective
interest method. Dividends earned on holding AFS investments are recognized in the statement of
income as Dividends (included under Miscellaneous income in the statement of income) when the
right of the payment has been established. The losses arising from impairment of such
investments are recognized as Provision for credit and impairment losses in the statement of
income.
Other financial liabilities

Issued financial instruments or their components, which are not designated at FVPL, are classified
as liabilities under Deposit liabilities, Bills payable and SSURA or other appropriate financial
liability accounts, where the substance of the contractual arrangement results in the Group having
an obligation either to deliver cash or another financial asset to the holder, or to satisfy the
obligation other than by the exchange of a fixed amount of cash or another financial asset for a
fixed number of own equity shares. The components of issued financial instruments that contain
*SGVMC115862*
- 14 -
both liability and equity elements are accounted for separately, with the equity component being
assigned the residual amount after deducting from the instrument as a whole the amount separately
determined as the fair value of the liability component on the date of issue.
After initial measurement, other financial liabilities not qualified as and not designated at FVPL,
are subsequently measured at amortized cost using the effective interest method. Amortized cost
is calculated by taking into account any discount or premium on the issue and fees that are an
integral part of the EIR.
Reclassification of Financial Assets

A financial asset is reclassified out of the FVPL category when the following conditions are met:
the financial asset is no longer held for the purpose of selling or repurchasing it in the near
term; and
there is a rare circumstance.
A financial asset that is reclassified out of the FVPL category is reclassified at its fair value on the
date of reclassification. Any gain or loss already recognized in the statement of income is not
reversed. The fair value of the financial asset on the date of reclassification becomes its new cost
or amortized cost, as applicable.
For a financial asset reclassified out of the AFS investments category to loans and receivables or
HTM investments, any previous gain or loss on that asset that has been recognized in other
comprehensive income is amortized to profit or loss over the remaining life of the investment
using the effective interest method. Any difference between the new amortized cost and the
expected cash flows is also amortized over the remaining life of the asset using the effective
interest method. If the asset is subsequently determined to be impaired then the amount recorded
in equity is recycled to the statement of income.
The BSP, through BSP Circular No. 628, Guidelines on the Reclassification of Financial Assets
Between Categories, allowed CLNs and other similar instruments that are linked to ROP to be
reclassified (a) out of HFT investments into AFS investments, HTM investments or Unquoted debt
securities classified as loans (UDSCL); or (b) from AFS investments to UDSCL or HTM
investments, without bifurcating the embedded derivatives from the host instrument: Provided,
that this shall only apply to CLNs that are outstanding as of the effective date of reclassification,
which shall not be on or later than November 15, 2008.
Reclassification is at the election of management, and is determined on an instrument-by-

instrument basis. An analysis of the Parent Companys reclassified financial assets is disclosed in
Note 7.
Derecognition of Financial Assets and Liabilities

Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial
assets) is derecognized when:
the rights to receive cash flows from the asset have expired; or
the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a pass-through arrangement;
or
*SGVMC115862*
- 15 -
the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained the risk and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Groups continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or has expired. Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in the statement of income.
Impairment of Financial Assets

The Group assesses at each statement of financial position date whether there is an objective
evidence that a financial asset or a group of financial assets is impaired. A financial asset or a
group of financial assets is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that had occurred after the initial recognition of the
asset (an incurred loss event) and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can be reliably
estimated. Evidence of impairment may include indications that the borrower or a group of
borrowers is experiencing significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
Financial assets carried at amortized cost

For financial assets carried at amortized cost, which includes HTM investments and loans and
receivables, the Group first assesses whether objective evidence of impairment exists individually
for financial assets that are individually significant, or collectively for financial assets that are not
individually significant.
For individually assessed financial assets, the amount of the loss is measured as the difference
between the assets carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred). The present value of the estimated
future cash flows is discounted at the financial assets original EIR. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the current EIR, adjusted for
the original credit risk premium. The calculation of the present value of the estimated future cash
flows of a collateralized financial asset reflects the cash flows that may result from foreclosure
less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The
carrying amount of the asset is reduced through the use of an allowance account and the amount of
loss is recognized in Provision for credit and impairment losses in the statement of income.
Interest income continues to be recognized based on the original EIR of the asset.
*SGVMC115862*
- 16 -
If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is credited
to Provision for credit and impairment losses in the statement of income, to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
A write-off is made when all or part of a claim is deemed uncollectible. Write-offs are charged
against previously established allowance for credit losses. Recoveries in part or in full of amounts
previously written-off are credited to Provision for credit and impairment losses.
If the Group determined that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial
assets with similar credit risk characteristics and that group of financial assets is collectively
assessed for impairment. Those characteristics are relevant to the estimation of future cash flows
for groups of such assets by being indicative of the debtors ability to pay all amounts due
according to the contractual terms of the assets being evaluated. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are not
included in a collective assessment of impairment.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of the industry of the borrower. Future cash flows in a group of financial assets that are
collectively evaluated for impairment are estimated on the basis of historical loss experience for
assets with credit risk characteristics similar to those in the group. Historical loss experience is
adjusted on the basis of current observable data to reflect the effects of current conditions that did
not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not exist currently. Estimates of changes in future cash
flows reflect, and are directionally consistent with changes in related observable data from period
to period (such changes in property prices, payment status, or other factors that are indicative of
incurred losses in the Group and their magnitude). The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Group to reduce any differences
between loss estimates and actual loss experience.
Restructured loans
Where possible, the Group seeks to restructure loans rather than to take possession of collateral.
This may involve extending the payment arrangements and the agreement of new loan conditions.
Once the terms have been renegotiated, the loan is no longer considered past due. Management
continuously reviews restructured loans to ensure that all criteria are met and that future payments
are likely to occur. The loans continue to be subject to an individual or collective impairment
assessment, calculated using the loans original EIR. The difference between the recorded value
of the original loan and the present value of the restructured cash flows, discounted at the original
EIR, is recognized in Provision for credit and impairment losses in the statement of income.
AFS investments
For AFS investments, the Group assesses at each statement of financial position date whether
there is objective evidence that an investment is impaired.
In the case of AFS equity investments, objective evidence of impairment would include a
significant or prolonged decline in the fair value of the investment below its cost. The Group
treats significant generally as 20.0% and prolonged as greater than twelve (12) months. Where
there is evidence of impairment, the cumulative loss - measured as the difference between the
*SGVMC115862*
- 17 -
acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognized in the statement of income - is removed from equity and recognized in the
statement of income. Impairment losses on equity investments are not reversed through the
statement of income. Increases in fair value after impairment are recognized directly in other
comprehensive income.
If there is objective evidence that there is impairment loss on an unquoted equity instrument that is
not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset
that is linked to and must be settled by delivery of such an unquoted equity instrument has been
incurred, the amount of loss is measured as the difference between the assets carrying amount and
the present value of estimated future cash flows discounted at the current market rate of return for
a similar financial asset.
In the case of AFS debt investments, the Group assesses individually whether there is objective
evidence of impairment based on the same criteria as financial assets carried at amortized cost.
However, the amount recorded for impairment is the cumulative loss measured as the difference
between the amortized cost and the current fair value, less any impairment loss on that investment
previously recognized in the statement of income. Future interest income is based on the reduced
carrying amount and is accrued based on the rate of interest used to discount future cash flows for
the purpose of measuring impairment loss. Such accrual is recorded as part of Interest income in
the statement of income. If, in subsequent year, the fair value of a debt investment increased and
the increase can be objectively related to a credit event occurring after the impairment loss was
recognized in the statement of income, the credit loss is reversed through the statement of income.
As discussed in Note 1, as of December 31, 2008, the Parent Company, as allowed by the BSP,
has deferred the recognition of valuation reserves aggregating to =
P13.4 billion. As allowed by the
BSP, these unbooked valuation reserves will be recognized on a staggered basis starting
January 2009. The Bank recognizes the amortization as an addition to negative surplus
(see Note 13).
Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of
financial position, if and only if, there is a legally enforceable right to offset the recognized
amounts and there is an intention to either settle on a net basis, or to realize the asset and settle the
liability simultaneously. This is not generally the case with master netting agreements, therefore,
the related assets and liabilities are presented gross in the statement of financial position.
Government loans with low interest rates

Government loans with low interest rates are recognized initially at fair value. The difference
between the fair value of the loan and the loan proceeds received is recognized in the statement of
income over the period of the loan using the effective interest method.
Revenue Recognition
The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. Revenue is recognized to the extent that it is probable that economic
benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at
the fair value at the consideration received or receivable, excluding taxes. The following specific
recognition criteria must also be met before revenue is recognized:
Interest income
For all financial instruments measured at amortized cost and interest-bearing HFT and AFS
investments, interest income is recorded at the EIR which is the rate that exactly discounts
*SGVMC115862*
- 18 -
estimated future cash payments or receipts through the expected life of the financial instrument or
a shorter period, where appropriate, to the net carrying amount of the financial asset or financial
liability. The calculation takes into account all contractual terms of the financial instrument (for
example, prepayment options), including any fees or incremental costs that are directly attributable
to the instrument and are an integral part of the EIR, but not future credit losses.
Once the recorded value of a financial asset or group of similar financial assets has been reduced
due to an impairment loss, interest income should be recognized using the original EIR applied to
the new carrying amount. As discussed in Note 8, however, the Parent Company has not
determined and recognized the accretion of interest income on certain impaired loans.
Service charges and penalties

Service charges and penalties are recognized only upon collection or accrued when there is
reasonable degree of certainty as to its collectibility.
Fee and commission income

The Group earns fee and commission income from a diverse range of services it provides to its
customers. Fee income can be divided into the following two categories:
a. Fee income earned from services that are provided over a certain period of time
Fees earned for the provision of services over a period of time are accrued over that period.
These fees include investment fund fees, custodian fees, fiduciary fees, commission income,
credit related fees, asset management fees, portfolio and other management fees, and advisory
fees. Loan commitment fees for loans that are likely to be drawn down are deferred (together
with any incremental costs) and recognized as an adjustment to the EIR on the loan.
b. Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third
party - such as underwriting fees, corporate finance fees, and brokerage fees for the
arrangement of the acquisition of shares or other securities or the purchase or sale of
businesses - are recognized on completion of the underlying transaction. Fees or components
of fees that are linked to a certain performance are recognized after fulfilling the
corresponding criteria. Loan syndication fees are recognized in the statement of income when
the syndication has been completed and the Group retains no part of the loans for itself or
retains part at the same EIR as for the other participants.
Dividend income
Dividend income is recognized when the Groups right to receive payment is established.
Trading and securities gain - net

Trading and securities gain - net represents results arising from trading activities including all
gains and losses from changes in fair value of financial assets and financial liabilities held for
trading, derivatives, and gains and losses from disposal of AFS investments.
Rental income
Rental income arising on leased properties is accounted for on a straight-line basis over the lease
terms on ongoing leases and is recognized in the statement of income under Miscellaneous
income.
*SGVMC115862*
- 19 -
Other income
Income from sale of services is recognized upon rendition of the service. Income from sale of
properties is recognized upon completion of the earning process and when the collectibility of the
sales price is reasonably assured.
Real estate revenue

Real estate revenue and cost from completed projects are accounted for using the full accrual
method. Revenue is recognized upon or after delivery/transfer of the real estate to the buyer.
When the sale of real estate does not meet the revenue recognition, the sale is accounted for under
the deposit method. Under this method, revenue from pre-sold units is not recognized and the
receivable from the buyer is not recorded. The real estate inventories continue to be reported as
Investment properties and the related liability as customer deposits included in accounts payable
under Other liabilities in the statement of financial position.
Expense Recognition
Expenses are recognized when decrease in future economic benefits related to a decrease in an
asset or increase in liability has arisen that can be measured reliably. Expenses are recognized
when incurred or when the related revenue is earned.
Operating expenses
Operating expenses constitute costs which arise in the normal business operation and are
recognized when incurred.
Taxes and licenses

This includes all other taxes, local and national, and are recognized when incurred.
Interest expense
Interest expense for all interest-bearing financial liabilities are recognized in the statement of
income using the EIR of the financial liabilities to which they relate.
Property and Equipment

Land is stated at cost less any impairment in value and depreciable properties including buildings,
leasehold improvements, and furniture, fixtures and equipment are stated at cost less accumulated
depreciation and amortization, and any impairment in value.
The initial cost of the Groups property and equipment consists of its purchase price, including
import duties, taxes and any directly attributable cost to bring the property and equipment to its
working condition and location for its intended use. Expenditures incurred after the property and
equipment have been put into operation, such as repairs and maintenance, are charged against
operations in the year the costs are incurred. In situations where it can be clearly demonstrated
that the expenditures have resulted in an increase in the future economic benefits expected to be
obtained from the use of an item of property and equipment beyond its originally assessed
standard of performance, the expenditures are capitalized as an additional cost of property and
equipment.
Depreciation is calculated on the straight-line method over the estimated useful life of the
depreciable assets. Leasehold improvements are amortized over the shorter of the terms of the
covering leases and the estimated useful lives of the improvements.
*SGVMC115862*
- 20 -
The range of estimated useful life of property and equipment follow:
Buildings 10 to 50 years
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 5 to 10 years
The depreciation and amortization method and useful life are reviewed periodically to ensure that
the method and period of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of property and equipment.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising from derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is included in the statement of income in the year the asset is derecognized.
The carrying values of property and equipment are reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the
assets are written down to their recoverable amounts (see accounting policy on Impairment of
Nonfinancial Assets).
Investments in Associates and Joint Venture

The Groups investments in associates and joint venture are accounted for using the equity method
of accounting. Associates pertain to all entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20.0% and 50.0% of the voting
rights. Joint venture pertains to the Groups interest in a jointly controlled entity, whereby the
venturers have contractual arrangement that establishes control over the economic activities of the
entity.
Under the equity method, investments in associates/joint venture are carried in the statement of
financial position at cost plus post-acquisition changes in the Groups share of the net assets of the
associate/joint venture. Goodwill relating to an associate is included in the carrying value of the
investment and is not amortized. The Groups share in an associate/joint ventures post-
acquisition profits or losses is recognized in the statement of income, and its share of post-
acquisition movements in the associate/joint ventures equity reserves is recognized in other
comprehensive income. When the Groups share of losses in an associate/joint venture equals or
exceeds its interest in the associate/joint venture, including any other unsecured receivables, the
Group does not recognize further losses, unless it has incurred obligations or made payments on
behalf of the associate/joint venture. Profits and losses resulting from transactions between the
Group and an associate/joint venture are eliminated to the extent of the interest in the
associate/joint venture.
After the application of the equity method, the Group determines whether it is necessary to
recognize an impairment loss on the Groups investments in associates/joint venture. The Group
determines at each statement of financial position date whether there is any objective evidence that
the investment in associate/joint venture is impaired. If this is the case, the Group calculates the
amount of impairment as the difference between the recoverable amount of the investment and its
carrying value and recognizes the impairment loss in the statement of income.
Upon loss of significant influence over the associate, the Group measures and recognizes any
remaining investment at its fair value. Any difference between the carrying amount of the
*SGVMC115862*
- 21 -
associate upon loss of significant influence and the fair value of the remaining investment and
proceeds from disposal is recognized in the statement of income.
Upon loss of joint control and provided the former jointly controlled entity does not become a
subsidiary or associate, the Group measures and recognizes its remaining investment at its fair
value. Any difference between the carrying amount of the former jointly controlled entity upon
loss of joint control and the fair value of the remaining investment and proceeds from disposal is
recognized in the statement of income. When the remaining investment constitutes significant
influence, it is accounted for as an investment in an associate.
In the Parent Companys separate financial statements, investments in associates and joint venture
are carried at cost, less allowance for impairment losses.
Jointly Controlled Operations

A jointly controlled operation involves the use of assets and other resources of the Group and
other venturers rather than the establishment of a corporation, partnership or other entity. The
Group accounts for the assets it controls and the liabilities and expenses it incurs, and the share of
the income that it earns from the sale of goods or services by the joint venture.
Business Combinations
Business combinations from January 1, 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair
value and the amount of any non-controlling interest in the acquiree. For each business
combination, the acquirer measures the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquirees identifiable net assets. Acquisition costs incurred are
expensed and included in operating expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirers
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which is
deemed to be an asset or liability, will be recognized in accordance with PAS 39 either in the
statement of income or as a change to other comprehensive income. If the contingent
consideration is classified as equity, it should not be remeasured until it is finally settled within
equity.
Goodwill is initially measured at cost being the excess of the aggregate of fair value of the
consideration transferred and the amount recognized for non-controlling interest over the fair
value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower
than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the
statement of income.
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After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For
the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Groups cash-generating units that are expected to benefit
from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Business combinations prior to January 1, 2010

In comparison to the above-mentioned requirements, the following differences applied:
Business combinations were accounted for using the purchase method. Transaction costs
directly attributable to the acquisition formed part of the acquisition costs. The non-controlling
interest (formerly known as minority interest) was measured at the proportionate share of the
acquirees identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional
acquired share of interest did not affect previously recognized goodwill.
When the Group acquired a business, embedded derivatives separated from the host contract
by the acquiree were not reassessed on acquisition unless the business combination resulted in
a change in the terms of the contract that significantly modified the cash flows that otherwise
would have been required under the contract.
Contingent consideration was recognized if, and only if, the Group had a present obligation,
the economic outflow was more likely than not and a reliable estimate was determinable.
Subsequent adjustments to the contingent consideration were recognized as part of goodwill.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. An investment
property acquired through an exchange transaction is initially measured at fair value of the asset
acquired unless the fair value of such an asset cannot be measured in which case the investment
property acquired is measured at the carrying amount of the asset given up. Foreclosed properties
are classified under Investment properties upon: a) entry of judgment in case of judicial
foreclosure; b) execution of the sheriffs certificate of sale in case of extra-judicial foreclosure; or
c) notarization of the deed of dacion in case of dation in payment (dacion en pago).
Subsequent to initial recognition, depreciable investment properties (except those of the Parent
Company) are carried at cost less accumulated depreciation and impairment in value. As
discussed in Note 11, the Parent Company does not recognize depreciation on certain investment
properties.
Investment properties are derecognized when they have either been disposed of or when the
investment property is permanently withdrawn from use and no future benefit is expected from its
disposal. Any gains or losses on the retirement or disposal of an investment property are
recognized in the statement of income under Loss (gain) on sale of acquired assets in the year of
retirement or disposal.
Expenditures incurred after the investment properties have been put into operations, such as
repairs and maintenance costs, are normally charged to profit or loss in the year in which the costs
are incurred.
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Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of
acquisition of the investment properties but not to exceed:
Buildings 10 to 50 years
Condominium units 5 years
Transfers are made to investment properties when, and only when, there is a change in use
evidenced by ending of owner occupation, commencement of an operating lease to another party
or ending of construction or development. Transfers are made from investment properties when,
and only when, there is a change in use evidenced by commencement of owner occupation or
commencement of development with a view to sale.
Real Estate Inventories

Real estate inventories are stated at the lower of cost or NRV. Cost shall comprise all costs of
purchase, costs of conversion and other costs incurred in bringing the inventories to their present
location and condition. NRV is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the sale.
Intangible Assets
Intangible assets consist of software costs and exchange trading right. An intangible asset is
recognized only when its cost can be measured reliably and it is probable that the expected future
economic benefits that are attributable to it will flow to the Group.
Software costs
Software costs (presented under Intangible and other assets in the statement of financial position)
arecapitalized on the basis of the cost incurred to acquire and bring to use the specific software.
These costs are amortized over three to ten years on a straight-line basis. Costs associated with
maintaining the computer software programs are recognized as expense when incurred. The
amortization period and the amortization method for software cost are reviewed periodically to be
consistent with the changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the asset.
Exchange trading right

Exchange trading right (presented under Intangible and other assets in the statement of financial
position) is carried at the amount allocated from the original cost of the exchange membership seat
(after a corresponding allocation was made to the value of the Philippine Stock Exchange shares)
less impairment in value. USI does not intend to sell the exchange trading right in the near future.
Impairment of Nonfinancial Assets

The Group assesses at each statement of financial position date whether there is any indication that
an asset may be impaired. Nonfinancial assets include property and equipment, investment
properties, investment in subsidiaries, associates and joint venture, chattel properties acquired,
software costs, and exchange trading right. If any indication exists, or when annual impairment
testing for an asset is required, the Group estimates the assets recoverable amount. An assets
recoverable amount is the higher of an assets or cash-generating units (CGU) fair value less cost
to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount. In
assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples or other available fair
value indicators.
*SGVMC115862*
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For assets excluding exchange trading right, an assessment is made at each statement of financial
position date as to whether there is any indication that previously recognized impairment losses
may no longer exist or may have decreased. If such indication exists, the Group estimates the
assets or CGUs recoverable amount. A previously recognized impairment loss is reversed only
if there has been a change in the assumptions used to determine the assets recoverable amount
since the last impairment loss was recognized. The reversal is limited so that the carrying amount
of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would
have been determined, net of depreciation or amortization, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the statement of income.
For exchange trading right, impairment is determined by assessing the recoverable amountof the
asset or CGU at each statement of financial position date. Where the recoverable amount is less
than the carrying amount of the asset or CGU, an impairment loss is recognized immediately in
the statement of income. Impairment losses cannot be reversed for subsequent increases in the
recoverable amount in future periods.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset. A reassessment is made after inception of the lease only if one of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement; or
(b) a renewal option is exercised or extension granted, unless that term of the renewal or
extension was initially included in the lease term; or
(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at
the date of renewal or extension period for scenario (b).
Group as lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to the
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments and included in
Property and equipment with the corresponding liability to the lessor included in Other liabilities
in the statement of financial position. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recorded directly to Interest expense.
Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets
or the respective lease terms, if there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the assets
are classified as operating leases. Operating lease payments are recognized as an expense in the
statement of income on a straight-line basis over the lease term.
*SGVMC115862*
- 25 -
Group as lessor
Finance leases, where the Group transfers substantially all the risks and benefits incidental to the
ownership of the leased item to the lessee, are included under Loans and receivables in the
statement of financial position. A lease receivable is recognized at an amount equivalent to the net
investment (asset cost) in the lease. All income resulting from the receivable is included in Interest
income in the statement of income.
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the year in
which they are earned.
Retirement Cost
The Group has funded noncontributory defined benefit retirement plans. The retirement cost of
the Group is calculated annually by an independent actuary using the projected unit credit method.
Under this method, the current service cost is the present value of retirement benefits payable in
the future with respect to services rendered in the current year.
The liability or asset recognized in the statement of financial position in respect of defined benefit
pension plans is the present value of the defined benefit obligation at the statement of financial
position date less the fair value of plan assets, together with adjustments for unrecognized
actuarial gains or losses and past service costs. The present value of the defined benefit obligation
is determined by discounting the estimated future cash outflows using interest rate on government
bonds that have terms to maturity approximating the terms of the related retirement liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against income when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceeded 10.0% of the higher of the
defined benefit obligation and the fair value of plan assets at that date. These gains or losses are
recognized over the expected average remaining working lives of the employees participating in
the plan.
Past service costs, if any, are recognized immediately in statement of income, unless the changes
to the pension plan are conditional on the employees remaining in service for a specified period of
time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis
over the vesting period.
The defined benefit asset or liability comprises the present value of the defined benefit obligation
less past service costs not yet recognized and less the fair value of plan assets out of which the
obligations are to be settled directly. The value of any asset is restricted to the sum of any
cumulative unrecognized net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future
contributions to the plan.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event and it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Group expects some or all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
*SGVMC115862*
- 26 -
statement of income, net of any reimbursement. If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as Interest expense in the statement of income.
Contingent Liabilities and Contingent Assets

Contingent liabilities are not recognized in the financial statements but are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets
are not recognized but are disclosed in the financial statements when an inflow of economic
benefits is probable.
Income Taxes
Current taxes
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxing authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantially enacted at the statement of financial
position date.
Deferred taxes
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at
the statement of financial position date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax is provided on all temporary differences at the statement of financial position date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:
Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting income nor taxable income; and
In respect of taxable temporary differences associated with investments in subsidiaries and
associates, where the timing of the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward of
unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular
corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the extent that
it is probable that sufficient taxable profit will be available against which the deductible temporary
differences and carryforward of unused tax credits from MCIT and unused NOLCO can be
utilized except:
Where the deferred tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting income nor taxable income;
and
In respect of deductible temporary differences associated with investments in subsidiaries and
associates, deferred tax assets are recognized only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable income will be
available against which the temporary differences can be utilized.
*SGVMC115862*
- 27 -
The carrying amount of deferred tax assets is reviewed at each statement of financial position date
and reduced to the extent that it is no longer probable that sufficient taxable income will be
available to allow all or part of the deferred income tax asset to be utilized. Unrecognized
deferred tax assets are reassessed at each statement of financial position date and are recognized to
the extent that it has become probable that future taxable income will allow the deferred tax asset
to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantially enacted at the statement of financial position date.
Current tax and deferred tax relating to items recognized in other comprehensive income are also
recognized in other comprehensive income and not in the statement of income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and deferred taxes related to the same taxable
entity and the same taxation authority.
Equity
Common stock is measured at par value for all shares issued and outstanding. When the shares are
sold at a premium, the difference between the proceeds and the par value is credited to Additional
paid-in capital account. Direct costs incurred related to equity issuance, such as underwriting,
accounting and legal fees, printing costs and taxes are chargeable to Additional paid-in capital
account. If the Additional paid-in capital is not sufficient, the excess is added to negative surplus.
When the Group issues more than one class of stock, a separate account is maintained for each
class of stock and the number of shares issued.
Deficit represents accumulated losses (net of earnings) of the Group less dividends declared, if
any.
Dividends on Common Shares

Dividends on common shares are recognized as a liability and deducted from equity when
approved by the BOD of the Parent Company and the BSP, in the case of cash dividends; and the
BOD, shareholders of the Parent Company and its subsidiaries and the BSP in the case of stock
dividends. Dividends declared during the year but are approved by the BSP after the statement of
financial position date are dealt with as an event after the reporting period.
Debt Issue Costs

Issuance, underwriting and other related expenses incurred in connection with the issuance of debt
instruments are deferred and amortized over the terms of the instruments using the effective
interest method. Unamortized debt issue costs are included in the measurement of the related
carrying value of the debt instrument in the statement of financial position.
Events after the Reporting Period

Any post-year-end event that provides additional information about the Groups position at the
statement of financial position date (adjusting event) is reflected in the financial statements. Post-
year-end events that are not adjusting events, if any, are disclosed when material to the financial
statements.
*SGVMC115862*
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Fiduciary Activities
Assets and income arising from fiduciary activities together with related undertakings to return
such assets to customers are excluded from the financial statements where the Parent Company
and a subsidiary act in a fiduciary capacity such as nominee, trustee or agent.
Standards Issued but not yet Effective

