Table of Contents

 

 

 

FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

 

For the month of October, 2013

 

Commission File Number 001-15266

 

BANK OF CHILE

(Translation of registrant’s name into English)

 

Paseo Ahumada 251  
Santiago, Chile

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F  x   Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): 
o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): 
o

 

Indicate by check mark whether by furnishing the information contained in this Form, the
registrant is also thereby furnishing the information to the Commission pursuant to Rule 
12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  o   No  x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-   

 

 

 



Table of Contents

 

BANCO DE CHILE
REPORT ON FORM 6-K

 

Attached Banco de Chile’s Financial Statements with notes for the Third Quarter of 2013.

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

 

Index

 

 

I.

 

Interim Condensed Consolidated Statements of Financial Position

 

II.

 

Interim Condensed Consolidated Statements of Comprehensive Income for the Period

 

III.

 

Interim Condensed Consolidated Statements of Other Comprehensive Income for the Period

 

IV.

 

Interim Condensed Consolidated Statements of Changes in Equity

 

V.

 

Interim Condensed Consolidated Statements of Cash Flows

 

VI.

 

Notes to the Interim Condensed Consolidated Financial Statements

 

MCh$

 

=

 

Millions of Chilean pesos

ThUS$

 

=

 

Thousands of U.S. dollars

UF or CLF

 

=

 

Unidad de Fomento

 

 

 

 

(The Unidad de Fomento is an inflation-indexed, Chilean peso denominated monetary unit set daily in advance on the basis of the previous month’s inflation rate).

Ch$ or CLP

 

=

 

Chilean pesos

US$ or USD

 

=

 

U.S. dollars

JPY

 

=

 

Japanese yen

EUR

 

=

 

Euro

MXN

 

=

 

Mexican pesos

HKD

 

=

 

Hong Kong dollars

PEN

 

=

 

Peruvian nuevo sol

CHF

 

=

 

Swiss franc

 

 

 

 

 

IFRS

 

=

 

International Financial Reporting Standards

IAS

 

=

 

International Accounting Standards

RAN

 

=

 

Compilation of Norms of the Chilean Superintendency of Banks

IFRIC

 

=

 

International Financial Reporting Interpretations Committee

SIC

 

=

 

Standards Interpretation Committee

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

 

 

Page

Interim Condensed Consolidated Statement of Financial Position

3

Interim Condensed Consolidated Statements of Comprehensive Income

4

Interim Condensed Consolidated Statement of Changes in Equity

6

Interim Condensed Consolidated Statements of Cash Flows

7

1.

Corporate information:

8

2.

Legal provisions, basis of preparation and other information:

8

3.

New Accounting Pronouncements:

12

4.

Changes in Accounting Policies and Disclosures:

15

5.

Relevant Events:

15

6.

Segment Reporting:

20

7.

Cash and Cash Equivalents:

23

8.

Financial Assets Held-for-trading:

24

9.

Cash collateral on securities borrowed and reverse repurchase agreements:

25

10.

Derivative Instruments and Accounting Hedges:

28

11.

Loans and advances to Banks:

33

12.

Loans to Customers, net:

34

13.

Investment Securities:

39

14.

Investments in Other Companies:

41

15.

Intangible Assets:

43

16.

Property and equipment:

46

17.

Current Taxes and Deferred Taxes:

48

18.

Other Assets:

53

19.

Current accounts and Other Demand Deposits:

54

20.

Savings accounts and Time Deposits:

54

21.

Borrowings from Financial Institutions:

55

22.

Debt Issued:

57

23.

Other Financial Obligations:

60

24.

Provisions:

60

25.

Other Liabilities:

64

26.

Contingencies and Commitments:

65

27.

Equity:

69

28.

Interest Revenue and Expenses:

73

29.

Income and Expenses from Fees and Commissions:

75

30.

Net Financial Operating Income:

76

31.

Foreign Exchange Transactions, net:

76

32.

Provisions for Loan Losses:

77

33.

Personnel Expenses:

78

34.

Administrative Expenses:

79

35.

Depreciation, Amortization and Impairment:

80

36.

Other Operating Income:

81

37.

Other Operating Expenses:

82

38.

Related Party Transactions:

83

39.

Fair Value of Financial Assets and Liabilities:

88

40.

Maturity of Assets and Liabilities:

97

41.

Subsequent Events:

99

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended September 30, 2013 and 2012

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

Notes

 

September
2013

 

December
2012

 

 

 

 

 

MCh$

 

MCh$

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

7

 

998,770

 

684,925

 

Transactions in the course of collection

 

7

 

513,900

 

396,611

 

Financial assets held-for-trading

 

8

 

365,892

 

192,724

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

9

 

20,501

 

35,100

 

Derivative instruments

 

10

 

290,487

 

329,497

 

Loans and advances to banks

 

11

 

676,953

 

1,343,322

 

Loans to customers, net

 

12

 

19,957,386

 

18,334,330

 

Financial assets available-for-sale

 

13

 

1,784,353

 

1,264,440

 

Financial assets held-to-maturity

 

13

 

 

 

Investments in other companies

 

14

 

16,697

 

13,933

 

Intangible assets

 

15

 

30,947

 

34,290

 

Property and equipment

 

16

 

198,797

 

205,189

 

Current tax assets

 

17

 

3,018

 

2,684

 

Deferred tax assets

 

17

 

135,961

 

127,143

 

Other assets

 

18

 

259,656

 

296,878

 

TOTAL ASSETS

 

 

 

25,253,318

 

23,261,066

 

LIABILITIES

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

19

 

5,927,692

 

5,470,971

 

Transactions in the course of payment

 

7

 

314,489

 

159,218

 

Cash collateral on securities lent and repurchase agreements

 

9

 

223,409

 

226,396

 

Savings accounts and time deposits

 

20

 

10,332,890

 

9,612,950

 

Derivative instruments

 

10

 

375,028

 

380,322

 

Borrowings from financial institutions

 

21

 

876,247

 

1,108,681

 

Debt issued

 

22

 

4,056,885

 

3,273,933

 

Other financial obligations

 

23

 

174,967

 

162,123

 

Current tax liabilities

 

17

 

2,043

 

25,880

 

Deferred tax liabilities

 

17

 

36,851

 

27,630

 

Provisions

 

24

 

467,405

 

504,837

 

Other liabilities

 

25

 

239,581

 

301,066

 

TOTAL LIABILITIES

 

 

 

23,027,487

 

21,254,007

 

 

 

 

 

 

 

 

 

EQUITY

 

27

 

 

 

 

 

Attributable to Bank’s Owners:

 

 

 

 

 

 

 

Capital

 

 

 

1,849,351

 

1,629,078

 

Reserves

 

 

 

213,767

 

177,574

 

Other comprehensive income

 

 

 

13,182

 

18,935

 

Retained earnings:

 

 

 

 

 

 

 

Retained earnings from previous periods

 

 

 

16,379

 

16,379

 

Income for the period

 

 

 

380,720

 

465,850

 

Less:

 

 

 

 

 

 

 

Provision for minimum dividends

 

 

 

(247,569

)

(300,759

)

Subtotal

 

 

 

2,225,830

 

2,007,057

 

Non-controlling interests

 

 

 

1

 

2

 

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

 

2,225,831

 

2,007,059

 

TOTAL LIABILITIES AND EQUITY

 

 

 

25,253,318

 

23,261,066

 

 

The accompanying notes 1 to 41 are an integral part of these interim condensed consolidated financial statements

 

3



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD

For the nine-month ended September 30, 2013 and 2012

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

A.  CONSOLIDATED STATEMENT OF INCOME

 

 

 

Notes

 

September
2013

 

September
2012

 

 

 

 

 

MCh$

 

MCh$

 

Interest revenue

 

28

 

1,272,595

 

1,182,658

 

Interest expense

 

28

 

(503,902

)

(497,974

)

Net interest income

 

 

 

768,693

 

684,684

 

 

 

 

 

 

 

 

 

Income from fees and commissions

 

29

 

288,089

 

275,326

 

Expenses from fees and commissions

 

29

 

(72,239

)

(62,826

)

Net fees and commission income

 

 

 

215,850

 

212,500

 

 

 

 

 

 

 

 

 

Net financial operating income

 

30

 

23,687

 

15,766

 

Foreign exchange transactions, net

 

31

 

36,764

 

24,829

 

Other operating income

 

36

 

17,924

 

16,341

 

Total operating revenues

 

 

 

1,062,918

 

954,120

 

 

 

 

 

 

 

 

 

Provisions for loan losses

 

32

 

(173,817

)

(137,584

)

 

 

 

 

 

 

 

 

OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES

 

 

 

889,101

 

816,536

 

 

 

 

 

 

 

 

 

Personnel expenses

 

33

 

(234,191

)

(231,632

)

Administrative expenses

 

34

 

(184,309

)

(176,048

)

Depreciation and amortization

 

35

 

(21,332

)

(23,267

)

Impairment

 

35

 

(133

)

(648

)

Other operating expenses

 

37

 

(13,789

)

(25,125

)

 

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

 

(453,754

)

(456,720

)

 

 

 

 

 

 

 

 

NET OPERATING INCOME

 

 

 

435,347

 

359,816

 

 

 

 

 

 

 

 

 

Income attributable to associates

 

14

 

2,044

 

857

 

Income before income tax

 

 

 

437,391

 

360,673

 

 

 

 

 

 

 

 

 

Income tax

 

 

 

(56,671

)

(32,762

)

 

 

17

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

380,720

 

327,911

 

Attributable to:

 

 

 

 

 

 

 

Bank’s Owners

 

 

 

380,720

 

327,910

 

Non-controlling interests

 

 

 

 

1

 

 

 

 

 

 

 

 

 

Net income per share attributable to Bank’s Owners:

 

 

 

Ch$

 

Ch$

 

Basic net income per share

 

27

 

4.10

 

3.72

 

Diluted net income per share

 

27

 

4.10

 

3.72

 

 

The accompanying notes 1 to 41 are an integral part of these interim condensed consolidated financial statements

 

4



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD

For the nine-month ended September 30, 2013 and 2012

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

B.  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Notes

 

September
2013

 

September
2012

 

 

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

380,720

 

327,911

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED TO INCOME FOR THE PERIOD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

Net change in unrealized gains (losses) on available-for-sale instruments

 

13

 

9,149

 

23,294

 

Gains and losses on derivatives held as cash flow hedges

 

10

 

(16,389

)

1,294

 

Cumulative translation adjustment

 

 

 

39

 

(65

)

Other comprehensive income before income taxes

 

 

 

(7,201

)

24,523

 

 

 

 

 

 

 

 

 

Income tax related to other comprehensive income

 

17

 

1,448

 

(4,880

)

 

 

 

 

 

 

 

 

Total other comprehensive income that will be reclassified to income for the period

 

 

 

(5,753

)

19,643

 

Other comprehensive income that will not be reclassified to income for the period

 

 

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME

 

 

 

(5,753

)

19,643

 

 

 

 

 

 

 

 

 

TOTAL CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

374,967

 

347,554

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Bank’s owners

 

 

 

374,967

 

347,553

 

Non-controlling interest

 

 

 

 

1

 

 

 

 

 

 

 

 

 

Comprehensive net income per share attributable to Bank’s owners:

 

 

 

Ch$

 

Ch$

 

Basic net income per share

 

 

 

4.03

 

3.95

 

Diluted net income per share

 

 

 

4.03

 

3.95

 

 

The accompanying notes 1 to 41 are an integral part of these interim condensed consolidated financial statements

 

5



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the nine-month ended September 30, 2013 and 2012

 (Translation of financial statements originally issued in Spanish)

(Expressed in millions of Chilean pesos)

 

 

 

 

 

 

 

Reserves

 

Other comprehensive income

 

Retained earnings

 

 

 

 

 

 

 

 

 

Notes

 

Paid-in
Capital

 

Other
reserves

 

Reserves
from
earnings

 

Unrealized
gains
(losses) on
available-

for- sale

 

Derivatives
cash flow
hedge

 

Cumulative
translation
adjustment

 

Retained
earnings

from
previous
periods

 

Income for
the year

 

Provision
for
minimum
dividends

 

Attributable
to equity
holders of
the parent

 

Non-

controlling
interest

 

Total
equity

 

 

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2011

 

 

 

1,436,083

 

32,256

 

87,226

 

(1,644

)

(395

)

(36

)

16,379

 

428,805

 

(259,501

)

1,739,173

 

2

 

1,739,175

 

Capitalization of retained earnings

 

27

 

73,911

 

 

 

 

 

 

 

(73,911

)

 

 

 

 

Retention (released) earnings

 

27

 

 

 

58,092

 

 

 

 

 

(58,092

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(296,802

)

259,501

 

(37,301

)

(2

)

(37,303

)

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(65

)

 

 

 

(65

)

 

(65

)

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

1,044

 

 

 

 

 

1,044

 

 

1,044

 

Valuation adjustment on available-for-sale instruments, net

 

 

 

 

 

 

18,666

 

 

 

 

 

 

18,666

 

 

18,666

 

Income for the period 2012

 

 

 

 

 

 

 

 

 

 

327,910

 

 

327,910

 

1

 

327,911

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(214,885

)

(214,885

)

 

(214,885

)

Balances as of September 30, 2012

 

 

 

1,509,994

 

32,256

 

145,318

 

17,022

 

649

 

(101

)

16,379

 

327,910

 

(214,885

)

1,834,542

 

1

 

1,834,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

7

 

 

 

 

7

 

1

 

8

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

385

 

 

 

 

 

385

 

 

385

 

Valuation adjustment on available-for-sale instruments, net

 

 

 

 

 

 

973

 

 

 

 

 

 

973

 

 

973

 

Subscribed and paid shares

 

 

 

119,084

 

 

 

 

 

 

 

 

 

119,084

 

 

119,084

 

Income for the period 2012

 

 

 

 

 

 

 

 

 

 

137,940

 

 

137,940

 

 

137,940

 

Provision for minimum dividends

 

 

 

 

 

 

 

 

 

 

 

(85,874

)

(85,874

)

 

(85,874

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2012

 

 

 

1,629,078

 

32,256

 

145,318

 

17,995

 

1,034

 

(94

)

16,379

 

465,850

 

(300,759

)

2,007,057

 

2

 

2,007,059

 

Capitalization of retained earnings

 

27

 

86,202

 

 

 

 

 

 

 

(86,202

)

 

 

 

 

Retention (released) earnings

 

27

 

 

 

36,193

 

 

 

 

 

(36,193

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(343,455

)

300,759

 

(42,696

)

(1

)

(42,697

)

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

39

 

 

 

 

39

 

 

39

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(13,112

)

 

 

 

 

(13,112

)

 

(13,112

)

Valuation adjustment on available-for-sale instruments (net)

 

 

 

 

 

 

7,320

 

 

 

 

 

 

7,320

 

 

7,320

 

Subscribed and paid shares

 

27

 

134,071

 

 

 

 

 

 

 

 

 

134,071

 

 

134,071

 

Income for the period 2013

 

 

 

 

 

 

 

 

 

 

380,720

 

 

380,720

 

 

380,720

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(247,569

)

(247,569

)

 

(247,569

)

Balances as of September 30, 2013

 

 

 

1,849,351

 

32,256

 

181,511

 

25,315

 

(12,078

)

(55

)

16,379

 

380,720

 

(247,569

)

2,225,830

 

1

 

2,225,831

 

 

The accompanying notes 1 to 41 are an integral part of these interim condensed consolidated financial statements

 

6



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine-month ended September 30, 2013 and 2012

 (Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

Notes

 

September
2013

 

September
2012

 

 

 

 

 

MCh$

 

MCh$

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income for the period

 

 

 

380,720

 

327,911

 

Items that do not represent cash flows:

 

 

 

 

 

 

 

Depreciation and amortization

 

35

 

21,332

 

23,267

 

Impairment of intangible assets and property and equipment

 

35

 

133

 

648

 

Provision for loan losses

 

32

 

186,118

 

164,370

 

Provision of contingent loans

 

32

 

10,632

 

2,909

 

Fair value adjustment of financial assets held-for-trading

 

 

 

(282

)

626

 

Income attributable to investments in other companies

 

14

 

(1,792

)

(648

)

Income from sales of assets received in lieu of payment

 

36

 

(3,627

)

(5,246

)

Net gain on sales of property and equipment

 

 

 

(205

)

(224

)

(Increase) decrease in other assets and liabilities

 

 

 

(15,828

)

(6,244

)

Charge-offs of assets received in lieu of payment

 

37

 

1,308

 

1,974

 

Other charges (credits) to income that do not represent cash flows

 

 

 

4,865

 

(466

)

(Gain) loss from foreign exchange transactions of other assets and other liabilities

 

 

 

(55,566

)

(38,070

)

Net changes in interest and fee accruals

 

 

 

28,759

 

21,374

 

Changes in assets and liabilities that affect operating cash flows:

 

 

 

 

 

 

 

(Increase) decrease in loans and advances to banks, net

 

 

 

666,372

 

(144,957

)

(Increase) decrease in loans to customers

 

 

 

(1,799,468

)

(1,146,224

)

(Increase) decrease in financial assets held-for-trading, net

 

 

 

(191,188

)

123,829

 

(Increase) decrease in deferred taxes, net

 

17

 

403

 

(13,113

)

(Increase) decrease in current account and other demand deposits

 

 

 

456,348

 

107,096

 

(Increase) decrease in payables from repurchase agreements and security lending

 

 

 

21,656

 

56,397

 

(Increase) decrease in savings accounts and time deposits

 

 

 

717,671

 

673,172

 

Proceeds from sale of assets received in lieu of payment

 

 

 

5,593

 

7,074

 

Total cash flows from operating activities

 

 

 

433,954

 

155,455

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

(Increase) decrease in financial assets available-for-sale, net

 

 

 

(532,350

)

81,974

 

Purchases of property and equipment

 

16

 

(8,535

)

(15,285

)

Proceeds from sales of property and equipment

 

 

 

491

 

119

 

Purchases of intangible assets

 

15

 

(3,773

)

(6,001

)

Investments in other companies

 

14

 

(1,440

)

(71

)

Dividends received from investments in other companies

 

14

 

931

 

915

 

Total cash flows from investing activities

 

 

 

(544,676

)

61,651

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds of mortgage finance bonds

 

 

 

 

 

Repayment of mortgage finance bonds

 

 

 

(15,869

)

(20,791

)

Proceeds from bond issuances

 

22

 

1,245,262

 

815,989

 

Redemption of bond issuances

 

 

 

(484,375

)

(244,075

)

Proceeds from subscription and payment of shares

 

27

 

134,071

 

 

Dividends paid

 

27

 

(343,455

)

(296,802

)

(Increase) decrease in borrowings from financial institutions

 

 

 

(392,878

)

19,285

 

(Increase) decrease in other financial obligations

 

 

 

15,731

 

(33,206

)

(Increase) decrease in borrowings from Central Bank of Chile

 

 

 

 

(22,793

)

Borrowings from Central Bank of Chile (long-term)

 

 

 

 

15

 

Payment of borrowings from Central Bank of Chile (long-term)

 

 

 

(7

)

(48

)

Long-term foreign borrowings

 

 

 

622,630

 

336,103

 

Payment of long-term foreign borrowings

 

 

 

(460,418

)

(815,838

)

Proceeds from other long-term borrowings

 

 

 

538

 

666

 

Payment of other long-term borrowings

 

 

 

(3,821

)

(4,270

)

Total cash flows from financing activities

 

 

 

317,409

 

(265,765

)

TOTAL NET POSITIVE CASH FLOWS FOR THE PERIOD

 

 

 

206,687

 

(48,659

)

Net effect of exchange rate changes on cash and cash equivalents

 

 

 

33,848

 

(34,148

)

Cash and cash equivalents at beginning of year

 

 

 

1,236,324

 

1,429,908

 

Cash and cash equivalents at end of period

 

7

 

1,476,859

 

1,347,101

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

2013

 

2012

 

Cash paid during the year for:

 

 

 

MCh$

 

MCh$

 

Interest received

 

 

 

1,240,417

 

1,184,733

 

Interest paid

 

 

 

(442,965

)

(478,675

)

 

The accompanying notes 1 to 41 are an integral part of these interim condensed consolidated financial statements

 

7



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 


 

1.                   Corporate information:

 

Banco de Chile is authorized to operate like a commercial bank since September 17, 1996, in conformity with the Article 25 of Law No. 19,396.  Banco de Chile, resulting from the merger of Banco Nacional de Chile, Banco Agrícola and Banco de Valparaíso, was formed on October 28, 1893 in the city of Santiago, in the presence of the Notary Eduardo Reyes Lavalle.

