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B U I L D I N G 07 annual FOR THE FUTURE report FINANCIAL HIGHLIGHTS CORPORATE MISSION To be the preferred bank in every market we serve by consistently providing innovative products and flawless delivery of services, proactively reinventing (Bn PhP) 2006 2007 % CHANGE RESOURCES 628.88 617.42 -1.8% ourselves to meet market demands, creating shareholder value through GROSS CUSTOMER LOANS 257.96 297.03 15.1% superior returns, cultivating in our people a sense of pride and ownership, DEPOSIT LIABILITIES 470.08 445.40 -5.3% and striving to be always better than what we are today…tomorrow. CAPITAL FUNDS 52.42 60.54 15.5% NET INCOME 6.39 6.52 2.0% CORE VALUES RESOURCES CAPITAL FUNDS Commitment to Customers 700 70 We are committed to deliver products and services that surpass customer 600 60 629 617 61 expectations in value and every aspect of customer service, while remaining to 500 50 52 ) 400 ) 40 be prudent and trustworthy stewards of their wealth. P P h h P P 300 30 (Bn (Bn Commitment to a Dynamic and Efficient Organization 200 20 234 20 180 17 We are committed to creating an organization that is flexible, responds to 100 149 10 15 0 0 change and encourages innovation and creativity. We are committed to the 03 04 05 06 07 03 04 05 06 07 process of continuous improvements in everything we do. BDO Merged BDO-EPCI BDO Merged BDO-EPCI Commitment to Employees GROSS CUSTOMER LOANS DEPOSIT LIABILITIES NET INCOME We are committed to our employees’ growth and development and we 350 500 7.0 will nurture them in an environment where excellence, integrity, teamwork, 300 470 6.0 6.5 445 6.4 297 400 250 5.0 professionalism and performance are valued above all else. 258 300 ) 200 ) ) 4.0 P P P h h h P P P 150 3.0 Commitment to Shareholders (Bn (Bn 200 (Bn 2.6 We are committed to provide our shareholders with superior returns over the 100 160 2.0 2.0 84 100 129 50 103 1.0 1.5 long term. 59 64 0 0 0.0 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 BDO Merged BDO-EPCI BDO Merged BDO-EPCI BDO Merged BDO-EPCI CORPORATE PROFILE CONTENTS Having formalized its landmark merger with EPCIBank in 2007, BDO emerged as the second-largest bank in the country and drew Corporate Mission ■ Core Values ■ Corporate Profile ■ Financial Highlights 1 ■ Message from the Chairman Emeritus 2 ■ Message recognition from various financial institutions and global publications for its record-breaking performance during the year. Today, with from the Chairperson 4 ■ Message from the President 6 ■ Review of 2007 Operations/Outlook for 2008 8 ■ Operational Highlights 10 the competitive advantages and market leadership records consolidated into the merged entity, the Bank lays claim to a solid foundation ■ Board of Directors / Advisers to the Board 22 ■ Corporate Governance 26 ■ Statement of Management’s Responsibility 28 ■ Report and dynamic synergy upon which to build even more vigorous growth in the future. of Independent Auditors 29 ■ Statements of Condition 30 ■ Income Statements 31 ■ Statements of Changes in Equity 32 ■ Cash Flow Statements 33 ■ Notes to Financial Statements 34 ■ Management Directory 110 ■ Management Directory/Bank Committees 114 ■ Products and Services 115 ■ Subsidiaries and Affiliates 117 ■ International Remittance Offices 118 ■ Branch Directory 119 0707 BD BDOO ANNUAL ANNUAL REPORT REPORT 1 MESSAGE FROM THE CHAIRMAN EMERITUS Last year, we laid the groundwork to make BDO one bank, and thanks to all the collective efforts, it has emerged a bigger and more competitive institution. With more customers to serve and higher expectations to fulfill, I would like to take this opportunity to reassure our shareholders and clients of your Bank’s continued commitment to excellence and service in our industry. To achieve that, we will strengthen the foundation we have laid by continuously growing our Bank with vigor, hard work and perseverance, integrity, innovative spirit, and an optimistic outlook. We will continue to build together as we look for new ways to serve you, our clients and shareholders. I thank my fellow-shareholders for being one with BDO in pursuing these objectives, and our management and staff for their contribution to the Bank’s remarkable performance in 2007. With everyone’s continued dedication and support, I look forward to BDO becoming the country’s best bank in 2008. Henry Sy, Sr. Chairman Emeritus 2 BUILDING FOR THE FUTURE 07 BDO ANNUAL REPORT 3 MESSAGE FROM THE CHAIRPERSON To the shareholders BDO has been officially one bank since the approval of the merger last May. With that, there has been a tremendous surge in our numbers – 15,000 people in our organization, 700 branches, and 1,200 ATMs. It has been said that there is strength in numbers; and today, we are focusing on these numbers to draw our competitive strengths from. There are more of us, after all, to serve