Standards issued but not yet effective up to the date of issuance of the Groups financial
statements are listed below. This listing consists of standards and interpretations issued, which the
Group reasonably expects to be applicable at a future date. The Group intends to adopt these
standards when they become effective. Except as otherwise indicated, the Group does not expect
the adoption of these amended PFRS and Philippine Interpretations to have significant impact on
its financial statement.
Effective in 2011
PAS 24, Related Party Disclosures (Amended)
The amended standard is effective for annual periods beginning on or after January 1, 2011. It
clarified the definition of a related party to simplify the identification of such relationships and to
eliminate inconsistencies in its application. The revised standard introduces a partial exemption of
disclosure requirements for government-related entities. Early adoption is permitted for either the
partial exemption for government-related entities or for the entire standard.
PAS 32 Amendment, Financial Instruments: Presentation - Classification of Rights Issues

The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010
and amended the definition of a financial liability in order to classify rights issues (and certain
options or warrants) as equity instruments in cases where such rights are given pro rata to all of the
existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a
fixed number of the entitys own equity instruments for a fixed amount in any currency.
Philippine Interpretation IFRIC 14 Amendment, Prepayments of a Minimum Funding

Requirement
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on
or after January 1, 2011, with retrospective application. The amendment provides guidance on
assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat
the prepayment of a minimum funding requirement as an asset.
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after
July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish
a financial liability qualify as consideration paid. The equity instruments issued are measured at
their fair value. In case that this cannot be reliably measured, the instruments are measured at the
fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or
loss.
Improvements to PFRSs 2010

The omnibus amendments to PFRSs issued in 2010 were issued primarily with a view to removing
inconsistencies and clarifying wordings. The amendments are effective for annual periods on or
after either July 1, 2010 or January 1, 2011. The Group has not yet adopted the following
amendments and anticipates that these changes will have no material effect on the financial
statements.
PFRS 3, Business Combinations

PFRS 7, Financial Instruments: Disclosures
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PAS 1, Presentation of Financial Statements

PAS 27, Consolidated and Separate Financial Statements
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
Effective in 2012
PFRS 7 Amendments, Financial Instruments: Disclosures - Disclosures - Transfers of Financial
Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011.
The amendments will allow users of financial statements to improve their understanding of
transfer transactions of financial assets (for example, securitizations), including understanding the
possible effects of any risks that may remain with the entity that transferred the assets. The
amendments also require additional disclosures if a disproportionate amount of transfer
transactions are undertaken around the end of a reporting period.
PAS 12 Amendment, Income Taxes - Deferred Tax: Recovery of Underlying Assets

The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012.
It provides a practical solution to the problem of assessing whether recovery of an asset will be
through use or sale. It introduces a presumption that recovery of the carrying amount of an asset
will normally be through sale.
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate

This Interpretation, effective for annual periods beginning on or after January 1, 2012, covers
accounting for revenue and associated expenses by entities that undertake the construction of real
estate directly or through subcontractors. The Interpretation requires that revenue on construction
of real estate be recognized only upon completion, except when such contract qualifies as
construction contract to be accounted for under PAS 11, Construction Contracts, or involves
rendering of services in which case revenue is recognized based on stage of completion. Contracts
involving provision of services with the construction materials and where the risks and reward of
ownership are transferred to the buyer on a continuous basis will also be accounted for based on
stage of completion.
Effective in 2013
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and
applies to classification and measurement of financial assets and financial liabilities as defined in
PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In
subsequent phases, impairment, hedge accounting and derecognition will be addressed. The
completion of this project is expected in the middle of 2011. The adoption of the first phase of
PFRS 9 will have an effect on the classification and measurement of the Groups financial assets.
The Group will quantify the effect in conjunction with the other phases, when issued, to present a
comprehensive picture of the impact of adoption on the financial position or performance of the
Group.
3. Significant Accounting Judgments and Estimates
The preparation of the consolidated and the parent company financial statements in compliance
with PFRS requires the Group to make judgments and estimates that affect the reported amounts
of assets, liabilities, income and expenses and the disclosures of contingent assets and contingent
liabilities. Future events may occur which can cause the judgments and assumptions used in
*SGVMC115862*
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arriving at the estimates to change. The effects of any change in estimates are reflected in the
financial statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The following are the critical judgments and key assumptions that have a significant risk of
material adjustment to the carrying amounts of assets and liabilities within the next financial year:
Judgments
a) Going concern
The Groups management has made an assessment of the Groups ability to continue as a
going concern and is satisfied that the Group has the resources to continue in business for the
foreseeable future. Though the Parent Companys losses prior to 2005, including the losses
not recognized, as discussed in Notes 12 and 13, brought its capital below the required
minimum capital requirement for a universal bank, the Parent Companys management has
taken active steps in ensuring its continued liquidity and implemented its capital build-up plan
pursuant to the FAA with PDIC and the MOA that was signed with the ROP, PDIC and
PCGG (see Note 1). Thus, the financial statements continue to be prepared on the going
concern basis.
b) Operating leases
Group as lessor
The Group has entered into commercial property leases on its investment property portfolio.
Based on factors such as, retention of ownership title to the leased property, period of lease
contract relative to the estimated useful economic life of the leased property and bearer of
executory costs, the Group has determined that it retains all the significant risks and rewards
of ownership of these properties, which are leased out on operating leases.
Group as lessee
The Group has entered into leases on premises it uses for its operations. The Group has
determined, based on the evaluation of the lease agreement, that all significant risks and
rewards of ownership of the properties it leases are not transferrable to the Group.
c) Finance leases
The Group has determined that it has transferred all the significant risks and rewards of
ownership of the properties which are leased out on finance leases since its lessees have the
option to purchase the leased assets at a price that is expected to be sufficiently lower than the
fair value at the date the option becomes exercisable. Moreover, the lease term is for the
major part of the economic life of the asset and at the inception of the lease, the present value
of the minimum lease payments amounts to at least substantially all of the fair value of the
leased asset.
d) Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of
financial position cannot be derived from active markets, these are determined using internal
valuation techniques using generally accepted market valuation models. The inputs to these
models are taken from observable markets where possible, but where this is not feasible, a
degree of judgment is required in establishing fair values. These judgments may include
considerations of liquidity and model inputs such as correlation and volatility for longer-dated
*SGVMC115862*
- 31 -
derivatives. Refer to Note 5 for the fair values and the measurement bases of the financial
instruments.
e) HTM investments
The classification under HTM investments requires significant judgment. In making this
judgment, the Group evaluates its intention and ability to hold such investments to maturity.
If the Group fails to keep these investments to maturity other than in certain specific
circumstances - for example, selling an insignificant amount close to maturity - it will be
required to reclassify the entire portfolio as AFS investments. The investments would
therefore be measured at fair value and not at amortized cost.
f) Financial assets not quoted in an active market

The Group classifies financial assets by evaluating, among others, whether the asset is quoted
or not in an active market. Included in the evaluation on whether a financial asset is quoted in
an active market is the determination on whether quoted prices are readily and regularly
available, and whether those prices represent actual and regularly occurring market
transactions on an arms length basis.
g) Embedded derivatives
Where a hybrid instrument is not classified as financial assets at FVPL, the Group evaluates
whether the embedded derivative should be bifurcated and accounted for separately. This
includes assessing whether the embedded derivative has a close economic relationship to the
host contract.
h) Contingencies
The Group is currently involved in legal proceedings. The estimate of the probable cost for
the resolution of claims has been developed in consultation with the aid of the outside legal
counsel handling the Groups defense in this matter and is based upon an analysis of potential
results. Management does not believe that the outcome of this matter will affect the results of
operations. It is probable, however, that future results of operations could be materially
affected by changes in the estimates or in the effectiveness of the strategies relating to these
proceedings (see Note 28).
i) Functional currency
PAS 21 requires management to use its judgment to determine the entitys functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, the Group
considers the following:
a) the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
b) the currency in which funds from financing activities are generated; and
c) the currency in which receipts from operating activities are usually retained.
Estimates
a) Impairment of loans and receivables
The Group reviews its individually significant loans and receivables at each statement of
financial position date to assess whether an impairment loss should be recorded in the
statement of income. In particular, judgment by management is required in the estimation of
the amount and timing of future cash flows when determining the impairment loss. In
*SGVMC115862*
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estimating these cash flows, the Group makes judgments about the borrowers financial
situation and the NRV of collateral. These estimates are based on assumptions about a
number of factors and actual results may differ, resulting in future changes to the allowance.
Loans and receivables that have been assessed individually and found not to be impaired and
all individually insignificant loans and advances are then assessed collectively, in groups of
assets with similar characteristics, to determine whether provision should be made due to
incurred loss events for which there is objective evidence but whose effects are not yet
evident. The collective assessment takes account of data from the loan portfolio,
concentrations of risks and economic data.
As of December 31, 2010 and 2009, allowance for credit and impairment losses on loans and
receivables amounted to = P4.5 billion and =P3.0 billion, respectively, for the Group and
=4.3 billion and =
P P2.7 billion, respectively, for the Parent Company (see Note 13). As of
December 31, 2010 and 2009, the carrying value of loans and receivables amounted to
=62.0 billion and =
P P51.9 billion, respectively, for the Group and =P56.2 billion and
=47.2 billion, respectively, for the Parent Company (see Note 8).
P
As of December 31, 2010 and 2009, however, the Parent Company has deferred the booking
of credit and impairment losses on certain loans and receivables amounting to =P1.0 billion and
=1.8 billion, respectively (see Note 13). These credit and impairment losses form part of the
P
unbooked valuation reserves allowed by the BSP as discussed in Note 1.
b) Fair values of structured debt instruments and derivatives

The fair values of structured debt instruments and derivatives that are not quoted in active
markets are determined using valuation techniques such as discounted cash flow analysis and
standard option pricing models. Where valuation techniques are used to determine fair values,
they are reviewed by qualified personnel independent of the area that created them. All
models are reviewed before they are used and to the extent practicable, models use only
observable data. Changes in assumptions about these factors could affect the reported fair
value of the financial instruments. Refer to Notes 5 and 7 for information on the fair values of
these instruments.
c) Valuation of unquoted equity investments

The Groups investments in equity securities that do not have a quoted market price in an
active market and whose fair value cannot be reliably measured are carried at cost, less
allowance for impairment losses.
As of December 31, 2010 and 2009, the carrying value of unquoted AFS equity securities
(included under AFS investments) amounted to P =379.1 million and P
=395.7 million,
respectively, for the Group and P
=394.8 million, respectively, for the Parent
Company (see Notes 7 and 13).
d) Impairment of AFS equity investments

The Group determines that AFS equity securities are impaired when there has been a
significant or prolonged decline in the fair value below its cost. This determination of what is
significant or prolonged requires judgment. The Group treats significant generally as 20.0%
or more of the original cost of investment, and prolonged as greater than 12 months. In
making this judgment, the Group evaluates among other factors, the normal volatility in share
price for quoted equity securities and the future cash flows and the discount factors for
unquoted equities.
*SGVMC115862*
- 33 -
In addition, impairment may be appropriate when there is evidence of deterioration in the

financial health of the investee, industry and sector performance, changes in technology, and
operational and financing cash flows.
As of December 31, 2010 and 2009, allowance for impairment losses on certain AFS equity
securities amounted to P
=301.2 million and P=366.3 million, respectively, for the Group and
P =366.2 million for the Parent Company (see Note 13). As of
December 31, 2010 and 2009, the carrying value of AFS equity securities (included under
AFS investments) amounted to P =867.7 million and =P780.9 million, respectively, for the Group
and P=823.2 million and P
=745.0 million, respectively, for the Parent Company (see Notes 7 and
13).
As of December 31, 2010 and 2009, however, the Parent Company has deferred the booking
of impairment losses on certain AFS equity investments amounting to = P585.1 million and
=571.0 million, respectively (see Note 13). This forms part of the unbooked valuation
P
reserves allowed by the BSP as discussed in Note 1.
e) Impairment of AFS debt investments

The Group determines that AFS debt investments are impaired based on the same criteria as
financial assets carried at amortized cost.
As of December 31, 2009, allowance for impairment losses on AFS debt investments
amounted to = P369.6 million for the Group and the Parent Company (see Note 13). As of
December 31, 2010, the Group and the Parent Company determined that there is no evidence
of impairment on its AFS debt investments. As of December 31, 2010 and 2009, the carrying
value of AFS debt securities (included under AFS investments) amounted to P =13.6 billion and
=8.3 billion, respectively, for the Group and =
P P13.5 billion and =
P8.2 billion, respectively, for
the Parent Company (see Notes 7 and 13).
f) Impairment of nonfinancial assets

Property and equipment, investment properties, chattel properties acquired, software costs
and exchange trading right
The Group assesses impairment on assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The factors that the
Group considers important which could trigger an impairment review include the following:
significant underperformance relative to expected historical or projected future operating

results;
significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its
recoverable amount.
In 2010 and 2009, there were no indicators of impairment on the Groups and the Parent
Companys property and equipment, chattel properties acquired, software costs and exchange
trading right that could trigger an impairment review.
As of December 31, 2010 and 2009, the carrying value of property and equipment amounted
to =
P1.8 billion and =
P1.4 billion, respectively, for the Group and P
=1.7 billion and P
=1.3 billion,
respectively, for the Parent Company (see Note 9).
*SGVMC115862*
- 34 -
As of December 31, 2010 and 2009, the carrying value of chattel properties acquired
amounted to =P108.4 million and =
P100.9 million, respectively, for the Group and
P =99.3 million, respectively, for the Parent Company (see Note 12).
As of December 31, 2010 and 2009, the carrying value of software costs amounted to
P =422.0 million, respectively, for the Group and P
=451.5 million and
=406.7 million, respectively, for the Parent Company (see Note 12).
P
As of December 31, 2010 and 2009, the carrying value of the Groups exchange trading right
amounted to =
P1.5 million (see Note 12).
The recoverable amount of investment properties is determined based on fair value less cost to
sell. As of December 31, 2010 and 2009, the carrying value of investment properties
amounted to = P9.2 billion and =P9.8 billion, respectively, for the Group and =
P9.0 billion and
P
As of December 31, 2010 and 2009, the Parent Company, however, has deferred the booking
of impairment losses on investment properties amounting to P
=2.5 billion (see Note 13). This
forms part of the unbooked valuation reserves allowed by the BSP as discussed in Note 1.
Investments in subsidiaries, associates, and joint venture

The Group and the Parent Company assesses impairment on its investments in subsidiaries,
associates and joint venture whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Among others, the factors that the Group
and the Parent Company considers important which could trigger an impairment review on its
investments in subsidiaries, associates and joint venture include the following:
deteriorating or poor financial condition;

recurring net losses; and
significant changes (i.e. technological, market, economic, or legal environment in which
the subsidiary, associate and jointly controlled entity operates) with an adverse effect on
the subsidiary, associate or jointly controlled entity have taken place during the period, or
will take place in the near future.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is determined based on the assets fair value
less cost to sell, which considers the estimated realizable and settlement amounts of the assets
and liabilities of the subsidiary, associate or joint venture.
As of December 31, 2010 and 2009, the carrying values of the Groups investment in
associates and joint venture amounted to = P7.0 billion and =
P6.3 billion, respectively. As of
December 31, 2010 and 2009, the carrying values of the Parent Companys investments in
subsidiaries, associates and joint venture amounted to = P3.9 billion, net of allowance for
impairment losses amounting to = P0.4 billion (see Note 10).
g) Estimated useful lives of property and equipment, investment properties, software costs and
chattel properties acquired
The Group reviews on an annual basis the estimated useful lives of property and equipment,
depreciable investment properties, software costs and chattel properties acquired based on
expected asset utilization as anchored on business plans and strategies that also consider
*SGVMC115862*
- 35 -
expected future technological developments and market behavior. It is possible that future
results of operations could be materially affected by changes in these estimates brought about
by changes in the factors mentioned. A reduction in the estimated useful lives of property and
equipment, depreciable investment properties, software costs and chattel properties acquired
would decrease their respective balances and increase the recorded depreciation and
amortization expense.
As of December 31, 2010 and 2009, the carrying value of depreciable property and equipment
amounted to = P1.7 billion and P=1.3 billion, respectively, for the Group and P
=1.6 billion and
P
As of December 31, 2010 and 2009, the carrying value of depreciable investment properties
amounted to = P3.0 billion for the Group and the Parent Company (see Note 11). In 2010 and in
prior years, the Parent Company did not recognize depreciation on its investment properties
from the bad bank assets as required under PAS 40, Investment Property. As of
December 31, 2010 and 2009, the unbooked accumulated depreciation amounted to
=3.0 billion.
P
As of December 31, 2010 and 2009, the carrying value of chattel properties acquired
amounted to =P108.4 million and =
P100.9 million, respectively, for the Group and
P =99.3 million, respectively, for the Parent Company (see Note 12).
As of December 31, 2010 and 2009, the carrying value of software costs amounted to
P =422.0 million, respectively, for the Group and P
=451.5 million and
=406.7 million, respectively, for the Parent Company (see Note 12).
P
h) Recognition of deferred tax assets

Deferred tax assets are recognized for all unused tax losses and credits to the extent that it is
probable that taxable income will be available against which the losses can be utilized.
Significant management judgment is required to determine the amount of deferred tax assets
that can be recognized, based upon the likely timing and level of future taxable income
together with future tax planning strategies.
The Group reviews its deferred tax assets at each statement of financial position date and
reduces the carrying amount to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax asset to be utilized. The
estimates of future taxable net income indicate that certain temporary differences will be
realized in the future.
As of December 31, 2010 and 2009, the Groups recognized net deferred tax assets amounted
to =
P48.4 million and =
P25.6 million, respectively (see Note 22).
As of December 31, 2010 and 2009, unrecognized deferred tax assets on deductible temporary
differences amounted to =
P12.8 billion and P =13.8 billion, respectively, for the Group and
=12.5 billion and =
P P13.7 billion, respectively, for the Parent Company (see Note 22).
i) Retirement benefits
The cost of defined retirement pension plan and other post employment benefits is determined
using actuarial valuations. The actuarial valuation involves making assumptions about
discount rates, expected rates of return on assets, future salary increases, mortality rates and
future pension increases. Due to the long-term nature of these plans, such estimates are
subject to significant uncertainty.
*SGVMC115862*
- 36 -
The assumed discount rates were determined using the market yields on Philippine
government bonds with terms consistent with the expected employee benefit payout as of the
statement of financial position date. Refer to Note 25 for the details of assumptions used in
the calculation. While the Group believes that the assumptions are reasonable and
appropriate, significant differences between actual experiences and assumptions may
materially affect the cost of employee benefits and related obligations.
As of December 31, 2010 and 2009, the Groups net retirement asset (included under Other
assets in the statements of financial position) amounted to = P23.0 million and =P16.4 million
(see Note 12), respectively, while its net retirement liability (included under Other liabilities in
the statements of financial position) amounted to P=6.6 million and P =3.5 million, respectively
(see Note 17).
As of December 31, 2010 and 2009, the Parent Companys net retirement asset amounted to
=19.0 million and =
P P12.6 million, respectively (see Note 12).
j) NRV of real estate inventories

The Group carries real estate inventories at net realizable value when this becomes lower than
cost due to damage, physical deterioration, obsolescence, changes in price levels or other
causes. As of December 31, 2010 and 2009, real estate inventories of the Group were
measured at cost amounting P =3.2 billion and =
P2.9 billion, respectively (see Note 12).
4. Financial Risk Management
a. Introduction
The Parent Company and its subsidiaries manage their respective financial risks separately.
The subsidiaries have their own risk management procedures but are structured similar to that
of the Parent Company. To a certain extent, the respective risk management programs and
objectives are the same across the Group.
The Parent Companys activities are principally related to the use of financial instruments.
The Parent Company accepts deposits from customers at rates set by the Treasury Group
depending on the volume of placements, and for various periods, and seeks to earn above-
average interest margins by investing these funds. The Parent Company seeks to increase
these margins by consolidating short-term funds and lending for longer periods at higher rates,
while maintaining sufficient liquidity to meet all claims that might fall due.
The Parent Company also trades in financial instruments where it takes positions to take
advantage of short-term market movements in bonds and shares of stocks.
The Parent Company has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Market risk
*SGVMC115862*
- 37 -
Risk Management Framework

To manage the financial risk for holding financial assets and liabilities, the Parent Company
operates an integrated risk management system to address the risks it faces in its banking
activities, including liquidity, credit and market risks. The Parent Companys risk
management objective is to adequately and consistently identify, measure, control and monitor
the risk profile inherent in the Parent Companys activities. The Parent Companys Risk
Management Committee (RMC) has overall responsibility for the creation and oversight of the
Parent Companys corporate risk policy and is actively involved in the assessment, planning,
review and approval of all the risks in the Parent Companys organization. The Parent
Company also has in place an authorization structure that defines and sets limits on the type
and value of transactions that each position can approve.
Within the Parent Companys overall risk management system, the Risk Management
Division (RMD) is responsible for managing these risks in a more detailed and proactive
fashion on a continuing basis through performance of risk and return analysis.
Credit Risk
Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument
fails to meet its contractual obligations. The Group manages and controls credit risk by
setting limits on the amount of risk it is willing to accept for individual counterparties and for
geographical and industry concentrations, and by monitoring exposures in relation to such
limits.
Management of Credit Risk

The Parent Company manages its credit risk and loan portfolio through a stringent process of
loan approval. The screening process is directed by the senior officers of the Banks
Corporate and Consumer Banking Group. The process establishes the creditworthiness of the
individual loan applicant based on best credit practices, and takes into consideration the
current business condition and medium-term potential of the industry in which the loan
applicant operates in.
In compliance with BSP requirements, the Parent Company established in December 2004 an
Internal Credit Risk Rating (ICRR) system for the purpose of measuring credit risk for
corporate borrowers in a consistent manner, as accurately as possible, and thereafter uses the
risk information for business and financial decision making. The ICRR system covers
corporate borrowers with asset size of above P=15.0 million, requiring financial statements
from 2005 onwards to be audited by SEC-accredited auditing firms.
On a continuing basis, the Parent Company generates credit risk ratings for existing loan
accounts to assess their performance and to determine which account will be retained,
expanded, or phased out. A separate review of the loan portfolio is conducted by the RMD to
assess the quality of individual accounts and the concentration of the Parent Companys credit
exposures.
Maximum exposure to credit risk before collateral held or other credit enhancements
An analysis of the maximum exposure to credit risk, net of unearned discounts and capitalized
interest and allowance for impairment and credit losses, without taking into account any
collateral held or other credit enhancements is shown below:
*SGVMC115862*
- 38 -

2010 2009 2010 2009
(In Thousands)
On-balance sheet assets are as
follows:
Due from BSP =22,601,760
P =13,584,792
P =22,480,433
P =13,461,441
P
Interbank loans receivable and
SPURA (Note 6) 1,354,696 7,586,000 1,070,696 7,125,000
26,111,056 24,055,045 25,510,359 23,354,837
Financial assets at FVPL (Note 7)
Debt securities
Government 1,358,883 686,073 1,304,237 625,690
Private 79,426 188,471 79,426 188,471
Quoted equity securities 164,181 39,529 158,664 39,467
Derivative assets 214,250 176,611 214,250 176,611
1,816,740 1,090,684 1,756,577 1,030,239
AFS investments - net (Note 7)
Debt securities
Government 6,309,667 5,406,057 6,207,970 5,247,225
Private 7,324,200 2,925,365 7,324,200 2,925,365
Equity securities
Quoted 488,624 385,202 445,195 350,264
Unquoted 379,095 395,694 378,025 394,780
14,501,586 9,112,318 14,355,390 8,917,634
HTM investments (Note 7)
Government 33,705,073 33,662,816 33,560,923 33,487,727
Private 315,130 381,733 315,130 381,733
34,020,203 34,044,549 33,876,053 33,869,460
Loans and receivables (Note 8)
Receivables from customers
Corporate loans 38,379,809 31,580,010 35,724,969 28,864,216
Consumer loans 13,213,255 9,035,097 10,747,468 7,681,621
Unquoted debt securities 6,683,106 7,074,197 6,389,794 6,764,740
Sales contracts receivable 1,381,330 1,976,187 1,336,802 1,932,731
Accrued interest receivable 1,423,988 1,521,529 1,390,126 1,473,259
Accounts receivable 573,157 519,565 650,534 501,717
Other receivables 333,922 152,130
61,988,567 51,858,715 56,239,693 47,218,284
Other assets (Note 12)
Returned checks and other cash
items 1,456,456 121,204 1,451,001 118,602
Off-balance sheet items are as
follows:
Loan commitments and other credit
related liabilities (Note 28) 2,847,580 2,001,060 2,847,580 2,001,060
Total =142,742,188 P
P =122,283,575 P
=136,036,653 P
=116,510,116
*SGVMC115862*
- 39 -
The Parent Company holds collateral against loans and receivables to customers in the form of
hold-out on deposits, real estate mortgage, chattel mortgage, mortgage trust indenture, standby
letters of credit or bank guaranty, government guaranty, assignment of receivables, pledge of
shares, personal and corporate guaranty and other forms of security. Fair market value is
based on the value of the collateral assessed at the time of borrowing and are updated upon
renewal of the loan. Collateral is generally not held over loans and advances to banks, except
when securities are held as part of reverse repurchase and securities borrowing activity.
It is the Parent Companys policy to dispose foreclosed assets in an orderly fashion. The
proceeds of the sale of the foreclosed assets classified as Investment properties are used to
reduce or repay the outstanding claim.
Excessive risk concentration