 

Banco de Chile (“Banco de Chile” or the “Bank”) is a Corporation organized under the laws of the Republic of Chile, regulated by the Superintendency of Banks and Financial Institutions (“SBIF”), Since 2001, - when the bank was first listed on the New York Stock Exchange (“NYSE”), in the course of its American Depository Receipt (ADR) program, which is also registered at the London Stock Exchange — Banco de Chile additionally follows the regulations published by the United States Securities and Exchange Commission (“SEC”), Banco de Chile’s shares are also listed on the Latin American securities market of the Madrid Stock Exchange (“LATIBEX”).  As indicate in Note No. 41 “Subsequent Events” since October 18, 2013 the Bank has resolved to exclude its shares of this stock exchange.

 

Banco de Chile offers a broad range of banking services to its customers, ranging from individuals to large corporations. The services are managed in large corporate banking, middle and small corporate banking, personal banking services and retail.  Additionally, the Bank offers international as well as treasury banking services. The Bank’s subsidiaries provide other services including securities brokerage, mutual fund and investment management, factoring, insurance brokerage, financial advisory and securitization.

 

Banco de Chile’s legal address is Paseo Ahumada 251, Santiago, Chile and its website is www.bancochile.cl.

 

The Interim Condensed Consolidated Financial Statements of Banco de Chile, for the period ended September 30, 2013 were approved for issuance in accordance with the directors on October 24, 2013.

 

2.                   Legal provisions, basis of preparation and other information:

 

(a)                                 Legal provisions:

 

The General Banking Law in its Article No.15 authorizes the Chilean Superintendency of Banks (SBIF) to issue generally applicable accounting standards for entities it supervises. The Corporations Law, in turn, requires generally accepted accounting principles to be followed.

 

Based on the aforementioned laws, banks should use the criteria provided by the Superintendency in accordance with the Compendium of Accounting Standards, and any matter not addressed therein, as long as it does not contradict its instructions, should adhere to generally accepted accounting principles in technical standards issued by the Chilean Association of Accountants, that coincide with international accounting standards and international financial reporting standards agreed upon by the International Accounting Standards Board (IASB). Should there be discrepancies between these generally accepted accounting principles and the accounting criteria issued by the SBIF, the latter shall prevail.

 

8



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

2.                        Legal provisions, basis of preparation and other information, continued:

 

(b)                                 Basis of preparation:

 

(b.1)            These Interim Condensed Consolidated Financial Statements are presented according to Chapter C-2 of the Compendium of Accounting Standards, issued by the Superintendency of Banks and Financial Institutions (SBIF).

 

(b.2)            The following table details the entities in which the Bank —directly or indirectly— owns a controlling interest and that are therefore consolidated in these financial statements:

 

 

 

 

 

 

 

 

 

Interest Owned

 

 

 

 

 

 

 

 

 

Direct

 

Indirect

 

Total

 

 

 

 

 

 

 

Functional

 

September

 

December

 

September

 

December

 

September

 

December

 

Rut

 

Subsidiaries

 

Country

 

Currency

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

%

 

%

 

%

 

%

 

%

 

%

 

44,000,213-7

 

Banchile Trade Services Limited

 

Hong Kong

 

US$

 

100.00

 

100.00

 

 

 

100.00

 

100.00

 

96,767,630-6

 

Banchile Administradora General de Fondos S.A.

 

Chile

 

Ch$

 

99.98

 

99.98

 

0.02

 

0.02

 

100.00

 

100.00

 

96,543,250-7

 

Banchile Asesoría Financiera S.A.

 

Chile

 

Ch$

 

99.96

 

99.96

 

 

 

99.96

 

99.96

 

77,191,070-K

 

Banchile Corredores de Seguros Ltda.

 

Chile

 

Ch$

 

99.83

 

99.83

 

0.17

 

0.17

 

100.00

 

100.00

 

96,894,740-0

 

Banchile Factoring S.A. (*)

 

Chile

 

Ch$

 

 

99.75

 

 

0.25

 

 

100.00

 

96,571,220-8

 

Banchile Corredores de Bolsa S.A.

 

Chile

 

Ch$

 

99.70

 

99.70

 

0.30

 

0.30

 

100.00

 

100.00

 

96,932,010-K

 

Banchile Securitizadora S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

96,645,790-2

 

Socofin S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

96,510,950-1

 

Promarket S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

 


(*) See note No.5 (j) of Relevant events

 

9



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

2.                          Legal provisions, basis of preparation and other information, continued:

 

(c)          Use of estimates and judgment:

 

Preparing financial statements requires management to make judgments, estimations and assumptions that affect the application of accounting policies and the valuation of assets, liabilities, income and expenses presented. Real results could differ from these estimated amounts.  Details on the use of estimates and judgment and their effect on the amounts recognized in the Interim Condensed Consolidated Financial Statement are included in the following notes:

 

1.                  Goodwill valuation (Note No. 15);

2.                  Useful lives of property and equipment and intangible assets (Notes No. 15 and No. 16);

3.                  Income taxes and deferred taxes (Note No. 17);

4.                  Provisions (Note No. 24);

5.                  Commitments and contingencies (Note No. 26);

6.                  Provision for loan losses (Note No. 32);

7.                  Impairment of other financial assets (Note No. 35);

8.                  Fair value of financial assets and liabilities (Note No. 39).

 

During period 2013, the Bank has made a modification to the derivatives valuation model.  This consists in the incorporation of “Counterparty Value Adjustment” (CVA) in the valuation of derivatives, to reflect the counterparty risk in determining the fair value. In accordance with IAS 8 “Accounting Policies: Changes in Accounting Estimates and Errors”, this modification has been treated as a change in accounting estimate and its effect recorded in earnings. The effect of this change involved an initial charge of income of Ch$7,821 million.

 

There have been no significant changes to estimates made during period 2013, except for the above.

 

(d)         Seasonality or Cyclical Character of the Transactions of the Intermediate Period:

 

Due to the nature of its business, the Bank and its subsidiaries’ activities do not have a cyclical or seasonal character. Accordingly, no specific details have been included on the notes to this Interim Condensed Consolidated Financial Statements with the information regarding the period of nine-month ended September 30, 2013.

 

(e)          Relative Importance:

 

When determining the information to present on the different items from the financial statements or other subjects, the Bank has considered the relative importance in relation to the Interim Condensed Consolidated financial statements of the period.

 

10



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

2.                           Legal provisions, basis of preparation and other information, continued:

 

(f)      Reclassifications:

 

During this period, the expense that, by their nature is directly related with credit cards was reclassified from “Other operational expenses” to “Expenses from fees and commissions”, in order to relate them better with the revenues from that product.  The effect of this reclassification is the following:

 

 

 

Balance
as of
September 30,
2012

 

Reclassification

 

Reclassified
Balance as of

September 30,
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

Expenses from fees and commissions

 

(48,089

)

(14,737

)

(62,826

)

Other operational expenses

 

(39,862

)

14,737

 

(25,125

)

 

This reclassification does not affect any comply of covenants.

 

There are not other significant reclassifications at the end period 2013, different to described above.

 

11



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                   New Accounting Pronouncements:

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and rules issued by the Superintendency of Banks and Financial Institutions (SBIF), as per the following detail:

 

3.1                      Accounting rules issued by IASB:

 

IAS 32 Financial Instruments: Presentation

 

The amendments issued in December 2011, clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.  The standard is effective for annual periods beginning on or after January 1, 2014 and early adoption is permitted.

 

According to current rules about netting force in Chile, this rule has no impact on the consolidated financial statements of Banco de Chile and its subsidiaries.

 

IAS 36 Impairment assets

 

On May 29, 2013, the IASB issued amendments to IAS 36 respect to disclosures information related to recoverable amount of impaired assets, if this amount corresponded to fair value less disposal cost.  These modifications are related to IFRS 13: “Fair Value measurement”.

 

The amendments will be applied retrospectively to annual periods beginning in January 1, 2014.  Early adoption is permitted for the periods that the entity has applied IFRS 13.

 

The Bank and its subsidiaries appraises that this amendment will not have impact in the consolidated financial statements.

 

IAS 39 Financial Instruments: Recognition and Measurement

 

On June 27, 2013 the IASB issue amendments to IAS 39 related to continuing hedge accounting after novation.  This amendment provides an exception to the requirement to discontinue hedge accounting in situations where over-the-counter (OTC) derivatives designated in hedging relationships are directly or indirectly, novated to a central counterparty (CCP) as a consequence of laws or regulations, or the introduction of laws or regulations.

 

The effective date for annual periods beginning on or after January 1, 2014.  Early adoption is permitted.

 

The Bank will make updates related to documentation that will be required and adjustments in operating process for compliance of novations.  It is important to say that the hedges will not be interrupted for this novation, so there is no impact in financial statements.

 

12



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 9 Financial Instruments: Financial liabilities

 

In October, 2010, the IASB published the requirements for classifying and measuring financial liabilities were added to IFRS 9.  Most of the added requirements were carried forward unchanged from IAS 39.  However, the requirements related to the fair value option for financial liabilities were changed to address the issue of own credit risk in response to consistent feedback from users of financial statements and others that the effects of changes in a liability’s credit risk ought not to affect profit or loss unless the liability is held for trading.

 

The mandatory effective date for annual periods beginning on or after January 1, 2015.

 

IFRS 9 Financial Instruments: Recognition and Measurement

 

In November 2009, the IASB issued IFRS 9, “Financial Instruments,” the first step in its project to replace IAS 39, “Financial Instruments: Recognition and Measurement”.  IFRS 9 introduces new requirements for classifying and measuring financial assets that are in the scope of the application of IAS 39.  This new regulation requires that all financial assets be classified in function of the entity’s business model for the management of financial assets and of the characteristics of the contractual cash flows of financial assets.  A financial asset shall be measured at amortized cost if two criteria are fulfilled: (a) the objective of the business model is to maintain a financial asset to receive contractual cash flows, and (b) contractual cash flows represent principal and interest payments.  Should a financial asset not comply with the aforementioned conditions, it will be measured at fair value.  In addition, this standard allows a financial asset that fulfills the criteria to be valued at amortized cost to be designated at fair value with changes in income under the fair value option, as long as this significantly reduces or eliminates an accounting asymmetry.  Likewise, IFRS 9 eliminates the requirement of separating embedded derivatives from the host financial assets.  Therefore, it requires that a hybrid contract be classified entirely in amortized cost or fair value.

 

IFRS 9 requires, mandatory and prospective way, that the entity makes reclassifications of financial assets when the entity modifies the business model.

 

Under IFRS 9, all equity investments of are measured at fair value. However, the Management has the option of present the changes of fair value in the item “Other Comprehensive Income” in equity. This accounting treatment is available for the initial recognition of an instruments and it is irrevocable. The unrealized income (loss) recognized in “Other Comprehensive Income”, derived from the changes of fair value, and must be not included in income statements.

 

IFRS 9 is effective for annual periods commencing as of January 1, 2015, and allows adoption prior to that date.  IFRS 9 must be applied retroactively, however if it is adopted before January 1, 2012, there is no need to reformulate comparative periods.

 

Banco de Chile and its subsidiaries are assessing the possible impact of adoption of these changes on the consolidated financial statements, however, that impact will depend on the assets maintained by the institution as of the adoption date.  It is not practicable to quantify the effect on the issuance of these consolidated financial statements.  To date, neither of these standards has been approved by the Superintendency of Banks, event that is required for their application.

 

13



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 10 Consolidated Financial Statement, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements

 

The Amendments to IFRS 10, IFRS 12 and IAS 27 incorporate a definition of an investment entity and also introduce an exception to consolidate certain subsidiaries owned investment entities.  These amendments require an entity to measure investment considered its investments in subsidiaries at fair value through profit or loss in accordance with IFRS 9 instead of consolidating such subsidiaries.

 

Amendments also introduce new disclosure requirements related to investment entities IFRS 12 and IAS 27.

 

If an entity applies these amendments but not applies IFRS 9 yet, any reference in this document to IFRS 9 must be interpreted as a reference to IAS 39 Financial Instruments: Recognition and Measurement.

 

The standard is effective for annual periods beginning on or after January 1, 2014 and early adoption is permitted.

 

3.2                      Accounting rules issued by SBIF:

 

On March 19, 2013 the Superintendency of Banks issued a Circular No. 3,548 that modified the following:

 

(a)         The instructions relative to the presentation of Statements of Income for matching the names used in the Compendium of Accounting Standards issued by the Chilean Superintendency of Banks with last modifications of IAS 1.

 

The expressions: “Statement of Income” and “Statement of Comprehensive Income” must be replaced by “Statement of Income for the Period” and “Statement of Other Comprehensive Income for the Period” respectively.

 

(b)         Accurate presentation of income (loss) that originate in the case of sale portfolio loans, stipulated that the net income (loss) for sale portfolio loans classified in the item “Net financial operating income”, corresponds to differences between the cash perceived (or fair value of the instruments that are received as consideration) and the value net of provisions of the transferred assets, registered at the sale date.

 

Before this regulatory change, the net income (loss) of sale portfolio loans, corresponded to differences between the cash perceived (or fair value of the instruments that are received as consideration) and the gross value of transferred assets, proceeding after to release of the established provisions for that loans, being this last effect recognized in the item “Provisions for loan losses” of the Income Statements of the Periods.

 

14



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

4.                  Changes in Accounting Policies and Disclosures:

 

During the period ended September 30, 2013, there have not been significant accounting changes that affect the presentation of consolidated financial statements.

 

5.                   Relevant Events:

 

(a)         On January 04, 2013 Banco de Chile has concluded the execution process of the insurance agreements between Banco de Chile and its subsidiary Banchile Corredores de Seguros Limitada, with Banchile Seguros de Vida S.A., which were entered into through private instruments dated on December 28, 2012, which are:

 

(1)         Brokerage Agreement entered into by the affiliate Banchile Corredores de Seguros Limitada and the related company Banchile Seguros de Vida S.A.

 

(2)         Agreements entered into by Banco de Chile and Banchile Seguros de Vida S.A.:

 

i)       Collection and Data Administration Agreement.

ii)      Use Agreement for Distribution Channels.

iii)     Banchile’s Trademark License Agreement.

iv)     Credit Life Insurance Agreement.

 

(3)    Framework agreement for Insurance Banking, entered into by Banco de Chile, Banchile Corredores de Seguros Limitada and Banchile Seguros de Vida S.A.

 

All of the agreements have a duration of 3 years effective from January 1, 2013, excluding those insurances, as applicable, that are related to loan mortgages subject to public bid in accordance with article 40 of DFL No. 251 of 1931.

 

It is worth noting that Banchile Seguros de Vida S.A. is a related party to Banco de Chile in accordance with Article 146 of the Chilean Corporations Law. In turn, Banchile Corredores de Seguros Limitada is a subsidiary of Banco de Chile, incorporated pursuant to Article 70 letter a) of the Chilean Banking Act.

 

(b)         On January 17, 2013 the Central Bank of Chile, in session No.1730-02-130117 held on that day, agreed and determined, in accordance with article 30 letter b) of Law No. 19,396, the selling price of the subscription options pertaining the 1,279,502,316 (Banco de Chile-T series) cash shares issued by Banco de Chile as agreed during the Extraordinary Shareholders Meeting held on October  17, 2012. Those shares are owned by Sociedad Administradora de la Obligación Subordinada SAOS S.A. and are pledged as collateral to the Chilean Central Bank.

 

The above referred subscription options shall be preferentially offered to shareholders of series A, B and D of Sociedad Matriz del Banco de Chile S.A. during the so called “Special Preferential Rights Offering Period” which will begin running on January 19, 2013, and shall be elapsed on February 17, 2013.

 

In accordance with the above referred resolution of the Council of the Central Bank of Chile, the price of each option shall be as follows:

 

15



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                           Relevant Events, continued:

 

“The price of the subscription option, hereinafter the “Option Price”, shall correspond to the higher value between Ch$0.1 and the value resulting from the difference obtained after multiplying 0.9752 over the average stock trading price of Banco de Chile´s shares registered in local stock exchanges during the three business trading days preceding the date in which the corresponding option is acquired, hereinafter the “Weighted Average Share Price” (“Precio Promedio Ponderado de la Acción”), and Ch$62.0920.

 

For these purposes, the “Weighted Average Share Price” was determined, for each day, in accordance to the weighted average price of Banco de Chile´s shares traded during the three business trading days preceding the date in which the corresponding option is acquired, having in mind that the value corresponding to the Weighted Average Price, in relation to the beginning of the Special Preferential Rights Offering Period shall be of Ch$71.4. This value considers the resulting prices from the Ordinary Preferential Rights Offering Period referred to in letter a) of article 30 of Law N°19,396, so that, initially, the Option Price shall correspond to Ch$7.5 per each Banco de Chile´s share, and subsequently, he Option Price shall be determined pursuant to the Weighted Average Share Price, as explained before.

 

In any event, and for the purposes of selling the subscription options, the Option Price shall corresponded to Ch$7.5 for each Banco de Chile´s share, as long as the Weighted Average Share Price, determined as described before, does not exceed Ch$76.9 nor be less than Ch$71.3.

 

The Option Price that is determined in accordance with the aforementioned shall be paid up front pursuant to the conditions set forth by Banco de Chile for purposes of the Bank’s capital increase and its calculation procedure shall also be governed by the term established in the final paragraph of letter b) of article 30 of the Law No. 19,396, in accordance to the conditions established by the same legal provision”.

 

In addition, the Central Bank of Chile resolved that Sociedad Administradora de la Obligación Subordinada SAOS S.A. shall preferentially offer the options to the mentioned shareholders at the price singularized before. The price was notified by Sociedad Administradora de la Obligación Subordinada SAOS S.A. to the Central Bank of Chile and also be informed to interested persons at the beginning of each day of the “Special Preferential Rights Offering Period”.

 

(c)          On January 24, 2013 in the Ordinary Meeting No. BCH 2,769, the Board of Directors of Banco de Chile resolved to call an Ordinary Shareholders Meeting to be held on the 21th of March, 2013 with the objective of proposing, among other matters, the distribution of the Dividend number 201 of Ch$3.41625263165 per every of the 88,037,813,511 “Banco de Chile” shares, which will be payable at the expense of the distributable net income obtained during the fiscal year ending the 31st of December, 2012, corresponding to 70% of such income.

 

16



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                           Relevant Events, continued:

 

In the Ordinary and Extraordinary Banco de Chile’s meetings held on March 21, 2013 it was agreed to comply the previous agreements.

 

Likewise, the Board of Directors resolved to call an Extraordinary Shareholders Meeting to be held on the same date in order to propose, among other things, the capitalization of 30% of the distributable net income obtained during the fiscal year ending the 31st of December, 2012, through the issuance of fully paid-in shares, of no par value, with a value of Ch$71.97 per “Banco de Chile “share which will be distributed among the shareholders in the proportion of 0.02034331347 shares for each “Banco de Chile” share, and to adopt the agreements that are necessary in this regard, subject to the exercise of the options established in article 31 of Law 19,396.

 

(d)         On March 21, 2013 Banco de Chile informed that the Ordinary Shareholders Meeting of the Bank held today, agreed to definitely appoint Mr. Francisco Aristeguieta Silva as Director of the Bank, position that he will hold until the next renewal of the Board.