more clients, giving us more opportunities for growth and innovation. As one organization, we are continuing to review the current practices and procedures of both banks. We have to make difficult decisions along the way in order to leave the uncertainties of the past behind us, and to emerge as an efficient organization with one direction. I am happy to note that the integration has been moving forward smoothly. With hard work, patience, and teamwork, many officers and staff members have contributed to the continuing progress of the integration, while at the same time, working equally hard to maintain the present business and further improve our service to our clients. As one bank, our organization is committed to strive for greater efficiency and excellence to achieve higher returns for our shareholders. Teresita T. Sy-Coson Chairperson 4 BUILDING FOR THE FUTURE 07 BDO ANNUAL REPORT 5 MESSAGE FROM THE PRESIDENT The year 2007 was significant. It signaled a new stage in the corporate life of what had previously been established and recognized as two banking industry leaders, BDO and EPCIBank. The merged entity, now referred to as the new BDO, has emerged with the combined strength, resources, and promise of performance of the unified institutions. Moving forward, 2007 also marked the start of the integration process – the painstaking and deliberate process of attaining full consolidation. Our performance for the year reflected both the challenges and the rewards of that process. On one hand, we incurred integration costs and one-time unplanned expenses, which contributed to flat earnings and hindered us from meeting certain targets; on the other hand, however, we realized the power of synergy, which served to reinforce our potential for sustained growth. We also took steps to strengthen our balance sheet with capital raising initiatives and more conservative provisioning. These initiatives should serve us well amid uncertain market conditions. Looking back on this remarkable year, we could confidently say that we made the short-term investments and sacrifices that would pay lasting, worthwhile returns. The integration has brought BDO closer to our objectives of achieving “one bank, one service, one face” to the public as soon as possible. Staying focused on this path was not easy, but we were fortunate to have had the gracious patience and continued support of our stakeholders. To our clients, who kept faith with us throughout the integration phase; to our investors and shareholders, who believed in our vision of the merger and remained confident in what we set out to do; and to our officers and staff, who strengthened us with their commitment, perseverance, and loyalty: we thank all of you for helping us bring BDO to this position. Together, we are truly building our Bank for the future. With this stronger foundation, we shall continue to turn the promise into concrete reality. Nestor V. Tan President 6 BUILDING FOR THE FUTURE 07 BDO ANNUAL REPORT 7 REVIEW OF 2007 OPERATIONS Fiscal Performance Building Stability For the fifth consecutive year, the government posted an over-performance on the fiscal front, with the budget deficit shrinking to its lowest level since 1997 at P9.5 Billion (or -0.1% of GDP), notably lower than the P63 Billion ceiling for 2007 and the P64.8 Billion deficit in 2006. Substantial privatization proceeds and reduced interest payments, the latter due to the strong peso and low interest rates, accounted for the smaller fiscal gap. This enabled the government to channel more resources to productive spending, the The Philippines capped 2007 with a record-breaking economic performance despite the intermittent volatility that rocked global first time it has done so in recent years. financial markets brought about by the US subprime mortgage crisis. The country’s GDP grew to its highest level in 30 years to 7.3% in 2007 from 5.4% in 2006, driven by the expansion in private consumption on the back of election-related spending in the first half of the year, the sustained rise in OFW remittances, and a low inflation environment. An improved fiscal position enabled the government to pursue active spending for infrastructure projects and OUTLOOK FOR 2008 pump priming, stimulating an upturn in investments amid rising confidence over the country’s solid fundamentals. Strong domestic demand compensated for the soft export performance last year. Economic expansion in 2008 will continue to be driven by private consumption, with added lift coming from increased government spending and the continuing recovery in investments particularly in construction and in growth areas as mining and BPOs. A key factor is the P1.23 Trillion budget this year, which allocates a higher share of the budget to infrastructure development and basic Inflation social services.

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