Credit risk concentrations can arise whenever a significant number of borrowers have similar
characteristics and are affected similarly by changes in economic or other conditions. The
Parent Company analyzes the credit risk concentration to an individual borrower, related
group of accounts, industry, geographic, internal rating buckets, currency, term and security.
For risk concentration monitoring purposes, the financial assets are broadly categorized into
(1) loans and receivables, (2) trading and financial investment securities, (3) loans and
advances to banks, and (4) others. To mitigate risk concentration, the Group constantly checks
for breaches in regulatory and internal limit.
An analysis of concentrations of credit risk at the statement of financial position date is shown
below:
Consolidated
2010
Loans and
Loans and Investment Advances
Receivables Securities* to Banks** Others*** Total
(In Thousands)
Real estate, renting and business activities P13,740,797
= P844,923
= =
P P
= P14,585,720
=
Manufacturing 11,115,156 613,899 11,729,055
Wholesale and retail trade, repair of motor
vehicles, motorcycles, personal and
household goods 9,293,050 695,297 9,988,347
Transport, storage and communication 5,345,415 1,761,292 7,106,707
Financial intermediaries 4,468,703 4,079,142 26,111,056 34,658,901
Agriculture, hunting and forestry and fishing 4,380,536 4,380,536
Government 1,877,949 42,489,122 44,367,071
Construction 1,503,215 1,503,215
Other community, social and personal
services activities 15,210,171 156,049 4,304,036 19,670,256
66,934,992 50,639,724 26,111,056 4,304,036 147,989,808
Less: Unearned discount and capitalized
interest 397,979 397,979
Allowance for credit and impairment
losses 4,548,446 301,195 4,849,641
P61,988,567
= = 50,338,529
P = 26,111,056
P = 4,304,036
P P
= 142,742,188
* Comprised of financial assets at FVPL, AFS investments and HTM investments.
** Comprised of due from BSP, due from other banks and interbank loans receivable and SPURA.
*** Comprised of RCOCI and letters of credit.
*SGVMC115862*
- 40 -
Consolidated
2009
Loans and
Receivables Securities* to Banks ** Others*** Total
(In Thousands)
Real estate, renting and business activities =12,468,349
P =700,001
P =
P =
P =13,168,350
P
household goods 10,335,840 1,349,551 11,685,391
Manufacturing 6,769,355 33,722 6,803,077
Transport, storage and communication 5,602,671 42,017 5,644,688
Construction 2,157,131 40,079,978 42,237,109
Government 798,383 798,383
55,265,385 44,983,470 24,055,045 2,122,264 126,426,164
interest 420,857 420,857
losses 2,985,813 735,919 3,721,732
P51,858,715
= =44,247,551
P =24,055,045
P =2,122,264
P =122,283,575
P
Parent Company
2010
Loans and
Receivables Securities* to Banks** Others*** Total
(In Thousands)
Real estate, renting and business activities = 13,493,900
P = 844,100
P =
P =
P = 14,338,000
P
household goods 9,293,050 695,297 9,988,347
Manufacturing 10,216,264 613,118 10,829,382
Transport, storage and communication 5,345,415 1,759,501 7,104,916
Construction 1,503,215 1,503,215
Government 1,877,949 42,188,632 44,066,581
60,729,424 50,289,140 25,510,359 4,298,581 140,827,504
interest 215,493 215,493
losses 4,274,238 301,120 4,575,358
P56,239,693
= = 49,988,020
P = 25,510,359
P = 4,298,581
P P
= 136,036,653
*SGVMC115862*
- 41 -
Parent Company
2009
Loans and
Receivables Securities* to Banks ** Others*** Total
(In Thousands)
Real estate, renting and business activities =11,915,769
P =700,001
P =
P =
P =12,615,770
P
household goods 10,335,840 1,349,551 11,685,391
Manufacturing 6,210,098 33,722 6,243,820
Transport, storage and communication 5,602,671 42,017 5,644,688
Construction 2,157,131 2,157,131
Government 798,383 39,685,674 40,484,057
50,266,197 44,553,177 23,354,837 2,119,662 120,293,873
interest 299,008 299,008
losses 2,748,905 735,844 3,484,749
P47,218,284
= =43,817,333
P =23,354,837
P =2,119,662
P =116,510,116
P
Credit quality per class of financial assets

The credit quality of financial assets is assessed and managed using external and internal
ratings.
Loans and receivables

The credit quality is generally monitored using the 10-grade ICRR system which is integrated
in the credit process particularly in loan pricing and provision for credit losses. The model on
risk ratings is assessed and updated regularly. Validation of the risk rating is performed by the
Risk Management Division to maintain accurate and consistent risk ratings across the credit
portfolio.
The following table shows the description of credit quality of commercial loans:
Credit Quality ICRRS Grade Description

High grade 1 Excellent
2 Strong
3 Good
4 Satisfactory
Standard grade 5 Acceptable
6 Watchlist
7 Especially mentioned
Substandard grade 8 Substandard
9 Doubtful
Impaired 10 Loss
*SGVMC115862*
- 42 -
1 - Excellent
The rating is given to a borrower with a very low probability of going into default in the
coming year. The borrower has a high degree of stability, substance and diversity and has
access to public markets to raise substantial amounts of funds at any time; has a very strong
debt service capacity and has conservative balance sheet leverage. Track record in terms of
profit is very good. The borrower exhibits highest quality under virtually all economic
conditions.
2 - Strong
This rating is given to borrowers with low probability of going into default in the coming year.
Normally has a comfortable degree of stability, substance and diversity. Under normal market
conditions, the borrower has good access to public markets to raise funds. Borrowers have a
strong market and financial position with a history of successful performance. Overall debt
service capacity is deemed very strong and critical balance sheet ratios are conservative.
3 - Good
This rating is given to smaller corporations with limited access to public capital markets or to
alternative financial markets. While probability of default is quite low, it bears some degree of
stability and substance. However, borrower may be susceptible to cyclical changes and more
concentration of business risk, by product or by market. Typical for this type of borrower is
the combination of comfortable asset protection and an acceptable balance sheet structure.
Debt service capacity is strong. Reported profits for the past three years and is expected to be
profitable again in the current year.
4 - Satisfactory
This rating is given to a borrower where clear risk elements exist and the probability of default
is somewhat greater. The probability is reflected in volatility of earnings and overall
performance. Normally has limited access to public markets. The borrower should be able to
withstand normal business cycles, but any prolonged unfavorable economic period would
create deterioration beyond acceptable levels. The borrower has the combination of
reasonably sound asset and cash flow protection with adequate debt service capacity and has
reported profits in the past year and is expected to report a profit in the current year.
5 - Acceptable
This rating is given to a borrower whose risk elements are sufficiently pronounced although
borrower should still be able to withstand normal business cycles. Any prolonged unfavorable
economic and/or market period would create an immediate deterioration beyond acceptable
levels. Risk is still acceptable as there is sufficient cashflow either historically or expected for
the future; new business or projected finance transaction; an existing borrower where the
nature of the exposure represents a higher risk because of extraordinary developments but for
which a decreasing risk within an acceptable period can be expected.
6 - Watchlist
This rating is given to a borrower which incurs net losses and has salient financial weaknesses,
specifically in profitability, reflected on the financial statements. Credit exposure is not at risk
of loss at the moment but performance of the borrower has weakened and unless present trends
are reversed, could lead to losses.
*SGVMC115862*
- 43 -
7 - Especially Mentioned
This rating is given to a borrower that exhibits potential weaknesses that deserve
managements close attention. No immediate threat to the repayment of the loan through
normal course of business but factors may exist that could adversely affect the
creditworthiness of the borrower.
8 - Substandard
This rating is given to borrower wherein the repayment of the loan through normal course of
business may be in jeopardy due to adverse events. There exists the possibility of future losses
to the institution unless given closer supervision.
9 - Doubtful
This rating is given to borrower who is unable or unwilling to service debt over an extended
period of time and near future prospects of orderly debt service is doubtful. Existing facts,
conditions, and values make full collection or liquidation highly improbable and in which
substantial loss is probable.
10 - Loss
This rating is given to a borrower whose loans or portions thereof are considered uncollectible
with no collateral or which collateral is of little value. The amount of collection is difficult to
measure and it is not practical to defer writing off these assets even though partial recovery
may be obtained in the future.
The Parent Company subjects commercial loans with ICRR of 8 to 10 to specific impairment
test.
Due from BSP, due from other banks, and interbank loans receivable are classified as high
grade since these are deposited in/or transacted with reputable banks which has low
probability of insolvency. Unquoted debt securities classified as loans are classified as high
grade based on the reputation of the counterparty.
The table below shows credit quality per class of financial assets, based on the Parent
Companys rating system (gross of allowance for credit losses and unearned discount and
capitalized interest):
*SGVMC115862*
- 44 -
Consolidated
2010
Neither past due nor impaired Past due
Standard Sub-standard but not
High grade* Grade** Grade*** Unrated impaired Impaired Total
(In Thousands)
Due from BSP = 22,601,760
P =
P =
P =
P =
P P
= 22,601,760
Due from other banks 2,154,600 2,154,600
SPURA 1,354,696 1,354,696
26,111,056 26,111,056
Corporate loans 18,116,491 14,541,742 248,344 4,525,513 134,233 4,599,427 42,165,750
Consumer loans 11,305,838 607,200 3,332 1,243,543 934,550 14,094,463
Unquoted debt securities 6,683,106 6,683,106
Sales contracts receivable 8,608 32,800 3,120 1,336,802 1,381,330
Accrued interest receivable 1,247,465 96,824 92 8,953 86,161 1,439,495
Accounts receivable 11,677 720 175,726 648,803 836,926
Other receivables 333,790 132 333,922
37,706,975 15,279,286 254,796 6,038,133 1,386,729 6,269,073 66,934,992
Other assets
Returned checks and other
cash items 1,456,456 1,456,456
Total = 63,818,031
P = 15,279,286
P = 254,796
P = 7,494,589
P = 1,386,729
P = 6,269,073
P = 94,502,504
P
* Includes loans and receivables with an ICRRS Grade of 1-4
** Includes loans and receivableswith an ICRRS Grade of 5-7
*** Includes loans and receivableswith an ICRRS Grade of 8-9
Consolidated
2009
(In Thousands)
P =
P =
P =
P =
P P
= 13,584,792
SPURA 7,586,000 7,586,000
24,055,045 24,055,045
Corporate loans 12,314,297 11,407,957 455,246 5,817,792 342,991 3,949,719 34,288,002
Consumer loans 7,494,741 49,948 821,376 159,948 809,457 9,335,470
Sales contracts receivable 29,291 1,946,896 1,976,187
Accrued interest receivable 1,018,995 108,134 377,244 26,929 1,531,302
Accounts receivable 3,868 2,037 887,081 15,111 908,097
Other receivables 150,797 1,333 152,130
27,906,098 11,597,367 455,246 10,001,186 502,939 4,802,549 55,265,385
Other assets
cash items 2,602 118,602 121,204
Total =51,961,143
P =
P11,599,969 =455,246
P =
P10,119,788 =502,939
P =4,802,549
P =79,441,634
P
** Includes loans and receivableswith an ICRRS Grade of 5-7
*** Includes loans and receivableswith an ICRRS Grade of 8-9
*SGVMC115862*
- 45 -
Parent Company
2010
(In Thousands)
Due from BSP = 22,480,433
P =
P =
P =
P P
= P
= = 22,480,433
P
SPURA 1,070,696 1,070,696
25,510,359 25,510,359
Corporate loans 16,840,257 13,322,619 4,525,513 28,929 4,353,981 39,071,299
Consumer loans 9,697,204 1,035,229 895,703 11,628,136
Sales contracts receivable 1,336,802 1,336,802
Accrued interest receivable 1,213,603 96,824 92 8,953 86,161 1,405,633
Accounts receivable 265,726 632,034 897,760
34,140,858 13,419,443 6,128,133 1,073,111 5,967,879 60,729,424
Other assets
cash items 1,451,001 1,451,001
Total = 59,651,217
P = 13,419,443
P =
P = 7,579,134
P = 1,073,111
P = 5,967,879
P = 87,690,784
P
** Includes loans and receivables with an ICRRS Grade of 5-7
*** Includes loans and receivables with an ICRRS Grade of 8-9
Parent Company
2009
(In Thousands)
P =
P =
P =
P P
= P
= =13,461,441
P
SPURA 7,125,000 7,125,000
23,354,837 23,354,837
Corporate loans 10,390,671 10,733,523 279,339 5,817,793 325,639 3,765,780 31,312,745
Consumer loans 6,192,431 821,375 82,905 801,186 7,897,897
Sales contracts receivable 1,932,731 1,932,731
Accrued interest receivable 1,018,995 65,225 371,819 26,929 1,482,968
Accounts receivable 875,116 875,116
24,366,837 10,798,748 279,339 9,818,834 408,544 4,593,895 50,266,197
Other assets
cash items 118,602 118,602
Total =47,721,674
P =10,798,748
P =279,339
P =9,937,436
P =408,544
P =4,593,895
P =73,739,636
P
** Includes loans and receivables with an ICRRS Grade of 5-7
*** Includes loans and receivables with an ICRRS Grade of 8-9
Trading and Investment Securities

In ensuring the quality of its trading and investment portfolio, the Parent Company uses the
credit risk rating from published data providers like Moodys, Standard and Poor (S & P),
Fitch, and such other rating agencies as may be approved by the MB of the BSP.
*SGVMC115862*
- 46 -
The table below shows credit risk rating of trading and investment securities (gross of
allowance for credit and impairment losses):
Consolidated
2010
CCC to D
AAA to BBB- BB+ to B- and unrated Total
(In Thousands)
Financial assets at FVPL
Debt securities
Government P
=211,699 P
=1,147,184 P
= P
=1,358,883
Private 79,426 79,426
Equity securities
Quoted 5,517 158,664 164,181
Derivative assets 183,040 31,210 214,250
479,682 1,178,394 158,664 1,816,740
AFS investments
Debt securities
Government 418,672 5,890,995 6,309,667
Private 4,955,367 1,948,553 420,280 7,324,200
Equity securities
Quoted 43,429 458,526 501,955
Unquoted 666,959 666,959
5,417,468 7,839,548 1,545,765 14,802,781
HTM investments
Government 33,705,073 33,705,073
Private 315,130 315,130
34,020,203 34,020,203
P
=5,897,150 P
=43,038,145 P
=1,704,429 P
=50,639,724
Consolidated
2009
CCC to D
(In Thousands)
Debt securities
Government =
P =686,073
P P
= P686,073
=
Private 188,471 188,471
Equity securities
Quoted 39,529 39,529
331,409 719,746 39,529 1,090,684
AFS investments
Debt securities
Government 152,089 5,253,968 5,406,057
Private 2,541,606 291,359 462,000 3,294,965
Equity securities
Quoted 487,524 487,524
Unquoted 659,691 659,691
2,693,695 5,545,327 1,609,215 9,848,237
HTM investments
Government 33,662,816 33,662,816
Private 381,733 381,733
34,044,549 34,044,549
=3,025,104
P =40,309,622
P =1,648,744
P =44,983,470
P
*SGVMC115862*
- 47 -
Parent Company
2010
CCC to D
(In Thousands)
Debt securities
Government P
=211,699 P
=1,092,538 P
= P
=1,304,237
Private 79,426 79,426
Equity securities
Quoted 158,664 158,664
474,165 1,123,748 158,664 1,756,577
AFS investments
Debt securities
Government 418,672 5,789,298 6,207,970
Private 4,955,367 1,948,555 420,278 7,324,200
Equity securities
Quoted 458,526 458,526
Unquoted 665,814 665,814
5,374,039 7,737,853 1,544,618 14,656,510
HTM investments
Government 33,560,923 33,560,923
Private 315,130 315,130
33,876,053 33,876,053
P
=5,848,204 P
=42,737,654 P
=1,703,282 P
=50,289,140
Parent Company
2009
CCC to D
(In Thousands)
Debt securities
Government =
P =625,690
P P
= P625,690
=
Private 188,471 188,471
Equity securities
Quoted 39,467 39,467
331,409 =659,363
P 39,467 1,030,239
AFS investments
Debt securities
Government 152,089 5,095,136 5,247,225
Private 2,541,606 291,359 462,000 3,294,965
Equity securities
Quoted 452,586 452,586
Unquoted 658,702 658,702
2,693,695 5,386,495 1,573,288 9,653,478
HTM investments
Government 33,487,727 33,487,727
Private 381,733 381,733
33,869,460 33,869,460
=3,025,104
P =39,915,318
P =1,612,755
P =44,553,177
P
*SGVMC115862*
- 48 -
Aging analysis of past due but not impaired loans and receivables are shown below:
Consolidated
2010
Within 1 year More than 1 year Total
(In Thousands)
Corporate loans P
=97,026 P
=37,207 P
=134,233
Consumer loans 1,022,436 221,107 1,243,543
Accrued interest receivable 8,953 8,953
P
=1,128,415 P
=258,314 P
=1,386,729
Consolidated
2009
(In Thousands)
Corporate loans =339,000
P P3,991
= P342,991
=
Consumer loans 90,337 69,611 159,948
=429,337
P =73,602
P =502,939
P
Parent Company
2010
(In Thousands)
Corporate loans P
=17,650 P
=11,279 P
=28,929
Consumer loans 856,000 179,229 1,035,229
P
=882,603 P
=190,508 P
=1,073,111
Parent Company
2009
(In Thousands)
Corporate loans =325,639
P =
P =325,639
P
Consumer loans 23,447 59,458 82,905
=349,086
P =59,458
P =408,544
P
Past due but not impaired Loans and receivables

These are loans and receivables where contractual interest or principal payments are past due
but the Group believes that impairment is not appropriate on the basis of the level of collateral
available or status of collection of amounts owed to the Group.
Impaired Loans and receivables and Investment securities

Impaired loans and receivables and investment securities are loans and receivables and
investment securities for which the Group determines that it is probable that it will be unable
to collect all principal and interest due based on the contractual terms of the promissory note
and securities agreements.
Liquidity Risk
Liquidity risk is generally defined as the current and prospective risk to earnings or capital
arising from the Groups inability to meet its obligations when they become due.
*SGVMC115862*
- 49 -
The Parent Company closely monitors the current and prospective maturity structure of its
resources and liabilities and the market condition to guide pricing and asset/liability allocation
strategies to manage its liquidity risks. Liquidity risks are monitored and managed by using
the Maximum Cumulative Outflow limits and funding diversification/concentration limits.
In addition, the Parent Company manages liquidity risk by holding sufficient liquid assets of
appropriate quality to ensure short-term funding requirements are met and by maintaining a
balanced loan portfolio which is repriced on a regular basis. In addition, the Parent Company
seeks to maintain sufficient liquidity to take advantage of interest rate and exchange rate
opportunities when they arise.
The table below shows the maturity profile of the financial instruments based on contractual
undiscounted cash flows:
Consolidated
2010
On demand Within 1 year Beyond 1 year Total
(In Thousands)
Financial Assets
Cash and other cash items P
=5,080,842 P
= P
= P
=5,080,842
Due from BSP 2,789,970 19,811,790 22,601,760
Interbank loans receivable and SPURA* 1,366,320 39,720 1,406,040
Debt securities at FVPL* 1,466,396 1,466,396
AFS debt securities* 13,681,710 13,681,710
P
=11,391,732 P
=21,317,906 P
=13,681,710 P
=46,391,348
Financial Liabilities
Non-derivative liabilities
Deposit liabilities
Demand P
=8,779,761 P
= P
= P
=8,779,761
Savings 93,372,107 93,372,107
Time* 40,523,162 6,741,050 47,264,212
LTNCD* 310,701 5,691,480 6,002,181
8,779,761 134,205,970 12,432,530 155,418,261
Bills payable and SSURA* 1,089,675 7,171,704 27,790 8,289,169
Accrued interest and other expenses 1,174,631 1,174,631
Other liabilities 5,790,166 248,528 6,038,694
P
=9,869,436 P
=148,342,471 P
=12,708,848 P
=170,920,755
*Includes future interest payments
*SGVMC115862*
- 50 -
Consolidated
2009
(In Thousands)
Financial Assets
Cash and other cash items P5,140,215
= =
P P
= P5,140,215
=
Due from BSP 3,862,029 9,722,763 13,584,792
Interbank loans receivable and SPURA* 7,590,497 7,590,497
Debt securities at FVPL* 887,871 887,871
=11,886,497
P =18,201,131
P =7,051,927
P =37,139,555
P
Deposit liabilities
Demand =7,949,172
P =
P P
= P7,949,172
=
Savings 79,395,810 79,395,810
Time* 42,035,238 3,917,335 45,952,573
7,949,172 121,431,048 3,917,335 133,297,555
Bills payable and SSURA* 5,712,515 458,659 6,171,174
Accrued interest and other expenses 3,583,632 198 3,583,830
7,949,172 137,758,371 4,967,147 150,674,690
Derivative liabilities 14,571 14,571
=7,949,172
P =137,772,942
P =4,967,147
P =150,689,261
P
Parent Company
2010
(In Thousands)
Financial Assets
=4,934,052 P
= P
= P
=4,934,052
Due from BSP 2,668,643 19,811,790 22,480,433
Interbank loans receivable and SPURA* 1,082,320 39,720 1,122,040
Debt securities at FVPL* 1,394,914 1,394,914
P
=10,644,245 P
=21,246,424 P
=13,551,585 P
=45,442,254
Deposit liabilities
Demand P
=8,702,472 P
= P
= P
=8,702,472
Savings 91,171,412 91,171,412
Time* 38,892,048 6,722,591 45,614,639
LTNCD* 310,701 5,691,480 6,002,181
8,702,472 130,374,161 12,414,071 151,490,704
Bills payable and SSURA* 1,089,675 5,914,011 21,049 7,024,735
Accrued interest and other expenses 1,140,546 1,140,546
Other liabilities 5,593,498 5,593,498
P
=9,792,147 P
=143,022,216 P
=12,435,120 P
=165,249,483
*SGVMC115862*
- 51 -
Parent Company
2009
(In Thousands)
Financial Assets
= =
P P
= P4,891,510
=
Due from BSP 3,753,678 9,707,763 13,461,441
Interbank loans receivable and SPURA* 7,129,497 7,129,497
Debt securities at FVPL* 827,488 827,488
=11,413,584
P =17,664,748
P =6,806,816
P =35,885,148
P
Deposit liabilities
Demand =7,906,463
P =
P P
= P7,906,463
=
Savings 77,349,850 77,349,850
Time* 40,751,463 3,917,335 44,668,798
7,906,463 118,101,313 3,917,335 129,925,111
Bills payable and SSURA* 5,604,923 458,659 6,063,582
Accrued interest and other expenses 3,553,225 198 3,553,423
7,906,463 134,175,994 4,807,450 146,889,907
Derivative liabilities 14,571 14,571
=7,906,463
P =134,190,565
P =4,807,450
P =146,904,478
P
Market Risk
Market risk is the risk of loss to future earnings, fair values or future cash flows that may result
from changes in the price of a financial instrument. Trading portfolios are exposed to market risk
because the values of trading positions are sensitive to changes in market prices. Assets and
liabilities portfolios are affected by market risks because the revenues derived from these
activities, such as securities gains and losses and net interest income are sensitive to changes in
interest and foreign exchange rates. The Banks market risk originates from its holdings of foreign
exchange instruments, debt securities and derivatives.
Market risks are monitored on a daily basis by the Risk Management Unit, which functions
independently from the business units. The Group uses various loss limits and risk measurement
methodologies as follows:
Stop loss limits
Loss alert limits
Position limits
Mark-to-market valuation
Value-at-Risk (VaR)
Earnings-at-risk
VaR methodology assumptions and parameters

The Bank computes the statistical VaR to estimate the maximum potential loss that can be
incurred in its trading books under normal market conditions given a specified confidence level
and holding period. VaR is one of the key measures in the Banks management of market risk.
The Bank uses a 1-day and a 10-day holding period for its foreign exchange VaR and interest rate
VaR, respectively. The Bank adopts a historical simulation approach using a 99.0% confidence
level and a 260-day observation period in its VaR calculation.
*SGVMC115862*
- 52 -
The Banks VaR limit is agreed annually by the Treasury Banking Group and Risk Management
Division and presented to the RMC based on the tolerable risk appetite of the Bank. Monitoring
reports, which include the VaR figures and exposures to VaR limits are sent to the risk-taking
units on a daily basis. These are also reported monthly to the RMC.
The VaR figures are backtested against actual and unrealized profit and loss of the trading book to
validate the robustness of the VaR model. While VaR measures risk during times of normality, it
is supplemented with stress testing, which is used to measure the potential effect of a crisis or low
probability event. The RMD conducts stress testing to measure and monitor market risks in
extreme market conditions. Results of backtesting and stress testing are reported to the RMC on a
monthly basis.
Although VaR is an important tool for measuring market risk, the assumptions on which the model
is based do give rise to the following limitations:
The holding period assumes that it is possible to hedge or dispose of positions within that
period. This is considered to be a realistic assumption in almost all cases but may not be the
case in situations in which there is severe market illiquidity for a prolonged period;
A 99.0% confidence level does not reflect losses that may occur beyond this level. Even
within the model used, there is a one percent probability that losses could exceed the VaR;
VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on
positions during the trading day;
The use of historical data as a basis for determining the possible range of future outcomes may
not always cover all possible scenarios, especially those of an exceptional nature;
The VaR measure is dependent upon the Banks position and the volatility of market prices;
and
The VaR of an unchanged position reduces if the market price volatility declines and vice
versa.
A summary of the VaR position of the trading portfolios of the Bank as of December 31, 2010 and
2009 is as follows:
2010
At Dec 31 Average Maximum Minimum
(In Thousands)
Foreign currency risk P
=10,477 P
=4,117 P
=14,545 P
=9
Interest rate risk 7,462 19,208 71,257 3,386
2009
(In Thousands)
Foreign currency risk P7,896
= =4,824
P =24,065
P =89
P
Interest rate risk 8,988 16,166 51,100 3,000
*SGVMC115862*
- 53 -
The total interest rate risk VaR of the fixed-income instruments in the portfolios of the Bank as of
December 31, 2010 and 2009 is as follows:
2010
(In Thousands)
Interest rate risk P
=147,152 P
=100,441 P
=233,096 P
=37,619
2009
(In Thousands)
Interest rate risk =159,455
P =124,625
P =197,178
P =37,918
P
The limitations of the VaR methodology are recognized by supplementing VaR limits with other
position and sensitivity limit structures, including limits to address potential concentration risks
within each trading portfolio. In addition, the Bank uses a wide range of stress tests to model the
financial impact of a variety of exceptional market scenarios on individual trading portfolios and
the Banks overall position.
Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash
flows or fair values of financial instruments.
The Bank measures the sensitivity of its assets and liabilities to interest rate fluctuations by way of
gap analysis. The analysis provides the Bank with a measure of the impact of changes in interest
rates on the accrual portfolio or reported earnings (the risk exposure of future accounting income).
The repricing gap is calculated by subtracting the interest rate sensitive liabilities in each time
bucket from interest rate sensitive assets to produce repricing gap for that particular time bucket.
The difference in the amount of assets and liabilities maturing would then give the Bank an
indication of its exposure to the risk of potential changes in net interest income.
A positive gap occurs when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities and is favorable to the Bank during a period of rising interest rates
since it is in a better position to invest in higher yielding assets more quickly than it would need to
refinance its interest bearing liabilities. Conversely, during a period of falling interest rates, a
positively gapped position could result in a restrained growth for or even declining net interest
income.
The Group also monitors its exposure to fluctuations in interest rates by measuring the impact of
interest rate movements on its interest income. This is done by modeling the impact of various
changes in interest rates to the Groups interest-related income and expenses.
*SGVMC115862*
- 54 -
The following table sets forth the repricing gap position of the Parent Company as of
December 31, 2010 and 2009:
2010
Up to 1 month 1 to 3 months 3 to 6 months 6 to 12 months Total
Financial assets
Due from BSP = 22,480
P P
= P
= P
= = 22,480
P
Due from other banks 1,649 1,649
Interbank loans receivable 558 558
Loans and receivables 3,761 11,600 8,299 11,510 35,170
Financial assets at FVPL 1,487 1,487
HTM investments 1,882 1,882
Total financial assets = 28,448
P = 11,600
P = 8,299
P = 14,879
P = 63,226
P
Deposit liabilities
Demand 8,657 8,657
Savings 28,649 28,649
Time 18,447 7,330 1,700 1,141 28,618
Bills payable 3 504 589 3,659 4,755
Other liabilities 48 48
Total financial liabilities = 55,756
P = 7,834
P = 2,289
P = 4,848
P = 70,727
P
Repricing gap (P
= 27,308) = 3,766
P = 6,010
P = 10,031
P (P
= 7,501)
Cumulative gap (27,308) (23,542) (17,532) (7,501)
2009
Up to 1 month 1 to 3 months 3 to 6 months 6 to 12 months Total
Financial assets
Cash and other cash items P 4,615
= =
P =
P =
P P4,615
=
Due from BSP 15,552 15,552
Due from other banks 3,106 3,106
Interbank loans receivable 648 648
Loans and receivables 5,871 11,159 2,098 3,679 22,807
Financial assets at FVPL 890 890
HTM investments 1 477 1 479
Total financial assets =29,793
P =11,636
P =2,099
P =4,569
P =48,097
P
Deposit liabilities
Demand 8,014 8,014
Savings 19,611 19,611
Time 22,491 6,608 260 323 29,682
Bills payable 939 1,750 1 604 3,294
Other liabilities 48 48
Total financial liabilities =51,055
P =8,358
P =261
P =975
P =60,649
P
Repricing gap (P
=21,262) =3,278
P =1,838
P =3,594
P (P
=12,552)
Cumulative gap (21,262) (17,984) (16,146) (12,552)
The following table sets forth, for the period indicated, the impact of changes in interest rates on
the Parent Companys net interest income:
2010
Changes in interest rates (in basis points) +50 -50 +100 -100
Change on annualized net interest income (In Thousands)
PHP (P
= 91,855) P
=91,855 (P = 183,710) P
=183,710
USD (69,570) 69,570 (139,139) 139,139
Total (P
= 161,425) P
=161,425 (P = 322,849) P
=322,849
*SGVMC115862*
- 55 -
2009
Change on annualized net interest income (In Thousands)
PHP (P
=65,649) =65,649 (P
P =131,297) =131,297
P
USD (35,399) 35,399 (70,798) 70,798
Total (P
=101,048) =101,048 (P
P =202,095) =202,095
P
Given the repricing position of the assets and liabilities of the Parent Company as of
December 31, 2010 and 2009, if interest rates increased by 100 basis points, the Parent Company
would expect annualized interest income to decrease by = P322.9 million and =
P202.1 million,
respectively. This Earnings-at-risk computation is accomplished monthly.
The following table sets forth the estimated change in equity due to a reasonably possible change
in market prices of quoted bonds classified under AFS investments, brought about by movement
in the interest rate curve as of December 31, 2010 and 2009:
Consolidated
2010
Change in equity (in thousands) (P
= 424,331) P
=450,440 (P
= 826,479) P
=927,103
Consolidated
2009
=252,535) =322,052
P (P
=489,527) =587,980
P
Parent Company
2010
= 422,731) P
=447,140 (P
= 822,579) P
=921,203
Parent Company
2009
=249,635) =317,552
P (P
=483,027) =579,580
P
Foreign currency risk