 

(e)          On March 26, 2013 the Central Bank of Chile communicated to Banco de Chile that in the Extraordinary Session, No. 1742E, held today, the Board of the Central Bank of Chile resolved to request its corresponding surplus, from the fiscal year ended on December 31, 2012, including the proportional part of the profits agreed upon capitalization, be paid in cash currency.

 

(f)           On March 27, 2013 Mr. Guillermo Luksic Craig. died, an important member of our Board since 2001 and member of controlling group of our Bank.

 

(g)          According to Note 27 (a) during April concluded the process of subscription and payment of shares of increase capital authorized in the Extraordinary Shareholders Meeting held on October 17, 2012.

 

(h)         On April 11, 2013 in Extraordinary Meeting appointed to Mr. Jean-Paul Luksic Fontbona like Director, until the next Ordinary Shareholders Meeting, replacing to Mr. Guillermo Luksic Craig.

 

17



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                           Relevant Events, continued:

 

(i)    On May 13, 2013 and regarding the capitalization of 30% of the distributable net income obtained during the fiscal year ending as of December 31, 2012, through the issuance of fully paid-in shares, agreed in the Extraordinary Shareholders Meeting held on the March 21, 2013, it is informed the following information:

 

a)             In the Extraordinary Shareholders Meeting mentioned above, it was agreed to increase the Bank´s capital in the amount of Ch$86,201,422,505 through the issuance of 1,197,741,038 fully paid-in shares, of no par value, payable under the distributable net income for the year 2012 that was not distributed as dividends as agreed at the Ordinary Shareholders Meeting held on the same day.

 

The Chilean Superintendency of Banks and Financial Institutions approved the amendment of the bylaws, through resolution No. 126 dated April 30, 2013, which was registered on page 34,465, No. 23,083 of the register of the Chamber of Commerce of Santiago for the year 2013, and was published at “Diario Oficial” on May 8, 2013.

 

The issuance of fully in paid shares was registered in the Securities Register of the Superintendence of Banks and Financial Institutions with No. 2/2013, on May 10, 2013.

 

b)             The Board of Directors of Banco de Chile, at the meeting No. 2,775, dated May 09, 2013, set May 30, 2013, as the date for issuance and distribution of the fully paid in shares.

 

c)              The shareholders are entitled to receive the new shares, at a ratio of 0.02034331347 fully in paid shares for each Banco de Chile share, shall be those registered in the Register of Shareholders on May 24, 2013.

 

d)             In accordance to the first transitory article of the Bank’s bylaws, Banco de Chile-T shares issued as a consequence of the capital increase agreed on the Extraordinary Shareholders Meeting held on October 17, 2012, do not allow their holders to receive dividends or fully paid-in shares in respect to Banco de Chile’s net distributable earnings for fiscal year 2012.  Once any dividends and/or fully paid-in shares are distributed, the Banco de Chile-T series shares automatically convert to Banco de Chile ordinary shares.

 

e)              The titles were duly assigned to each shareholder. The Bank only print the titles for those shareholders who request it in writing at the Shareholders Department of Banco de Chile.

 

f)               As a consequence of the issuance of the fully in paid shares, the capital of the Bank will be divided in 93,175,043,991 nominative shares, without par value, completely subscribed and paid.

 

18



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                           Relevant Events, continued:

 

(j)    On July 1, 2013 it is informed that through Public Deed dated June 19, 2013 in Notary´s office Raul Perry Pefaur of Santiago, Banco de Chile has acquired the totally of shares of Banchile Asesoría Financiera S.A. in the entity Banchile Factoring S.A, subsidiary of Banco de Chile, taking over assets and liabilities of such subsidiary.

 

According to Article 103 No. 2 of Law No. 18,046 of Corporate Law, it has elapsed an uninterrupted period of more 10 of days.  Consequently as of 30th. of June, it has dissolved Banchile Factoring S.A., so 100% of shares belong to Banco de Chile, which since 30th. of June is its legal successor.

 

(k)         On August 9, 2013 it was informed that in Ordinary Board Meeting held on 8th. of August, the Board accepted resignation of Director Fernando Concha Ureta, with effective date on August 21, 2013

 

Since August 22, 2013 the Board designated to Juan Enrique Pino Visinteiner like Director until next Ordinary Shareholders Meeting

 

19



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                   Segment Reporting:

 

For management purposes, the Bank has organized its operations and commercial strategies into four business segments, which are defined in accordance with the type of products and services offered to target customers. These business segments are currently defined as follows:

 

Retail:                                                 This segment focuses on individuals and small and medium-sized companies with annual sales up to 70,000UF, where the product offering focuses primarily on consumer loans, commercial loans, checking accounts, credit cards, credit lines and mortgage loans.

 

Wholesale:                         This segment focused on corporate clients and large companies, whose annual revenue exceed 70,000UF, where the product offering focuses primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts and leases.

 

Treasury and money market operations:

 

This segment includes revenue associated with managing the Bank’s balance sheet (currencies, maturities and interest rates) and liquidity, including financial instrument and currency trading on behalf of the Bank itself, and lesser extent in the item “Interest revenue”

 

Transactions on behalf of customers carried out by the Treasury are reflected in the respective aforementioned segments. These products are highly transaction-focused and include foreign exchange transactions, derivatives and financial instruments in general.

 

Subsidiaries:      Corresponds to companies and corporations controlled by the Bank, where income is obtained individually by the respective subsidiary. The companies that comprise this segment are:

 

Entity

 

· Banchile Trade Services Limited

· Banchile Administradora General de Fondos S.A.

· Banchile Asesoría Financiera S.A.

· Banchile Corredores de Seguros Ltda.

· Banchile Factoring S.A. (*)

· Banchile Corredores de Bolsa S.A.

· Banchile Securitizadora S.A.

· Socofin S.A.

· Promarket S.A.

 

 (*) See Note No. 5 (j)

 

20



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                           Segment Reporting, continued:

 

The financial information used to measure the performance of the Bank’s business segments is not necessarily comparable with similar information from other financial institutions because it is based on internal reporting policies.   The accounting policies used to prepare the Bank’s operating segment information are similar as those described in “Summary of Significant Accounting Principles”.   The Bank obtains the majority of its income from: interest, revaluations and fees, discounted the credit cost and expenses. Management is mainly based on these concepts in its evaluation of segment performance and decision-making regarding goals, allocation of resources for each unit individually.  Although the results of the segments reconcile with those of the Bank at total level, it is not thus necessarily concerning the different concepts, since the management is measured and controls in individual form and additionally applies the following criteria:

 

·                                The net interest margin of loans and deposits is measured on an individual transaction and individual client basis, stemming from the difference between the effective customer rate and the related Bank’s fund transfer price in terms of maturity, re-pricing and currency.

 

·                                The internal performance profitability system considers capital allocation in each segment in accordance to the Basel guidelines.

 

·                                Operating expenses are distributed at each area level.  The Bank allocates all of its indirect operating costs to each business segment by utilizing a different cost driver in order to allocate such costs to the specific segment.

 

The Bank did not enter into transactions with a particular customer or third parties that exceed 10% or more of its total income during the nine-month period ended September 30, 2013 and 2012.

 

Transfer pricing between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

 

Taxes are managed at a corporate level and are not allocated to business segments.

 

21



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                            Segment Reporting, continued:

 

The following table presents the income by segment for the periods ended September 30, 2013 and 2012 for each of the segments defined above:

 

 

 

Retail 

 

Wholesale

 

Treasury(1)

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

533,191

 

481,852

 

217,369

 

181,664

 

11,350

 

9,006

 

(288

)

4,994

 

761,622

 

677,516

 

7,071

 

7,168

 

768,693

 

684,684

 

Net fees and commissions income (loss)

 

113,794

 

113,752

 

32,162

 

29,440

 

(371

)

(210

)

78,527

 

77,945

 

224,112

 

220,927

 

(8,262

)

(8,427

)

215,850

 

212,500

 

Other operating income

 

22,535

 

10,392

 

36,837

 

20,380

 

2,996

 

11,574

 

25,134

 

23,717

 

87,502

 

66,063

 

(9,127

)

(9,127

)

78,375

 

56,936

 

Total operating revenue

 

669,520

 

605,996

 

286,368

 

231,484

 

13,975

 

20,370

 

103,373

 

106,656

 

1,073,236

 

964,506

 

(10,318

)

(10,386

)

1,062,918

 

954,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions for loan losses

 

(157,840

)

(138,141

)

(16,628

)

(90

)

(45

)

84

 

696

 

563

 

(173,817

)

(137,584

)

 

 

(173,817

)

(137,584

)

Depreciation and amortization

 

(15,018

)

(15,603

)

(4,225

)

(5,498

)

(765

)

(999

)

(1,324

)

(1,167

)

(21,332

)

(23,267

)

 

 

(21,332

)

(23,267

)

Other operating expenses

 

(287,983

)

(285,074

)

(78,482

)

(85,741

)

(5,623

)

(5,360

)

(70,652

)

(67,664

)

(442,740

)

(443,839

)

10,318

 

10,386

 

(432,422

)

(433,453

)

Income attributable to associates

 

1,060

 

384

 

618

 

193

 

65

 

21

 

301

 

259

 

2,044

 

857

 

 

 

2,044

 

857

 

Income before income taxes

 

209,739

 

167,562

 

187,651

 

140,348

 

7,607

 

14,116

 

32,394

 

38,647

 

437,391

 

360,673

 

 

 

437,391

 

360,673

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,671

)

(32,762

)

Income after income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

380,720

 

327,911

 

 


(1)              The Treasury’s income of September 2013 considers effect of Counterparty Value Adjustment described in Note No. 2 (c), equivalent to Ch$7,821 million, of which MCh$6,945 million corresponds to this segment.

 

The following table presents assets and liabilities of the period ended September 30, 2013 and December 31, 2012 by each segment defined above:

 

 

 

Retail 

 

Wholesale

 

Treasury

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

10,307,129

 

9,666,888

 

10,394,100

 

9,325,032

 

3,914,817

 

3,746,908

 

691,616

 

1,123,750

 

25,307,662

 

23,862,578

 

(193,323

)

(731,339

)

25,114,339

 

23,131,239

 

Current and deferred taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138,979

 

129,827

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,253,318

 

23,261,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

7,864,055

 

7,548,472

 

9,700,477

 

8,978,963

 

5,074,678

 

4,495,605

 

542,706

 

908,796

 

23,181,916

 

21,931,836

 

(193,323

)

(731,339

)

22,988,593

 

21,200,497

 

Current and deferred taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,894

 

53,510

 

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,027,487

 

21,254,007

 

 

22



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

7.                   Cash and Cash Equivalents:

 

(a)                       Cash and cash equivalents and their reconciliation to the statement of cash flows at each period-end are detailed as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

Cash and due from banks:

 

 

 

 

 

Cash

 

465,027

 

400,249

 

Current account with the Chilean Central Bank(*)

 

88,083

 

67,833

 

Deposits in other domestic banks

 

44,986

 

15,295

 

Deposits abroad

 

400,674

 

201,548

 

Subtotal - Cash and due from banks

 

998,770

 

684,925

 

 

 

 

 

 

 

Net transactions in the course of collection

 

199,411

 

237,393

 

Highly liquid financial instruments

 

259,508

 

304,886

 

Repurchase agreements

 

19,170

 

9,120

 

Total cash and cash equivalents

 

1,476,859

 

1,236,324

 

 


(*)    Amounts in cash and Central Bank deposits are regulatory reserve deposits for which the Bank must maintain a certain monthly average.

 

(b)                       Transactions in the course of collection:

 

Transactions in the course of settlement are transactions for which the only remaining step is settlement, which will increase or decrease the funds in the Central Bank or in foreign banks, normally occurring within 12 to 24 business hours, and are detailed as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

Assets

 

 

 

 

 

Documents drawn on other banks (clearing)

 

200,263

 

249,019

 

Funds receivable

 

313,637

 

147,592

 

Subtotal transactions in the course of collection

 

513,900

 

396,611

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Funds payable

 

(314,489

)

(159,218

)

Subtotal transactions in the course of payment

 

(314,489

)

(159,218

)

Net transactions in the course of collection

 

199,411

 

237,393

 

 

23



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

8.                   Financial Assets Held-for-trading:

 

The detail of financial instruments classified as held-for-trading is as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

Instruments issued by the Chilean Government and Central Bank of Chile:

 

 

 

 

 

Central Bank bonds

 

82,026

 

25,585

 

Central Bank promissory notes

 

3,102

 

3,068

 

Other instruments issued by the Chilean Government and Central Bank

 

14,778

 

43,726

 

 

 

 

 

 

 

Other instruments issued in Chile

 

 

 

 

 

Promissory notes from deposits in domestic banks

 

 

 

Mortgage bonds from domestic banks

 

15

 

22

 

Bonds from domestic banks

 

1,846

 

 

Deposits in domestic banks

 

211,217

 

87,093

 

Bonds issued in Chile

 

1,274

 

 

Other instruments issued in Chile

 

3,368

 

188

 

 

 

 

 

 

 

Instruments issued by foreign institutions

 

 

 

 

 

Instruments from foreign governments or central banks

 

 

 

Other instruments issued abroad

 

 

 

 

 

 

 

 

 

Mutual fund investments:

 

 

 

 

 

Funds managed by related companies

 

48,266

 

33,042

 

Funds managed by thirds

 

 

 

Total

 

365,892

 

192,724

 

 

“Other instruments issued in Chile” include instruments sold under agreements to repurchase to customers and financial instruments, amounting to MCh$158,881 as of September 30, 2013 (MCh$86,863 as of December 31, 2012).

 

Agreements to repurchase have an average expiration of 8 days as of period-end (11 days in December 2012).

 

Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of MCh$43,643 as of September 30, 2013 (MCh$51,154 as of September 30, 2012), which are presented as a reduction of the liability line item “Debt issued”.

 

24



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

9.                   Cash collateral on securities borrowed and reverse repurchase agreements:

 

(a)             The Bank provides financing to its customers through “Receivables from Repurchase Agreements and Security Borrowing”, in which the financial instrument serves as collateral. As of September 30, 2013 and December 31, 2012, the Bank has the following receivables resulting from such transactions:

 

 

 

Up to 1 month

 

Over 1 month and up to 3
months

 

Over 3 months and up to
12 months

 

Over 1 year and up to 3
years

 

Over 3 years and up to 5
years

 

Over 5 years

 

Total

 

 

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Instruments issued by the Chilean Governments and Central Bank of Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central Bank bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central Bank promissory notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued by the Chilean Government and Central Bank

 

905

 

582

 

 

 

 

 

 

 

 

 

 

 

905

 

582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Instruments issued in Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit promissory notes from domestic banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds from domestic banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds from domestic banks

 

8,935

 

 

 

 

 

 

 

 

 

 

 

 

8,935

 

 

Deposits in domestic banks

 

7,078

 

 

 

 

 

 

 

 

 

 

 

 

7,078

 

 

Bonds from other Chilean companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

2,413

 

7,756

 

672

 

855

 

498

 

25,907

 

 

 

 

 

 

 

3,583

 

34,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments issued by foreign institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments from foreign governments or central bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

19,331

 

8,338

 

672

 

855

 

498

 

25,907

 

 

 

 

 

 

 

20,501

 

35,100

 

 

25



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

9.                            Cash collateral on securities lent and repurchase agreements, continued:

 

(b)                       The Bank obtains financing by selling financial instruments and committing to purchase them at future dates, plus interest at a prefixed rate.  As of September 30, 2013 and December 31, 2012, the Bank has the following payables resulting from such transactions:

 

 

 

Up to 1 month

 

Over 1 month and up to 3
months

 

Over 3 months and up to
12 months

 

Over 1 year and up to 3
years

 

Over 3 years and up to 5
years

 

Over 5 years

 

Total

 

 

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Instruments issued by the Chilean Governments and Central Bank of Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central Bank bonds

 

21,639

 

 

 

 

 

 

 

 

 

 

 

 

21,639

 

 

Central Bank promissory notes

 

5,762

 

 

 

 

 

 

 

 

 

 

 

 

5,762

 

 

Other instruments issued by the Chilean Government and Central Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Instruments Issued in Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit promissory notes from domestic banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds from domestic banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds from domestic banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits in domestic banks

 

189,781

 

224,793

 

5,217

 

1,603

 

36

 

 

 

 

 

 

 

 

195,034

 

226,396

 

Bonds from other Chilean companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

974

 

 

 

 

 

 

 

 

 

 

 

 

974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments issued by foreign institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments from foreign governments or central bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

218,156

 

224,793

 

5,217

 

1,603

 

36

 

 

 

 

 

 

 

 

223,409

 

226,396

 

 

26



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

9.         Receivables from Repurchase Agreements and Security Borrowing, continued:

 

(c)                        Securities given (purchases):

 

As part of reverse repurchase and securities borrowing agreements the Bank has received securities that it is allowed to sell or pledge in the absence of default by the owner. As of September 30, 2013, the Bank held securities with a fair value of Ch$20,389 million (Ch$34,865 million in December 2012) on such terms.  The Bank has an obligation to return the securities to its counterparties.

 

(d)                       Securities received (sales):

 

The carrying amount of securities lent and of “Payables from Repurchase Agreements and Security Lending” as of September 30, 2013 is Ch$221,503 million (Ch$266,395 million in December 2012). The counterparty is allowed to sell or pledge those securities in the absence of default by the Bank.

 

27



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

10.            Derivative Instruments and Accounting Hedges:

 

(a)                       As of September 30, 2013 and 2012, the Bank’s portfolio of derivative instruments is detailed as follows:

 

 

 

Notional amount of contract with final expiration date in

 

Fair value

 

 

 

Up to 1 month

 

Over 1 month and up to 3
months

 

Over 3 months and up to 12
months

 

Over 1 year and up to 3
years

 

Over 3 year and up to 5
years

 

Over 5 years

 

Asset

 

Liability

 

 

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Derivatives held for hedging purposes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cross currency swap

 

 

 

 

 

 

 

31,405

 

31,388

 

35,993

 

41,558

 

67,619

 

74,626

 

 

 

11,805

 

10,332

 

Interest rate swap

 

 

 

 

 

 

 

26,692

 

27,570

 

18,864

 

17,790

 

112,585

 

116,387

 

547

 

 

12,096

 

21,311

 

Total derivatives held for hedging purposes

 

 

 

 

 

 

 

58,097

 

58,958

 

54,857

 

59,348

 

180,204

 

191,013

 

547

 

 

23,901

 

31,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives held as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap and cross currency swap

 

 

 

 

 

 

 

181,012

 

55,382

 

205,359

 

14,083

 

122,236

 

78,861

 

11,408

 

22

 

9,074

 

2,055

 

Total Derivatives held as cash flow hedges

 

 

 

 

 

 

 

181,012

 

55,382

 

205,359

 

14,083

 

122,236

 

78,861

 

11,408

 

22

 

9,074

 

2,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives held-for-trading purposes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency forward

 

3,634,883

 

4,231,746

 

2,230,691

 

2,519,046

 

3,436,749

 

3,260,326

 

394,501

 

191,364

 

488

 

2,458

 

37

 

65

 

54,439

 

70,166

 

68,575

 

81,790

 

Cross currency swap

 

84,789

 

69,220

 

351,009

 

199,338

 

1,523,746

 

1,034,040

 

1,287,633

 

1,721,408

 

936,485

 

719,073

 

1,217,075

 

1,026,518

 

148,429

 

177,403

 

189,733

 

166,182

 

Interest rate swap

 

555,294

 

353,133

 

891,809

 

905,870

 

3,704,275

 

3,298,276

 

4,390,633

 

3,540,462

 

2,355,918

 

1,505,936

 

2,364,538

 

1,650,103

 

72,465

 

81,093

 

80,332

 

97,870

 

Call currency options

 

23,965

 

30,306

 

56,670

 

20,938

 

102,010

 

46,686

 

13,121

 

4,795

 

 

 

 

 

2,015

 

472

 

2,528

 

395

 

Put currency options

 

14,427

 

26,009

 

35,114

 

15,288

 

51,676

 

25,980

 

1,262

 

 

 

 

 

 

1,184

 

341

 

885

 

387

 

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives of negotiation

 

4,313,358

 

4,710,414

 

3,565,293

 

3,660,480

 

8,818,456

 

7,665,308

 

6,087,150

 

5,458,029

 

3,292,891

 

2,227,467

 

3,581,650

 

2,676,686

 

278,532

 

329,475

 

342,053

 

346,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,313,358

 

4,710,414

 

3,565,293

 

3,660,480

 

8,818,456

 

7,665,308

 

6,326,259

 

5,572,369

 

3,553,107

 

2,300,898

 

3,884,090

 

2,946,560

 

290,487

 

329,497

 

375,028

 

380,322

 

 

28



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

10.                               Derivative Instruments and Accounting Hedges, continued:

 

(b)             Fair value Hedges:

 

The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in the fair value of the hedged elements attributable to interest rates.  The aforementioned hedge instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.

