Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)For determination of the retirement benefits, the following actuarial assumptions were used:GroupParent Bank2008 2007 2008 2007Discount rates 8.1% - 11.4% 8.3% 8.4% 8.4%Expected rate of return on plan assets 7.0% - 10.0% 8.1% 10.0% 8%Expected rate of salary increases 8.0% - 10.0% 9.3% 8.0% 10%24. RELATED PARTY TRANSACTIONSIn the ordinary course of business, the Group has loans, deposits and other transactions with its related parties and with certain DOSRI.(a) Loans to Related PartiesUnder existing policies of the Group, these loans are made on substantially the same terms as loans granted to other individuals andbusinesses of comparable risks. The General Banking Act and BSP regulations limit the amount of the loans granted by a Group to a singleborrower to 25% of equity. The amount of individual loans to DOSRI, of which 70% must be secured, should not exceed the amount of thedeposit and book value of their investment in the Group. In the aggregate, loans to DOSRI generally should not exceed the total equity or15% of the total loan portfolio of the Group, whichever is lower.The following additional information is presented relative to the DOSRI loans:GroupParent Bank2008 2007 2008 2007Total DOSRI loans P 30,845 P 12,405 P 30,845 P 12,384Unsecured DOSRI loans P - P 6 P - P 4Past due DOSRI loans P - P 4 P - P 4% of DOSRI loans to total loan portfolio 7.9% 4.2% 8.0% 4.5%% of unsecured DOSRI loans to total DOSRI loans 0.0% 0.1% 0.0% 0.0%% of past due DOSRI loans to total DOSRI loans 0.0% 0.0% 0.0% 0.0%DOSRI loans bear interest rates of 0% to 11% per annum in 2008, 4.5% to 9.8% per annum in 2007, and 5.5% to 18.2% per annum in 2006 bothin the Group and Parent Bank financial statements.(b) Deposits from Related PartiesAs of December 31, 2008 and 2007, total deposits made by the related parties to the Group amounted to P230,931 and P107,080,respectively. The related interest expense from deposits amounted to P6, P2 and P10 in 2008, 2007 and 2006, respectively.(c) Other Transactions with Related PartiesA summary of other transactions of the Parent Bank with subsidiaries and associates is shown below:(i) Income to the Parent Banki. EBC Management, Inc. engaged the Parent Bank on August 29, 2005 to provide support services in connection with its generaland administrative operations. The Parent Bank charges EBC Management, Inc. a service fee equivalent to P50 thousand perquarter excluding actual costs and expenditures. The service fee shall continue to be in force unless terminated through writtennotice by either party at least 60 days prior to the intended date of termination.ii. ESHC engaged the Parent Bank to provide support services, such as human resource, audit, comptrollership, centraladministration and legal services in connection with its general and administrative operations. The Parent Bank charges ESHCP50 thousand per quarter or P200 thousand annually. The service fee shall continue to be in force unless terminated throughwritten notice by either party at least 60 days prior to intended date of termination.On January 1, 2006, ESHC engaged BDO Technology to provide such services as systems development and maintenance,computer operations, technical support and network services. ESHC is charged P500 thousand annually for servicesrendered.iii. EBCII engaged the Parent Bank to provide various support such as human resources management, audit, preparation andissuance of checks for and in behalf of EBCII, documentation and safekeeping/custodianship of securities and collateraldocuments, accounting functions and review of financial statements for EBCII. The Parent Bank charges EBCII a service feeequivalent to P11 thousand per month excluding actual costs and expenditures. The agreement is renewable every year. In 2008and 2007, total service fees amounted to P132 thousand for each year.iv. Strategic Property Holdings, Inc. (SPHI) engaged the Parent Bank to provide support services in connection with its generaland administrative operations. SPHI pays the Parent Bank an annual service fee equivalent to P360 thousand. The serviceagreement shall continue to be in force unless terminated by either party through a written notice of either party at least 60 daysprior to date intended for termination. SPHI also leases its office space from the Parent Bank at P1.6 per year.68Thinking Ahead To Get You Ahead • Annual Report 2008