Foreign exchange risk is the probability of loss to earnings or capital arising from changes in
foreign exchange rates. The Group takes on exposure to effects of fluctuations in the current
foreign currency exchange rates on its financial performance and cash flows.
The Parent Company manages its exposure to effects of fluctuations in the foreign currency
exchange rates by maintaining foreign currency exposure within the existing regulatory guidelines
and at a level that it believes to be relatively conservative for a financial institution engaged in that
type of business. Banks are required by the BSP to match the foreign currency liabilities with the
foreign currency assets held in FCDUs. In addition, the BSP requires a 30.0% liquidity reserve on
all foreign currency liabilities held in the FCDU.
The Parent Companys policy is to maintain foreign currency exposure within acceptable limits
and within existing regulatory guidelines. The Parent Company believes that its foreign currency
exposure on its assets and liabilities is within conservative limits for a financial institution engaged
in this type of business.
*SGVMC115862*
- 56 -
The Group does not present the sensitivity analysis on the impact on profit and loss and equity
based on the reasonably possible change of foreign currency since its exposure to foreign currency
risk is minimal.
The following tables summarize the Parent Companys exposure to foreign exchange risk as of
December 31, 2010 and 2009. Included in the table are the Parent Companys assets and liabilities
at carrying amounts, categorized by currency (amounts in USD):
2010
USD Others Total
(In Thousands)
Assets
Cash and due from BSP 12,471 1 12,472
Due from other banks 49,629 2,277 51,906
Interbank loans receivable 24,400 24,400
AFS investments 185,583 2,593 188,176
Loans and receivables 97,960 126 98,086
Other assets 16,722 16,722
499,462 4,997 504,459
Liabilities
Deposit liabilities 420,477 102 420,579
Bills payable 19,224 19,224
Accrued taxes, interest and other expenses 389 389
Other liabilities 43,748 359 44,107
483,838 461 484,299
Net Exposure 15,624 4,536 20,160
2009
USD Others Total
(In Thousands)
Assets
Cash and due from BSP 13,783 13,783
Due from other banks 89,711 10,182 99,893
Interbank loans receivable 20,000 20,000
AFS investments 125,973 2,353 128,326
Loans and receivables 63,091 531 63,622
Other assets 21,457 254 21,711
460,859 13,320 474,179
Liabilities
Deposit liabilities 347,213 15 347,228
Bills payable 16,839 16,839
Accrued taxes, interest and other expenses 428 428
Other liabilities 67,542 12,680 80,222
432,022 12,695 444,717
Net Exposure 28,837 625 29,462
*SGVMC115862*
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The following table sets forth, for the period indicated, the impact of reasonably possible changes
in foreign exchange rates on the Parent Companys pretax income and equity (amounts in
thousands except for the percentages):
2010 2009
Change in Effect on Change in Effect on
currency rate profit before Effect on currency rate profit before Effect on
in % tax equity in % tax equity
Currency
USD +1.00% P6,849
= = 2,877
P +1.00% =4,149
P =9,554
P
Others +1.00% 1,989 +1.00% 297
Currency
USD -1.00% (6,849) (2,877) -1.00% (4,149) (9,554)
Others -1.00% (1,989) -1.00% 297
Equity price risk

Equity price risk is the risk of loss arising from movements in equity prices. The Bank manages
its exposures to equity prices by way of stop loss limits. The Board of Directors (BOD) approves
limits on the amount of potential loss that may be undertaken, which is monitored daily by the
RMD and reported to the RMC.
The effect of equity price fluctuations is insignificant therefore, the sensitivity analysis was not
presented.
5. Fair Value Measurement
The methods and assumptions used by the Group and the Parent Company in estimating the fair
value of financial instruments are:
Cash and other cash items, due from BSP and other banks and interbank loans receivable and
SPURA
Carrying amounts approximate fair values considering that these accounts consist mainly of
overnight deposits and floating rate placements.
Trading and investment securities

Fair values of debt securities (financial assets at FVPL, AFS investments and HTM investments)
and equity investments are generally based on quoted market prices. Where the debt securities are
not quoted or the market prices are not readily available, the Group obtained valuations from
independent parties offering pricing services, used adjusted quoted market prices of comparable
investments, or applied discounted cash flow methodologies. For equity investments that are not
quoted, the investments are carried at cost less allowance for impairment losses due to the
unpredictable nature of future cash flows and the lack of suitable methods of arriving at a reliable
fair value.
Derivative instruments
Fair values are estimated based on quoted market prices, prices provided by independent parties,
or prices derived using acceptable valuation models.

Fair values of loans and receivables are estimated using the discounted cash flow methodology,
using current incremental lending rates for similar types of loans. Where the instrument reprices
on a quarterly basis or has a relatively short maturity, the carrying amounts approximate fair
values.
*SGVMC115862*
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Accounts receivable
Quoted market prices are not readily available for these assets. They are not reported at fair value
and are not significant in relation to the Groups total financial assets.
Returned checks and other cash items

Carrying amounts approximate fair value in view of the relatively short-tern maturities of these
instruments.
Deposit liabilities and bills payable

Carrying amounts of demand and savings deposit liabilities approximates fair value considering
that these are due and demandable. Fair values of time deposit liabilities and bills payable are
estimated using the discounted cash flow methodology, using current incremental borrowing rates
for similar borrowings with maturities consistent with those remaining for the liability being
valued.
Other liabilities
Carrying amounts of other liabilities maturing within one year approximate fair values in view of
the relatively short-term maturities of these instruments. Other liabilities maturing beyond one
year are not reported at fair value and are not significant to the Groups total financial liabilities.
The following tables summarize the carrying amounts and fair values of the financial assets and
liabilities:
2010
Carrying Value Fair Value Carrying Value Fair Value
(In Thousands)
Financial Assets
= P5,080,842
= P4,934,052
= P4,934,052
=
Due from BSP 22,601,760 22,601,760 22,480,433 22,480,433
Interbank loans receivable and SPURA 1,354,696 1,354,696 1,070,696 1,070,696
31,191,898 31,191,898 30,444,411 30,444,411
Debt securities
Government 1,358,883 1,358,883 1,304,237 1,304,237
Private 79,426 79,426 79,426 79,426
1,816,740 1,816,740 1,756,577 1,756,577
AFS investments
Debt securities
Government 6,309,667 6,309,667 6,207,970 6,207,970
Private 7,324,200 7,324,200 7,324,200 7,324,200
Equity securities
Quoted 488,624 488,624 445,195 445,195
Unquoted 379,095 379,095 378,025 378,025
14,501,586 14,501,586 14,355,390 14,355,390
HTM investments
Government 33,705,073 38,570,464 33,560,923 38,382,317
Private 315,130 315,130 315,130 315,130
34,020,203 38,885,594 33,876,053 38,697,447
(Forward)
*SGVMC115862*
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2010
Corporate loans P38,379,809
= P37,953,038
= P35,724,969
= P35,229,516
=
Consumer loans 13,213,255 13,841,910 10,747,468 10,763,470
61,988,567 62,416,785 56,239,693 55,996,902
Other assets
Returned checks and other cash items 1,456,456 1,456,456 1,451,001 1,451,001
= 144,975,450
P = 150,269,059
P = 138,123,125
P = 142,701,728
P
Deposit liabilities
Demand P8,779,761
= P8,779,761
= P8,702,472
= P8,702,472
=
Savings 93,372,107 93,372,107 91,171,412 91,171,412
Time 47,217,436 47,278,367 45,574,723 45,513,792
LTNCD 4,466,765 4,485,470 4,466,765 4,485,470
153,836,069 153,915,705 149,915,372 149,873,146
Bills payable and SSURA 7,226,095 7,226,095 6,999,942 6,999,942
Accrued interest and other expenses 1,174,631 1,174,631 1,140,546 1,140,546
Other liabilities
Bills purchased contra 2,968,823 2,968,823 2,966,861 2,966,861
Accounts payable 1,288,892 1,288,892 1,180,263 1,180,263
Managers check 502,821 502,821 461,522 461,522
Cash letter of credit 342,526 342,526 342,526 342,526
Margin deposits 270,149 270,149 270,149 270,149
Deposit on lease contracts 248,528 248,528
Outstanding acceptances 180,058 180,058 180,058 180,058
Due to PDIC 144,110 144,110 144,110 144,110
Due to Treasurer of the Philippines 50,192 50,192 47,997 47,997
Miscellaneous 42,595 42,595 13 13
= 168,275,489
P = 168,355,125
P = 163,649,359
P = 163,607,133
P
*SGVMC115862*
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2009
(In Thousands)
Financial Assets
= P5,140,215
= P4,891,510
= P4,891,510
=
Due from BSP 13,584,792 13,584,792 13,461,441 13,461,441
29,195,260 29,195,260 28,246,347 28,246,347
Debt securities
Government 686,073 686,073 625,690 625,690
Private 188,471 188,471 188,471 188,471
1,090,684 1,090,684 1,030,239 1,030,239
AFS investments
Debt securities
Government 5,406,057 5,406,057 5,247,225 5,247,225
Private 2,925,365 2,925,365 2,925,365 2,925,365
Equity securities
Quoted 385,202 385,202 350,264 350,264
Unquoted 395,694 395,694 394,780 394,780
9,112,318 9,112,318 8,917,634 8,917,634
HTM investments
Government 33,662,816 33,449,374 33,487,727 33,242,839
Private 381,733 381,733 381,733 381,733
34,044,549 33,831,107 33,869,460 33,624,572
Corporate loans 31,580,010 30,895,544 28,864,216 28,371,958
Consumer loans 9,035,097 9,051,544 7,681,621 7,691,702
51,858,715 51,779,350 47,218,284 47,327,387
Other assets
Returned checks and other cash items 121,204 121,204 118,602 118,602
=125,422,730
P =125,129,923
P =119,400,566
P =119,264,781
P
Deposit liabilities
Demand P7,949,172
= P7,949,172
= P7,906,463
= P7,906,463
=
Savings 79,395,810 79,395,810 77,349,850 77,349,850
Time 44,518,013 44,482,908 43,260,127 43,211,214
131,862,995 131,827,890 128,516,440 128,467,527
Bills payable and SSURA 6,034,826 5,704,014 5,927,198 5,603,836
Accrued interest and other expenses 3,583,830 3,583,830 3,553,423 3,553,423
Other liabilities
Bills purchased contra 3,393,764 3,393,764 3,393,764 3,393,764
Cash letter of credit 1,508,450 1,508,450 1,508,450 1,508,450
Accounts payable 1,292,776 1,292,776 1,232,951 1,232,951
Managers check 726,812 726,812 685,326 685,326
Margin deposits 244,685 244,685 244,685 244,685
Deposit on lease contracts 159,697 159,697
Due to PDIC 130,187 130,187 130,187 130,187
Derivative liability 14,571 14,571 14,571 14,571
Miscellaneous 23,674 23,674 12,689 12,689
=149,118,353
P =148,752,436
P =145,359,423
P =144,987,148
P
*SGVMC115862*
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The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value
that are not based on observable market data.
The following table shows an analysis of financial instruments recorded at fair value by level of
the fair value hierarchy:
Consolidated Parent
2010
Level 1 Level 2 Total Level 1 Level 2 Total
(In Thousands)
Financial Assets at FVPL (Note 7)
Debt securities
Government = 1,358,883
P P
= = 1,358,883
P = 1,304,237
P P
= = 1,304,237
P
Private 79,426 79,426 79,426 79,426
Derivative assets 31,210 183,040 214,250 31,210 183,040 214,250
AFS Investments (Note 7)
Debt securities
Government 6,309,667 6,309,667 6,207,970 6,207,970
Private 6,888,240 435,960 7,324,200 6,888,240 435,960 7,324,200
= 15,320,231
P = 619,000
P = 15,939,231
P = 15,114,942
P = 619,000
P = 15,733,942
P
Consolidated Parent
2009
Level 1 Level 2 Total Level 1 Level 2 Total
(In Thousands)
Financial Assets at FVPL (Note 7)
Debt securities
Government P686,073
= P
= P686,073
= P625,690
= P
= P625,690
=
Private 188,471 188,471 188,471 188,471
Derivative assets 33,673 142,938 176,611 33,673 142,938 176,611
AFS Investments (Note 7)
Debt securities
Government 5,406,057 5,406,057 5,247,225 5,247,225
Private 1,141,376 1,783,989 2,925,365 1,141,376 1,783,989 2,925,365
=7,880,381
P =1,926,927
P =9,807,308
P =7,626,166
P =1,926,927
P =9,553,093
P
Derivative Liabilities (Notes 7 and 17) =
P =14,571
P =14,571
P =
P =14,571
P =14,571
P
During the years ended December 31, 2010 and 2009, there were no transfers between Level 1 and
Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurement.
*SGVMC115862*
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6. Interbank Loans Receivable and Securities Purchased Under Resale Agreements
This account consists of:

2010 2009 2010 2009
(In Thousands)
Interbank loans receivable P
=1,070,696 =925,000
P P
=1,070,696 =925,000
P
SPURA 284,000 6,661,000 6,200,000
P
=1,354,696 =7,586,000
P P
=1,070,696 =7,125,000
P
Interbank loans receivable and SPURA have maturities of one day to three months and earn
annual interest rates of 0.1% to 3.3% and 4.0% to 6.0% in 2010 and 2009, respectively.
As of December 31, 2010 and 2009, the Groups and the Parent Companys outstanding balance
of SPURA represents overnight placements with the BSP where the underlying collateral
securities cannot be sold or repledged.
7. Trading and Investment Securities
Financial Assets at FVPL

This account consists of the following:

2010 2009 2010 2009
Held-for-trading (In Thousands)
Debt securities
Government P
=1,358,883 P686,073
= P
=1,304,237 P625,690
=
Private 79,426 188,471 79,426 188,471
1,438,309 874,544 1,383,663 814,161
Equity securities
Quoted 164,181 39,529 158,664 39,467
1,602,490 914,073 1,542,327 853,628
P
=1,816,740 =1,090,684
P P
=1,756,577 =1,030,239
P
HFT debt securities earn annual interest of 2.0% to 8.8% and 4.5% to 10.6% in 2010 and 2009,
respectively.
As of December 31, 2010 and 2009, this account includes net unrealized gain from fair value
changes amounting to =
P94.8 million and = P89.1 million, respectively, for the Group and
=97.5 million and P
P =90.7 million, respectively, for the Parent Company.
*SGVMC115862*
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AFS Investments

2010 2009 2010 2009
Debt securities (In Thousands)
Government P
=6,309,667 =5,406,057
P P
=6,207,970 =5,247,225
P
Private 7,324,200 3,294,965 7,324,200 3,294,965
13,633,867 8,701,022 13,532,170 8,542,190
Equity securities
Quoted 501,955 487,524 458,526 452,586
Unquoted 666,959 659,691 665,814 658,702
1,168,914 1,147,215 1,124,340 1,111,288
14,802,781 9,848,237 14,656,510 9,653,478
Less allowance for impairment losses
(Note 13) 301,195 735,919 301,120 735,844
P
=14,501,586 =9,112,318
P P
=14,355,390 =8,917,634
P
AFS debt securities earn annual interest of 3.1% to 12.0% and 5.8% to 9.1% in 2010 and 2009,
respectively.
The Groups and the Parent Companys investments in unquoted equity shares include shares of
stock of ASEAN Finance Corporation (AFC), with acquisition cost of Singapore Dollar (SGD)
5 million (P
=163.5 million as of December 31, 2010 and 2009, respectively).
As of December 31, 2010 and 2009, the related allowance for impairment losses on such equity
securities amounted to =
P47.1 million and =
P54.8 million, respectively.
Investments in unquoted equity securities also include investments in public utilities and other
private companies.
The movements of net unrealized gains (losses) on AFS investments are as follows:

2010 2009 2010 2009
(In Thousands)
Balance at beginning of year P
=14,405 (P
=267,358) (P
= 3,913) (P
=276,288)
Unrealized gains during the year 778,590 502,015 759,213 489,249
Amounts realized in profit or loss (653,099) (220,252) (639,532) (216,874)
Balance at end of year P
=139,896 =14,405
P P
=115,768 (P
=3,913)
As of December 31, 2010 and 2009, recognized deferred tax liability on unrealized gain on AFS
investments amounted to P
=10.6 million and P
=9.1 million, respectively, for the Group
(see Note 22).
HTM Investments

2010 2009 2010 2009
Debt securities (In Thousands)
Government (Note 27) P
=33,705,073 =33,662,816
P P
=33,560,923 =33,487,727
P
Private 315,130 381,733 315,130 381,733
P
=34,020,203 =34,044,549
P P
=33,876,053 =33,869,460
P
*SGVMC115862*
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HTM investments earn annual interest of 2.2% to 7.8% and 6.3% to 7.8% in 2010 and 2009,
respectively.
Interest Income and Trading and Securities Gain - net

Interest income on trading and investment securities follows:

2010 2009 2010 2009
(In Thousands)
Financial assets at FVPL P
=158,692 =103,634
P P
=149,339 =100,301
P
AFS investments 567,532 442,271 557,772 428,179
HTM investments 2,520,091 2,297,068 2,504,315 2,271,721
P
=3,246,315 =2,842,973
P P
=3,211,426 =2,800,201
P
Trading and securities gain - net consists of trading and securities gain from:

2010 2009 2010 2009
(In Thousands)
HFT investments P
=282,240 =169,957
P P
=265,532 =169,544
P
AFS investments 653,099 220,252 639,532 216,874
Unquoted debt securities classified
as loans 76,089 313,353 76,089 313,353
Derivatives 79,593 6,976 79,593 6,976
P
=1,091,021 =710,538
P P
=1,060,746 =706,747
P
Reclassification of Financial Assets

2008 was characterized by a substantial deterioration in global market conditions, including severe
shortage of liquidity and credit availability. These conditions led to a reduction in the level of
market activity for many assets and the inability to sell other than at substantially lower prices.
Following the amendments to PAS 39 and PFRS 7 effective July 1, 2008, and as a result of the
contraction in the market for many classes of assets, the Parent Company reviewed its financial
assets that were classified as HFT and AFS investments, in order to determine whether the
classification remained appropriate.
Reclassification from financial assets at FVPL

The Parent Company identified financial assets eligible under the amendments, and
reclassifications were made on September 11, 2008. Where it was determined that the Parent
Company no longer intended to trade, management reviewed the instruments to determine whether
it was appropriate to reclassify to AFS investments, HTM investments or Loans and receivables.
The reclassification was performed where the Parent Company, at the reclassification date, had the
clear intention and ability to hold the financial asset for the foreseeable future or until maturity.
The following are the carrying values and fair values of reclassified financial assets at FVPL as of
reclassification date and each statement of financial position date:
December 31, 2010

Government Debt Securities Private Debt Securities
Reclassified to: (In Thousands)
HTM investments = 338,952
P = 378,790
P =
P =
P
Loans and receivables 39,257 43,381
= 378,209
P = 422,171
P =
P =
P
*SGVMC115862*
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December 31, 2009

HTM investments =359,691
P =369,413
P =
P P
=
=398,866
P =407,549
P =
P =
P
September 11, 2008

HTM investments =372,012
P =372,012
P =
P =
P
AFS investments 220,073 220,073 238,522 238,522
=631,160
P =631,160
P =238,522
P =238,522
P
As of September 11, 2008, unrealized loss (included in Trading and securities gain - net) on
reclassified financial assets at FVPL amounted to P=0.9 million. Had these securities not been
reclassified to AFS investments, HTM investments and Unquoted debt securities under loans and
receivables, additional market gains of =
P44.0 million and =
P8.9 million would have been
recognized in the statements of income in 2010 and 2009, respectively.
Effective interest rates on the reclassified securities ranged from 6.4% to 7.2%. As of
reclassification date, the Parent Company expected to recover 100.0% of the principal and interest
due totaling =P1.7 billion on the reclassified investments (with a carrying amount of
=869.7 million).
P
In 2009, reclassified securities from financial assets at FVPL to AFS investments with total
carrying amount of = P444.3 million were sold on various dates for net gains of =
P19.6 million.
Reclassifications from AFS investments to Loans and receivables

Where the Parent Company determined, at the reclassification date (September 11, 2008), that it
had the clear intention and ability to hold certain AFS financial assets for the foreseeable future,
these investments were reclassified to Loans and receivables.
The following are the carrying values and fair values of AFS investments reclassified to Loans and
receivables as of reclassification date and each statement of financial position date:
Carrying value Fair value

(In Thousands)
December 31, 2010 =564,815
P =620,325
P
December 31, 2009 563,630 552,284
September 11, 2008 1,014,263 1,014,263
Included in the reclassified accounts are the Parent Companys investments in ROP CLNs. As
allowed by the BSP for prudential regulation and the SEC for financial reporting, the previously
bifurcated embedded derivatives from the CLNs were also reclassified to Loans and receivables.
With the reclassification, the embedded derivatives are no longer marked to fair value and the
hybrid instruments (i.e., the CLNs) are simply carried at amortized cost.
*SGVMC115862*
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As of September 11, 2008, unrealized loss (included in Net unrealized gain (loss) on AFS
investments under the equity section of the statements of financial position) on reclassified AFS
investments amounted to P =10.6 million. Had these securities not been reclassified to Loans and
receivables, additional market gain of =
P55.5 million and additional market loss of =P11.3 million
would have been recognized in other comprehensive income in 2010 and 2009, respectively, and
additional market losses of nil and P
=31.3 million would have been recognized in the statements of
income in 2010 and 2009, respectively.
Effective interest rates of AFS investments reclassified to Loans and receivables ranged from
1.2% to 7.2%. As of reclassification date, the Parent Company expected to recover 100.0% of the
principal and interest due totaling =
P1.4 billion on the reclassified investments (with a carrying
amount of P=1.0 billion).
In 2009, reclassified CLNs with total carrying amount of =

P444.1 million were sold for net gains of
=
P18.6 million.
Reclassifications from AFS investments to HTM investments

As a result of change in intention, on September 11, 2008, the Parent Company reclassified certain
AFS investments to HTM investments. The Parent Company established the positive intention
and ability to hold these investments until maturity.
The following are the carrying values and fair values of reclassified AFS government securities to
HTM investments as of reclassification date and each statement of financial position date:
Carrying value Fair value

(In Thousands)
December 31, 2010 =2,757,299
P =3,004,181
P
December 31, 2009 3,346,068 3,395,997
September 11, 2008 3,369,771 3,369,771
As of September 11, 2008, unrealized loss (included in Net unrealized gain (loss) on AFS
investments under the equity section of the statements of financial position) on reclassified AFS
investments amounted to P=78.8 million. Had these securities not been reclassified to HTM
investments, additional market gains of =
P246.9 million and = P49.9 million would have been
credited to other comprehensive income in 2010 and 2009, respectively.
Effective interest rates of AFS investments reclassified to HTM investments ranged from 6.3% to
9.5%. As of reclassification date, the Parent Company expected to recover 100.0% of the
principal and interest due totaling =
P5.4 billion on the reclassified investments (with a carrying
amount of P=3.4 billion).
The foregoing reclassifications and the single chosen date of the rare circumstance in the case of
financial assets at FVPL and the date of change of intention for reclassification of AFS
investments were approved by the Parent Companys Executive Committee on
November 13, 2008 and approved by the Parent Companys Audit Committee on
November 28, 2008. The financial assets at FVPL were reclassified based on the criteria and rules
set forth in BSP Circulars 626 and 628, SEC Memorandum Circular No. 10, Series of 2008 and
Amendments to PAS 39 and PFRS 7.
*SGVMC115862*
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Structured Notes
The Parent Company invested in structured notes, which are broadly defined as bond instruments
(which can be floating rate, fixed rate or zero coupon) embedded with forwards or options that are
linked to market factors such as interest indices and reference credits (or reference entities).
The Parent Companys structured notes have pay-offs that are linked to such market factors. Its
cash flows typically contain enhanced coupons that are coming from the premium on embedded
derivatives - such as credit default swaps where the Parent Company is the protection seller on a
reference entity (e.g., ROP). When a credit event (e.g., default) on the reference entity occurs, the
structured notes are terminated and the Parent Company either obtains the underlying reference
asset or receives a cash settlement equal to the fair value of the reference asset adjusted for
unwinding costs. The Parent Company may lose all or substantially all of the principal invested,
unless there is a principal-protection feature or unless the Parent Company has assessed that the
embedded derivative will not result to the non-recovery of substantially all of its initial
investment.
As of December 31, 2010 and 2009, the host instruments of the structured notes described above
are included under AFS investments and Loans and receivables, while the embedded derivatives
were bifurcated and presented separately under Financial assets or liabilities at FVPL.
Shown below are the details of the carrying values of the host instruments and the embedded
derivatives:
2010 2009
(In Thousands)
Host instruments included in:
AFS investments P
=412,788 =712,552
P
Loans and receivables (Note 8) 98,986 170,789
Embedded derivatives:
Derivative assets 174,117 142,938
Derivative liabilities (Note 17) 14,571
The Parent Company used market observable inputs and acceptable standard valuation models in
calculating the fair values of the structured notes and the embedded derivatives. Market
observable inputs are either directly based on estimates coming from independent pricing services
or indirectly observed from historical and prevailing movements in critical valuation inputs.
The fair values calculated by the Parent Company are significantly affected by the choice of the
valuation models and the underlying assumptions. Even if market observable inputs were used,
fair value estimates may significantly change, in light of the judgment exercised in the selection of
assumptions. Among the assumptions used include probability of default on the reference entity
(as implied by market observable spreads), counterparty spread, volatility, interest rate curve
estimation and recovery rate, among others.
Derivative Financial Instruments