 

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of September 30, 2013 and December 31, 2012:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Hedged element

 

 

 

 

 

Commercial loans

 

135,017

 

147,572

 

Corporate bonds

 

158,141

 

161,747

 

Total

 

293,158

 

309,319

 

 

 

 

 

 

 

Hedge instrument

 

 

 

 

 

Cross currency swap

 

135,017

 

147,572

 

Interest rate swap

 

158,141

 

161,747

 

Total

 

293,158

 

309,319

 

 

(c)              Cash flow Hedges:

 

(c.1)             The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates of bonds and foreign exchange of bonds issued abroad in Mexican pesos to rate TIIE (Interbank Interest Rate Balance) plus 0.6 percentage points, Hong Kong dollars, Peruvian nuevo sol and Swiss franc. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate.

 

Additionally, these cross currency swap contracts used to hedge the risk from variability of the Unidad de Fomento (CLF) in assets flows denominated in CLF until a nominal amount equal to the portion notional of the hedging instrument CLF, whose readjustment daily impact the item “interest revenue” of the financial statements.

 

29



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

10.                               Derivative Instruments and Accounting Hedges, continued:

 

(c.2)             Below are the cash flows from bonds issued abroad objects of this hedge and the cash flows of the asset part of the derivative instrument:

 

 

 

As of September 30, 2013

 

 

 

Up to1
month

 

Over 1 month
and up to 3
months

 

Over 3 months
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 years
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged item (Corporate bonds MXN)

 

(219

)

(439

)

(2,195

)

(58,252

)

 

 

(61,105

)

Hedged item (Corporate bonds HKD)

 

 

 

(4,796

)

(9,593

)

(9,581

)

(165,763

)

(189,733

)

Hedged item (Corporate bonds PEN)

 

(550

)

 

(550

)

(2,198

)

(15,252

)

 

(18,550

)

Hedged item (Corporate bonds CHF)

 

(764

)

 

(3,914

)

(137,171

)

(213,187

)

 

(355,036

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged Instrument (Cross currency swap MXN leg)

 

219

 

439

 

2,195

 

58,252

 

 

 

61,105

 

Hedged Instrument (Cross currency swap HKD leg)

 

 

 

4,796

 

9,593

 

9,581

 

165,763

 

189,733

 

Hedged Instrument (Cross currency swap PEN leg)

 

550

 

 

550

 

2,198

 

15,252

 

 

18,550

 

Hedged Instrument (Cross currency swap CHF leg)

 

764

 

 

3,914

 

137,171

 

213,187

 

 

355,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

Up to1
month

 

Over 1 month
and up to 3
months

 

Over 3 months
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 years
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged item (Corporate bonds MXN)

 

(235

)

(470

)

(2,348

)

(58,199

)

 

 

(61,252

)

Hedged item (Corporate bonds HKD)

 

 

 

(3,149

)

(6,309

)

(6,332

)

(110,408

)

(126,198

)

Hedged item (Corporate bonds PEN)

 

 

 

(1,138

)

(2,276

)

(16,358

)

 

(19,772

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged Instrument (Cross currency swap MXN leg)

 

235

 

470

 

2,348

 

58,199

 

 

 

61,252

 

Hedged Instrument (Cross currency swap HKD leg)

 

 

 

3,149

 

6,309

 

6,332

 

110,408

 

126,198

 

Hedged Instrument (Cross currency swap PEN leg)

 

 

 

1,138

 

2,276

 

16,358

 

 

19,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows

 

 

 

 

 

 

 

 

 

30



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

10.                               Derivative Instruments and Accounting Hedges, continued:

 

(c.2)    Below are the cash flows from underlying assets and the cash flows of the liability part of the derivative instrument:

 

 

 

As of September 30, 2013

 

 

 

Up to1
month

 

Over 1 month
and up to 3
months

 

Over 3
months and
up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 years
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Inflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged item (Cash flows CLF)

 

223

 

2,913

 

12,620

 

211,977

 

224,002

 

158,471

 

610,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged Instrument (Cross currency swap CLF/MXN leg)

 

 

(833

)

(829

)

(60,004

)

 

 

(61,666

)

Hedged Instrument (Cross currency swap CLF/HKD leg)

 

 

 

(4,218

)

(8,464

)

(5,658

)

(158,471

)

(176,811

)

Hedged Instrument (Cross currency swap CLF/PEN leg)

 

(223

)

 

(222

)

(891

)

(14,759

)

 

(16,095

)

Hedged Instrument (Cross currency swap CLF/CHF leg)

 

 

(2,080

)

(7,351

)

(142,618

)

(203,585

)

 

(355,634

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

Up to1
month

 

Over 1 month
and up to 3
months

 

Over 3
months and
up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 years
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Inflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged item (Cash flows CLF)

 

 

 

4,496

 

66,537

 

20,317

 

106,869

 

198,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedged Instrument (Cross currency swap CLF/MXN leg)

 

 

 

(1,644

)

(60,173

)

 

 

(61,817

)

Hedged Instrument (Cross currency swap CLF/HKD leg)

 

 

 

(2,411

)

(5,482

)

(5,498

)

(106,869

)

(120,260

)

Hedged Instrument (Cross currency swap CLF/PEN leg)

 

 

 

(441

)

(882

)

(14,819

)

 

(16,142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows

 

 

 

 

 

 

 

 

 

31



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

10.                               Derivative Instruments and Accounting Hedges, continued:

 

Respect to CLF assets hedged, these are revalued monthly according to the variation of the UF, which is equivalent to realize monthly reinvestment of the assets until maturity of the relationship hedging.

 

(c.3)              Unrealized gain of fair value adjustment for the period 2013 was Ch$16,389 million (Ch$1,294 credit to equity as of September 30, 2012) generated from hedging instruments, which has been recorded in equity. The accumulated net effect for deferred taxes as of September 30, 2013 was Ch$13,112 million (Ch$1,044 credit to equity as of September 30, 2012).

 

The accumulated amount for this concept (net of deferred taxes) as of September 30, 2013 correspond to a charge to equity amounted Ch$12,078 million (credit to equity of Ch$1,034 million as of December 31, 2012)

 

(c.4)              The net effect in income of derivatives cash flow hedges amount to Ch$23,207 millions in 2013 (Ch$767 charge to equity as of September 30, 2012).

 

32



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

11.            Loans and advances to Banks:

 

(a)                       Amounts are detailed as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

Domestic Banks

 

 

 

 

 

Interbank loans

 

159,000

 

14,309

 

Overdrafts in current accounts

 

 

 

 

Others credits with domestic banks

 

 

 

Provisions for loans to domestic banks

 

(95

)

(5

)

Subtotal

 

158,905

 

14,304

 

 

 

 

 

 

 

Foreign Banks

 

 

 

 

 

Loans to banks

 

259,976

 

146,980

 

Overdrafts in current accounts

 

 

 

Credit with domestic companies

 

96,450

 

67,787

 

Credits with third countries

 

12,304

 

14,509

 

Other credits with foreign banks

 

1

 

 

Provisions for loans to foreign banks

 

(1,357

)

(954

)

Subtotal

 

367,374

 

228,322

 

 

 

 

 

 

 

Central Bank of Chile

 

 

 

 

 

Non-available Central Bank deposits

 

150,000

 

1,100,000

 

Other Central Bank credits

 

674

 

696

 

Subtotal

 

150,674

 

1,100,696

 

Total

 

676,953

 

1,343,322

 

 

(b)                       Provisions for loans to banks are detailed below:

 

 

 

Bank’s Location

 

 

 

Detail

 

Chile

 

Abroad

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

Balance as of January 1, 2012

 

5

 

1,001

 

1,006

 

Charge-offs

 

 

 

 

Provisions established

 

31

 

 

31

 

Provisions released

 

 

(173

)

(173

)

Balance as of September 30, 2012

 

36

 

828

 

864

 

Charge-offs

 

 

 

 

Provisions established

 

 

126

 

126

 

Provisions released

 

(31

)

 

(31

)

Balance as of December 31, 2012

 

5

 

954

 

959

 

Charge-offs

 

 

 

 

Provisions established

 

90

 

403

 

493

 

Provisions released

 

 

 

 

Balance as of September 30, 2013

 

95

 

1,357

 

1,452

 

 

33



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

12.            Loans to Customers, net:

 

(a)                       Loans to Customers:

 

As of September 30, 2013 and December 31, 2012, the composition of the portfolio of loans is the following:

 

 

 

As of September 30, 2013

 

 

 

Assets before allowance

 

Allowances established

 

 

 

 

 

Normal
Portfolio

 

Impaired
Loans

 

Total

 

Individual
Provisions

 

Group
Provisions

 

Total

 

Net assets

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

9,352,627

 

259,795

 

9,612,422

 

(94,056

)

(83,971

)

(178,027

)

9,434,395

 

Foreign trade loans

 

1,156,287

 

97,969

 

1,254,256

 

(59,715

)

(514

)

(60,229

)

1,194,027

 

Current account debtors

 

272,299

 

3,015

 

275,314

 

(3,440

)

(3,141

)

(6,581

)

268,733

 

Factoring transactions

 

505,217

 

7,268

 

512,485

 

(1,230

)

(1

)

(1,231

)

511,254

 

Commercial lease transactions(1)

 

1,164,031

 

30,950

 

1,194,981

 

(5,205

)

(9,876

)

(15,081

)

1,179,900

 

Other loans and accounts receivable

 

31,007

 

5,824

 

36,831

 

(556

)

(3,267

)

(3,823

)

33,008

 

Subtotal

 

12,481,468

 

404,821

 

12,886,289

 

(164,202

)

(100,770

)

(264,972

)

12,621,317

 

Mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds

 

86,668

 

5,835

 

92,503

 

 

(485

)

(485

)

92,018

 

Transferable mortgage loans

 

125,367

 

2,741

 

128,108

 

 

(440

)

(440

)

127,668

 

Other residential real estate mortgage loans

 

4,298,350

 

57,998

 

4,356,348

 

 

(16,086

)

(16,086

)

4,340,262

 

Credits from ANAP

 

24

 

 

24

 

 

 

 

24

 

Residential lease transactions(1)

 

 

 

 

 

 

 

 

Other loans and accounts receivable

 

4,878

 

370

 

5,248

 

 

(1

)

(1

)

5,247

 

Subtotal

 

4,515,287

 

66,944

 

4,582,231

 

 

(17,012

)

(17,012

)

4,565,219

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans in installments

 

1,840,424

 

157,519

 

1,997,943

 

 

(133,395

)

(133,395

)

1,864,548

 

Current account debtors

 

232,704

 

10,638

 

243,342

 

 

(7,940

)

(7,940

)

235,402

 

Credit card debtors

 

676,461

 

26,908

 

703,369

 

 

(32,498

)

(32,498

)

670,871

 

Consumer lease transactions(1)

 

 

 

 

 

 

 

 

Other loans and accounts receivable

 

183

 

313

 

496

 

 

(467

)

(467

)

29

 

Subtotal

 

2,749,772

 

195,378

 

2,945,150

 

 

(174,300

)

(174,300

)

2,770,850

 

Total

 

19,746,527

 

667,143

 

20,413,670

 

(164,202

)

(292,082

)

(456,284

)

19,957,386

 

 

34



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

12.                     Loans to Customers net, continued:

 

(a)                       Loans to Customers, continued:

 

 

 

As of December 31, 2012

 

 

 

Assets before allowances

 

Allowances established

 

 

 

 

 

Normal
Portfolio

 

Substandard
Loans

 

Total

 

Individual
Provisions

 

Group
Provisions

 

Total

 

Net assets

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

8,294,819

 

246,355

 

8,541,174

 

(93,583

)

(67,746

)

(161,329

)

8,379,845

 

Foreign trade loans

 

1,149,923

 

91,032

 

1,240,955

 

(55,216

)

(491

)

(55,707

)

1,185,248

 

Current account debtors

 

187,246

 

2,153

 

189,399

 

(2,418

)

(2,504

)

(4,922

)

184,477

 

Factoring transactions

 

597,266

 

8,871

 

606,137

 

(9,535

)

(556

)

(10,091

)

596,046

 

Commercial lease transactions (1)

 

1,084,877

 

28,395

 

1,113,272

 

(3,528

)

(9,136

)

(12,664

)

1,100,608

 

Other loans and accounts receivable

 

35,736

 

4,911

 

40,647

 

(621

)

(1,974

)

(2,595

)

38,052

 

Subtotal

 

11,349,867

 

381,717

 

11,731,584

 

(164,901

)

(82,407

)

(247,308

)

11,484,276

 

Mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds

 

103,241

 

5,974

 

109,215

 

 

(724

)

(724

)

108,491

 

Transferable mortgage loans

 

148,243

 

2,963

 

151,206

 

 

(527

)

(527

)

150,679

 

Other residential real estate mortgage loans

 

3,897,642

 

40,124

 

3,937,766

 

 

(14,829

)

(14,829

)

3,922,937

 

Credits from ANAP

 

27

 

 

27

 

 

 

 

27

 

Residential lease transactions(1)

 

 

 

 

 

 

 

 

Other loans and accounts receivable

 

113

 

340

 

453

 

 

 

 

453

 

Subtotal

 

4,149,266

 

49,401

 

4,198,667

 

 

(16,080

)

(16,080

)

4,182,587

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans in installments

 

1,761,070

 

145,203

 

1,906,273

 

 

(124,886

)

(124,886

)

1,781,387

 

Current account debtors

 

235,122

 

9,944

 

245,066

 

 

(6,950

)

(6,950

)

238,116

 

Credit card debtors

 

654,976

 

25,010

 

679,986

 

 

(31,996

)

(31,996

)

647,990

 

Consumer lease transactions (1)

 

 

 

 

 

 

 

 

Other loans and accounts receivable

 

183

 

6

 

189

 

 

(215

)

(215

)

(26

)

Subtotal

 

2,651,351

 

180,163

 

2,831,514

 

 

(164,047

)

(164,047

)

2,667,467

 

Total

 

18,150,484

 

611,281

 

18,761,765

 

(164,901

)

(262,534

)

(427,435

)

18,334,330

 

 


(1)    In this item, the Bank finances its customers purchases of assets, including real estate and other personal property, through finance lease agreements.  As of September 30, 2013, MCh$504,912 (MCh$451,647 as of December 31, 2012) correspond to finance leases for real estate and MCh$690,069 (MCh$661,625 as of December 31, 2012), correspond to finance leases for other assets.

 

35



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

12.                     Loans to Customers, continued:

 

(b)                       Allowances for loan losses:

 

Movements in allowances for loan losses during periods 2013 and 2012 are as follows:

 

 

 

Allowances

 

 

 

 

 

Individual

 

Group

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

160,377

 

224,113

 

384,490

 

Charge-offs:

 

 

 

 

 

 

 

Commercial loans

 

(5,759

)

(26,979

)

(32,738

)

Mortgage loans

 

 

(3,117

)

(3,117

)

Consumer loans

 

 

(101,097

)

(101,097

)

Total charge-offs

 

(5,759

)

(131,193

)

(136,952

)

Allowances established

 

1,429

 

163,083

 

164,512

 

Allowances released

 

 

 

 

Balance as of September 30, 2012

 

156,047

 

256,003

 

412,050

 

Charge-offs:

 

 

 

 

 

 

 

Commercial loans

 

(3,385

)

(7,041

)

(10,426

)

Mortgage loans

 

 

(1,136

)

(1,136

)

Consumer loans

 

 

(34,219

)

(34,219

)

Total charge-offs

 

(3,385

)

(42,396

)

(45,781

)

Allowances established

 

12,239

 

48,927

 

61,166

 

Allowances released

 

 

 

 

Balance as of December 31, 2012

 

164,901

 

262,534

 

427,435

 

Charge-offs:

 

 

 

 

 

 

 

Commercial loans

 

(5,934

)

(19,473

)

(25,407

)

Mortgage loans

 

 

(2,569

)

(2,569

)

Consumer loans

 

 

(116,244

)

(116,244

)

Total charge-offs

 

(5,934

)

(138,286

)

(144,220

)

Debt swap

 

(12,556

)

 

(12,556

)

Allowances established

 

17,791

 

167,834

 

185,625

 

Allowances released

 

 

 

 

Balance as of September 30, 2013

 

164,202

 

292,082

 

456,284

 

 

In addition to these allowances for loan losses, the Bank also establishes a country risk provisions to hedge foreign transactions and additional provisions agreed upon by the Board of Directors, which are presented within liabilities in “Provisions” (Note 24).

 

Other Disclosures:

 

1.                  As of September 30, 2013 and December 31, 2012, the Bank and its subsidiaries have made purchases and sales of loan portfolios.  The effect in income is no more than 5% of net income before taxes, as described in Note 12 (d).

 

36



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

12.                Loans to Customers, continued:

 

2.                  As of September 30, 2013 and December 31, 2012, the Bank and its subsidiaries have derecognized 100% of its sold loan portfolio and it has been transferred all or substantially all risks and benefits related to these financial assets.

 

(c)                        Finance lease contracts:

 

The Bank’s scheduled cash flows to be received from finance leasing contracts have the following maturities:

 

 

 

Total receivable

 

Unearned income

 

Net lease receivable(*)

 

 

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due within one year

 

427,146

 

394,284

 

(53,242

)

(50,643

)

373,904

 

343,641

 

Due after 1 year but within 2 years

 

309,491

 

293,525

 

(37,703

)

(36,615

)

271,788

 

256,910

 

Due after 2 years but within 3 years

 

196,542

 

189,111

 

(26,287

)

(23,440

)

170,255

 

165,671

 

Due after 3 years but within 4 years

 

117,921

 

112,381

 

(16,894

)

(15,766

)

101,027

 

96,615

 

Due after 4 years but within 5 years

 

84,355

 

75,451

 

(12,465

)

(11,339

)

71,890

 

64,112

 

Due after 5 years

 

226,483

 

206,025

 

(28,177

)

(25,733

)

198,306

 

180,292

 

Total

 

1,361,938

 

1,270,777

 

(174,768

)

(163,536

)

1,187,170

 

1,107,241

 

 


(*)    The net balance receivable does not include past-due portfolio totaling MCh$7,811 as of September 30, 2013 (MCh$6,031 as of December 31, 2012).

 

The leasing contracts are related to real estate, industrial machinery, vehicles and computer equipment. The leasing contracts have an average life of between 3 and 8 years.

 

(d)                       Purchase of credits:

 

In the present period the Bank has acquired portfolio loans with a nominal value of Ch$435,908 million.

 

(e)                        Sale or transfer of credits from the loans to customers:

 

During the period ended September 30, 2013 and 2012 Banco de Chile has carried out transactions of sale or transfer of the loan portfolio, according the following:

 

As of September 30, 2013

 

Carrying
amount

 

Allowances

 

Sale price

 

Effect on income
(loss) gain

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

47,437

 

(354

)

47,752

 

669

 

 

As of September 30, 2012

 

Carrying
amount

 

Allowances

 

Sale price

 

Effect on income
(loss) gain

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

116,295

 

(194

)

116,295

 

194

 

 

37



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

12.                               Loans to Customers, continued:

 

(f)                        On June 27, 2013, it was proceeded to make a Debt Swap of impaired portfolio.  Representative promissory notes of credit were replaced by financial instruments (bonds), issued by the same debtor. The credit, at date of exchange, amounted MCh$13,952 with a provision for loan losses of MCh$12,556.  The financial instruments (bonds) received was classified like financial assets available-for-sale.

 

At date of exchange, it does not exist active market for this type of financial instrument, and so, there was not sufficient data available for measure its fair value.  Then it determined that fair value was equivalent to book value of credit exchanged.  For this transaction it was not recognized income effect.

 

38



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

13.            Investment Securities:

 

As of September 30, 2013 and December 31, 2012, investment securities classified as available-for-sale and held-to-maturity are detailed as follows:

 

 

 

September
2013

 

December
2012

 

 

 

Available-
for-sale

 

Held to
maturity

 

Total

 

Available-
for -sale

 

Held to
maturity

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments issued by the Chilean Government and Central Bank of Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds issued by the Chilean Government and Central Bank

 

357,972

 

 

357,972

 

110,569

 

 

110,569

 

Promissory notes issued by the Chilean Government and Central Bank

 

135,723

 

 

135,723

 

969

 

 

969

 

Other instruments

 

191,288

 

 

191,288

 

140,246

 

 

140,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit promissory notes from domestics banks

 

 

 

 

 

 

 

Mortgage bonds from domestic banks

 

99,507

 

 

99,507

 

85,688

 

 

85,688

 

Bonds from domestic banks

 

186,937

 

 

186,937

 

116,100

 

 

116,100

 

Deposits from domestic banks

 

573,561

 

 

573,561

 

560,390

 

 

560,390

 

Bonds from other Chilean companies

 

25,835

 

 

25,835

 

32,281

 

 

32,281

 

Promissory notes issued by other Chilean companies

 

 

 

 

 

 

 

Other instruments

 

145,048

 

 

145,048

 

129,693

 

 

129,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments issued abroad

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruments from foreign governments or Central Banks

 

 

 

 

 

 

 

Other instruments

 

68,482

 

 

68,482

 

88,504

 

 

88,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1,784,353

 

 

1,784,353

 

1,264,440

 

 

1,264,440

 

 

39



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

13.                     Investment Securities, continued:

 

Instruments issued by the Chilean Government and Central Bank include instruments with agreements to repurchase sold to clients and financial institutions; totaling MCh$27,399 as of September 30, 2013 (the balance is null for 2012).  The agreements to repurchase have an average maturity of 8 days as of September 30, 2013.

 

In instruments issued by other Chilean institutions are included instruments sold by repurchase agreements to clients and financial institutions, totaling MCh$32 as of September 30, 2013 (Ch$5,267 million as of December 31, 2012).

 

In instruments issued abroad are included mainly bank bonds and shares.

 

As of September 30, 2013, the portfolio of financial assets available-for-sale includes a net unrealized gain of MCh$25,315, net of tax (net unrealized gain of MCh$17,995 as of December 31, 2012), recorded in other comprehensive income within equity.

 

During 2013 and 2012, there is no evidence of impairment of financial assets available-for-sale.

 

Realized gains and losses are calculated as the proceeds from sales less the cost (specific identification method) of the investments identified as available-for-sale. In addition, any unrealized gain or loss previously recognized in equity for these investments is reversed and recorded in the Consolidated Statements of Comprehensive Income.

 

Gross profits and losses realized on the sale of available-for-sale investments as of September 30, 2013 and as of December 31, 2012 are shown in Note 30 “Net Financial Operating Income”.

 

Gross profits and losses realized and unrealized on the sale of available-for-sale investments for the nine-month period ended September 30, 2013 and September 30, 2012 are as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Unrealized gain (loss) arising during the period

 

17,354

 

25,380

 

Realized gain included in the consolidated statement of comprehensive income

 

(8,205

)

(2,086

)

Net gain (loss) on available-for-sale before income tax

 

9,149

 

23,294

 

 

40



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

14.            Investments in Other Companies:

 

(a)                       This item includes investments in other companies for an amount of MCh$16,697 as of September 30, 2013 (MCh$13,933 as of December 31, 2012), which is detailed as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

 

 

 

 

Ownership Interest

 

Equity

 

Book Value

 

Income (Loss)

 

 

 

 

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

September

 

Company

 

Shareholder

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

%

 

%

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Investments valued at equity method

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servipag Ltda.

 

Banco de Chile

 

50.00

 

50.00

 

6,956

 

6,756

 

3,477

 

3,378

 

100

 

(210

)

Soc. Operadora de Tarjetas de Crédito Nexus S.A.

 

Banco de Chile

 

25.81

 

25.81

 

7,501

 

6,412

 

1,936

 

1,655

 

402

 

313

 

Redbanc S.A.

 

Banco de Chile

 

38.13

 

38.13

 

4,366

 

4,109

 

1,665

 

1,567

 

140

 

574

 

Administrador Financiero del Transantiago S.A.(*)

 

Banco de Chile

 

20.00

 

20.00

 

9,425

 

6,076

 

1,885

 

1,215

 

669

 

(158

)

Transbank S.A.

 

Banco de Chile

 

26.16

 

26.16

 

6,016

 

6,306

 

1,574

 

1,649

 

214

 

227

 

Soc. Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.

 

Banco de Chile

 

15.00

 

15.00

 

4,467

 

4,337

 

670

 

651

 

41

 

67

 

Artikos Chile S.A.

 

Banco de Chile

 

50.00

 

50.00

 

1,280

 

1,129

 

640

 

564

 

75

 

(324

)

Centro de Compensación Automatizado S.A.

 

Banco de Chile

 

33.33

 

33.33

 

1,854

 

1,609

 

618

 

536

 

78

 

70

 

Sociedad Interbancaria de Depósitos de Valores S.A.

 

Banco de Chile

 

26.81

 

26.81

 

1,982

 

1,711

 

531

 

459

 

73

 

89

 

Sociedad Omerc OTC S.A.(**)

 

Banco de Chile

 

14.49

 

 

9,952

 

 

1,440

 

 

 

 

Subtotal

 

 

 

 

 

 

 

53,799

 

38,445

 

14,436

 

11,674

 

1,792

 

648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments valued at cost(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bolsa de Comercio de Santiago S.A.

 

 

 

 

 

 

 

 

 

 

 

1,646

 

1,646

 

252

 

209

 

Banco Latinoamericano de Comercio Exterior S.A. (Bladex)

 

 

 

 

 

 

 

 

 

 

 

309

 

309

 

 

 

Bolsa Electrónica de Chile S.A.

 

 

 

 

 

 

 

 

 

 

 

257

 

257

 

 

 

Cámara de Compensación

 

 

 

 

 

 

 

 

 

 

 

8

 

8

 

 

 

Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales (Swift)

 

 

 

 

 

 

 

 

 

 

 

41

 

39

 

 

 

Subtotal

 

 

 

 

 

 

 

 

 

 

 

2,261

 

2,259

 

252

 

209

 

Total

 

 

 

 

 

 

 

 

 

 

 

16,697

 

13,933

 

2,044

 

857

 

 


(1)         Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends).

(*)         On July 9, 2013 it was published in Diario Oficial of Chile (Federal Register in USA) the resolution No. 285 between Government Department of Transport and Telecommunications and Government Department of Treasury, which approved a new agreement related to “the delivery of complementary services of financial management”, whereby the new agreement, AFT only provide services related with financial management of the resourses of Transantiago system, all of that in the terms and conditions that establish the new contract.

(**)  On June 21, 2013 it was created, with other banks of the Chilean financial system, the subsidiary banking support called “Servicios de Infraestructura de Mercado OTC S.A.” (IMERC-OTC S.A.), where its objective will be to operate a centralized register of derivatives operations (register, confirmation, storage, consolidation and conciliation services). This new subsidiary was created with a capital of Ch$12,957,463,890 divided in 10,000 shares, without nominal value, of which Banco de Chile subscribed and paid 1,110 shares, equivalents to MCh$1,440 million paid upon constitution of society.  It was subscribed and paid 7,668 shares at the date of these financial statements.

 

41



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

14.                     Investments in Other Companies, continued:

 

(b)                       The reconciliation between opening and ending balance of investments in other companies that are not consolidated in 2013 and 2012 is detailed as follows:

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Balance as of January1,

 

13,933

 

15,418

 

Sale of investments

 

 

 

Acquisition of investments

 

1,440

 

71

 

Participation in net income

 

1,792

 

648

 

Dividends receivable

 

(191

)

(362

)

Dividends received

 

(931

)

(915

)

Payment of dividends

 

654

 

508

 

Balance as of September 30,

 

16,697

 

15,368

 

 

(c)                        During the nine-month period ended September 30, 2013 and as of December 31, 2012 no impairment has incurred in these investments.

 

42



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

15.            Intangible Assets:

 

(a)                       As of September 30, 2013 and December 31, 2012 intangible assets are detailed as follows:

 

 

 

Years

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Useful Life

 

Remaining 
amortization

 

Gross balance

 

Amortization and 
Impairment

 

Net balance

 

 

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Type of intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in other companies

 

7

 

7

 

1

 

2

 

4,138

 

4,138

 

(3,465

)

(3,000

)

673

 

1,138

 

Other Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software or computer programs

 

6

 

6

 

2

 

3

 

85,742

 

82,736

 

(56,196

)

(50,641

)

29,546

 

32,095

 

Intangible assets arising from business combinations

 

7

 

7

 

1

 

2

 

1,740

 

1,740

 

(1,457

)

(1,261

)

283

 

479

 

Other intangible assets

 

 

 

 

 

487

 

612

 

(42

)

(34

)

445

 

578

 

Total

 

 

 

 

 

 

 

 

 

92,107

 

89,226

 

(61,160

)

(54,936

)

30,947

 

34,290

 

 

43



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

15.                     Intangible Assets, continued:

 

(b)                       Movements in intangible assets during the nine-month period ended September 30, 2013 and December 31, 2012 are as follows:

 

 

 

Investments in
other
companies

 

Software or
computer
programs

 

Intangible assets
arising from
business
combinations

 

Other
intangible
assets

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Gross Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

4,138

 

74,525

 

1,740

 

102

 

80,505

 

Acquisitions

 

 

5,999

 

 

2

 

6,001

 

Disposals/ write-downs

 

 

(333

)

 

(63

)

(396

)

Balance as of September 30, 2012

 

4,138

 

80,191

 

1,740

 

41

 

86,110

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

4,138

 

82,736

 

1,740

 

612

 

89,226

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

4,138

 

82,736

 

1,740

 

612

 

89,226

 

Acquisitions

 

 

3,518

 

 

255

 

3,773

 

Disposals/ write-downs

 

 

(512

)

 

(380

)

(892

)

Balance as of September 30, 2013

 

4,138

 

85,742

 

1,740

 

487

 

92,107

 

Accumulated Amortization and Impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

(2,379

)

(41,538

)

(1,000

)

(71

)

(44,988

)

Amortization for the period(*)

 

(466

)

(7,159

)

(196

)

(15

)

(7,836

)

Impairment loss(*)

 

 

 

 

 

 

Disposals/ write-downs

 

 

333

 

 

62

 

395

 

Balance as of September 30, 2012

 

(2,845

)

(48,364

)

(1,196

)

(24

)

(52,429

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

(3,000

)

(50,641

)

(1,261

)

(34

)

(54,936

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

(3,000

)

(50,641

)

(1,261

)

(34

)

(54,936

)

Amortization for the period(*)

 

(465

)

(6,067

)

(196

)

(20

)

(6,748

)

Impairment loss(*)

 

 

 

 

 

 

Disposals/ write-downs

 

 

512

 

 

12

 

524

 

Balance as of September 30, 2013

 

(3,465

)

(56,196

)

(1,457

)

(42

)

(61,160

)

 

 

 

 

 

 

 

 

 

 

 

 

Net balance as of September 30, 2013

 

673

 

29,546

 

283

 

445

 

30,947

 

 


(*)                       See Note 35 Depreciation, amortization and impairment.

 

44



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

15.                     Intangible Assets, continued:

 

(c)                        As of September 30, 2013 and December 31, 2012, the Bank has made the following commitments to purchase intangible assets, which have not been capitalized:

 

 

 

Amount of Commitment

 

 

 

September

 

December

 

Detail

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Software and licenses

 

8,598

 

6,681

 

 

45



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

16.            Property and equipment:

 

(a)                       As of September 30, 2013 and 2012, this account and its movements are detailed as follows:

 

 

 

Land and
Buildings

 

Equipment

 

Others

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Cost

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

176,266

 

125,819

 

137,120

 

439,205

 

Additions

 

337

 

7,150

 

7,798

 

15,285

 

Disposals/write-downs

 

(453

)

(1,176

)

(1,704

)

(3,333

)

Transfers

 

 

 

 

 

Reclassifications

 

 

 

18

 

18

 

Total

 

176,150

 

131,793

 

143,232

 

451,175

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

(35,228

)

(108,272

)

(99,890

)

(243,390

)

Impairment loss(*)

 

 

 

(130

)

(130

)

Balance as of September 30, 2012

 

140,922

 

23,521

 

43,212

 

207,655

 

Balance as of December 31, 2012

 

176,152

 

132,026

 

144,637

 

452,815

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

176,152

 

132,026

 

144,637

 

452,815

 

Additions

 

62

 

5,030

 

3,443

 

8,535

 

Disposals/write-downs

 

(364

)

(236

)

(1,298

)

(1,898

)

Transfers

 

 

(218

)

218

 

 

Reclassifications

 

 

 

 

 

Total

 

175,850

 

136,602

 

147,000

 

459,452

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

(38,054

)

(115,290

)

(107,128

)

(260,472

)

Impairment loss (*)(***)

 

 

 

(183

)

(183

)

Balance as of September 30, 2013

 

137,796

 

21,312

 

39,689

 

198,797

 

Accumulated Depreciation

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

 

(33,503

)

(103,034

)

(94,799

)

(231,336

)

Reclassifications

 

 

 

 

 

Depreciation charges in the period (*)(**)

 

(2,178

)

(6,414

)

(6,553

)

(15,145

)

Sales and disposals in the period

 

453

 

1,176

 

1,462

 

3,091

 

Balance as of September 30, 2012

 

(35,228

)

(108,272

)

(99,890

)

(243,390

)

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

(35,972

)

(109,932

)

(101,722

)

(247,626

)

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

(35,972

)

(109,932

)

(101,722

)

(247,626

)

Reclassifications

 

 

(19

)

19

 

 

Depreciation charges in the period (*)(**)

 

(2,210

)

(5,759

)

(6,329

)

(14,298

)

Sales and disposals in the period

 

128

 

420

 

904

 

1,452

 

Balance as of September 30, 2013

 

(38,054

)

(115,290

)

(107,128

)

(260,472

)

 


(*)                                 See Note 35 - Depreciation, Amortization and Impairment.

(**)                          This amount does not include depreciation charges of the period for investments properties. This amount is included in item “Other Assets” for MCh$286 (MCh$286 as of September 30, 2012).

(***)                   It includes charge-offs provision of Property and Equipment of MCh$50 million

 

46



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

16.            Property and equipment, continued:

 

(b)                      As of September 30, 2013 and 2012, the Bank has operating lease agreements in which it acts as lessee that cannot be terminated unilaterally; information on future payments is detailed as follows:

 

 

 

 

 

September 2013

 

 

 

Expense
for the
period

 

Up to 1
month

 

Over 1
month
and up to
3 months

 

Over 3
months
and up to
12 months

 

Over 1
year and
up to 3
years

 

Over 3
years and
up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Agreements

 

21,470

 

2,296

 

4,576

 

16,681

 

37,016

 

26,735

 

49,055

 

136,359

 

 

 

 

 

 

September 2012

 

 

 

Expense
for the
period

 

Up to 1
month

 

Over 1
month
and up to
3 months

 

Over 3
months
and up to
12 months

 

Over 1
year and
up to 3
years

 

Over 3
years and
up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Agreements

 

20,749

 

2,238

 

4,395

 

16,038

 

33,694

 

26,882

 

53,760

 

137,007

 

 

As these lease agreements are operating leases under IAS 17 the leased assets are not presented in the Bank’s Interim Condensed Consolidated Statement of Financial Position.

 

The Bank has entered into commercial leases of real estate. These leases have an average life of 5 years. There are no restrictions placed upon the lessee by entering into the lease.

 

(c)                        As of September 30, 2013 and 2012, the Bank does not have any finance lease agreements as lessee and, therefore, there are no property and equipment balances to be reported from such transactions as of September 30, 2013 and as of December 31, 2012.

 

47



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

17.                    Current Taxes and Deferred Taxes:

 

(a)                       Current Taxes:

 

As of each period end, the Bank and its subsidiaries have established a First Category Income Tax Provision determined in accordance with current tax laws.  This provision is presented net of recoverable taxes, detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Income taxes

 

53,734

 

61,876

 

Tax on non-deductible expenses (tax rate 35 %)

 

1,049

 

3,860

 

Less:

 

 

 

 

 

Monthly prepaid taxes (PPM)

 

(52,367

)

(41,960

)

Credit for training expenses

 

(248

)

(1,545

)

Other

 

(3,143

)

965

 

Total

 

(975

)

23,196

 

Tax rate

 

20.00

%

20.00

%

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Current tax assets

 

3,018

 

2,684

 

Current tax liabilities

 

(2,043

)

(25,880

)

Total tax receivable (payable)

 

975

 

(23,196

)

 

48



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

17.                    Current Taxes and Deferred Taxes, continued:

 

(b)                       Income Tax:

 

The Bank’s tax expense recorded for the nine-month period ended September 30, 2013 and 2012 as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Income tax expense:

 

 

 

 

 

Current year taxes

 

53,734

 

47,334

 

Income tax adjustment for change in tax rate

 

 

2,697

 

Tax from previous periods

 

52

 

(1,147

)

Subtotal

 

53,786

 

48,884

 

 

 

 

 

 

 

Credit (charge) for deferred taxes:

 

 

 

 

 

Origin and reversal of temporary differences

 

1,844

 

(3,663

)

Effect of changes in tax rate

 

 

(14,206

)

Subtotal

 

1,844

 

(17,869

)

 

 

 

 

 

 

Non deductible expenses (Art. 21 Income Tax Law)

 

1,049

 

1,740

 

Other

 

(8

)

7

 

Net charge to income for income taxes

 

56,671

 

32,762

 

 

49



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

17.                     Current and Deferred Taxes, continued:

 

(c)                        Reconciliation of effective tax rate:

 

The following is a reconciliation of the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of September 30, 2013 and 2012:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

Tax rate

 

 

 

Tax rate

 

 

 

 

 

%

 

MCh$

 

%

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

Income tax calculated on net income before tax

 

20.00

 

87,478

 

20.00

 

72,134

 

Additions or deductions

 

(6.58

)

(28,784

)

(7.09

)

(25,568

)

Non-deductible expenses

 

0.24

 

1,049

 

0.48

 

1,740

 

Tax from previous year

 

0.01

 

52

 

(0.32

)

(1,147

)

Effect of changes in tax rate(*)

 

 

 

(3.94

)

(14,206

)

Lease deferred tax adjustment

 

 

 

0.82

 

2,942

 

Others

 

(0.71

)

(3,124

)

(0.87

)

(3,133

)

Effective rate and income tax expense

 

12.96

 

56,671

 

9.08

 

32,762

 

 

The effective rate for income tax for the period ended September 30, 2013 is 12.96% (9.08% in September 2012).