The table below shows the fair values of the derivative financial instruments of the Parent
Company, recorded as derivative assets or derivative liabilities, together with the notional
amounts. The notional amount is the amount of a derivatives underlying asset, reference rate or
index and is the basis upon which changes in the value of the derivative are measured. The
notional amounts indicate the volume of transactions outstanding as of December 31, 2010 and
2009 and are not indicative of either market risk or credit risk.
*SGVMC115862*
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2010
Assets Liabilities Notional Amounts
(In Thousands)
Freestanding derivatives:
Warrants =31,210
P P
= US$68
Forward exchange bought 4,732 US$12,840
Forward exchange sold 2,016 US$32,900
Forward exchange bought 109 EUR2,000
Forward exchange sold 2,066 SGD3,293
Range accrual 130,155 US$49,688
Index linked option 43,962 US$5,000
=214,250
P =
P
2009
Assets Liabilities Notional Amounts
(In Thousands)
Freestanding derivatives:
Warrants =33,673
P =
P US$68
Range accrual 112,792 49,688
Index linked option 30,146 5,000
Call option 3,487 5,000
Credit default swaps 11,084 5,000
=176,611
P =14,571
P
Movements in the fair values of the derivatives follow:
2010 2009
(In Thousands)
=162,040 =100,626
P
Changes in fair value during the year 88,516 6,976
Fair value of settled contracts (36,306) 54,438
=214,250 =162,040
P
Changes in fair value of derivatives other than currency forwards amounting to =

P79.6 million and
=7.0 million in 2010 and 2009, respectively, are included under Trading and securities gain - net
P
in the statements of income. Changes in fair value of currency forwards amounting to P=8.9 million
and nil in 2010 and 2009, respectively, are included under Foreign exchange gain - net in the
statements of income.
*SGVMC115862*
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8. Loans and Receivables

2010 2009 2010 2009
(In Thousands)
Receivables from customers:
Corporate loans P
=42,165,750 =34,288,002
P P
=39,071,299 =31,312,745
P
Consumer loans 14,094,463 9,335,470 11,628,136 7,897,897
56,260,213 43,623,472 50,699,435 39,210,642
Less unearned discounts and capitalized
interest 397,979 420,857 215,493 299,008
55,862,234 43,202,615 50,483,942 38,911,634
Unquoted debt securities (Note 7) 6,683,106 7,074,197 6,389,794 6,764,740
66,537,013 54,844,528 60,513,931 49,967,189
Less allowance for credit and impairment
losses (Note 13) 4,548,446 2,985,813 4,274,238 2,748,905
P
=61,988,567 =51,858,715
P P
=56,239,693 =47,218,284
P
Breakdown of restructured receivables from customers follows:

2010 2009 2010 2009
(In Thousands)
Corporate loans P
=1,744,054 =2,227,411
P P
=1,581,497 =2,101,967
P
Consumer loans 30,324 22,816 26,932 21,179
P
=1,774,378 =2,250,227
P P
=1,608,429 =2,123,146
P
Unquoted debt securities consist of private securities with EIR ranging from 6.0% to 10.4% and
6.1% to 10.5% in 2010 and 2009, respectively. In 2008, the Parent Company entered into a sale
agreement covering certain zero coupon-bearing bonds with total face amount of US$44.7 million
or =
P2.1 billion. The objective of this sale agreement was to convert the zero coupon-bearing
bonds into a coupon-earning instrument. Based on the derecognition principles of PAS 39, the
sale did not qualify for derecognition because the significant risks and rewards on the bonds
remained with the Parent Company. As of December 31, 2010 and 2009, the carrying amount of
the bonds amounted to US$33.5 million or = P1.5 billion and US$35.6 million or =
P1.6 billion,
respectively.
Interest income on loans and receivables consists of:

2010 2009 2010 2009
(In Thousands)
Receivables from customers P
=3,983,279 =3,017,454
P P
=3,259,213 =2,444,039
P
Unquoted debt securities 633,489 604,314 614,534 579,044
Restructured loans 152,738 160,564 152,738 148,860
Sales contract receivable 141,751 145,107 138,114 140,545
Customer liabilities under trust receipts 199 153,031 199 153,031
Others 1,340 125
P
=4,912,796 =4,080,595
P P
=4,164,798 =3,465,519
P
*SGVMC115862*
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In 2010 and in prior years, the Parent Company has not determined the amount of interest income
that should be accreted for impaired loans pertaining to the bad bank and its impact on the
determination of required allowance for credit losses under PGAAP for banks. The Parent
Company did not recognize any accretion considering that certain credit losses have been deferred
as approved by the BSP (see Notes 1 and 13).
BSP Reporting
The following table shows information relating to receivables from customers by collateral as of
December 31, 2010 and 2009 (gross of unearned discounts and capitalized interest):

2010 2009 2010 2009
Amount % Amount % Amount % Amount %
(In Thousands)
Secured by:
Real mortgage = 12,457,440
P 22.14 =4,218,211
P 9.67 = 11,908,260
P 23.49 =4,134,426 10.54
P
Chattel mortgage 4,929,966 8.76 1,564,013 3.59 4,455,981 8.79 608,594 1.55
Rights other than above 50,989 0.09 10,099,717 23.15 50,989 0.10 10,099,717 25.76
Assignment of deposits 41,945 0.08 484,654 1.11 41,945 0.08 484,654 1.24
Other securities 4,332,846 7.70 2,863,977 6.56 2,825,230 5.57
Secured 21,813,186 38.77 19,230,572 44.08 19,282,405 38.03 15,327,391 39.09
Unsecured 34,447,027 61.23 24,392,900 55.92 31,417,030 61.97 23,883,251 60.91
= 56,260,213
P 100.00 =43,623,472
P 100.00 = 50,699,435
P 100.00 =39,210,642 100.00
P
As of December 31, 2010 and 2009, information on the concentration of credit as to industry of
receivables from customers follows (gross of unearned discount and capitalized interest):

2010 2009 2010 2009
Amount % Amount % Amount % Amount %
(In Thousands)
Real estate, renting and
business activities P13,693,111
= 24.34 =11,239,296
P 25.76 = 13,435,351
P 26.50 =10,900,940
P 27.80
Manufacturing 10,790,857 19.18 5,946,554 13.63 9,891,965 19.51 5,893,369 15.03
Wholesale and retail trade,
repair of motor vehicles,
motorcycles, personal and
household goods 9,259,413 16.46 10,283,059 23.57 9,259,413 18.26 10,776,322 27.48
Agriculture, hunting and
forestry, fishing 4,344,899 7.72 4,358,100 9.99 4,231,846 8.35 4,321,186 11.02
Financial intermediaries 3,679,857 6.54 1,670,335 3.83 4,235,003 8.35 1,663,037 4.24
Transport, storage and
communication 1,848,425 3.28 1,336,190 3.06 1,848,425 3.65 1,336,190 3.41
Construction 1,495,638 2.66 2,127,642 4.88 1,495,638 2.95 2,469,073 6.30
Other community, social and
personal services activities 10,750,034 19.11 6,241,439 14.59 6,086,301 12.00 1,551,517 3.96
Total 55,862,234 99.29 43,202,615 99.31 50,483,942 99.57 38,911,634 99.24
Unearned discounts and
capitalized interest 397,979 0.71 420,857 0.69 215,493 0.43 299,008 0.76
= 56,260,213
P 100.00 =43,623,472
P 100.00 = 50,699,435
P 100.00 =39,210,642
P 100.00
The BSP considers that loan concentration exists when the total loan exposure to a particular
industry exceeds 30.0% of the total loan portfolio.
Current banking regulations allow banks with no unbooked valuation reserves and capital
adjustments to exclude from nonperforming classification those receivables from customers
classified as Loss in the latest examination of the BSP which are fully covered by allowance for
credit losses, provided that interest on said receivables shall not be accrued.
*SGVMC115862*
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As of December 31, 2010 and 2009, nonperforming loans (NPLs) not fully covered by allowance
for credit losses follow:

2010 2009 2010 2009
(In Thousands)
Total NPLs P
=4,019,172 =4,420,088
P P
=3,787,318 =4,188,018
P
Less NPLs fully covered by allowance
for credit and impairment losses 2,154,774 2,066,115 2,060,123 1,975,358
P
=1,864,398 P2,353,973
= P
=1,727,195 P2,212,660
=
Under banking regulations, NPLs shall, as a general rule, refer to loan accounts whose principal
and/or interest is unpaid for thirty (30) days or more after due date or after they have become past
due in accordance with existing rules and regulations. This shall apply to loans payable in lump
sum and loans payable in quarterly, semi-annual or annual installments, in which case, the total
outstanding balance thereof shall be considered nonperforming.
In the case of receivables that are payable in monthly installments, the total outstanding balance
thereof shall be considered nonperforming when three (3) or more installments are in arrears. In
the case of receivables that are payable in daily, weekly or semi-monthly installments, the total
outstanding balance thereof shall be considered nonperforming at the same time that they become
past due in accordance with existing BSP regulations, i.e., the entire outstanding balance of the
receivable shall be considered as past due when the total amount of arrearages reaches ten percent
(10.0%) of the total receivable balance. Restructured receivables which do not meet the
requirements to be treated as performing receivables shall also be considered as NPLs.
Certain receivables from customers amounting to =P0.3 billion and P

=1.8 billion as of
December 31, 2010 and 2009, respectively, were rediscounted with the BSP (included under Bills
Payable - BSP) under the rediscounting privileges of the Parent Company (see Note 15).
9. Property and Equipment
The composition of and movements in property and equipment account follow:
Consolidated
2010
Furniture,
Building and Fixtures and Leasehold
Land Improvement Equipment Improvements Total
(In Thousands)
Cost
Balance at beginning of year = 108,362
P = 1,005,135
P = 2,460,652
P P282,983
= = 3,857,132
P
Additions 69,930 603,265 226,228 899,423
Disposals (7,659) (38,271) (361,544) (2,676) (410,150)
Balance at end of year 100,703 1,036,794 2,702,373 506,535 4,346,405
Accumulated depreciation
and amortization
Balance at beginning of year 636,012 1,691,381 104,934 2,432,327
Depreciation and amortization
(Note 11) 48,090 205,335 59,713 313,138
Disposals (24,079) (138,961) (2,580) (165,620)
Balance at end of year 660,023 1,757,755 162,067 2,579,845
Net book value at end of year = 100,703
P = 376,771
P = 944,618
P = 344,468
P = 1,766,560
P
*SGVMC115862*
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Consolidated
2009
Furniture,
(In Thousands)
Cost
Balance at beginning of year =108,284
P =959,770
P =2,076,901
P =179,697
P =3,324,652
P
Additions 88 50,010 666,441 105,280 821,819
Disposals (10) (4,645) (282,690) (1,994) (289,339)
and amortization
(Note 11) 46,587 112,749 33,469 192,805
Disposals (1,903) (73,528) (1,993) (77,424)
Net book value at end of year =108,362
P =369,123
P =769,271
P =178,049
P =1,424,805
P
Parent Company
2010
Furniture,
(In Thousands)
Cost
Balance at beginning of year = 102,521
P = 998,015
P = 2,300,652
P P256,819
= = 3,658,007
P
Additions 69,272 575,518 220,437 865,227
Disposals (7,659) (38,045) (332,456) (378,160)
and amortization
(Note 11) 47,777 188,049 53,863 289,689
Disposals (23,979) (115,126) (139,105)
Net book value at end of year = 94,862
P = 374,669
P = 890,520
P = 320,626
P = 1,680,677
P
Parent Company
2009
Furniture,
(In Thousands)
Cost
Balance at beginning of year =102,433
P =952,652
P =1,936,414
P =170,054
P =3,161,553
P
Additions 88 50,008 625,100 86,765 761,961
Disposals (4,645) (260,862) (265,507)
Balance at end of year 102,521 998,015 2,300,652 256,819 3,658,007
and amortization
(Note 11) 46,307 95,968 29,309 171,584
Disposals (1,903) (56,212) (58,115)
Net book value at end of year =102,521
P =367,240
P =720,381
P =154,052
P =1,344,194
P
As of December 31, 2010 and 2009, the cost of fully depreciated property and equipment still in
use amounted to P
=125.0 million and P=115.0 million, respectively, for the Group and
=63.2 million and P
P =53.1 million, respectively, for the Parent Company.
*SGVMC115862*
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10. Investments in Subsidiaries, Associates and Joint Venture
This account consists of investments in shares of stock as follows:

2010 2009 2010 2009
(In Thousands)
Acquisition cost:
Wholly owned subsidiaries
BRC P
= P
= P
=2,654,631 =2,654,631
P
ULFC 400,000 400,000
UPI 315,500 315,500
GHDC 287,489 287,489
USI 35,000 35,000
Majority owned subsidiary
USB 370,781 370,781
4,063,401 4,063,401
Allowance for impairment (Note 13) (372,186) (372,186)
3,691,215 3,691,215
Acquisition cost:
Associates:
UCPB-CIIF Finance and Development
Corporation (UCFDC) (10.26%
owned) 100,000 100,000 100,000 100,000
Legaspi Oil Company, Inc. (LOCI)
(17.50% owned) 56,000 56,000 56,000 56,000
San Pablo Manufacturing Corporation
(SPMC) (12.77% owned) 25,000 25,000 25,000 25,000
Southern Luzon Coconut Oil Mills, Inc.
(SLCOMI) (17.48% owned) 24,950 24,950 24,950 24,950
Granexport Manufacturing Corporation
(GMC) (2.84% owned) 6,250 6,250 6,250 6,250
212,200 212,200 212,200 212,200
Accumulated equity in net income:
Balance at beginning of year 6,087,175 5,147,044
Share in net income of associates 653,063 2,170,083
Dilution loss (1,229,952)
Balance at end of year 6,740,238 6,087,175
Equity in net unrealized gain (loss) on AFS
investments of associates 168 (66)
Equity in translation adjustment 2,643 2,971
6,955,249 6,302,280 3,903,415 3,903,415
Acquisition Cost:
Joint venture:
UPI-MHC 6,250 6,250 10,000
Accumulated equity in net loss:
Balance at beginning and end of year (6,250) (6,250)
10,000
P
=6,955,249 =6,302,280
P P
=3,913,415 =3,903,415
P
Investments in CIIF Companies

The Parent Company established significant influence over LOCI, SPMC, SLCOMI and GMC
through its direct ownership in such investee companies and through the exercise of its fiduciary
functions as administrator of the Coconut Industry Investment Fund (CIIF). In addition, the Parent
Company has indirect investments in Cagayan de Oro Oil Co., Inc. (CDOOCI) and Iligan Coconut
Industries, Inc. (ICII) through LOCI. LOCI, SPMC, SLCOMI, GMC, CDOOCI and ICII, herein
referred to as the CIIF Companies, were established from the CIIF. The CIIF formed part of the
Coconut Consumers Stabilization Fund (CCSF), otherwise known as the coconut levy fund, which
was created in 1973 by Presidential Decree No. 276.
*SGVMC115862*
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The CIIF Companies wholly own, collectively, the 14 CIIF Holding Companies whose funds were
invested in 725 million common shares of San Miguel Corporation (SMC) that were sequestered
by the PCGG in May 1986 (see Note 27).
Loss on Dilution
In September 1986, GMC, SPMC and CDOOCI, collectively referred to as the Three Oil Mills,
issued to the CIIF 360 million redeemable preferred shares with a par value of P =1.0 per share to
finance the investments in SMC through the 14 Holding Companies. In 1992, CDOOCI issued
additional 13 million preferred shares. Except for the 1992 issuance by CDOOCI, all the
redeemable preferred shares have matured and became mandatorily redeemable in September
2006 at twice the fair market value or twice the par value, whichever is higher.
On April 25, 2008, the BOD of the Bank, as CIIF Administrator, approved the extension of the
redemption period and the conversion of the aforementioned redeemable preferred shares to
common shares at par considering that the mandatory redemption price of the redeemable shares
would be onerous to the Three Oil Mills. On April 30, 2008, the respective BOD of the Three Oil
Mills approved the amendment of the respective Articles of Incorporation to facilitate the
conversion of the redeemable preferred shares. The SEC approved the amended Articles of
Incorporation to incorporate the convertibility feature of the redeemable preferred shares on
February 25, 2009, and the amendment to increase the authorized capital and to reclassify the
redeemable preferred shares into common shares on February 26, 2010.
Under PAS 28, Investments in Associates, the Banks share in the profit or loss of the Three Oil
Mills should only be based on present ownership interest and should not consider the possible
exercise or conversion of potential voting rights. Hence, the dilutive effect of the conversion of
the preferred shares should only be recognized upon actual conversion in 2010. However, as
discussed with and allowed by the SEC and BSP, the dilutive effect of the conversion of the
redeemable preferred shares on the Parent Companys investments in SPMC and CDOOCI was
recognized in 2008 since at that time, the respective BODs of the Parent Company, as CIIF
administrator, and of SPMC and CDOOCI have already agreed to the conversion and SPMC and
CDOOCI have sufficient common shares to cover the conversion. Loss on dilution recognized in
2008 amounted to = P1.1 billion. However, the dilutive effect of the conversion on the investment in
GMC was recognized only in 2009 because GMC did not have sufficient common shares to cover
the conversion in 2008. The Articles of Incorporation of GMC was amended to increase the
authorized capital stock only in 2009. Loss on dilution recognized in 2009 amounted to
=1.2 billion.
P
The following tables present the financial information of significant associates as of and for the
years ended December 31, 2010 and 2009:
2010
Statements of Financial Position Statements of Income
Total Gross Operating
Total Assets Liabilities Income* Income Net Income**
(In Thousands)
LOCI P=24,026,075 P=2,305,785 P
=306,986 (P
= 41,600) P
=2,552,281
GMC 15,557,620 2,665,507 281,873 41,328 878,388
SPMC 14,146,047 943,587 265,269 260,345 942,049
SLCOMI 6,970,673 65,340 (13,672) 490,212
*Represents sales less cost of sales
**Includes share in net income of associates
*SGVMC115862*
- 75 -
2009
Statements of Financial Position Statements of Income
Total Gross Operating
Total Assets Liabilities Income* Income Net Income**
(In Thousands)
LOCI =64,942,190
P P6,425,960
= =284,167
P =67,221
P =9,197,594
P
GMC 13,750,076 1,725,829 124,227 (21,618) 3,816,021
SPMC 12,654,926 481,220 274,160 42,366 3,915,597
SLCOMI 6,482,538 68,676 (27,320) 2,233,182
*Represents sales less cost of sales
**Includes share in net income of associates
Investment in a Joint Venture

On January 12, 1997, UPI entered into a Joint Venture Agreement with Macaria Homes
Corporation (MHC) to establish a joint venture corporation, UPI-MHC, which shall engage in the
real estate development of properties located in Binan and Sta. Rosa, Laguna, utilizing a self-
contained community concept, including facilities for social and recreational, commercial and
institutional use and to sell house and lot packages within such community at a profit or rate of
return mutually agreed upon by both UPI and MHC.
In 2010, UPI assigned its investment in and advances to UPI-MHC amounting to = P6.3 million and
=86.7 million, respectively, to the Parent Company to settle its outstanding loans payable
P
amounting to = P74.5 million. The fair value of the net assets of UPI-MHC at assignment date was
=20.0 million and the fair value of the 50.0% ownership interest transferred to the Parent
P
Company was = P10.0 million. Gain recognized by the Parent Company from the assignment,
included under Miscellaneous - others in the statement of income, amounted to P =20.9 million (net
of incidental expenses amounting to = P1.3 million).
The comparative financial information of UPI-MHC follows:
2010 2009
(In Thousands)
Statements of financial position:
Assets P
=118,452 =118,460
P
Liabilities 145,170 142,562
Deficit 39,218 36,602
Statements of income:
Revenue 213
Expenses 2,616 3,230
Net loss 2,616 3,017
*SGVMC115862*
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11. Investment Properties
Investment properties consist of foreclosed real estate properties and investments in real estate.
The difference between the fair value of the asset upon foreclosure and the carrying value of the
loan is recognized under Gain (loss) on foreclosures under Miscellaneous income in the statements
of income (see Note 20).
Consolidated
2010 2009
Buildings and Buildings and
Land Improvements Total Land Improvements Total
(In Thousands)
Cost
Balance at beginning of year = 6,853,476
P = 3,417,943
P = 10,271,419
P =7,059,732
P =3,684,691
P =10,744,423
P
Additions 137,672 47,336 185,008 157,730 115,586 273,316
Disposals (725,265) (108,094) (833,359) (269,409) (382,334) (651,743)
Reclassifications (35,573) 17,820 (17,753) (94,577) (94,577)
Balance at end of year 6,230,310 3,375,005 9,605,315 6,853,476 3,417,943 10,271,419
Accumulated depreciation and
amortization
Balance at beginning of year 17,972 17,972 31,190 31,190
Depreciation and amortization 27,245 27,245 2,145 2,145
Disposals (8,742) (8,742) (15,363) (15,363)
Balance at end of year 36,475 36,475 17,972 17,972
Allowance for impairment losses
(Note 13)
Balance at beginning of year 30,196 391,804 422,000 82,811 373,322 456,133
Provision for (recovery of) impairment
loss 21,633 (274,073) (252,440)
reserves 188,468 188,468 17,450 17,450
Disposals (2,021) (2,021) (1,805) (1,805)
Reclassifications (50,810) 1,032 (49,778)
Balance at end of year 49,808 306,199 356,007 30,196 391,804 422,000
Net book value at end of year = 6,180,502
P = 3,032,331
P = 9,212,833
P =6,823,280
P =3,008,167
P =9,831,447
P
Parent Company
2010 2009
Buildings and Buildings and
Land Improvements Total Land Improvements Total
(In Thousands)
Cost
Balance at beginning of year = 6,612,500
P = 3,380,934
P = 9,993,434
P =6,694,940
P =3,643,519
P =10,338,459
P
Additions 100,885 50,219 151,104 146,824 107,899 254,723
Disposals (747,159) (90,978) (838,137) (229,264) (370,484) (599,748)
Balance at end of year 5,966,226 3,340,175 9,306,401 6,612,500 3,380,934 9,993,434
Accumulated depreciation and
amortization
Depreciation and amortization 23,878 23,878
Balance at end of year 23,878 23,878
Allowance for impairment losses
(Note 13)
Balance at beginning of year 389,885 389,885 372,435 372,435
Recovery of impairment loss (273,727) (273,727)
reserves 188,468 188,468 17,450 17,450
Balance at end of year 304,626 304,626 389,885 389,885
Net book value at end of year = 5,966,226
P = 3,011,671
P = 8,977,897
P =6,612,500
P =2,991,049
P =9,603,549
P
*SGVMC115862*
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The aggregate market value of investment properties as of December 31, 2010 and 2009 amounted
to =
P8.8 billion and =
P7.0 billion, respectively, for the Group and P
=8.1 billion and P
=6.6 billion,
respectively, for the Parent Company. Fair value has been determined based on valuations made
by independent and/or in-house appraisers. Valuations were derived on the basis of recent sales of
similar properties in the same area as the investment properties and taking into account the
economic conditions prevailing at the time the valuations were made. The Group is exerting
continuing efforts to dispose these properties.