 


(*)

The Law No. 20,630 of September 27, 2012, changed permanently the tax rate of income tax calculated on net income before tax (first category) to 20.00%.

 

50



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

17.                     Current and Deferred Taxes, continued:

 

(d)                       Effect of deferred taxes on income and equity:

 

The Bank and its subsidiaries have recorded the effects of deferred taxes in their financial statements.

 

The effects of deferred taxes on assets, liabilities and income accounts are detailed as follows:

 

 

 

Balances as
of
December 31,

 

Unrecognized
Temporary

 

Effect

 

Balances
as of
September 30,

 

 

 

2012

 

Differences

 

Income

 

Equity

 

2013

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit Differences:

 

 

 

 

 

 

 

 

 

 

 

Allowances for loan losses

 

99,113

 

 

5,289

 

 

104,402

 

Obligations with agreements to repurchase

 

(11

)

 

38

 

 

27

 

Personnel provisions

 

6,092

 

 

(941

)

 

5,151

 

Staff vacation

 

4,058

 

 

310

 

 

4,368

 

Accrued interests and indexation adjustments from past due loans

 

2,123

 

 

5

 

 

2,128

 

Staff severance indemnities provisions

 

960

 

 

(46

)

 

914

 

Other adjustments

 

17,234

 

 

1,737

 

 

18,971

 

Total debit differences

 

129,569

 

 

6,392

 

 

135,961

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Differences:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and price-level restatement of property and equipment

 

15,423

 

 

(480

)

 

14,943

 

Adjustment for valuation of financial assets available-for-sale and cash flow hedge

 

4,758

 

 

 

(1,448

)

3,310

 

Leasing equipment

 

4,812

 

 

6,579

 

 

11,391

 

Transitory assets

 

2,449

 

 

1,689

 

 

4,138

 

Adjustment for derivative instruments

 

378

 

 

(210

)

 

168

 

Other adjustments

 

2,236

 

 

657

 

8

 

2,901

 

Total credit differences

 

30,056

 

 

8,235

 

(1,440

)

36,851

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets (liabilities), net

 

99,513

 

 

(1,843

)

1,440

 

99,110

 

 

51



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

17.                     Current and Deferred Taxes, continued:

 

(d)                       Effect of deferred taxes on income and equity, continued:

 

The effects of deferred taxes on assets, liabilities and income as of September 30, 2012 and December 31, 2012, are detailed as follows:

 

 

 

Balances as
of
December

 

Unrecognized
Temporary

 

Effect

 

Balances
as of

September

 

Unrecognized
Temporary

 

Effect

 

Balances
as of

December

 

 

 

31, 2011

 

Differences

 

Income

 

Equity

 

30, 2012

 

Differences

 

Income

 

Equity

 

31, 2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit Differences:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances for loan losses

 

76,910

 

 

18,734

 

 

95,644

 

 

3,469

 

 

99,113

 

Obligations with agreements to repurchase

 

(263

)

 

268

 

 

5

 

 

(16

)

 

(11

)

Personnel provisions

 

4,930

 

 

393

 

 

5,323

 

 

769

 

 

6,092

 

Staff vacation

 

3,637

 

 

471

 

 

4,108

 

 

(50

)

 

4,058

 

Accrued interests and indexation adjustments from past due loans

 

1,573

 

 

359

 

 

1,932

 

 

191

 

 

2,123

 

Staff severance indemnities provisions

 

326

 

 

214

 

 

540

 

 

420

 

 

960

 

Other adjustments

 

13,600

 

119

 

5,291

 

 

19,010

 

 

(1,776

)

 

17,234

 

Total debit differences

 

100,713

 

119

 

25,730

 

 

126,562

 

 

3,007

 

 

129,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Differences:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and price-level restatement of property and equipment

 

14,196

 

 

1,562

 

 

15,758

 

 

(335

)

 

15,423

 

Adjustment for valuation of financial assets available-for-sale and cash flow hedge

 

(463

)

 

 

4,880

 

4,417

 

 

 

341

 

4,758

 

Leasing Equipment

 

(13,311

)

 

14,736

 

 

1,425

 

 

3,387

 

 

4,812

 

Transitory assets

 

1,524

 

 

1,292

 

 

2,816

 

 

(367

)

 

2,449

 

Adjustment for derivative instruments

 

2,057

 

 

(8,225

)

 

(6,168

)

 

6,546

 

 

378

 

Other adjustments

 

3,641

 

(5

)

(1,504

)

 

2,132

 

 

112

 

(8

)

2,236

 

Total credit differences

 

7,644

 

(5

)

7,861

 

4,880

 

20,380

 

 

9,343

 

333

 

30,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets (liabilities), net

 

93,069

 

124

 

17,869

 

(4,880

)

106,182

 

 

(6,336

)

(333

)

99,513

 

 

52



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

18.            Other Assets:

 

(a)                       Item detail:

 

At the end of each period, other assets are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Assets held for leasing(*)

 

67,530

 

74,986

 

 

 

 

 

 

 

Assets received or awarded as payment(**)

 

 

 

 

 

Assets awarded in judicial sale

 

1,842

 

2,475

 

Assets received in lieu of payment

 

208

 

81

 

Provision for assets received in lieu of payment

 

(36

)

(40

)

Subtotal

 

2,014

 

2,516

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

Guaranteed cash deposit

 

47,930

 

25,984

 

Documents intermediated(***)

 

34,495

 

89,800

 

Other accounts and notes receivable

 

19,719

 

20,001

 

Investment properties

 

16,413

 

16,698

 

Servipag available funds

 

16,117

 

15,534

 

Prepaid expenses

 

12,925

 

3,476

 

Commissions receivable

 

9,167

 

6,392

 

VAT receivable

 

7,651

 

9,292

 

Recoverable income taxes

 

5,855

 

7,695

 

Transaction in progress

 

1,478

 

8,676

 

Rental guarantees

 

1,400

 

1,386

 

Accounts receivable for sale of assets received in lieu of payment

 

611

 

423

 

Materials and supplies

 

544

 

610

 

Recovered leased assets for sale

 

129

 

777

 

Others

 

15,678

 

12,632

 

Subtotal

 

190,112

 

219,376

 

Total

 

259,656

 

296,878

 

 


(*)

These correspond to property and equipment to be given under a finance lease.

 

 

(**)

Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets acquired must at no time exceed, in the aggregate, 20% of the Bank’s effective equity. These assets represent 0.0070% (0.0032% as of December 31, 2012) of the Bank’s effective equity.

 

 

 

The assets awarded at judicial sale are assets that have been acquired as payment of debts previously owed towards the Bank. The assets awarded at judicial sales are not subject to the aforementioned requirement. These properties are non- current assets available-for-sale. For most assets, the sale is expected to be completed within one year from the date on which the asset was received or acquired. If the asset in question is not sold within the year, it must be written off.

 

 

 

The provision for assets received in lieu of payment is recorded as indicated in the Compendium of Accounting Standards, which indicate to recognize a provision for the difference between the initial value plus any additions and its realizable value when the former is greater.

 

 

(***)

This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de Bolsa S.A.

 

53



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

18.                     Other Assets, continued:

 

(b)                       Movements in the provision for assets received in lieu of payment during the nine-month period ended September 30, 2013 and 2012 are detailed as follows:

 

 

 

MCh$

 

 

 

 

 

Balance as of January 1, 2012

 

1,118

 

Provisions used

 

(1,146

)

Provisions established

 

89

 

Provisions released

 

 

Balance as of September 30, 2012

 

61

 

Provisions established

 

(61

)

Provisions released

 

40

 

Balance as of December 31, 2012

 

40

 

Provisions used

 

(39

)

Provisions established

 

36

 

Provisions released

 

(1

)

Balance as of September 30, 2013

 

36

 

 

19.            Current accounts and Other Demand Deposits:

 

At the end of each period, current accounts and other demand deposits are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Current accounts

 

4,849,861

 

4,495,134

 

Other demand deposits and accounts

 

714,538

 

599,320

 

Other demand deposits

 

363,293

 

376,517

 

Total

 

5,927,692

 

5,470,971

 

 

20.            Savings accounts and Time Deposits:

 

At the end of each period, savings accounts and time deposits are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Time deposits

 

10,111,065

 

9,370,063

 

Term savings accounts

 

178,741

 

179,465

 

Other term balances payable

 

43,084

 

63,422

 

Total

 

10,332,890

 

9,612,950

 

 

54



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

21.                    Borrowings from Financial Institutions:

 

(a)         At the end of each period, borrowings from financial institutions are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Domestic banks

 

 

 

 

 

Banco Bice

 

121

 

 

Subtotal

 

121

 

 

 

 

 

 

 

 

Foreign banks

 

 

 

 

 

Foreign trade financing

 

 

 

 

 

Citibank N.A.

 

160,365

 

107,249

 

Deutsche Bank

 

113,779

 

12,003

 

Standard Chartered Bank

 

105,575

 

117,218

 

Bank of America N.T. & S.A.

 

77,761

 

189,501

 

Wells Fargo Bank

 

63,066

 

131,763

 

Commerzbank A.G.

 

59,242

 

182,926

 

HSBC Bank

 

51,134

 

 

The Bank of New York Mellon

 

35,855

 

57,161

 

JP Morgan Chase Bank

 

25,263

 

24,003

 

Toronto Dominion Bank

 

22,728

 

38,402

 

Mercantil Commercebank N.A.

 

15,229

 

19,184

 

Zuercher Kantonalbank

 

5,049

 

14,401

 

Bank of China

 

281

 

828

 

Sumitomo Banking

 

 

16,828

 

Banco de Sabadell

 

 

337

 

Others

 

141

 

22

 

 

 

 

 

 

 

Borrowings and other obligations

 

 

 

 

 

Wells Fargo Bank

 

101,072

 

96,370

 

China Development Bank

 

31,732

 

35,996

 

Citibank N.A.

 

6,769

 

27,571

 

Standard Chartered Bank

 

 

36,084

 

Others

 

1,074

 

816

 

Subtotal

 

876,115

 

1,108,663

 

 

 

 

 

 

 

Chilean Central Bank

 

11

 

18

 

 

 

 

 

 

 

Total

 

876,247

 

1.108.681

 

 

55



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

21.                     Borrowings from Financial Institutions, continued:

 

(b)         Domestic Banks Deposits

 

As of September 30, 2013 and the Bank has financial obligations with domestic banks institutions for an amount of MCh$121 (as of December 31, 2012 the Bank has not balances for this concept).

 

(c)          Foreign Banks Obligations

 

The maturities are as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Up to 1 month

 

57,823

 

181,954

 

Over 1 month and up to 3 months

 

78,821

 

153,702

 

Over 3 months and up to 12 months

 

583,960

 

631,051

 

Over 1 year and up to 3 years

 

155,511

 

141,956

 

Over 3 years and up to 5 years

 

 

 

Over 5 years

 

 

 

Total

 

876,115

 

1,108,663

 

 

(d)         Chilean Central Bank Obligations

 

Debts to the Central Bank of Chile include credit lines for the renegotiation of loans and other Central Bank borrowings.

 

The outstanding amounts owed to the Central Bank of Chile under these credit lines are as follows:

 

 

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Borrowings and other obligations

 

 

 

Total credit lines for the renegotiation of loans

 

11

 

18

 

Total

 

11

 

18

 

 

56



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

22.            Debt Issued:

 

At the end of each period, debt issued is detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Mortgage bonds

 

92,922

 

115,196

 

Bonds

 

3,215,041

 

2,412,233

 

Subordinated bonds

 

748,922

 

746,504

 

Total

 

4,056,885

 

3,273,933

 

 

During the period ended as of September 30, 2013, Banco de Chile issued bonds by an amount of MCh$1,245,262, of which corresponds to Unsubordinated bonds and Subordinated Bonds by an amount of MCh$1,241,666 and MCh$3,596 respectively, according to the following details:

 

Bonds

 

Series

 

MCh$

 

Term

 

Interest rate

 

Currency

 

Issued date

 

Maturity
date

 

BCHIUR1011

 

22,114

 

12 years

 

3.40

 

UF

 

01/08/2013

 

01/08/2025

 

BCHIUR1011

 

8,521

 

12 years

 

3.40

 

UF

 

01/09/2013

 

01/09/2025

 

BCHIUJ0811

 

1,572

 

8 years

 

3.20

 

UF

 

01/29/2013

 

01/29/2021

 

BCHIUZ1011

 

89,313

 

7 years

 

3.20

 

UF

 

01/31/2013

 

01/31/2020

 

BCHIAC1011

 

45,456

 

15 years

 

3.50

 

UF

 

02/28/2013

 

02/28/2028

 

BCHIAC1011

 

34,185

 

15 years

 

3.50

 

UF

 

03/26/2013

 

03/26/2028

 

BCHIUN1011

 

72,022

 

7 years

 

3.20

 

UF

 

04/08/2013

 

04/08/2020

 

BCHIUU0212

 

68,379

 

12 years

 

3.40

 

UF

 

08/29/2013

 

08/29/2025

 

BCHIAU0213

 

69,746

 

12 years

 

3.60

 

UF

 

09/11/2013

 

09/11/2025

 

BCHIAG0213

 

46,585

 

5 years

 

3.40

 

UF

 

09/13/2013

 

09/13/2018

 

HKD bond

 

45,552

 

10 years

 

3.23

 

HKD

 

04/22/2013

 

04/22/2023

 

CHF bond

 

111,579

 

5 years

 

1.13

 

CHF

 

04/26/2013

 

05/23/2018

 

CHF bond

 

27,895

 

5 years

 

1.13

 

CHF

 

05/07/2013

 

05/23/2018

 

CHF bond

 

125,526

 

3 years

 

0.76

 

CHF

 

06/11/2013

 

07/18/2016

 

CHF bond

 

69,737

 

4 years

 

1.13

 

CHF

 

06/28/2013

 

07/25/2017

 

Subtotal as of September 30, 2013

 

838,182

 

 

 

 

 

 

 

 

 

 

 

Short-term Bonds

 

403,484

 

 

 

 

 

 

 

 

 

 

 

Total as of September 30, 2013

 

1,241,666

 

 

 

 

 

 

 

 

 

 

 

 

57



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

22.                     Debt Issued, continued:

 

Subordinated Bonds

 

Series

 

MCh$

 

Term

 

Interest
rate

 

Currency

 

Issued date

 

Maturity
date

 

UCHI-G1111

 

3,596

 

25 years

 

3.75

 

UF

 

01/25/2013

 

01/25/2038

 

Total as of September 30, 2012

 

3,596

 

 

 

 

 

 

 

 

 

 

 

 

During the year ended December 31, 2012, Banco de Chile issued bonds by an amount of Ch$1,233,985 million, of which correspond to unsubordinated bond and Subordinated Bonds by an amount of MCh$1,207,808 and MCh$26,177 respectively, according to the following details:

 

Bonds

 

Series

 

MCh$

 

Term

 

Interest
rate

 

Currency

 

Issued date

 

Maturity
date

 

BCHIUO0911

 

89,896

 

10 years

 

3.40

 

UF

 

02/15/2012

 

02/15/2022

 

BCHIUD0510

 

14,109

 

6 years

 

2.20

 

UF

 

02/16/2012

 

02/16/2018

 

BCHIUI0611

 

1,338

 

7 years

 

3.20

 

UF

 

03/05/2012

 

03/05/2019

 

BCHIUI0611

 

3,352

 

7 years

 

3.20

 

UF

 

03/07/2012

 

03/07/2019

 

BCHIUI0611

 

1,116

 

7 years

 

3.20

 

UF

 

03/23/2012

 

03/23/2019

 

BCHIUP1211

 

88,345

 

10 years

 

3.40

 

UF

 

04/04/2012

 

04/04/2022

 

BCHIUI0611

 

2,236

 

7 years

 

3.20

 

UF

 

04/17/2012

 

04/17/2019

 

BCHIUQ1011

 

27,343

 

11 years

 

3.40

 

UF

 

05/08/2012

 

05/08/2023

 

BCHIUQ1011

 

48,568

 

11 years

 

3.40

 

UF

 

05/11/2012

 

05/11/2023

 

BCHIUQ1011

 

12,449

 

11 years

 

3.40

 

UF

 

06/04/2012

 

06/04/2023

 

BCHIUS0212

 

46,428

 

11 years

 

3.40

 

UF

 

06/04/2012

 

06/04/2023

 

BCHIUS0212

 

20,552

 

11 years

 

3.40

 

UF

 

06/07/2012

 

06/07/2023

 

BCHIUT0112

 

66,850

 

12 years

 

3.40

 

UF

 

06/12/2012

 

06/12/2024

 

BCHIUR1011

 

33,295

 

12 years

 

3.40

 

UF

 

06/20/2012

 

06/20/2024

 

BONO HKD

 

24,487

 

15 years

 

4.00

 

HKD

 

09/05/2012

 

09/05/2027

 

BCHIUR1011

 

4,450

 

12 years

 

3.40

 

UF

 

07/30/2012

 

07/30/2024

 

BCHIUR1011

 

13,469

 

12 years

 

3.40

 

UF

 

09/14/2012

 

09/14/2024

 

BCHIUR1011

 

1,799

 

12 years

 

3.40

 

UF

 

09/24/2012

 

09/24/2024

 

BCHIUR1011

 

5,284

 

12 years

 

3.40

 

UF

 

09/25/2012

 

09/25/2024

 

Subtotal as of September 30, 2012

 

505,366

 

 

 

 

 

 

 

 

 

 

 

BCHIUJ0811

 

1,334

 

8 years

 

3.20

 

UF

 

10/05/2012

 

10/05/2020

 

BCHIUJ0811

 

33,456

 

8 years

 

3.20

 

UF

 

10/10/2012

 

10/10/2020

 

BCHIUV1211

 

67,842

 

13 years

 

3.50

 

UF

 

10/10/2012

 

10/10/2025

 

BCHIUJ0811

 

1,566

 

8 years

 

3.20

 

UF

 

10/19/2012

 

10/19/2020

 

BCHIUJ0811

 

2,241

 

8 years

 

3.20

 

UF

 

10/22/2012

 

10/22/2020

 

BCHIAC1011

 

11,118

 

15 years

 

3.50

 

UF

 

10/22/2012

 

10/22/2027

 

BONO HKD

 

54,374

 

15 years

 

4.00

 

HKD

 

11/07/2012

 

09/09/2027

 

BONO PEN

 

14,083

 

5 years

 

4.04

 

PEN

 

10/30/2012

 

10/30/2017

 

Subtotal as of December 31, 2012

 

186,014

 

 

 

 

 

 

 

 

 

 

 

Short-term Bonds

 

516,428

 

 

 

 

 

 

 

 

 

 

 

Total as of December 31, 2012

 

1,207,808

 

 

 

 

 

 

 

 

 

 

 

 

58



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

22.                     Debt Issued, continued:

 

Subordinated Bonds

 

Series

 

MCh$

 

Term

 

Interest
rate

 

Currency

 

Issued date

 

Maturity
date

 

UCHI-G1111

 

13,191

 

25 years

 

3.75

 

UF

 

07/30/2012

 

07/30/2037

 

UCHI-G1111

 

1,099

 

25 years

 

3.75

 

UF

 

07/31/2012

 

07/31/2037

 

UCHI-G1111

 

1,782

 

25 years

 

3.75

 

UF

 

08/31/2012

 

08/31/2037

 

UCHI-G1111

 

10,105

 

25 years

 

3.75

 

UF

 

12/28/2012

 

12/28/2037

 

Total as of December 31, 2012

 

26,177

 

 

 

 

 

 

 

 

 

 

 

 

The Bank has not had breaches of capital, interest or other breaches with respect to its debts instruments as of September 30, 2013 and 2012.