The details of depreciation and amortization recognized in the statements of income follow:

2010 2009 2010 2009
(In Thousands)
Property and equipment (Note 10) P
=313,138 =192,805
P P
=289,689 =171,584
P
Investment properties 27,245 2,145 23,878
Other assets (Note 12) 81,264 14,991 56,247 11,925
P
=421,647 =209,941
P P
=369,814 =183,509
P
The Parent Companys depreciation and amortization on investment properties pertain to the
good bank. In 2010 and in prior years, the Parent Company did not recognize depreciation on
its investment properties pertaining to the bad bank (as defined in Note 1), as required under
PAS 40, Investment Property. Had the Parent Company recognized depreciation expense on these
investment properties, net income in 2010 and 2009 of both the Group and the Parent Company
would have decreased by = P23.9 million and = P35.4 million, respectively, and deficit of both the
Group and the Parent Company would have increased by P =3.0 billion as of December 31, 2010
and 2009.
The Parent Company has not determined the effect of any accumulated depreciation that should
have been considered in the determination of the gain or loss on the sale or disposal of its
investment properties pertaining to the bad bank in 2010 and in prior years.
Interest in Joint Venture

The Parent Company entered into various memoranda of agreement (MOA) for the development
of various parcels of land (classified as Investment properties), as follows:
a) In 2005, the Parent Company entered into a MOA with a third party individual (as co-
landowner) and Sta. Lucia Realty and Development, Inc. (SLRD - as the developer) for the
development of the land located in Alfonso, Cavite into a subdivision. The parties agreed that
the Parent Company and the third party individual will contribute the land and SLRD shall
contribute its expertise as a developer. In consideration of the services to be rendered, SLRD
is entitled to receive 47.0% of the saleable lots, while the Parent Company and the third party
individual are entitled to 35.0% and 18.0% of the saleable lots, respectively. As of
December 31, 2010, construction has not been completed.
b) In 2006, the Parent Company entered into a MOA with Century Properties Inc. (CPI) for the
development of the land located along H.V Dela Costa Street, Salcedo Village, Makati City
into a multi-storey mixed-used condominium building. The parties agreed that the Parent
Company will contribute the land and CPI shall contribute its expertise as a developer. CPI
shall invite individuals and other parties who wish or intend to own a condominium unit and
for said parties to contribute funds to answer for the costs of construction and other related
expenses. In consideration of the services to be rendered by CPI, the Parent Company shall
transfer/convey to CPI 80.0% of the saleable units and parking spaces. In 2010, the
*SGVMC115862*
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construction of the multi-storey condominium has been completed and all the units (except for
parking spaces) have been turned over to the buyers/owners. This transaction resulted to a
loss (recorded as additional deferred charges to be staggeredly booked as allowed by BSP -
see Note 12) in 2010 amounting to P =41.1 million.
In 2006, the Parent Company entered into a MOA with Tagaytay Grasslands Company, Inc
(TGCI) for the development of the land located in Nasugbu, Batangas into hotel and beach club,
parking spaces and condominiums. The parties agreed that the Parent Company will contribute
the land and TGCI shall contribute its expertise as a developer and financial capital by way of
funding the development and all related expenses of the hotel and beach club, parking spaces and
condominiums, and related site development and improvements. In consideration of the services to
be rendered by TGCI, the Parent Company shall transfer/convey to TGCI 62.0% of the saleable
units of the hotel and beach club and condominiums and 50% of the parking spaces. As of
December 31, 2010, construction has not been completed.
As of December 31, 2010 and 2009, the Parent Company recognized advances from customers
(included in Accounts payable under Other liabilities in the statements of financial position)
amounting to =P142.2 million and P
=87.2 million, respectively, for collections from pre-sold units.
12. Intangible and Other Assets

2010 2009 2010 2009
(In Thousands)
Deferred charges P
=15,490,241 =15,240,750
P P
=15,490,241 =15,240,750
P
Real estate inventories 3,201,895 2,940,337
Returned checks and other cash items 1,456,456 121,204 1,451,001 118,602
Interoffice float items 729,081 466,301 729,238 471,498
Creditable withholding tax 473,935 499,367 472,702 400,455
Software costs 459,037 421,993 451,458 406,682
Prepaid expenses 264,234 58,637 238,961 51,517
Chattel properties acquired 108,432 100,870 105,497 99,323
Sundry debit 38,487 35,574
Retirement assets (Note 25) 22,977 16,357 18,958 12,557
Documentary stamps on hand 3,404 19,660 2,774 19,264
Exchange trading right 1,500 1,500
Others 237,334 268,052 153,035 127,734
22,487,013 20,155,028 19,149,439 16,948,382
Less allowance for credit and impairment
(Note 13) 206,293 235,022 193,910 40,141
P
=22,280,720 =19,920,006
P P
=18,955,529 =16,908,241
P
The composition of and movements in deferred charges of the Parent Company follow:
Loss on sale
Loss on sale of Investment
of NPLs Properties Others Total
(In Thousands)
Balance at December 31, 2009 P
=10,881,903 P
=2,923,054 P=1,435,793 P
=15,240,750
Additions 34,160 215,331 249,491
Balance at December 31, 2010 P
=10,916,063 P
=3,138,385 P
=1,435,793 P
=15,490,241
*SGVMC115862*
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Loss on sale
Loss on sale of Investment
of NPLs Properties Others Total
(In Thousands)
Balance at December 31, 2008 =10,893,223
P =2,775,853
P =1,389,572
P =15,058,648
P
Additions 11,100 153,573 48,817 213,490
Amortizations (22,420) (6,372) (2,596) (31,388)
Balance at December 31, 2009 =10,881,903
P =2,923,054
P =1,435,793
P =15,240,750
P
Deferred charges Others pertains to losses incurred from sale of investment properties and
dacion en pago settlements. As discussed in Note 1, the BSP has allowed the Parent Company to
defer the losses on sale and dacion en pago settlements up to P =15.7 billion and to start
amortization in 2009. Any additional losses on the sale of investment properties pertaining to the
bad bank (see Note 1) were allowed by BSP to be deferred provided that the losses deferred do
not exceed the approved unbooked valuation reserves. In 2009, amortization of P =31.4 million was
added directly to negative surplus (see Note 13). In 2010, no amortization was made. Had the
Parent Company booked these losses, net income in 2010 and 2009 would have decreased by
P =213.5 million, respectively, and deficit as of January 1, 2009 would have
increased by =P15.1 billion.
Real estate inventories pertain mainly to the real estate inventories of BRC and GHDC. The
carrying value of the real estate inventories of BRC as of December 31, 2010 and 2009 amounted
to =
P2.7 billion, with fair values amounting to =P1.9 billion and P
=2.1 billion, respectively. As of
December 31, 2010 and 2009, impairment losses amounting to = P776.6 million and = P572.0 million,
respectively, were not recognized as this is part of the unbooked valuation reserves allowed by
BSP to be deferred (see Note 13).
Movements in Software costs of the Group and of the Parent Company follow:

2010 2009 2010 2009
(In Thousands)
=421,993 =96,647
P P
=406,682 =94,377
P
Additions 101,031 340,043 100,811 323,936
Amortization (63,987) (14,697) (56,035) (11,631)
=459,037 =421,993
P P
=451,458 =406,682
P
Amortization expense on Other assets of the Group and of the Parent Company consists of:

2010 2009 2010 2009
(In Thousands)
Software costs P
=63,987 =14,697
P P
=56,035 =11,631
P
Others 17,277 294 212 294
P
=81,264 =14,991
P P
=56,247 =11,925
P
Others include amortization of chattel properties acquired in settlement of loans.
*SGVMC115862*
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13. Allowance for Credit and Impairment Losses
Changes in the allowance for credit and impairment losses follow:

2010 2009 2010 2009
(In Thousands)
Balance at beginning of year:
AFS investments
Debt securities
Private P
= 369,600 =380,287
P P
= 369,600 =380,287
P
Equity securities
Quoted 102,322 22,335 102,322 22,335
Unquoted 263,997 262,829 263,922 262,829
735,919 665,451 735,844 665,451
Corporate loans 2,287,135 1,812,756 2,149,521 1,734,125
Consumer loans 300,373 372,334 216,276 216,276
Accrued interest receivable 9,773 9,449 9,709 9,278
2,985,813 2,591,014 2,748,905 2,332,214
Investments in subsidiaries and
associates 372,186 372,186
Investment properties 422,000 456,133 389,885 372,435
Other assets 235,022 192,653 40,141 38,828
4,378,754 3,905,251 4,286,961 3,781,114
Provisions for credit and impairment losses 1,301,224 378,334 1,250,001 287,911
reserves 291,073 228,341 291,073 228,341
Foreign currency revaluation (16,754) (10,405) (16,754) (10,405)
Accounts written-off/recoveries (542,356) (122,767) (365,201)
1,033,187 473,503 1,159,119 505,847
Balance at end of year:
AFS investments (Note 7)
Debt securities
Private 369,600 369,600
Equity securities
Quoted 13,331 102,322 13,331 102,322
Unquoted 287,864 263,997 287,789 263,922
301,195 735,919 301,120 735,844
Loans and receivables (Note 8)
Corporate loans 3,387,962 2,287,135 3,130,837 2,149,521
Consumer loans 881,208 300,373 880,668 216,276
Accrued interest receivable 15,507 9,773 15,507 9,709
4,548,446 2,985,813 4,274,238 2,748,905
Investments in subsidiaries and
associates (Note 10) 372,186 372,186
Investment properties (Note 11) 356,007 422,000 304,626 389,885
Other assets (Note 12) 206,293 235,022 193,910 40,141
P
= 5,411,941 =4,378,754
P P
= 5,446,080 =4,286,961
P
*SGVMC115862*
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Below is the breakdown of provision for (recovery of) credit and impairment losses:

2010 2009 2010 2009
(In Thousands)
AFS investments
Equity securities
Quoted (P
= 97,567) =
P (P
= 97,567) =
P
Unquoted 21,484 21,484
(76,083) (76,083)
Corporate loans 962,756 339,271 931,696 287,911
Consumer loans 675,791 19,768 664,392
Receivables from non-customers
Accounts receivable (136,548) (136,939)
1,503,831 359,039 1,460,981 287,911
Investment properties (252,440) (273,727)
Other assets 125,916 19,295 138,830
P
= 1,301,224 =378,334
P P
= 1,250,001 =287,911
P
As discussed in Note 1, the BSP has allowed the Parent Company to defer recognition of credit
and impairment losses on AFS investments, loans and receivables, investment properties and other
assets amounting to =P13.4 billion as of December 31, 2008. BSP also allowed deferral of losses
on sale and dacion en pago settlement amounting to =P15.7 billion as of December 31, 2008. As
allowed by BSP, the Parent Company is to amortize the unbooked valuation reserves and losses
over 10 years starting in 2009. In 2010 and 2009, amortization recognized by the Parent Company
as an addition to negative surplus amounted to =
P291.1 million and =P259.7 million, respectively,
with details as follows:
2010 2009
(In Thousands)
AFS investments P
=8,576 =80,781
P
Investment properties 188,468 17,450
Other assets 29,701 1,314
Amortization of unbooked valuation reserves 291,073 228,341
Amortization of deferred losses 31,388
Total amortization P
=291,073 =259,729
P
Movements in unbooked valuation reserves and losses follow:
2010 2009
(In Thousands)
=28,847,271 =29,107,000
P
Amortization (291,073) (259,729)
=28,556,198 =28,847,271
P
*SGVMC115862*
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As of December 31, 2010 and 2009, the following table shows the comparison of the allowance
for credit and impairment losses recognized by the Parent Company and the required balances
under PGAAP for banks:
2010
Per books Per PGAAP Deficiency
(In Thousands)
AFS investments =301,120
P =886,265
P =585,145
P
Loans and receivables 4,274,238 5,305,771 1,031,533
Investment properties 304,626 2,840,748 2,536,122
Other assets 566,096 2,052,186 1,486,090
=5,446,080
P =11,084,970
P =5,638,890
P
2009
Per books Per PGAAP Deficiency
(In Thousands)
AFS investments =735,844
P =1,306,885
P =571,041
P
Loans and receivables 2,748,905 4,580,516 1,831,611
Investment properties 389,885 2,879,698 2,489,813
Other assets 412,327 1,667,196 1,254,869
=4,286,961
P =10,434,295
P =6,147,334
P
The deficiency was not booked by the Parent Company as it is included in the valuation reserves
and losses allowed by the BSP to be deferred and amortized over 10 years. Had the Parent
Company booked the deficiency, net income in 2010 and 2009 would have increased by
=217.4 million and decreased by =
P P593.6 million, respectively, and deficit as of January 1, 2009
would have increased by =P5.3 billion.
14. Deposit Liabilities
The total liquidity and statutory reserves as reported to the BSP as of December 31, 2010 and 2009
are as follows:

2010 2009 2010 2009
(In Thousands)
=5,061,353 =4,124,937
P P
=4,933,728 =3,946,732
P
Due from BSP:
Reserve deposit account 6,280,000 75,000 6,200,000
Demand deposit account 9,170,810 6,159,201 9,129,484 6,110,850
P
=20,512,163 =10,359,138
P P
=20,263,212 =10,057,582
P
Demand, savings and time deposit liabilities bear annual interest rates ranging from 0.5% to 3.0%
in 2010 and 2009.
Long Term Negotiable Certificate of Deposits due 2016

On November 25, 2010, the Parent Company issued 6.25% fixed coupon rate (EIR of 6.52%)
Unsecured Long Term Negotiable Certificate of Deposits (LTNCD) at par value of =
P4.5 billion.
The LTNCD matures on February 25, 2016, subject to pre-termination by the Parent Company in
whole, but not in part, in accordance with BSP rules.
The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the
BSP on October 19, 2010.
*SGVMC115862*
- 83 -
The Parent Company incurred debt issue costs amounting =P53.4 million on the LTNCD. The
movement in unamortized debt issue costs in 2010 follows:
Amount
(In Thousands)
Balance at issue date =53,371
P
Amortization (847)
Balance at December 31, 2010 =52,524
P
Interest expense on deposit liabilities follows:

2010 2009 2010 2009
(In Thousands)
Demand P
=16,311 =11,579
P P
=16,285 =11,567
P
Savings 468,153 368,092 446,597 349,311
Time 1,940,841 2,332,190 1,888,337 2,298,903
LTNCD 27,461 27,461
P
=2,452,766 =2,711,861
P P
=2,378,680 =2,659,781
P
15. Bills Payable and Securities Sold Under Repurchase Agreements
This account consists of borrowings from the following:

2010 2009 2010 2009
(In Thousands)
SSURA P
=5,797,317 =3,973,629
P P
=5,797,317 =3,973,629
P
Foreign banks 842,782 84 842,782 84
BSP 338,794 1,814,853 338,794 1,814,853
Local banks 236,653 137,128 10,500 29,500
Social Security System (SSS) 10,549 109,132 10,549 109,132
P
=7,226,095 =6,034,826
P P
=6,999,942 =5,927,198
P
Bills payable bear annual interest rates ranging from 0.5% to 6.0% and 3.5% to 11.0% in 2010 and
2009, respectively. Interest expense on bills payable and subordinated debt (see Note 23)
amounted to P =234.5 million and nil, respectively, in 2010 and =
P193.8 million and =
P258.1 million,
respectively, in 2009.
Bills Payable to BSP

Certain receivables from customers amounting P=0.3 billion and =
P1.8 billion as of
December 31, 2010 and 2009, respectively, were rediscounted with the BSP under the
rediscounting privileges of the Parent Company (see Note 8).
Bills Payable to SSS

Borrowings from SSS represent amounts loaned to educational institutions through the Bank, as a
conduit financial institution of the SSS for its lending programs, at annual interest rates ranging
from 10.0% to 13.0%. These are secured through a deed of assignment of the credits and
collaterals of the individual borrowers and are being repaid in the same manner and in the same
term/period provided in the promissory notes of the borrowers with due dates ranging from
December 2011 to April 2016. As of December 31, 2010 and 2009, the fair value of collateral
held approximates the carrying value of the bills payable.
*SGVMC115862*
- 84 -
16. Accrued Taxes, Interest and Other Expenses

2010 2009 2010 2009
(In Thousands)
Accrued interest payable P
=790,504 =3,022,063
P P
=784,023 =3,017,154
P
Accrued other expenses payable 384,127 561,767 356,523 536,269
Accrued taxes payable 42,362 12,294 36,367 431
P
=1,216,993 =3,596,124
P P
=1,176,913 =3,553,854
P
Accrued other expenses payable includes accruals for various operating expenses such as payroll,
repairs and maintenance, utilities, rental, and contractual services.
17. Other Liabilities

2010 2009 2010 2009
(In Thousands)
Bills purchased contra P
=2,968,823 =3,393,764
P P
=2,966,861 =3,393,764
P
Accounts payable (Note 11) 1,288,892 1,292,776 1,180,263 1,232,951
Managers check 502,821 726,812 461,522 685,326
Other credits 491,859 604,971 468,644 604,820
Cash letters of credit 342,526 1,508,450 342,526 1,508,450
Margin deposits 270,149 244,685 270,149 244,685
Deposit on lease contract 248,528 159,697
Due to PDIC 144,110 130,187 144,110 130,187
Withholding tax payable 57,178 119,072 53,205 115,942
Due to Treasury of the Philippines 50,192 51,680 47,997 49,333
Sundry credit 10,606 258 10,509
Retirement liability (Note 25) 6,633 3,474
Derivative liability (Note 7) 14,571 14,571
Miscellaneous 139,985 252,540 65,647 127,974
P
=6,702,360 =8,593,343
P P
=6,191,491 =8,198,409
P
18. Maturity Profile of Assets and Liabilities
The following tables present the assets and liabilities by contractual maturity, settlement, and
expected recovery dates:
*SGVMC115862*
- 85 -
Consolidated
2010 2009
Due Within Due Beyond Due Within Due Beyond
One Year One Year Total One Year One Year Total
(In Thousands)
Financial Assets - at gross
= =
P P5,080,842
= P5,140,215
= =
P P5,140,215
=
Due from BSP 22,601,760 22,601,760 13,584,792 13,584,792
Financial assets at FVPL 1,816,740 1,816,740 1,090,684 1,090,684
AFS investments 14,802,781 14,802,781 9,848,237 9,848,237
HTM investments 34,020,203 34,020,203 512,467 33,532,082 34,044,549
Receivables from customers 26,717,869 29,542,344 56,260,213 21,560,885 22,062,587 43,623,472
Unquoted debt securities 11,510 6,671,596 6,683,106 21,073 7,053,124 7,074,197
Sales contract receivable 3,590 1,377,740 1,381,330 694,458 1,281,729 1,976,187
Accounts receivable 229,776 607,150 836,926 311,427 596,670 908,097
Other receivables 333,922 333,922 152,130 152,130
Other assets
Returned checks & other cash items 1,456,456 1,456,456 121,204 121,204
63,201,256 87,021,814 150,223,070 55,190,890 74,374,429 129,565,319
Nonfinancial Assets - at gross
Property and equipment 4,346,405 4,346,405 3,857,132 3,857,132
Investments in subsidiaries and associates 6,955,249 6,955,249 6,302,280 6,302,280
Investment properties 9,605,315 9,605,315 10,271,419 10,271,419
Deferred tax asset 48,385 48,385 25,597 25,597
Others 448,825 20,581,732 21,030,557 89,118 19,944,706 20,033,824
448,825 41,537,086 41,985,911 89,118 40,401,134 40,490,252
= 63,650,081
P = 128,558,900
P 192,208,981 =55,280,008
P =
P114,775,563 170,055,571
Less:
Unearned discounts and capitalized interest 397,979 420,857
Accumulated depreciation and amortization 2,616,320 2,450,299
Allowance for credit and impairment losses 5,411,941 4,378,754
Total = 183,782,741
P =162,805,661
P
Deposit liabilities
Demand P8,779,761
= =
P P8,779,761
= P7,949,172
= =
P P7,949,172
=
Savings 93,372,107 93,372,107 79,395,810 79,395,810
Time 39,824,073 7,393,363 47,217,436 40,822,414 3,695,599 44,518,013
LTNCD 4,466,765 4,466,765
141,975,941 11,860,128 153,836,069 128,167,396 3,695,599 131,862,995
Bills payable and SSURA 7,216,969 9,126 7,226,095 5,656,636 378,190 6,034,826
Accrued interest and other expenses 1,174,352 279 1,174,631 3,386,359 197,471 3,583,830
Other liabilities
Bills purchased-contra 2,968,823 2,968,823 3,393,764 3,393,764
Accounts payable 1,288,892 1,288,892 861,518 431,258 1,292,776
Managers checks 502,821 502,821 726,812 726,812
Cash letter of credit 342,526 342,526 1,508,450 1,508,450
Margin deposits 270,149 270,149 244,685 244,685
Deposit on lease contracts 248,528 248,528 159,697 159,697
Due to PDIC 144,110 144,110 130,187 130,187
Derivative liability 14,571 14,571
Miscellaneous 42,595 42,595 23,674 23,674
156,157,428 12,118,061 168,275,489 144,256,138 4,862,215 149,118,353
Nonfinancial Liabilities
Deferred tax liability 67,941 67,941 72,916 72,916
Accrued taxes payable 42,362 42,362 12,294 12,294
Income tax payable 38,183 38,183 197,273 197,273
Withholding taxes payable 57,178 57,178 119,072 119,072
Other liabilities 777 605,711 606,488 837,569 837,569
= 156,295,928
P = 12,791,713
P = 169,087,641
P =144,584,777
P =5,772,700
P =
P150,357,477
*SGVMC115862*
- 86 -
Parent Company
2010 2009
Due Within Due Beyond Due Within Due Beyond
One Year One Year Total One Year One Year Total
(In Thousands)
Financial Assets - at gross
= =
P P4,934,052
= P4,891,510
= =
P P4,891,510
=
Due from BSP 22,480,433 22,480,433 13,461,441 13,461,441
Financial assets at FVPL 1,756,577 1,756,577 1,030,239 1,030,239
AFS investments 14,656,510 14,656,510 9,653,478 9,653,478
HTM investments 33,876,053 33,876,053 482,280 33,387,180 33,869,460
Receivables from customers 25,737,270 24,962,165 50,699,435 19,840,580 19,370,062 39,210,642
Sales contract receivable 2,753 1,334,049 1,336,802 691,674 1,241,057 1,932,731
Accounts receivable 200,520 697,240 897,760 287,632 587,484 875,116
Other assets
Returned checks & other cash items 1,451,001 1,451,001 118,602 118,602
60,998,165 81,915,811 142,913,976 52,180,322 71,004,001 123,184,323
Nonfinancial Assets - at gross
Property and equipment 4,145,074 4,145,074 3,658,007 3,658,007
Investments in subsidiaries and associates 4,285,601 4,285,601 4,275,601 4,275,601
Investment properties 9,306,401 9,306,401 9,993,434 9,993,434
Other assets 279,854 17,418,584 17,698,438 77,813 16,751,967 16,829,780
279,854 35,155,660 35,435,514 77,813 34,679,009 34,756,822
Total = 61,278,019
P = 117,071,471
P = 178,349,490
P =52,258,135
P =
P105,683,010 157,941,145
Less:
Unearned discounts and capitalized interest 215,493 299,008
Accumulated depreciation and amortization 2,488,275 2,313,813
Allowance for credit and impairment losses 5,446,080 4,286,961
Total = 170,199,642
P =151,041,363
P
Deposit liabilities
Demand P8,702,472
= =
P P8,702,472
= P7,906,463
= =
P P7,906,463
=
Savings 91,171,412 91,171,412 77,349,850 77,349,850
Time 38,199,274 7,375,449 45,574,723 39,564,527 3,695,600 43,260,127
LTNCD 4,466,765 4,466,765
138,073,158 11,842,214 149,915,372 124,820,840 3,695,600 128,516,440
Bills payable and SSURA 6,990,816 9,126 6,999,942 5,576,600 350,598 5,927,198
Accrued interest and other expense 1,140,267 279 1,140,546 3,553,225 198 3,553,423
Other liabilities
Bills purchased-contra 2,966,861 2,966,861 3,393,764 3,393,764
Accounts payable 1,180,263 1,180,263 801,693 431,258 1,232,951
Managers checks 461,522 461,522 685,326 685,326
Cash letter of credit 342,526 342,526 1,508,450 1,508,450
Margin deposits 270,149 270,149 244,685 244,685
Due to PDIC 144,110 144,110 130,187 130,187
Derivative liability 14,571 14,571
Miscellaneous 12 12 12,689 12,689
151,797,739 11,851,619 163,649,358 140,881,769 4,477,654 145,359,423
Nonfinancial Liabilities
Deferred tax liability 34,791 34,791 49,098 49,098
Accrued taxes payable 36,367 36,367 431 431
Income tax payable 22,286 22,286 167,367 167,367
Withholding taxes payable 53,205 53,205 115,942 115,942
Other liabilities 544,788 544,788 720,105 720,105
= 151,909,597
P = 12,431,198
P = 164,340,795
P =141,165,509
P =5,246,857
P =
P146,412,366
*SGVMC115862*
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19. Operating Lease Contracts
The Group leases the premises of most of its offices and branches for periods ranging from 1 to 20
years from the date of the contracts, which terms are renewable upon the mutual agreement of the
parties. Rent expense charged to operations (included under Occupancy expense in the statements
of income) amounted to P =275.6 million and P=256.2 million in 2010 and 2009, respectively, for the
Group and P=243.9 million and P =239.1 million in 2010 and 2009, respectively, for the Parent
Company.
Future minimum rentals payable under non-cancelable operating leases are as follows:

2010 2009 2010 2009
(In Thousands)
Within one year P
=194,866 =193,873
P P
=182,770 =182,040
P
After one year but not more than
five years 422,496 495,160 393,416 459,734
After more than five years 109,574 121,602 103,004 112,557
P
=726,936 =810,635
P P
=679,190 =754,331
P
20. Miscellaneous Income

2010 2009 2010 2009
(In Thousands)
Income from assets acquired P
=117,484 =29,853
P P=75,511 =10,084
P
Rental income 23,683 15,841 23,269 15,789
Gain (loss) on foreclosures (Note 11) (18,353) 5,283 (18,353) 5,283
Dividends 1,824 1,539 645 117,465
Recovery from charged-off assets 100
Others 187,032 77,783 175,635 29,650
P
=311,670 =130,399
P P
=256,707 =178,271
P
Others include ATM transaction fees, gain on sale of property and equipment, and clients
overpayment of fees and charges related to their letters of credit and outgoing remittance
transactions.
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21. Miscellaneous Expense

2010 2009 2010 2009
(In Thousands)
Postage, telephone, cable and telegram P
=131,126 =121,031
P P
=122,011 =114,580
P
Computer-related expense 104,793 126,982 104,650 126,982
Travelling expense 72,760 34,724 63,167 24,139
Stationery and supplies used 71,361 67,566 63,737 59,774
Fuel and lubricant 61,190 57,763 56,093 53,854
Management and other professional fees 54,871 64,422 32,775 33,409
Supervision and examination fees 54,089 44,129 51,788 43,310
Fees and commission 39,882 4,446 38,234 4,428
Representation and entertainment
(Note 22) 26,298 92,784 22,587 90,852
Advertising 25,286 23,383 24,458 13,299
Freight expense 12,293 8,564 9,718 8,518
Membership fees 9,869 10,114 9,450 9,508
Fines, penalties and other charges 6,166 846 5,347 223
Miscellaneous 76,185 68,725 45,416 36,426
P
=746,169 =725,479
P P
=649,431 =619,302
P
22. Income and Other Taxes
Under Philippine tax laws, the RBU of the Parent Company and its domestic subsidiaries are
subject to percentage and other taxes (presented as Taxes and licenses in the statements of
income) as well as income taxes. Percentage and other taxes paid consist principally of gross
receipts tax (GRT) and documentary stamp taxes (DST). Income taxes include corporate income
tax, as discussed below, and 20.0% final taxes paid, which is a final withholding tax on gross
interest income from government securities and other deposit substitutes.
RA No. 9337, An Act Amending National Internal Revenue Code, provides that the RCIT rate
shall be 35.0% and interest allowed as a deductible expense shall be reduced by an amount
equivalent to 42.0% of interest income subject to final tax until December 31, 2008. Starting
January 1, 2009, the RCIT rate is 30.0% and interest allowed as a deductible expense is reduced
by an amount equivalent to 33.0% of interest income subjected to final tax.
Current tax regulations also provide for the ceiling on the amount of entertainment, amusement
and recreation (EAR) expense that can be claimed as a deduction against taxable income. In 2010
and 2009, EAR amounted to P =26.3 million and P =92.8 million, respectively, for the Group and
=22.6 million and =
P P90.9 million, respectively, for the Parent Company (see Note 21). Under the
regulation, EAR expense allowed as a deductible expense for a service company like the Parent
Company and some of its subsidiaries is limited to the actual EAR paid or incurred but not to
exceed 1.0% of net revenue. The regulations also provide for MCIT of 2.0% on modified gross
income and allow a NOLCO. The MCIT and NOLCO may be applied against the entitys income
tax liability and taxable income, respectively, over a three-year period from the year of inception.
FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income
(income from residents) is subject to 10.0% income tax. In addition, interest income on deposit
placements with other FCDUs and offshore banking units (OBUs) is taxed at 7.5%. Income
derived by the FCDU from foreign currency transactions with non-residents, OBUs, local
*SGVMC115862*
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commercial banks including branches of foreign banks is tax-exempt while interest income on
foreign currency loans from residents other than OBUs or other depository banks under the
expanded system is subject to 10.0% income tax.
The provision for income tax consists of:

2010 2009 2010 2009
(In Thousands)
Current:
Final tax P
=652,857 P
=562,575 P
=638,028 P
=545,552
RCIT 93,911 59,585
MCIT 31,711 8,496 31,711 5,295
778,479 630,656 669,739 550,847
Deferred (29,272) 83,317 (14,307) 38,968
P
=749,207 P
=713,973 P
=655,432 P
=589,815
The reconciliation of the statutory income tax to the effective income tax is shown below:

2010 2009 2010 2009
(In Thousands)
Statutory income tax P
=959,678 P
=711,694 P
=628,157 =346,288
P
Tax effects of:
FCDU income (456,400) (136,504) (456,400) (136,504)
Nondeductible expenses 435,998 459,843 433,974 397,489
Net unrecognized DTA 412,632 1,162,021 455,142 1,193,519
Tax paid and tax-exempt income (345,434) (366,051) (345,312) (366,051)
Nontaxable income (257,267) (1,117,030) (60,129) (844,926)
Effective income tax P
=749,207 P
=713,973 P
=655,432 =589,815
P
Components of net deferred tax liabilities are as follows:

2010 2009 2010 2009
(In Thousands)
Deferred tax asset on:
Accumulated depreciation on
investment properties P
=1,446 =3,186
P P
= =
P
losses 409 6,358
MCIT 5,944
NOLCO 1,469
Others 67 270
1,922 17,227
Deferred tax liability on:
Unrealized gain on foreclosure (22,986) (19,804)
Retirement asset (6,893) (4,907) (5,687) (3,767)
Unrealized gain on AFS investment (10,639) (9,130)
Unrealized foreign exchange gain (7,409) (15,210) (9,977) (15,210)
Unrealized gain on financial assets at
FVPL (9,369) (28,536) (7,473) (28,536)
Lease income differential between
finance and operating lease method (10,971)
DST on LTNCD (6,671) (6,671)
Others (5,896) (1,585) (4,983) (1,585)
(69,863) (90,143) (34,791) (49,098)
Net deferred tax liability (P
= 67,941) (P
=72,916) (P
= 34,791) (P
=49,098)
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Components of net deferred tax assets shown in the consolidated statements of financial position
follow:
2010 2009
(In Thousands)
Deferred tax asset on:
Allowance for credit and impairment losses P
=37,330 =19,688
P
Provision for accrual of expenses 3,527 6,228
Accumulated depreciation on investment
properties 2,333 2,205
Retirement liability 1,990 1,042
Others 7,329 612
52,509 29,775
Deferred tax liability on:
Unrealized gain on foreclosure (4,124) (2,202)
Others (1,976)
(4,124) (4,178)
Net deferred tax assets P
=48,385 =25,597
P
The Group and the Parent Company did not set up deferred tax asset on the following temporary
differences:

2010 2009 2010 2009
(In Thousands)
NOLCO P
=6,947,061 =9,434,462
P P
=6,869,450 =9,354,784
P
losses 5,612,531 4,291,934 5,536,961 4,286,961
Lease income differential between
finance and operating lease method 174,964
MCIT 45,395 23,811 40,479 23,798
Accumulated depreciation on investment
properties 23,878 23,878
Unrealized loss on foreclosure 13,070 13,070
Unrealized loss on AFS investments 451 39,891 451 39,891
Unrealized loss on financial assets at
FVPL 4,466 4,466
P
=12,817,350 =13,794,564
P P
=12,484,289 =13,709,900
P
Management believes that the future income tax benefits arising from these temporary differences
will not be realized within the availment period.
The breakdown of NOLCO with the corresponding validity periods follow:
Consolidated
Year Incurred Amount Applied/Expired Balance Expiry Year
(In Thousands)
2010 =274,679
P =
P =274,679
P 2013
2009 3,960,745 3,960,745 2012
2008 2,711,637 2,711,637 2011
2007 2,762,080 (2,762,080) 2010
=9,709,141
P (P
=2,762,080) =6,947,061
P
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Parent Company
(In Thousands)
2010 =266,014
P =
P =266,014
P 2013
2009 3,891,799 3,891,799 2012
2008 2,711,637 2,711,637 2011
2007 2,751,348 (2,751,348) 2010
=9,620,798
P (P
=2,751,348) =6,869,450
P
Details of the MCIT are as follows:
Consolidated
(In Thousands)
2010 =31,711
P =
P =31,711
P 2013
2009 8,496 8,496 2012
2008 5,188 5,188 2011
2007 16,071 (16,071) 2010
=61,466
P (P
=16,071) =45,395
P
Parent Company
(In Thousands)
2010 =31,711
P =
P =31,711
P 2013
2009 5,295 5,295 2012
2008 3,473 3,473 2011
2007 15,030 (15,030) 2010
=55,509
P (P
=15,030) =40,479
P
23. Capital
As of December 31, 2010 and 2009, this account consists of (amounts in thousands, except par
value and number of shares):
Amount
- as restated
(In Thousands)
Common stock - P =1 par value
Authorized shares - 2,500,000,000
Subscribed - 1,497,170,231 shares (net of
subscription receivable of =
P12,327) P1,484,843
=
Capital notes (Note 1) 12,000,000
=13,484,843
P
Common Shares
A substantial portion of the outstanding common shares of the Bank remains sequestered as a
result of the sequestration orders issued by the PCGG on June 26, 1986. Court proceedings on the
ownership issue have been ongoing since then with the Sandiganbayan and the Supreme Court.
Meantime, PCGG exercises the right to vote on the sequestered shares of the Bank.
On July 11, 2003, the Sandiganbayan promulgated its Partial Summary Judgment granting the
ROPs Motions for Partial Summary Judgment and stated that 64.98% of the Banks shares of
stock, which form part of the 72.2% charged by the Philippine Coconut Authority (PCA) to the
*SGVMC115862*
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Coconut Consumers Stabilization Fund (CCSF), are conclusively owned by the ROP and that the
Banks shares registered in the name of defendant Cojuangco and those of his dummies and
nominees belong to the ROP as the true and beneficial owner.
On May 11, 2007, the Sandiganbayan ruled that there are no more triable issues that have to be
addressed that would necessitate the presentation of evidence by the parties. The Sandiganbayan
had rendered Partial Summary Judgment promulgated on July 11, 2003 that practically excluded
any other issue concerning the ownership of the 72.2% shares of the Bank, which the Court has
declared to be owned by the government. The Sandiganbayan also said that there is no more
point in proceeding with trial where the principal issue of ownership of the Banks shares as well
as the relevant sub-issues have already been resolved.
On May 28, 2007, defendant Cojuangco filed a Motion for Reconsideration/Modification, praying
that the Resolution of the Court on May 11, 2007 be reconsidered so as to allow defendant
Cojuangco to present evidence in his defense.
However, in its Resolution dated June 5, 2007, the Sandiganbayan declared that in view of its
judgment declaring ownership in favor of the government of the subject UCPB shares, the Partial
Summary Judgment is now considered a final and appealable judgment.
On June 20, 2007, defendant Cojuangco filed a Motion for Reconsideration on the Sandiganbayan
Resolution dated June 5, 2007, and the Partial Summary Judgment dated July 11, 2003. On
November 29, 2007, the Sandiganbayan resolved that the Motion for Reconsideration of defendant
Cojuangco was bereft of merit as it found no cogent reasons to reverse its Resolution of
June 5, 2007 and the Partial Summary Judgment dated July 11, 2003.
As of April 28, 2011, the aforementioned cases and motions are still pending.
Preferred Shares
The preferred shares have the following terms, conditions, rights and restrictions as provided in
the Amended Articles of Incorporation:
a. with cumulative dividends equal to 14.0% of the par value per annum, payable on or before
the 30th day of April in each year;
b. nonparticipating in any further distribution of the surplus assets of the Bank, if any, in case of
liquidation or dissolution or winding up;
c. each share is convertible into one fully paid and non-assessable share of common stock at the
option of the holders; and
d. holders have no voting rights.
On March 16, 2009, preferred shares totaling 750,000,000 were converted to common shares and
all cumulative and undeclared dividends on such preferred shares were waived.
Capital Notes
As discussed in Note 1, the Bank obtained = P12.0 billion financial assistance from PDIC consisting
of a P
=7.0 billion 5.0% Unsecured Subordinated debt due in 2013 and P =5.0 billion proceeds from
sale of NPLs with buyback by 2013. Under the FAA, the Bank is obligated to maintain the total
book value of Asset Pool B of =P5.0 billion and substitute or replace accounts within 3 days from
receipt of proceeds from sale or collection or recovery of any accounts in Asset Pool B. Asset
Pool B consists of the non-performing loans and assets purchased by PDIC subject to buyback by
the Bank.
*SGVMC115862*
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When the Bank transitioned to PGAAP for banks, the initial measurement of the PDIC loan was
revisited and adjusted to its fair value. Philippine Interpretations Committee (PIC) Q&A 2007-02,
Accounting for government loans with low interest rates, approved by the PIC on
February 21, 2007, provides for three options on how to account for the day 1 difference between
the fair value and proceeds of the PDIC financial assistance. The Bank opted to account for the
PDIC loan under PAS 39, Financial Instruments: Recognition and Measurement, wherein the
difference between the fair value at initial recognition and the loan proceeds received is
recognized in income. Accordingly, the loan was measured by the Bank initially at its fair value
of =
P5.4 billion (thereby recognizing Day 1 gain of = P6.7 billion) and subsequently measured it at
amortized cost using the effective interest method. The EIR used to discount the future cash flows
of the =
P7.0 billion and P
=5.0 billion PDIC loans are 13.3% and 13.0%, respectively. The
amortization table based on these EIRs follows:
Accretion of Accreted Amount

Day 1 difference of PDIC Loan
(In Thousands)
2003 =160,383
P =5,413,895
P
2004 377,504 5,791,399
2005 428,852 6,220,251
2006 487,186 6,707,437
2007 553,453 7,260,890
2008 628,738 7,889,628
2009 714,262 8,603,890
2010 811,422 9,415,312
2011 921,799 10,337,111
2012 1,047,193 11,384,304
2013 615,696 12,000,000
=6,746,488
P
Based on the FAA, the proceeds from the purchase of PDIC shall be invested in government
securities, which in turn shall be pledged to and managed by PDIC to secure the Banks obligation
to buyback the assets, as well as to ensure and secure compliance by the Bank of the terms,
conditions and covenants under the FAA. In case the Bank fails or refuses to buyback the assets
related to the =
P5.0 billion purchase, PDIC shall have the absolute right to foreclose either
judicially or extra-judicially the pledge constituted on the government securities. However, on
July 16, 2003, the PDIC Board issued a resolution temporarily suspending this requirement until
such time that the PDIC decides to call upon the Bank for compliance with the aforementioned
requirement on collateral.
On May 15, 2008, the MB of the BSP, in its Resolution No. 590, granted the Bank the authority to
issue =
P12.0 billion Capital Notes to PDIC. On March 31, 2009, the Bank converted the
=12.0 billion financial assistance and issued the Capital Notes to PDIC eligible as Interim Tier 1
P
Capital. Upon conversion, the carrying value of the PDIC financial assistance that was
reclassified to Capital Notes under the equity section of the statements of financial position was
determined as follows:
*SGVMC115862*
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Amount
(In Thousands)
Face amount =12,000,000
P
Day 1 gain (6,746,488)
Accretion up to date of conversion (inclusive
of P
=173,966 accretion in 2009) 2,810,081
Unamortized Day 1 gain (3,936,407)
Carrying value =8,063,593
P
However, in 2010, the Bank restated its prior year financial statements to recognize the Capital
Notes at its face amount of =
P12.0 billion. The unamortized Day 1 gain of P =3.9 billion was charged
to Surplus (Deficit) in 2009.
Capital Management
The primary objectives of the Groups capital management are to ensure that it complies with
externally imposed capital requirements and it maintains strong credit ratings and healthy capital
ratios in order to support its business and to maximize shareholders value.
The Group manages its capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of its activities. In order to maintain or adjust the
capital structure, the Group may adjust the amount of dividend payment to shareholders, return
capital structure, or issue capital securities. No changes were made in the objectives, policies and
processes from the previous years.
Regulatory Qualifying Capital

Under existing BSP regulations, the determination of the Parent Companys compliance with
regulatory requirements and ratios is based on the amount of the Parent Companys unimpaired
capital (regulatory net worth) as reported to the BSP, which is determined on the basis of
regulatory accounting policies which differ from PFRS in some respects.
The amount of surplus funds available for dividend declaration is also determined on the basis of
regulatory net worth after considering certain adjustments.
The BSP, sets and monitors capital requirements for the Bank. In implementing current capital
requirements, the BSP requires the Bank to maintain a prescribed ratio of qualifying capital to
risk-weighted assets.
In addition, the risk-based capital ratio (RBCAR) of a bank, expressed as a percentage of

qualifying capital to risk-weighted assets, should not be less than 10.0% for both stand-alone basis
(head office and branches) and consolidated basis (Parent Company and subsidiaries engaged in
financial allied undertakings but excluding insurance companies). Qualifying capital and risk-
weighted assets are computed based on BSP regulations. Risk-weighted assets consist of total
assets less cash on hand, due from BSP, loans covered by hold-out on or assignment of deposits,
loans or acceptances under letters of credit to the extent covered by margin deposits and other non-
risk items determined by the MB of the BSP.
On August 4, 2006, the BSP, under BSP Circular No. 538, issued the prescribed guidelines
implementing the revised risk-based capital adequacy framework for the Philippine banking
system to conform to Basel II capital adequacy framework. The new BSP guidelines took effect
on July 1, 2007. Thereafter, banks were required to compute their Capital Adequacy Ratio (CAR)
using these guidelines.
*SGVMC115862*
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The Banks RBCAR, as submitted to the BSP as of December 31, 2010 and 2009 are shown in the
table below:

2010 2009 2010 2009
(In Millions)
Tier 1 capital P
=14,152 =13,408
P P
=14,107 =13,370
P
Tier 2 capital 459 346 400 310
Gross qualifying capital 14,611 13,754 14,507 13,680
Less required deductions 1,629 1,201 4,225 3,418
Total qualifying capital P
=12,982 =12,553
P P
=10,282 =10,262
P
Risk weighted assets P
=122,489 =114,534
P P
=115,147 =109,041
P
Tier 1 capital ratio 10.47% 10.92% 8.93% 9.41%
Total capital ratio 10.60% 10.96% 8.93% 9.41%
The regulatory qualifying capital of the Group and of the Parent Company consists of Tier 1 (core)
capital, which comprises paid-up common, capital notes, surplus (deficit) including current year
profit and surplus reserves less required deductions such as unbooked valuation reserves (except
for the P
=29.1 billion deferral of losses discussed in Notes 1, 12 and 13), unsecured credit
accommodations to directors, officers, stockholders and related interests (DOSRI) and deferred
tax. The other component of regulatory capital is Tier 2 (supplementary) capital, which includes
unsecured subordinated debt and general loan loss provision.
In 2010 and 2009, the Bank was not able to comply with the required RBCAR. As discussed in
Note 1, on February 26, 2009, the MB of the BSP exempted the Bank from sanctions that may be
imposed for its non-compliance with the 10.0% CAR and all capital-based regulatory ratios for the
year 2008 until such time that the Banks Rehabilitation Plan is fully implemented and approved
the Banks request for temporary relief by reducing the Banks CAR to 8.0% for a period of three
years up to 2011 or until such time that the Bank is able to comply with the required 10.0% CAR,
whichever comes first (see Note 1).
The Banks losses prior to 2005 have brought the Banks capital below the required minimum
capital requirement. However, the Banks management has taken active steps to ensure the
continuing liquidity of the Bank and to implement its capital build-up plan (see Note 1).
24. Surplus Reserves
2010 2009
(In Thousands)
Reserve for trust business P
=117,664 =117,664
P
Reserve for self-insurance 26,000 26,000
Reserve for contingencies 6,000 6,000
Others 746,819 746,819
P
=896,483 =896,483
P
In compliance with existing BSP regulations, 10.0% of the Parent Companys income from trust
business is appropriated to surplus reserves. This yearly appropriation is required until the surplus
reserve for trust business equals 20.0% of the Parent Companys regulatory net worth
(see Note 27).
*SGVMC115862*
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Reserve for self-insurance represents the amount set aside to cover losses due to fire, defalcation
by and other unlawful acts of the Parent Companys personnel or third parties.
Others represents stock dividends declared on common stock in prior years, which were not
released to the Parent Companys shareholders due to the unsettled sequestration issue.
25. Retirement Plan and Other Employee Benefits
Expenses recognized for salaries and employee benefits are presented below:

2010 2009 2010 2009
(In Thousands)
Salaries and wages P
=934,202 =859,419
P P
=810,062 =743,600
P
Fringe benefits 357,615 384,983 339,599 352,229
Short-term medical benefits 122,998 129,078 111,488 122,451
Retirement - defined benefit plan 81,402 97,489 74,674 94,598
P
=1,496,217 =1,470,969
P P
=1,335,823 =1,312,878
P
The Parent Company and its significant subsidiaries have funded noncontributory defined benefit
retirement plans covering all their respective permanent and full-time employees.
The principal actuarial assumptions used in determining retirement liability of the Parent
Company and significant subsidiaries as of January 1, 2010 and 2009 are shown below:
2010 2009
Parent Parent
Company USB USI Company USB USI
Average remaining working life 16 years 16 years 17 years 16 years 15 years 27 years
Discount rate 10.2% 8.5% 11.0% 10.0% 10.0% 12.0%
Expected rate of return on assets 8.0% 6.0% 7.0% 7.0% 7.0% 6.0%
Future salary increases 6.0% 6.0% 5.0% 5.0% 5.0% 5.0%
As of December 31, 2010, the discount rate (with reference to PDST-R2 index) of the Parent
Company, USB and USI is 9.0%, 10.7% and 11.0%, respectively.
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date applicable to the year over which the obligation is to be settled.
The net retirement asset of the Group and the Parent Company follows:

2010 2009 2010 2009
(In Thousands)
Fair value of plan assets P
=1,469,193 =1,187,066
P P
=1,444,114 =1,159,254
P
Present value of obligation 1,286,946 1,041,886 1,253,630 1,002,301
Surplus 182,247 145,180 190,484 156,953
Unrecognized actuarial gains (165,903) (132,297) (171,526) (144,396)
Net retirement asset P
=16,344 =12,883
P P=18,958 =12,557
P
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Retirement asset (liability) included in Other Assets (Other Liabilities) are as follows:

2010 2009 2010 2009
(In Thousands)
Retirement asset (Note 12) P
=22,977 =16,357
P P=18,958 =12,557
P
Retirement liability (Note 17) (6,633) (3,474)
Net retirement asset P
=16,344 =12,883
P P=18,958 =12,557
P
The movements in the retirement asset recognized in the statements of financial position follow:

2010 2009 2010 2009
(In Thousands)
=12,883 =20,452
P P=12,557 =19,258
P
Retirement expense (81,402) (97,489) (74,674) (94,598)
Contributions 84,863 89,920 81,075 87,897
=16,344 =12,883
P P=18,958 =12,557
P
As of December 31, 2010 and 2009, retirement asset was fully recognized because it did not
exceed the limit provided by PAS 19, Employee Benefits.
Changes in the present value of retirement obligation follow:

2010 2009 2010 2009
(In Thousands)
=1,041,886 =976,655
P P
=1,002,301 =949,867
P
Actuarial loss (gain) 199,720 (954) 205,449 (17,181)
Benefits paid (131,757) (99,193) (123,313) (90,679)
Interest cost 105,612 97,675 102,235 94,987
Current service cost 71,485 67,703 66,958 65,307
=1,286,946 =1,041,886
P P
=1,253,630 =1,002,301
P
The movements in the fair value of plan assets follow:

2010 2009 2010 2009
(In Thousands)
=1,187,066 =970,068
P P
=1,159,254 =938,510
P
Actuarial gains 234,563 158,421 234,358 157,830
Benefits paid (131,757) (99,193) (123,313) (90,679)
Expected return on plan assets 94,458 67,850 92,740 65,696
Contributions 84,863 89,920 81,075 87,897
=1,469,193 =1,187,066
P P
=1,444,114 =1,159,254
P
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The movements in unrecognized actuarial gains (losses) are as follows:

2010 2009 2010 2009
(In Thousands)
=132,297 (P
=27,039) P
=144,396 (P
=30,615)
Actuarial (loss) gain on retirement
obligation (199,720) 954 (205,449) 17,181
Actuarial gains on plan assets 234,563 158,421 234,358 157,830
167,140 132,336 173,305 144,396
Actuarial gains recognized (1,237) (39) (1,779)
=165,903 =132,297
P P
=171,526 =144,396
P
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
2010 2009
Parent Parent
Company USB USI Company USB USI
Cash and cash equivalents 10.09% 28.10% 13.31% 10.09% 15.00% 15.94%
Fixed income 59.80% 70.20% 78.06% 59.80% 83.60% 74.58%
Equity instruments 28.46% 28.46%
Others 1.65% 1.70% 8.63% 1.65% 1.40% 9.48%
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
The amounts included in Compensation and fringe benefits in the statements of income are as
follows:

2010 2009 2010 2009
(In Thousands)
Current service cost P
=71,485 =67,703
P P=66,958 =65,307
P
Interest cost 105,612 97,675 102,235 94,987
Expected return on plan assets (94,458) (67,850) (92,740) (65,696)
Amortizations of actuarial gains (1,237) (39) (1,779)
P
=81,402 =97,489
P P=74,674 =94,598
P
The actual return on plan assets follows:

2010 2009 2010 2009
(In Thousands)
Actuarial gains on plan assets P
=234,563 =158,421
P P
=234,358 =157,830
P
Expected return on plan assets 94,458 67,850 92,740 65,696
P
=329,021 =226,271
P P
=327,098 =223,526
P
The Group and the Parent Company expect to contribute =

P72.3 million and =
P59.9 million,
respectively, to its retirement plan in 2011.
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Amounts for the current and previous years follow:

Consolidated
2010 2009 2008 2007 2006
(In Thousands)
Fair value of plan assets =1,469,193
P =1,187,066
P =970,068
P =1,034,424
P =1,033,851
P
Present value of retirement
obligation 1,286,946 1,041,886 976,655 977,036 1,208,957
Surplus (deficit) 182,247 145,180 (6,587) 57,388 (175,106)
Experience adjustments on
retirement obligation 55,026 (78,381) 250,520 22,180 (203,506)
Experience adjustments on plan
asset 234,563 158,421 (64,806) 1,148 81,908
Change in assumptions 144,694 77,427 (243,765) (270,286) 18,501
Parent Company
2010 2009 2008 2007 2006
(In Thousands)
Fair value of plan assets P
=1,444,114 =1,159,254
P =938,510
P =998,032
P =993,365
P
Present value of retirement
obligation 1,253,630 1,002,301 949,867 943,720 1,158,120
Surplus (deficit) 190,484 156,953 (11,357) 54,312 (164,755)
Experience adjustments on
retirement obligation 51,427 (94,352) 255,438 44,349 (223,655)
Experience adjustments on plan
asset 234,358 157,830 (64,585) 5,279 78,708
Change in assumptions 154,022 77,171 (242,863) (270,780) 18,501
26. Related Party Transactions
In the ordinary course of business, the Group has loan and deposit transactions with its associates
and with certain DOSRI.
Under existing policies of the Group, these loans are made on substantially the same terms as
loans granted to other individuals and businesses of comparable risks. Existing banking
regulations limit the amount of individual loans to DOSRI, 70.0% of which must be secured, to
the total of their respective deposits and book value of their respective investments in the lending
company within the Group. In the aggregate, loans to DOSRI generally should not exceed the
respective total equity or 15.0% of the total loan portfolio of the Group, whichever is lower. In
2010 and 2009, interest income on DOSRI loans amounted to P =10.7 million and P
=2.5 million,
respectively.
The following additional information are presented relative to the DOSRI loans:
2010 2009 2010 2009
Total outstanding DOSRI accounts (in
thousands) P
=193,218 =237,102
P P
=190,873 =184,922
P
Percent of DOSRI accounts to total loans 0.34% 0.54% 0.38% 0.47%
Percent of unsecured DOSRI accounts to
total DOSRI accounts 17.44% 14.37% 17.66% 17.29%
Percent of past due DOSRI accounts to
total DOSRI accounts 2.27% 2.11% 2.29% 2.71%
Deposit liabilities of the Parent Company to associates as of December 31, 2010 and 2009
amounted to =P136.0 million and P =212.4 million, respectively. Related interest expense in 2010
and 2009 amounted to = P1.4 million and =
P2.5 million, respectively.
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For the years ended December 31, 2010 and 2009, financial assets at FVPL and AFS investment
securities transactions with subsidiaries include outright sales totaling to P
=5.8 billion and
=3.2 billion, respectively, and outright purchases totaling to P
P =5.7 billion and P=3.2 billion,
respectively. Gain (loss) on sale of financial assets at FVPL and AFS investments in 2010 and
2009 amounted to = P26.7 million and (P=5.0) million, respectively.
The compensation of the key management personnel of the Group in 2010 and 2009 follows:

2010 2009 2010 2009
(In Thousands)
Short-term employee benefits P
=300,259 =293,611
P P
=277,786 =271,138
P
Termination benefit 10,172 32,529 10,172 32,529
Post-employment benefits 1,560 1,560
P
=311,991 =327,700
P P
=287,958 =303,667
P
27. Trust Operations
Securities and other properties amounting to P =57.3 billion and =

P37.2 billion as of
December 31, 2010 and 2009, respectively, held by the Bank in fiduciary or agency capacity (for a
fee) for its customers are not included in the accompanying statements of financial position since
these are not properties of the Bank (see Note 28).
In compliance with the requirements of the General Banking Act relative to the Bank's trust
functions:
a. Investments in government securities with total face value of =