 

59



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

23.            Other Financial Obligations:

 

At the end of each period, other financial obligations are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Other Chilean obligations

 

122,269

 

106,537

 

Public sector obligations

 

52,698

 

55,586

 

Other abroad obligations

 

 

 

Total

 

174,967

 

162,123

 

 

24.            Provisions:

 

(a)                       At the end of each period, provisions and accrued expenses are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Provision for minimum dividends

 

247,569

 

300,759

 

Provisions for Personnel benefits and payroll expenses

 

60,648

 

64,546

 

Provisions for contingent loan risks

 

47,217

 

36,585

 

Provisions for contingencies:

 

 

 

 

 

Additional loan provisions(*)

 

105,145

 

97,757

 

Country risk provisions

 

4,974

 

3,107

 

Other provisions for contingencies

 

1,852

 

2,083

 

Total

 

467,405

 

504,837

 

 


(*)   In the period it was registered an amount of Ch$7,388 million (MCh$2,271 in 2012) of additional provisions.

 

60



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

24.                    Provisions, continued:

 

(b)                       The following table details the movements in provisions and accrued expenses during the nine-month period ended September 30, 2013 and December 31, 2012:

 

 

 

Minimum

 

Personnel
benefits and

 

Contingent

 

Additional
loan

 

Country risk
provisions and
other

 

 

 

 

 

dividends

 

payroll

 

loan Risks

 

provisions

 

contingencies

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of January 1, 2012

 

259,501

 

60,634

 

35,334

 

95,486

 

6,983

 

457,938

 

Provisions established

 

214,885

 

40,732

 

2,909

 

 

2,219

 

260,745

 

Provisions used

 

(259,501

)

(37,606

)

 

 

(223

)

(297,330

)

Provisions released

 

 

(3,870

)

 

 

(496

)

(4,366

)

Balances as of September 30, 2012

 

214,885

 

59,890

 

38,243

 

95,486

 

8,483

 

416,987

 

Provisions established

 

85,874

 

10,067

 

 

2,271

 

 

98,212

 

Provisions used

 

 

(5,411

)

 

 

 

(5,411

)

Provisions released

 

 

 

(1,658

)

 

(3,293

)

(4,951

)

Balances as of December 31, 2012

 

300,759

 

64,546

 

36,585

 

97,757

 

5,190

 

504,837

 

Provisions established

 

247,569

 

34,308

 

10,632

 

7,388

 

2,098

 

301,995

 

Provisions used

 

(300,759

)

(33,710

)

 

 

(368

)

(334,837

)

Provisions released

 

 

(4,496

)

 

 

(94

)

(4,590

)

Balances as of September 30, 2013

 

247,569

 

60,648

 

47,217

 

105,145

 

6,826

 

467,405

 

 

(c)                        Provisions for personnel benefits and payroll:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Short-term personnel benefits

 

22,721

 

29,649

 

Vacation accrual

 

21,837

 

20,842

 

Pension plan- defined benefit plan

 

10,614

 

10,633

 

Other benefits

 

5,476

 

3,422

 

Total

 

60,648

 

64,546

 

 

61



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

24.                    Provisions, continued:

 

(d)                       Pension plan — Defined benefit plan:

 

(i) Movement in the defined benefit obligations are as follow:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Opening defined benefit obligation

 

10,633

 

8,511

 

Increase in provisions

 

421

 

1,727

 

Benefit paid

 

(454

)

(624

)

Prepayments

 

(50

)

(22

)

Actuarial gains

 

64

 

266

 

Closing defined benefit obligation

 

10,614

 

9,858

 

 

(ii)                        Net benefits expenses:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Current service cost

 

421

 

1,727

 

Interest cost of benefits obligations

 

468

 

429

 

Actuarial gains (losses)

 

(404

)

(163

)

Net benefit expenses

 

485

 

1,993

 

 

(iii)                     Assumptions used to determine pension obligations:

 

The principal assumptions used in determining pension obligations for the Bank’s plan are shown below:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

%

 

%

 

 

 

 

 

 

 

Discount rate

 

5.50

 

5.50

 

Annual salary increase

 

5.19

 

5.08

 

Payment probability

 

99.99

 

99.99

 

 

The most recent actuarial valuation of the present value of the benefit plan obligation was carried out at December 31, 2012.

 

62



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

24.                    Provisions, continued:

 

(e)                         Movements in provisions for incentive plans:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Balances as of January 1,

 

29,649

 

28,827

 

Provisions established

 

19,112

 

22,315

 

Provisions used

 

(23,004

)

(24,025

)

Provisions release

 

(3,036

)

(2,870

)

Total

 

22,721

 

24,247

 

 

(f)                         Movements in vacations accruals:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Balances as of January 1,

 

20,842

 

20,361

 

Provisions established

 

4,321

 

4,566

 

Provisions used

 

(3,214

)

(3,485

)

Provisions release

 

(112

)

(250

)

Total

 

21,837

 

21,192

 

 

(g)                        Employee share-based benefits provision:

 

As of September 30, 2013 and as of December 31, 2012, the Bank and its subsidiaries do not have a stock-based compensation plan.

 

(h)                       Contingent loan provisions:

 

As of September 30, 2013 and as of December 31, 2012, the Bank and its subsidiaries maintain contingent loan provisions by an amount of Ch$47,217 million (Ch$36,585 million as of December 31, 2012).  See Note No. 26 (d).

 

63



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

25.            Other Liabilities:

 

At the end of each period, other liabilities are detailed as follows:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Accounts and notes payable(*)

 

101,466

 

111,358

 

Unearned income

 

4,730

 

5,357

 

Dividends payable

 

1,211

 

883

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

Documents intermediated(**)

 

82,418

 

132,651

 

Cobranding

 

29,451

 

23,066

 

VAT debit

 

11,374

 

11,689

 

Leasing deferred gains

 

4,842

 

5,900

 

Transactions in progress

 

1,251

 

5,080

 

Insurance payments

 

528

 

135

 

Others

 

2,310

 

4,947

 

Total

 

239,581

 

301,066

 

 


(*)             Comprises obligations that do not correspond to transactions in the line of business, such as withholding tax, pension and healthcare contributions, insurance payable, balances of prices for the purchase of materials and provisions for expenses pending payment.

(**)      This item mainly includes financing of simultaneous operations performed by subsidiary Banchile Corredores de Bolsa S.A.

 

64



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

26.            Contingencies and Commitments:

 

(a)                       Commitments and responsibilities accounted for in off-balance-sheet accounts:

 

In order to satisfy its customers’ needs, the Bank entered into several irrevocable commitments and contingent obligations.  Although these obligations are not recognized in the Interim Condensed Consolidated Statement of Financial Position, they contain credit risks and, therefore, form part of the Bank’s overall risk.

 

The Bank and its subsidiaries record the following balances related to such commitments and responsibilities, which fall within its line of business, in off-balance-sheet accounts:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Contingent loans

 

 

 

 

 

Guarantees and surety bonds

 

407,525

 

323,924

 

Confirmed foreign letters of credit

 

96,545

 

85,272

 

Issued letters of credit

 

199,807

 

138,714

 

Bank guarantees

 

1,497,238

 

1,437,312

 

Immediately available credit lines

 

5,762,208

 

5,481,235

 

Other commitments

 

672

 

122,997

 

Transactions on behalf of third parties

 

 

 

 

 

Collections

 

338,786

 

386,006

 

Third-party resources managed by the Bank:

 

 

 

 

 

Financial assets managed on behalf of third parties

 

976

 

12,144

 

Other Financial assets managed on behalf of third parties

 

 

 

Financial assets acquired on its own behalf

 

51,242

 

22,802

 

Other Financial assets acquired on its own behalf

 

 

 

Fiduciary activities

 

 

 

 

 

Securities held in safe custody in the Bank

 

7,226,202

 

6,237,859

 

Securities held in safe custody in other entities

 

4,529,305

 

4,483,567

 

Total

 

20,110,506

 

18,731,832

 

 

The prior information only includes the most significant balances.

 

65



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

26.                    Contingencies and Commitments, continued:

 

(b)                        Lawsuits and legal proceedings:

 

(b.1)            Legal contingencies within the ordinary course of business:

 

In the ordinary course of business, the Bank and its subsidiaries act as defendant or co-defendant in various litigation matters.  Although there can be no assurances, the Bank’s management believes, based on information currently available, that the ultimate resolution of these legal proceedings are not likely to have a material adverse effect on its results of operations, financial position, or liquidity.  As of September 30, 2013, the Bank has established provisions for this concept in the amount of MCh$240 (MCh$474 as of December 31, 2012), recorded within “Provisions” in the Interim Condensed Consolidated Statement of Financial Position. The following table presents estimated date of completion of the respective litigation:

 

 

 

September 30, 2013

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal contingencies

 

30

 

5

 

67

 

135

 

3

 

240

 

 

(b.2)            Contingencies for significant lawsuits:

 

As of September 30, 2013 and as of December 31, 2012 the Bank is not part to any significant lawsuits that affect or may affect these consolidated financial statements.

 

(c)                                            Guarantees granted:

 

i.                              In subsidiary Banchile Administradora General de Fondos S.A.:

 

In compliance with Article 226 and subsequent Articles of Law 18,045, Banchile Administradora General de Fondos S.A., has designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established and in that character the Bank has issued bank guarantees totaling UF 2,465,500, maturing January 9, 2014 (UF 2,442,000, maturing on January 4, 2013 as of December 31, 2012).

 

In addition to these guarantees for creating mutual funds, there are other guarantees for a guaranteed return on certain mutual funds, totaling Ch$59,149 million as of September 30, 2013 (Ch$118,734 million as of December 31, 2012).

 

66



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

26.                               Contingencies and Commitments, continued:

 

(c)                                            Guarantees granted, continued:

 

The details of guarantees are as follow:

 

 

 

September

 

 

 

December

 

 

 

 

 

2013

 

Guarantees

 

2012

 

Guarantees

 

Fund

 

MCh$

 

Number

 

MCh$

 

Number

 

Mutual fund Depósito Plus

 

14,241

 

330681-1

 

14,958

 

004713-3

 

Mutual fund Depósito Plus III

 

12,937

 

006033-5

 

 

 

Mutual fund Depósito Plus II

 

9,308

 

006037-7

 

12,552

 

005272-2

 

Mutual fund Small Cap USA

 

5,197

 

008212-5

 

 

 

Mutual fund Chile Bursatil

 

5,050

 

006034-3

 

 

 

Mutual fund Twin Win Europa 103

 

3,537

 

006035-1

 

3,541

 

004712-5

 

Mutual fund Global Stocks

 

2,964

 

007385-9

 

 

 

Mutual fund Second Best Chile EEUU

 

2,207

 

006032-7

 

2,207

 

004820-2

 

Mutual fund Europa Accionario

 

2,059

 

006036-9

 

2,069

 

004716-7

 

Mutual fund Second Best Europa China

 

1,649

 

007082-7

 

 

 

Mutual fund Potencias Consolidadas

 

 

 

30,381

 

336718-4

 

Mutual fund Muralla China

 

 

 

17,795

 

336716-8

 

Mutual fund Banca Americana Voltarget

 

 

 

11,878

 

336723-1

 

Mutual fund Ahorro Estable II

 

 

 

11,270

 

336722-3

 

Mutual fund Estrategia Commodities

 

 

 

6,302

 

336721-5

 

Mutual fund Ahorro Estable III

 

 

 

5,051

 

336717-6

 

Mutual fund Ahorro Plus I

 

 

 

730

 

336720-7

 

Total

 

59,149

 

 

 

118,734

 

 

 

 

ii.                          In subsidiary Banchile Corredores de Bolsa S.A.:

 

For the purposes of ensuring correct and complete compliance with all of its obligations as Stock Brokerage entity, in conformity with the provisions of Article 30 and subsequent Articles of Law 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF 20,000, insured by Cía. de Seguros de Crédito Continental S.A., that matures April 22, 2014, whereby the Securities Exchange of the Santiago Stock Exchange was appointed as the subsidiary’s creditor representative.

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Guarantees:

 

 

 

 

 

 

 

 

 

 

 

Shares to secure short-sale transactions in:

 

 

 

 

 

Securities Exchange of the Santiago, Stock Exchange

 

1,226

 

69

 

Securities Exchange of the Electronic, Stock Exchange of Chile

 

2,246

 

33,693

 

 

 

 

 

 

 

Fixed income securities to ensure system CCLV, Securities Exchange of the Santiago, Stock Exchange

 

2,983

 

3,068

 

 

 

 

 

 

 

Fixed income securities to ensure stock loans, Securities Exchange of the Electronic, Stock Exchange of Chile

 

439

 

47

 

 

 

 

 

 

 

Total

 

6,894

 

36,877

 

 

67



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

26.                    Contingencies and Commitments, continued:

 

(c)                        Guarantees granted, continued:

 

In conformity with the provisions of internal stock market regulations, and for the purpose of securing the broker’s correct performance, the company established a pledge on its share of the Santiago Stock Exchange in favor of that institution, as recorded in Public Deed on September 13, 1990, signed before Santiago public notary Mr. Raul Perry Pefaur, and on its share in the Electronic Stock Exchange of Chile in favor of that institution, as recorded in a contract entered into by both parties on May 16, 1990.

 

Banchile Corredores de Bolsa S.A. keeps an insurance policy current with AIG Chile — Compañía de Seguros Generales S.A. that expires January 2, 2014, and that covers employee fidelity, physical losses, falsification or adulteration, and currency fraud with a coverage amount equivalent to US$10,000,000.

 

(d)                       Provisions for contingencies loans:

 

Established provisions for credit risk from contingencies operations are the followings:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Credit lines

 

31,220

 

22,661

 

Bank guarantees

 

12,647

 

11,407

 

Guarantees and surety bonds

 

2,549

 

2,064

 

Letters of credit

 

800

 

434

 

Other commitments

 

1

 

19

 

Total

 

47,217

 

36,585

 

 

68



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

27.            Equity:

 

(a)  Capital

 

(i)        Authorized, subscribed and paid shares:

 

As of September 30, 2013, the paid-in capital of Banco de Chile is represented by 93,175,043,991 registered shares (89,898,992,667 shares as of December 31, 2012), with no par value, fully paid and distributed.

 

(ii)          Shares:

 

(ii.1)              On March 21, 2013, the extraordinary shareholders meeting approved the capitalization of 30% of the distributable net income obtained during the fiscal year ending as of December 31, 2012.

 

(ii.2)              The following table shows the share movements from December 31, 2011 to September 30, 2013:

 

 

 

Ordinary
shares

 

Ordinary T
Series shares (*)

 

Total shares

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

86,942,514,973

 

 

86,942,514,973

 

 

 

 

 

 

 

 

 

As of September 30, 2012

 

88,037,813,511

 

 

88,037,813,511

 

Fully paid and subscribed shares

 

 

1,861,179,156

 

1,861,179,156

 

Total shares subscribed and fully paid as of December 31, 2012

 

88,037,813,511

 

1,861,179,156

 

89,898,992,667

 

Shares subscribed and paid period 2013

 

 

2,078,310,286

 

2,078,310,286

 

Conversion of “Banco de Chile- T” shares into “Banco de Chile” shares(**)

 

3,939,489,442

 

(3,939,489,442

)

 

Capitalization of retained earnings(***)

 

1,197,741,038

 

 

1,197,741,038

 

Total Shares as of September 30, 2013

 

93,175,043,991

 

 

93,175,043,991

 

 


(*)                                 Capital increase as of October 17, 2012.

(**)                          See note No. 5 (i) (d)

(**)                          Capitalization of May 13, 2013.  See note No. 5 (i) (a)

 

69



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

27.                     Equity, continued:

 

(b)                                 Distributable income:

 

For purposes of Law No. 19,396 (in particular Articles 24, 25 and 28 of such law) and the Central Bank Contract —between Banco de Chile and Sociedad Matriz del Banco de Chile S.A.- Banco de Chile’s distributable net income will be determined by subtracting or adding to net income the correction of the value of the paid-in capital and reserves according to the variation of the Consumer Price Index between November of the fiscal year prior to the one in which the calculation is made and November of the fiscal year in which the calculation is made.  The difference between net income and distributable net income shall be registered in a reserve account since the first day of the fiscal year following the date when the calculation is made.  This reserve account cannot be distributed or capitalized.  Provisional Article four shall be in force until the obligation of Law No. 19,396 owed by Sociedad Matriz del Banco de Chile S.A., directly or through its subsidiary SAOS has been fully paid.  The distributable income for the nine-month period ended September 30, 2013 ascend to Ch$353,670 million (Ch$429,656 million as of December 31, 2012).

 

The above described agreement was subject to the consideration of the Council of the Central Bank of Chile, and such entity approved, in ordinary meeting that took place on December 3, 2009.

 

As stated, the retention of earnings for the year ended as of December 31, 2012, made in March of 2013, ascend to Ch$36,193 million (Ch$58,092 million of income for the year ended as of December 31, 2011, retained in March of 2012).

 

(c)                                  Approval and payment of dividends:

 

At the Ordinary Shareholders’ Meeting held on March 21, 2013, the Bank’s shareholders agreed to distribute and pay dividend No. 201 amounting to Ch$3.41625263165 per common share of Banco de Chile, with charge to distributable net income for the year ended as of December 31, 2012.  The dividend of period 2013 amounted Ch$343,455 million.

 

At the Ordinary Shareholders’ Meeting held on March 22, 2012, the Bank’s shareholders agreed to distribute and pay dividend No. 200 amounting to Ch$2.984740 per common share of Banco de Chile, with charge to distributable net income for the year ended as of December 31, 2011.  The dividend of period 2012 amounted to Ch$296,802 millions.

 

(d)                                 Provision for minimum dividends:

 

The Board of Directors established a minimum dividend distribution policy, where the Bank has to record a provision of 70% of net income of the Annual Consolidated Financial Statements.  Accordingly, the Bank recorded a liability under the line item “Provisions” for an amount of MCh$247,569 (MCh$300,759 as of December 31, 2012) against “Retained earnings”.

 

70



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

27.                     Equity, continued:

 

(e)   Earnings per share:

 

i.                               Basic earnings per share:

 

Basic earnings per share are determined by dividing the net income attributable to the Bank shareholders in a period by the weighted average number of shares outstanding during the period.

 

ii.                            Diluted earnings per share:

 

Diluted earnings per share are determined in the same way as Basic Earnings, but the weighted average number of outstanding shares is adjusted to take into account the potential diluting effect of stock options, warrants, and convertible debt.

 

The following table shows the income and share data used in the calculation of EPS:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Net profits attributable to ordinary equity holders of the bank (in millions)

 

380,720

 

327,910

 

Weighted average number of ordinary shares

 

92,929,577,197

 

88,037,813,511

 

Earning per shares (in Chilean pesos)

 

4.10

 

3.72

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Net profits attributable to ordinary equity holders of the bank (in millions)

 

380,720

 

327,910

 

Weighted average number of ordinary shares

 

92,929,577,197

 

88,037,813,511

 

Assumed conversion of convertible debt

 

 

 

Adjusted number of shares

 

92,929,577,197

 

88,037,813,511

 

Diluted earnings per share (in Chilean pesos)

 

4.10

 

3.72

(*)

 


(*)    Capitalization of retained earnings are considered in the calculation of earnings per share.

 

As of September 30, 2013 and 2012, the Bank did not have any instruments that could lead to a dilution of its ordinary shares.

 

71



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

27.                     Equity, continued:

 

(f)                         Other comprehensive income:

 

The cumulative translation adjustment is generated from the Bank’s translation of its investments in foreign companies, as it records the effects of foreign currency translation for these items in equity.  During period of 2013 it was made a credit to equity for an amount of Ch$39 million (charge to equity for Ch$65 million as of September 30, 2012).

 

The fair market value adjustment for available-for-sale instruments is generated by fluctuations in the fair value of that portfolio, with a charge or credit to equity, net of deferred taxes.  During the period of 2013 it was made a net credit to equity for an amount of Ch$7,320 million (net credit to equity for Ch$18,666 million as of September 30, 2012).