P554.0 million and
=376.2 million (included under HTM investments) as of December 31, 2010 and 2009,
P
repectively, are deposited with the BSP as security for the Bank's faithful compliance with its
fiduciary obligations; and
b. 10.0% of the Bank's trust income is transferred to surplus reserve. This yearly transfer is
required until the surplus reserve for trust function is equivalent to 20.0% of the Banks
authorized capital stock. Income from trust operations is reported net of the related expenses.
As of December 31, 2010 and 2009, the reserve for trust functions amounted to = P117.7 million
and is shown as part of Surplus reserves in the statements of financial position (see Note 24). The
amount of surplus for appropriation for 2010 and 2009 in compliance with BSP requirement
amounted to =
P4.1 million and =P3.2 million, respectively. This will be recognized by the Parent
Company when it has sufficient surplus to cover such appropriation.
On March 5,1981, the BSP directed the Bank to manage the investments of the CIIF. The Bank,
as administrator of the CIIF Fund through its BOD, had placed the CIIF assets under the
management of the Trust Banking Group (TBG).
The Bank has investments in LOCI, SPMC, SLCOMI and GMC, herein referred to as CIIF
companies, which were established from the CIIF Fund. The CIIF formed part of the CCSF,
otherwise known as the coconut levy fund which was created in 1973 by Presidential Decree
No. 276. These CIIF companies have investments in 14 Holding Companies whose funds were
invested in SMC shares that were sequestered by the PCGG in May 1986.
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Under Presidential Decree No. 1468 dated June 11, 1978, the Bank was given full power and
authority to make investments in the form of shares of stock in corporations organized for the
purpose of engaging in the establishment and the operation of industries and commercial activities
and other allied business undertakings relating to the coconut and other palm oils industry in all its
aspects and the establishment of a research into the commercial and industrial uses of coconut and
other palm oil products.
The investments in the 14 Holding Companies, together with those of the other CIIF Oil Mills and
Iligan Coconut Industries, Inc. (ICII), and the loans and advances granted by the CIIF Oil Mills
and ICII to the 14 Holding Companies, were used to purchase the shares of stock in SMC. As of
December 31, 2001, the loans and advances granted to the 14 Holding Companies were fully
collected.
The Bank and SMC executed and subsequently implemented in 1991, a compromise agreement
and amicable settlement involving the SMC shares of stock held by the 14 Holding Companies.
Notwithstanding the implementation of the compromise agreement and amicable settlement, all
the subject SMC shares of stock remain sequestered by the PCGG. Certain parties, however, filed
before the Sandiganbayan their opposition to the implementation of the said agreement. The Bank
believes, however, that there would be no liability that may arise from the above case.
On November 10, 1993, the ROP, acting through the PCGG, filed before the Sandiganbayan a
motion for authority to sell all the 14 Holding Companies shares of stock of SMC. The proceeds
of the sale would then be utilized to pay for the indebtedness of the CIIF companies to the Bank
and any remaining balance thereof would be used for urgently needed projects designed for the
benefit of the coconut farmers and pursuant to the intent of the CIIF. The motion was opposed by
certain parties.
On September 27, 1996, the 14 Holding Companies and the Bank, as administrator of the CIIF
companies and as then creditor of the 14 Holding Companies filed a joint motion before the
Sandiganbayan and respectfully moved that they be authorized to sell all the 14 Holding
Companies SMC class B shares and to buy an equal number of SMC Class A shares. The motion
was denied on December 12, 1997. On January 7, 1998, the 14 Holding Companies and the Bank
filed a motion for reconsideration.
On May 7, 1998, in an en banc resolution, the PCGG lifted the sequestration of the SMC shares,
subject to the approval of the Sandiganbayan. The lifting of the sequestration on the SMC shares
owned by the 14 Holding Companies will enable the CIIF companies to re-deploy their resources
in response to the demands of an ever-changing business environment and to initiate strategic
programs aimed at enhancing the competitiveness of the Philippine coconut industry.
On February 9, 1999, the Sandiganbayan considered the motion dated November 10, 1993
withdrawn without prejudice to whatever action the parties may take for the revival or
resuscitation thereof under such terms which may be appropriate at that time. On March 12, 1999,
certain parties filed a motion for permission to present evidence in relation to their opposition of
said November 10, 1993 motion to sell all the SMC shares.
On November 8, 2000, the President of the Philippines issued Executive Order (EO) No. 313
which:
a. creates an irrevocable trust fund to be known as the Coconut Trust Fund (Trust Fund) to be
managed by the Trust Fund Committee (Trustee);
b. provides that the subject SMC shares shall form part of the initial capital of the Trust Fund;
*SGVMC115862*
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c. for the purpose of implementing the creation of the Trust Fund, directs the 14 Holding
Companies, acting through the Administrator of the coconut levy fund, to:
convey the subject SMC shares to the Trustee; and
sign, execute and deliver such documents, deed or contracts, under such conditions
consistent with EO No. 313; and,
d. mandates the PCGG and the Office of the Solicitor General (OSG) to lift the sequestration of
the subject SMC shares and take all the necessary steps to implement its purposes and
objectives.
As a first step towards the implementation of EO No. 313, the PCGG adopted resolutions on
November 28, 2000, lifting the sequestration of the subject SMC shares. On January 10, 2001, a
Motion to Withdraw Complaint was filed by the PCGG before the Sandiganbayan requesting for
the exclusion of the subject SMC shares from Civil Case No. 0033-F and for the cause of action
against the defendant Cojuangco and the 14 Holding Companies, in connection with the said
shares to be considered withdrawn.
As a result of the installation of the new dispensation, on January 30, 2001, a Manifestation and
Motion to Hold in Abeyance and Motion to Withdraw Complaint dated January 10, 2001 was filed
before the Sandiganbayan requesting to defer action on the aforementioned motion until
February 25, 2001 or later, for the reason that EO No. 313 is still undergoing review by the Office
of the President for possible amendment, suspension and revocation.
On May 7, 2004, the First Division of the Sandiganbayan resolved the ownership issue through a
Partial Summary Judgment. It declared that the CIIF companies, the 14 CIIF Holding Companies
and the CIIF block of SMC shares of stock totaling 33,133,266 shares as of 1983, together with all
dividends declared, paid and issued thereon as well as any increments thereto arising from, but not
limited to, exercise of pre-emptive rights are owned by the government in trust for all the coconut
farmers and ordered reconveyance to the government. Further, the Supreme Court ordered that
trial of the case to proceed with respect to the issues which have not been disposed of in this
Partial Summary Judgment.
Certain parties filed a Motion for Reconsideration to such Sandiganbayan decision. The motion
for reconsideration was denied by Sandiganbayan on December 28, 2004.
On March 29, 2005, the CIIF holding companies, as authorized by the PCGG, exercised their pre-
emptive rights first on the SMC B shares and thereafter on the SMC A shares of SMCs
10.0% stock offering to the extent of the cash dividends held by the 14 holding companies. The
14 holding companies subscribed to 27,952,430 Class B shares and 695,641 Class A shares,
respectively, resulting in total shareholdings of 307,395,776 Class B shares and 446,452,536
Class A shares.
On May 10, 2007, the Sandiganbayan granted the defendant Cojuanco Motion for Authority to sell
SMC shares. The defendant Cojuanco manifested that the said shares would be sold to the SMC
Retirement Plan. The sale was subsequently consummated per manifestation of the defendant
Cojuanco with a report that the proceeds thereof were applied to the outstanding loan obligations
of the defendant Cojuanco. Subsequent thereto, the Sandiganbayan ruling on the manifestations of
the defendant Cojuanco emphasized the following caveat in the Resolution allowing the sale of the
shares, to wit: This notwithstanding however, while the Supreme Court exempts the sale from the
express condition that it shall be subject to the outcome of the case, the defendant Cojuanco may
well be reminded that despite the deletion of the said condition, they cannot transfer to any buyer
any interest than what they have.
*SGVMC115862*
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On May 11, 2007, the Sandiganbayan ruled that the Motion for Partial Summary Judgment dated
May 7, 2004 is now deemed a separate appealable judgment which, at the Sandiganbayan, finally
disposes of the ownership of the CIIF Block of SMC shares, without prejudice to the continuation
of proceedings with respect to the remaining claims particularly those pertaining to the defendant
Cojuancos block of SMC shares.
On October 11, 2007, the Philippine Coconut Producers Federation, Inc. (Cocofed) filed a Class
Action Urgent Application for Temporary Restraining Order (TRO) and/or Writ of Preliminary
Injunction to the Supreme Court for the following:
a. Issue a TRO and/or writ of Preliminary Injunction enjoining the ROP, PCGG, the Bank, 14
Holding Companies and the CIIF Oil Mills, their respective officers, employees, agents and
representatives as well as those acting in their stead and under their directives from using, in
any way, the accrued cash dividends on the so-called CIIF Block of SMC shares.
b. Direct the ROP to justify to the Supreme Court the reasons why operating losses were incurred
this year purportedly necessitating the use of the dividends of the SMC shares for the normal
operations of the CIIF Oil Mills.
On November 28, 2007, the Sandiganbayan ruled that there is no more issue as to the so-called
CIIF Block of SMC shares in view of the Supreme Courts Partial Summary Judgment
promulgated on May 7, 2004 that was modified on May 11, 2007, where the Supreme Court
declared the said shares to be owned by the government in trust for the coconut farmers. The
Sandiganbayan, with respect to the 20.0% of the defendant Cojuanco block of SMC shares,
dismissed the Third Amended Complaint for failure of the plaintiff (ROP) to prove by
preponderance of evidence its causes of action against the defendant Cojuanco.
On July 18, 2008, the Cocofed filed a motion to the Supreme Court of the Philippines to approve
the proposed sale of the SMC shares, under certain terms and conditions set forth. Aside from the
said proposal, the said motion also includes the following:
Ordering of the lifting of the sequestration on those SMC shares so that the buyer of those
SMC shares acquire absolute ownership thereof free of all liens, writs, claims and demands
including any and all rights, interest and demands that Cocofed have or may have under the
provisions of Article 1381 and 1385 of the New Civil Code.
Directing the CIIF Oil Mills and all other party litigants which includes the Bank and 14
Holding Companies; and their respective directors, officers, employees, agents and all other
persons acting in their behalf to perform such acts and execute such documents as required to
effectuate the sale of the SMC shares in accordance with the terms and conditions as set forth
in the motion, and otherwise to comply strictly with the judgment of this Honorable Court
approving the sale of the SMC shares.
On February 17, 2009, Cocofed filed a Manifestation regarding withdrawal of offer to purchase
SMC shares. Sometime in mid-June 2009, the Office of the Solicitor General (OSG) filed its
comment to Cocofeds motion to approve proposed sale of SMC shares and the manifestation. In
the said Comment, OSG prayed that it be allowed to sell the CIIF Block of SMC shares.
On October 5, 2009, all the 753,848,312 SMC common shares were converted into 753,848,312
SMC preferred shares.
On June 18, 2009, the ROP, through the OSG, filed its comment on the Cocofeds Manifestation
regarding withdrawal of offer to purchase SMC shares dated February 17, 2009, praying that the
ROP be allowed to sell the subject CIIF Block of SMC shares.
*SGVMC115862*
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Exchange Offer to 14 Holding Companies for the Conversion of SMC Common Shares to SMC
Series 1 Preferred Shares
On July 24, 2009, Cocofed interposed the Urgent Motion to Approve the Conversion of the SMC
Common shares into SMC Series 1 Preferred Shares in response to the Exchange Offer tendered
by SMC on the same date. Cocofed sought the Supreme Courts approval of the conversion of
753,848,312 class A and class B common shares of SMC registered in the name of the 14 Holding
Companies into 753,848,312 SMC Series 1 Preferred Shares, herein referred to as the
conversion. Cocofed proposes to constitute a trust fund to be known as the Coconut Industry
Trust Fund for the benefit of the coconut farmers, with the ROP, acting through the Philippine
Coconut Authority, as trustee.
The ROP then filed its comment questioning Cocofeds personality to seek the Supreme Courts
approval of the desired conversion, maintaining that the CIIF Block of SMC shares are
sequestered assets and in custodia legis under PCGGs administration. It postulated that, owing
to the sequestrated status of the said common shares, only PCGG has the authority to approve the
proposed conversion and seek the necessary Supreme Court approval.
On the preliminary issue as to the proper party to seek the approval on the conversion, the
Supreme Court rules that it is the PCGG, not Cocofed, that is authorized to seek the approval of
the Supreme Court of the SMC Series 1 Preferred Shares conversion. As records show, PCGG
sequestered the 753,848,312 SMC common shares registered in the name of the 14 Holding
Companies on April 7, 1986. From that time on, these sequestered shares became subject to the
management, supervision, and control of PCGG, pursuant to EO No. 1, Series of 1986.
The PCGG, thereafter, conducted an in-depth inquiry, thorough study and judicious evaluation of
the pros and cons of the proposed conversion. PCGG took into consideration the following:
Resolution of the Banks BOD, approved during its July 20, 2009 special meeting, where it
categorically decided and concluded that it is financially beneficial to convert the CIIF Block
of SMC shares as offered by SMC based on market conditions at that time.
Resolution No. 365-2009 of the Banks BOD issued on August 28, 2009 reiterating its
position that the proposed conversion is financially beneficial.
Confirmation of the Department of Finance (DOF), upon the recommendation of the
Development Bank of the Philippines (DBP), that the CIIF Block of SMC shares conversion
is financially and economically advantageous and that it shall work for the best interest of the
farmers who are the ultimate and beneficial owners of said shares.
Letter of the OSG dated July 30, 2009 which opined that the proposed conversion is legally
allowable as long as PCGG approval is obtained.
Hence on September 2, 2009 and pursuant to the confirmation of the DOF and legal opinion of the
OSG and subject to the conditions set forth in the said OSG opinion and requests of the OSG to
seek the approval of the Honorable Supreme Court for the said proposed conversion, the PCGG
issued Resolution No. 2009-037-756 approving the proposed conversion.
On September 17, 2009, in an en banc resolution, the Supreme Court resolved the approval of
the conversion of the 753,848,312 SMC common shares registered in the name of the 14 Holding
Companies to 753,848,312 SMC Series 1 Preferred Shares, the converted shares to be registered in
the name of the 14 Holding Companies in accordance with the terms and conditions specified in
SMCs Exchange Offer. The resolution was arrived in light of the succeeding findings:
It is a sound business strategy to preserve and conserve the value of the governments interests
in CIIF SMC shares. Preservation is attained by fixing the value today at a significant
*SGVMC115862*
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premium over the market price and ensuring that such value is not going to decline despite
negative market conditions. Conservation is realized through an improvement in the earnings
value via the 8.0% per annum dividends versus the uncertain and most likely lower dividends
on common shares.
A fixed dividend rate of 8.0% per annum translates to P =6.0 per preferred share or a guaranteed
yearly dividend of =
P4.5 billion for the entire sequestered CIIF SMC shares, which is estimated
to increase annual dividend earnings by about 77.0%. With the bold investments of SMC in
various lines of business, there is no assurance of substantial earnings in the coming years.
There may even be no earnings. The modest dividends that accrue to the common shares in
the recent years may be a thing of the past and may even be obliterated by poor or unstable
performance in the initial years of operation of newly-acquired ventures.
Moreover, the conversion may be viewed as a sound business strategy to preserve and conserve
the value of the governments interests in the CIIF Block of SMC shares. Preservation is attained
by fixing the value today at a significant premium over the market price and ensuring that such
value is not going to decline despite negative market conditions. Conservation is realized through
an improvement in the earnings value via the 8.0% per annum dividends versus the uncertain and
most likely lower dividends on common shares.
Moreover, the Supreme Court resolved that the SMC Series 1 Preferred Shares shall remain in
custodia legis and their ownership shall be subject to the final ownership determination of the
Supreme Court. Until the ownership issue has been resolved, the preferred shares in the name of
the 14 Holding Companies shall be placed under sequestration and PCGG management. The
PCGG has powers to protect and preserve the sequestered preferred shares even if there are no
government-nominated directors in the BOD of SMC. The Supreme Court further ordered that the
net dividend earnings and/or redemption proceeds from the SMC Series 1 Preferred Shares shall
be deposited in an escrow account with the Land Bank of the Philippines (LBP) or DBP.
On October 5, 2009, the completion of the share exchange was executed. The CIIF Block of SMC
shares, made up of 446,452,536 class A shares and 307,395,776 class B shares, were converted
into SMC preferred shares through a block sale at the Philippine Stock Exchange, Inc. The
14 Holding Companies received a total of 753,848,312 Series 1 Preferred Shares from SMC for
which stock certificates were issued.
The SMC preferred shares are perpetual, cumulative, non-voting shares and were listed on the PSE
on September 9, 2010. The SMC Series 1 Preferred Shares are redeemable at the option of SMC,
starting on the third anniversary from the issue date (the optional redemption date) or any dividend
payment date thereafter, at a redemption price equal to the issue price of the shares plus accrued
and unpaid dividends. The SMC Series 1 Preferred Shares have an embedded derivative due to
this optional redemption feature. The BOD of SMC shall have the sole discretion to declare
dividends on these shares.
On October 6, 2009, the Bank filed a Motion for Leave to Intervene and to File and Admit
Attached Motion for Partial Reconsideration regarding the resolution dated September 17, 2009,
praying that the September 17, 2009 resolution be partially reconsidered, by directing the deposit
of the net dividend earnings on, and/or redemption proceeds from the SMC Series 1 Preferred
Shares in a trust account with the Bank, in the name of the ROP, represented by the PCGG in-
trust-for the 14 Holding Companies, as provided for by Presidential Decree 1468.
On November 9, 2009, PCGG received an offer from Fortman Cline Capital Markets Limited to
acquire/purchase the 753,848,312 SMC Series 1 Preferred Shares for = P75.0 per share or for an
aggregate amount of =P56.5 billion. In view of this, the ROP, acting through the PCGG, filed
*SGVMC115862*
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before the Supreme Court a Motion to Approve Sale of CIIF SMC Series 1 Preferred Shares on
November 16, 2009. The said motion includes the following:
the Honorable Supreme Court allow the respondent the ROP, through the PCGG, to sell the
subject SMC Series 1 Preferred Shares and that the proceeds of said sale be deposited in an
escrow account; and
the Honorable Supreme Court make a final determination as to the ownership of the subject
shares and adjudge the ROP as the owner of said shares in trust for all the coconut farmers.
On November 16, 2009, the ROP, represented by the PCGG, filed a Motion to Approve Sale of
CIIF SMC Series 1 Preferred Shares before the Supreme Court, praying that the Supreme Court
allow the ROP, through the PCGG, to sell the subject CIIF SMC Series 1 Preferred Shares and
that the proceeds of said sale be deposited in an escrow account; and make a final determination
as to the ownership of the subject shares and adjudge the ROP as the owner of the said shares in
trust for all the coconut farmers.
On February 11, 2010, the Supreme Court resolved to:
a. Deny for lack of merit the Motion for Reconsideration dated October 7, 2009 filed by
oppositors-intervenors (Jovito R. Salonga, Wigberto E. Taada et. al.).; and the Motion to
Admit Motion for Reconsideration regarding the conversion of SMC Shares dated
October 16, 2009 filed by movants-intervenors Wigberto Taada et. al.
b. Partially grant the Motion for Leave to Intervene and to File and Admit Attached Motion for
Partial Reconsideration dated October 5, 2009, and the Motion for Partial Reconsideration
dated October 6, 2009 filed by movant-intervenor the Bank.
c. Amend its Resolution dated September 17, 2009 to give to the PCGG the discretion in
depositing on escrow the net dividend earnings on, and/or redemption proceeds from, the
Series 1 Preferred Shares of SMC, either with the DBP or LBP or with the Bank, having in
mind the greater interest of the government and the coconut farmers.
As of April 28, 2011, the resolution of the Supreme Court on Motion to Approve Sale of CIIF
SMC Series 1 Preferred Shares is still pending.
28. Commitments and Contingent Liabilities
In the normal course of the Groups operations, there are various outstanding commitments and
contingent liabilities which are not reflected in the accompanying financial statements. The Group
recognizes in its books any losses and liabilities incurred in the course of its operations as soon as
these become determinable and quantifiable. No material loss or liability is anticipated to be
recognized in the accompanying financial statements as a result of these commitments and
transactions.
*SGVMC115862*
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The following is a summary of contingencies and commitments at their peso-equivalent

contractual amounts arising from off-balance sheet items:

2010 2009 2010 2009
(In Thousands)
Trust department accounts (Note 27) P
=57,340,514 =37,214,994
P P
=57,340,514 =37,214,994
P
Standby LC 1,532,715 1,253,908 1,532,715 1,253,908
Spot exchange sold 861,910 821,770 861,910 821,770
Sight import LC outstanding 734,802 516,858 734,802 516,858
Usance import LC outstanding 580,063 230,294 580,063 230,294
Spot exchange bought 335,175 637,360 335,175 637,360
Outward bills for collection 210,350 23,221,768 210,350 23,221,759
Others 3,602,501 3,055,118 3,509,089 3,016,171
The Group received various letter notices and preliminary assessment notices from the Bureau of
Internal Revenue (BIR) for taxable years 1998 to 2002. The Group, and all other banks with
FCDU operations, was assessed for FCDUs GRT and DST. The assessments were protested on
the basis of their legality. Compromise settlements were made with the BIR and the Group is still
waiting for the issuance of clearances.
The Group is defendant in various cases pending in courts for alleged claims against the Group,
the outcome of which are not fully determinable at present. However, in the opinion of the
Groups management, the liabilities or losses, if any, arising from these claims is not material and
should be recorded upon their final determination.
29. Financial Performance
The following basic ratios measure the financial performance of the Group and the Parent
Company before the effects of the adjustments related to the exceptions discussed in the Statement
of Compliance under Note 2 to the financial statements for the years ended December 31, 2010
and 2009 (amounts in thousands except for the ratios):

2010 2009 2010 2009
Return on average equity (a/b) 18.1% 21.4% 27.4% 169.2%
a. Net Income 2,449,719 1,658,341 1,438,425 564,477
b. Average Equity 13,571,642 7,750,798 5,243,923 333,553
Return on average assets (c/d) 1.4% 1.2% 0.9% 0.4%

c. Net Income 2,449,719 1,658,341 1,438,425 564,477
d. Average Total Assets 173,294,201 141,014,568 160,620,503 130,233,349
Net interest margin (e/f) 4.6% 4.3% 4.3% 4.0%

e.Net Interest Income 6,045,048 4,282,127 5,367,051 3,667,549
f. Average Earning Assets 130,984,480 100,157,155 124,763,579 92,410,621
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30. Notes to Statements of Cash Flows
The following is a summary of noncash activities:
2009
as restated
(see Note 23)
(In Thousands)
Noncash financing activities:
Conversion from preferred to common shares =750,000
P
Conversion from bills payable and unsecured
subordinated debt to capital notes 12,000,000
Charging of unamortized Day 1 gain to surplus (deficit) 3,936,407
31. Approval of the Release of the Financial Statements
The accompanying financial statements of the Group and of the Parent Company were authorized
for issue by the Parent Companys BOD on April 28, 2011.
32. Supplementary Information Required Under Revenue Regulations No. 15-2010
On November 25, 2010, the Bureau of Internal Revenue issued Revenue Regulations
(RR) 15-2010 to amend certain provisions of RR 21-2002. The Regulations provide that starting
2010 the notes to financial statements shall include information on taxes and licenses paid or
accrued during the taxable year.
The Parent Company reported and/or paid the following types of taxes for 2010:
Gross receipt tax

Under the Philippine tax laws, financial institutions are subject to percentage and other taxes as
well as income taxes. Percentage and other taxes paid by the Parent Company consist principally
of GRT and DST.
Details of the Parent Companys income and GRT accounts in 2010 are as follows:
Gross receipts GRT

(In Thousands)
Interest income =6,678,381
P =311,166
P
Other income 1,205,480 84,384
=7,883,861
P =395,550
P
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Other taxes and licenses

In 2010, other taxes and licenses of the Parent Company consist of:
Amount
(In Thousands)
Documentary stamps tax =310,759*
P
Fringe benefit tax 14,896
Local taxes 13,367
Others 9,088
=348,110
P
*Includes DST charged to the Parent Companys clients/customers
Withholding taxes
Details of total remittances in 2010 and balance of withholding taxes as of December 31, 2010 are
as follows:
Total
remittances Balance
(In Thousands)
Final withholding taxes =329,899
P =39,470
P
Withholding taxes on compensation and benefits 159,215 11,351
Expanded withholding taxes 47,784 2,384
=536,898
P =53,205
P
Tax Assessments and Cases

As of December 31, 2010, the Parent Company has no deficiency tax assessments and has no tax
cases, litigation and/or prosecution other than those cases relating to FCDUs GRT and DST.
*SGVMC115862*

Disclosure No. 546-2011 - United Coconut Planters Bank - Financial Statements and Independent Auditors' Report As of December 31, 2010 and 2009

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Disclosure No. 546-2011 - United Coconut Planters Bank - Financial Statements and Independent Auditors' Report As of December 31, 2010 and 2009

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United Coconut Planters Bank and Subsidiaries

Independent Auditors Report

SyCip Gorres Velayo & Co.

BOA/PRC Reg. No. 0001

INDEPENDENT AUDITORS REPORT

The Stockholders and the Board of Directors

Report on the Financial Statements

Managements Responsibility for the Financial Statements

Basis for Qualified Opinion

Our opinion is not qualified in respect of the foregoing matters.

SYCIP GORRES VELAYO & CO.

Josephine Adrienne A. Abarca

April 28, 2011

Consolidated Parent Company

LIABILITIES AND EQUITY

Consolidated Parent Company

See accompanying Notes to Financial Statements.

Consolidated Parent Company

See accompanying Notes to Financial Statements.

Consolidated Parent Company

Total Comprehensive Income attributable to:

See accompanying Notes to Financial Statements.

Balance at January 1, 2010, as

Balance at January 1, 2009 =734,843

Balance at January 1, 2010, as previously reported = 1,484,843

Balance at January 1, 2009 =734,843

See accompanying Notes to Financial Statements.

Consolidated Parent Company

Consolidated Parent Company

OPERATIONAL CASH FLOWS FROM INTEREST

Consolidated Parent Company

See accompanying Notes to Financial Statements.

Conversion of PDIC financial assistance to Interim Tier 1 Capital Notes

b. UCPBs Articles of Incorporation shall be amended to:

2. Grant to UCPB the following concessions:

1. Dividend/Coupon Rate - Dividend/Coupon rates as follows:

2.0% from April 1, 2009 to March 31, 2011;

2. Repayment/Redemption of the Capital Notes - Redemption of the Notes shall be subject to

Staggered booking of required valuation reserves and deferred charges

3. Approve the following requests of the Bank:

a. Reversal of all previous staggered bookings of unbooked valuation reserves and

b. Deferment of any staggered booking or amortization of unbooked valuation reserves and

2. Summary of Significant Accounting Policies

a. the Parent Companys reclassification in 2008 of certain investments in ROP credit-linked

except for the following departures from PGAAP for banks:

b. non-accretion of interest on certain impaired loans (see Note 8);

Basis of Consolidation and Investments in Subsidiaries

derecognizes the assets (including goodwill) and liabilities of the subsidiary;

Changes in Accounting Policies

New standards and interpretations

PFRS 2, Share-based Payment

Significant Accounting Policies

Cash and Cash Equivalents

Repurchase and Reverse Repurchase Agreements

Foreign Currency Translation

Financial Instruments - Recognition and Measurement

Initial recognition of financial instruments

Determination of fair value

Financial assets or financial liabilities held for trading

Financial assets or liabilities designated at FVPL

Other financial liabilities

Reclassification of Financial Assets

Reclassification is at the election of management, and is determined on an instrument-by-