 

Cash flow hedge adjustment it consists in the portion of income of hedge instruments registered in equity produced in a cash flow hedge.  During the period of 2013 it was made a net charge to equity for an amount of Ch$13,112 million (net credit to equity for Ch$1,044 million as of September 30, 2012).

 

72



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

28.            Interest Revenue and Expenses:

 

(a)                                On the Interim Condensed Consolidated Financial Statement closing date, the composition of income from interest and adjustments, not including the net loss from hedge accounting, is as follows:

 

 

 

September
2013

 

September
2012

 

 

 

Interest

 

Adjustment

 

Prepaid
fees

 

Total

 

Interest

 

Adjustment

 

Prepaid
fees

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

546,351

 

49,579

 

2,064

 

597,994

 

510,362

 

51,120

 

1,462

 

562,944

 

Consumer loans

 

415,897

 

665

 

6,195

 

422,757

 

379,081

 

555

 

5,122

 

384,758

 

Residential mortgage loans

 

142,621

 

48,590

 

2,736

 

193,947

 

124,381

 

49,182

 

2,926

 

176,489

 

Financial investment

 

49,790

 

10,484

 

 

60,274

 

44,861

 

9,521

 

 

54,382

 

Repurchase agreements

 

1,316

 

1

 

 

1,317

 

2,044

 

 

 

2,044

 

Loans and advances to banks

 

11,051

 

 

 

11,051

 

8,237

 

 

 

8,237

 

Other interest revenue

 

165

 

804

 

 

969

 

122

 

970

 

 

1,092

 

Total

 

1,167,191

 

110,123

 

10,995

 

1,288,309

 

1,069,088

 

111,348

 

9,510

 

1,189,946

 

 

The amount of interest revenue recognized on a received basis for impaired portfolio as of September 30, 2013 was Ch$6,108 million (Ch$6,649 million in 2012).

 

(b)                       At the each period end, the detail of income from suspended interest is as follows:

 

 

 

September
2013

 

September
2012

 

 

 

Interest

 

Adjustment

 

Total

 

Interest

 

Adjustment

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

7,622

 

642

 

8,264

 

5,478

 

1,762

 

7,240

 

Residential mortgage loans

 

1,377

 

662

 

2,039

 

1,449

 

687

 

2,136

 

Consumer loans

 

295

 

 

295

 

194

 

 

194

 

Total

 

9,294

 

1,304

 

10,598

 

7,121

 

2,449

 

9,570

 

 

73



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

28.                               Interest Revenue and Expenses, continued:

 

(c)                       At the each period end, interest and adjustment expenses (not including hedge gain) are detailed as follows:

 

 

 

September
2013

 

September
2012

 

 

 

Interest

 

Adjustment

 

Total

 

Interest

 

Adjustment

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts and time deposits

 

330,617

 

23,670

 

354,287

 

325,390

 

31,420

 

356,810

 

Debt issued

 

97,504

 

33,823

 

131,327

 

78,528

 

29,814

 

108,342

 

Other financial obligations

 

1,483

 

458

 

1,941

 

1,594

 

546

 

2,140

 

Repurchase agreements

 

10,164

 

 

10,164

 

11,634

 

10

 

11,644

 

Borrowings from financial institutions

 

11,449

 

 

11,449

 

18,400

 

1

 

18,401

 

Demand deposits

 

48

 

1,646

 

1,694

 

58

 

2,245

 

2,303

 

Other interest expenses

 

 

87

 

87

 

14

 

98

 

112

 

Total

 

451,265

 

59,684

 

510,949

 

435,618

 

64,134

 

499,752

 

 

(d)                       As of September 30, 2013 and 2012, the Bank uses interest rate swaps to hedge its position on the fair value of corporate bonds and commercial loans through micro-hedging.

 

 

 

September
2013

 

September
2012

 

 

 

Income
(loss)

 

Expenses

 

Total

 

Income
(loss)

 

Expenses

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from accounting hedges

 

16,758

 

10,264

 

27,022

 

2,400

 

1,778

 

4,178

 

Loss from accounting hedges

 

(24,193

)

(3,217

)

(27,410

)

(11,246

)

 

(11,246

)

Net gain on hedged items

 

(8,279

)

 

(8,279

)

1,558

 

 

1,558

 

Total

 

(15,714

)

7,047

 

(8,667

)

(7,288

)

1,778

 

(5,510

)

 

(e)                        At the each period end, the summary of interest and expenses is as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Interest revenue

 

1,288,309

 

1,189,946

 

Interest expenses

 

(510,949

)

(499,752

)

Subtotal

 

777,360

 

690,194

 

 

 

 

 

 

 

Income accounting hedges (net)

 

(8,667

)

(5,510

)

 

 

 

 

 

 

Total interest revenue and expenses, net

 

768,693

 

684,684

 

 

74



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

29.            Income and Expenses from Fees and Commissions:

 

At the each period end, the income and expenses for fees and commissions shown in the Interim Consolidated Statements of Comprehensive Income refer to the following items:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Income from fees and commission

 

 

 

 

 

Card services

 

79,953

 

74,908

 

Collections and payments

 

46,990

 

44,705

 

Investments in mutual funds and others

 

40,628

 

42,645

 

Portfolio management (*)

 

27,965

 

23,029

 

Lines of credit and overdrafts

 

16,674

 

17,082

 

Fees for insurance transactions

 

14,250

 

12,913

 

Trading and securities management

 

13,322

 

12,879

 

Use of distribution channel

 

13,185

 

11,914

 

Guarantees and letters of credit

 

12,791

 

10,481

 

Usage Banchile’s brand

 

9,382

 

9,241

 

Financial advisory services

 

1,995

 

2,908

 

Other fees earned (*)

 

10,954

 

12,621

 

Total income from fees and commissions

 

288,089

 

275,326

 

 

 

 

 

 

 

Expenses from fees and commissions

 

 

 

 

 

Fees for credit card transactions(**)

 

(54,089

)

(44,822

)

Sales force fees

 

(8,441

)

(7,206

)

Fees for collections and payments

 

(5,038

)

(4,965

)

Fees for securities transactions

 

(2,413

)

(2,494

)

Sale of mutual fund units

 

(1,765

)

(2,142

)

Other fees

 

(493

)

(1,197

)

Total expenses from fees and commissions

 

(72,239

)

(62,826

)

 


(*)                       During 2013 it was reclassified fees related to income from portfolio management from “Other fees earned” to “Portfolio management”.  The reclassified amount in the period September 2012 was MCh$2,941 millions.

(**)                See Note 2 (f) about Reclassifications

 

75



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

30.            Net Financial Operating Income:

 

The gains (losses) from trading and brokerage activities is detailed as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Financial assets held-for-trading

 

17,980

 

14,777

 

Sale of available-for-sale instruments

 

11,137

 

5,620

 

Sale of loan portfolios

 

314

 

 

Net income on other transactions

 

(281

)

2,219

 

Trading derivative instruments

 

(5,463

)

(6,850

)

Total

 

23,687

 

15,766

 

 

31.            Foreign Exchange Transactions, net:

 

Net foreign exchange transactions are detailed as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Gain from accounting hedges

 

27,988

 

(693

)

Translation difference, net

 

4,616

 

35,812

 

Indexed foreign currency, net

 

4,160

 

(10,290

)

Total

 

36,764

 

24,829

 

 

76



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

32.            Provisions for Loan Losses:

 

The movement during the nine-month period ended September 2013 and 2012 is the following:

 

 

 

Loans and

 

Loans to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

advances to
banks

 

Commercial
loans

 

Mortgage
loans

 

Consumer
loans

 

Total

 

Contingent
loans

 

Total

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Provisions established:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual provisions

 

(493

)

(31

)

(17,791

)

(1,429

)

 

 

 

 

(17,791

)

(1,429

)

(2,138

)

(1,068

)

(20,422

)

(2,528

)

Group provisions

 

 

 

(37,835

)

(33,736

)

(3,502

)

(2,449

)

(126,497

)

(126,898

)

(167,834

)

(163,083

)

(8,494

)

(1,841

)

(176,328

)

(164,924

)

Provisions established, net

 

(493

)

(31

)

(55,626

)

(35,165

)

(3,502

)

(2,449

)

(126,497

)

(126,898

)

(185,625

)

(164,512

)

(10,632

)

(2,909

)

(196,750

)

(167,452

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions released:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual provisions

 

 

173

 

 

 

 

 

 

 

 

 

 

 

 

173

 

Group provisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions released, net

 

 

173

 

 

 

 

 

 

 

 

 

 

 

 

173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision, net

 

(493

)

142

 

(55,626

)

(35,165

)

(3,502

)

(2,449

)

(126,497

)

(126,898

)

(185,625

)

(164,512

)

(10,632

)

(2,909

)

(196,750

)

(167,279

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional provision

 

 

 

(7,388

)

 

 

 

 

 

(7,388

)

 

 

 

(7,388

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recovery of written-off assets

 

 

 

8,467

 

10,091

 

1,306

 

1,456

 

20,548

 

18,148

 

30,321

 

29,695

 

 

 

30,321

 

29,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions,for loan losses, net

 

(493

)

142

 

(54,547

)

(25,074

)

(2,196

)

(993

)

(105,949

)

(108,750

)

(162,692

)

(134,817

)

(10,632

)

(2,909

)

(173,817

)

(137,584

)

 

According to the management, the provisions constituted by credit risk, cover all the possible losses that could arise from the non-recovery of assets.

 

77



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

33.    Personnel Expenses:

 

At the each period end personnel expenses are detailed as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Salaries

 

143,242

 

134,965

 

Bonuses

 

50,798

 

53,964

 

Lunch and health benefits

 

16,947

 

16,300

 

Staff severance indemnities

 

6,576

 

9,152

 

Training expenses

 

1,988

 

1,269

 

Other personnel expenses

 

14,640

 

15,982

 

Total

 

234,191

 

231,632

 

 

78



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

34.    Administrative Expenses:

 

At the each period end, administrative expenses are detailed as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

General administrative expenses

 

 

 

 

 

Information Technology and communications

 

36,794

 

34,887

 

Maintenance and repair of property and equipment

 

20,997

 

21,830

 

Office rental

 

14,942

 

14,335

 

Securities and valuables transport services

 

7,094

 

6,821

 

Office supplies

 

6,556

 

4,796

 

Rent ATM area

 

5,619

 

5,539

 

External advisory services

 

4,736

 

4,876

 

Lighting, heating and other utilities

 

3,332

 

3,673

 

Representation and transferring of personnel

 

3,092

 

2,530

 

Legal and notary

 

2,693

 

2,321

 

Insurance premiums

 

2,418

 

2,052

 

P.O. box, mail and postage

 

2,145

 

1,965

 

Donations

 

1,468

 

1,059

 

Equipment rental

 

909

 

875

 

Fees for professional services

 

580

 

521

 

Other general administrative expenses

 

7,029

 

7,977

 

Subtotal

 

120,404

 

116,057

 

 

 

 

 

 

 

Outsources services

 

 

 

 

 

Credit pre-evaluation services

 

16,267

 

14,197

 

Data processing

 

5,381

 

5,814

 

Other

 

10,536

 

8,419

 

Subtotal

 

32,184

 

28,430

 

 

 

 

 

 

 

Board expenses

 

 

 

 

 

Board remunerations

 

1,569

 

1,517

 

Other Board expenses

 

363

 

322

 

Subtotal

 

1,932

 

1,839

 

 

 

 

 

 

 

Marketing expenses

 

 

 

 

 

Advertising

 

20,522

 

21,209

 

Subtotal

 

20,522

 

21,209

 

 

 

 

 

 

 

Taxes, payroll taxes and contributions

 

 

 

 

 

Contribution to the Superintendency of Banks

 

5,170

 

4,782

 

Real estate contributions

 

1,684

 

1,981

 

Patents

 

1,299

 

1,133

 

Other taxes

 

1,114

 

617

 

Subtotal

 

9,267

 

8,513

 

Total

 

184,309

 

176,048

 

 

79



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

35.    Depreciation, Amortization and Impairment:

 

(a)        At the each period end, the amounts charged to income for depreciation and amortization are detailed as follows:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

Depreciation of property and equipment (Note No. 16a)

 

14,584

 

15,431

 

Amortization of intangibles assets (Note No. 15b)

 

6,748

 

7,836

 

Total

 

21,332

 

23,267

 

 

(b)        As of September 30, 2013 and 2012, the composition of impairment expenses is the following:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

Impairment of Financial Instruments

 

 

518

 

Impairment of Properties and Equipment (Note No. 16a)

 

133

 

130

 

Impairment of Intangible Assets (Note No. 15b)

 

 

 

Total

 

133

 

648

 

 

80



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

36.    Other Operating Income:

 

At the each period end, the Bank and its subsidiaries present the following under other operating income:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Income for assets received in lieu of payment

 

 

 

 

 

Income from sale of assets received in lieu of payment

 

3,627

 

5,246

 

Other income

 

113

 

2

 

Subtotal

 

3,740

 

5,248

 

 

 

 

 

 

 

Release of provisions for contingencies

 

 

 

 

 

Country risk provisions

 

 

241

 

Provisions for credits abroad

 

 

 

Other provisions for contingencies

 

94

 

255

 

Subtotal

 

94

 

496

 

 

 

 

 

 

 

Other income

 

 

 

 

 

Rental income

 

5,291

 

4,427

 

Income from sale of leased assets

 

2,229

 

191

 

Recovery from external branches

 

1,635

 

1,865

 

Expense recovery

 

1,427

 

1,885

 

Indemnities received

 

898

 

 

Release of provision other assets

 

551

 

 

Gain on sale of property and equipment

 

210

 

231

 

Fiduciary and trustee commissions

 

155

 

423

 

Foreign trade income

 

20

 

41

 

Others

 

1,674

 

1,534

 

Subtotal

 

14,090

 

10,597

 

 

 

 

 

 

 

Total

 

17,924

 

16,341

 

 

81



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

37.    Other Operating Expenses:

 

At the each period end, the Bank and its subsidiaries incurred the following other operating expenses:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Provisions and expenses for assets received in lieu of payment

 

 

 

 

 

Charge-off assets received in lieu of payment

 

1,308

 

1,974

 

Expenses to maintain assets received in lieu of payment

 

361

 

423

 

Provisions for assets received in lieu of payment

 

35

 

89

 

Subtotal

 

1,704

 

2,486

 

 

 

 

 

 

 

Provisions for contingencies

 

 

 

 

 

Country risk provisions

 

1,868

 

 

Provisions for credits abroad

 

 

 

Other provisions for contingencies

 

369

 

3,337

 

Subtotal

 

2,237

 

3,337

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

Provisions for other expenses

 

6,000

 

6,175

 

Write-offs for operating risks

 

2,642

 

7,382

 

Card administration

 

817

 

841

 

Provisions for other assets

 

23

 

2,576

 

Others

 

366

 

2,328

 

Subtotal

 

9,848

 

19,302

 

 

 

 

 

 

 

Total

 

13,789

 

25,125

 

 

82



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

38.    Related Party Transactions:

 

The related parties of the Bank and its subsidiaries include entities of the Bank’s corporate group; corporations which are the Bank’s parent company, associated companies, subsidiaries, associates; directors, managers, administrators, main executives or receivers of the company on their own behalf or in representation of persons other than the Bank, and their respective spouses or family members up to the second degree of consanguinity or affinity, as well as any entity directly or indirectly controlled through any of them, the partnerships or companies in which the aforementioned persons are owners, directly or through other individuals or corporations, of 10% or more of their capital or directors, managers, administrators or main executives; any person that on their own or with others with whom they have a joint action agreement can designate at least one member of the company’s management or controls 10% or more of the capital or of the voting capital, if dealing with a public corporation; those that establish the company’s bylaws, or with a sound basis identify the directors’ committee; and those who have held the position of director, manager, administrator, main executive or receiver within the last eighteen months.

 

Article 147 of the Companies Act, states that a public corporation can only enter into transactions with related parties when the objective is to contribute to the company’s interests, when terms of price, terms and conditions are commensurate to those prevailing in the market at the time of their approval and comply with the requirements and procedures stated in the same standard.

 

Moreover, Article 84 of the Chilean Banking Act. establishes limits for loans granted to related parties and prohibits the granting of loans to the Bank’s directors, managers and general representatives.

 

83



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

38.                     Related Party Transactions, continued:

 

(a)                       Loans to related parties:

 

 

 

Production
Companies(*)

 

Investment Companies(**)

 

Individuals(***)

 

Total

 

 

 

September

 

December

 

September

 

December

 

September

 

December

 

September

 

December

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and accounts receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

286,577

 

250,983

 

36,354

 

63,576

 

914

 

704

 

323,845

 

315,263

 

Residential mortgage loans

 

 

 

 

 

16,298

 

14,974

 

16,298

 

14,974

 

Consumer loans

 

 

 

 

 

3,307

 

3,920

 

3,307

 

3,920

 

Gross loans

 

286,577

 

250,983

 

36,354

 

63,576

 

20,519

 

19,598

 

343,450

 

334,157

 

Provision for loan losses

 

(973

)

(761

)

(154

)

(136

)

(61

)

(68

)

(1,188

)

(965

)

Net loans

 

285,604

 

250,222

 

36,200

 

63,440

 

20,458

 

19,530

 

342,262

 

333,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Off balance sheet accounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guarantees

 

1,330

 

1,864

 

 

 

 

 

1,330

 

1,864

 

Letters of credits

 

2,605

 

280

 

 

 

 

 

2,605

 

280

 

Banks guarantees

 

18,900

 

24,361

 

2,000

 

2,374

 

 

 

20,900

 

26,735

 

Immediately available credit lines

 

58,942

 

46,179

 

5,143

 

4,532

 

9,897

 

9,320

 

73,982

 

60,031

 

Total off balance sheet account

 

81,777

 

72,684

 

7,143

 

6,906

 

9,897

 

9,320

 

98,817

 

88,910

 

Provision for contingencies loans

 

(25

)

(44

)

(1

)

(1

)

 

 

(26

)

(45

)

Off balance sheet account, net

 

81,752

 

72,640

 

7,142

 

6,905

 

9,897

 

9,320

 

98,791

 

88,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount covered by Collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

31,327

 

31,034

 

55

 

55

 

14,270

 

15,325

 

45,652

 

46,414

 

Warrant

 

 

 

 

 

 

 

 

 

Pledge

 

13

 

13

 

 

 

7

 

7

 

20

 

20

 

Others(****)

 

2,842

 

2,842

 

17,300

 

17,300

 

10

 

10

 

20,152

 

20,152

 

Total colateral

 

34,182

 

33,889

 

17,355

 

17,355

 

14,287

 

15,342

 

65,824

 

66,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For trading purposes

 

12

 

 

 

 

 

 

12

 

 

Total acquired instruments

 

12

 

 

 

 

 

 

 

 

12

 

 

 

84



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

38.                     Related Party Transactions, continued:

 

(a)                       Loans with related parties, continued:

 


(*)                               Production companies are legal entities which comply with the following conditions:

i)              They engage in productive activities and generate a separable flow of income

ii)           Less than 50% of their assets are trading securities or investments

 

(**)                         Investment companies include those legal entities that do not comply with the conditions for production companies and are profit-oriented.

 

(***)                  Individuals include key members of the management, who directly or indirectly posses the authority and responsibility of planning, administrating and controlling the activities of the organization, including directors. This category also includes their family members who are expected to have an influence or to be influenced by such individuals in their interactions with the organization.

 

(****)           These guarantees correspond mainly to shares and other financial guarantees.

 

(b)         Other assets and liabilities with related parties:

 

 

 

September

 

December

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

Assets

 

 

 

 

 

Cash and due from banks

 

10,674

 

11,174

 

Derivative instruments

 

77,146

 

107,487

 

Other assets

 

2,594

 

2,931

 

Total

 

90,414

 

121,592

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Demand deposits

 

149,037

 

87,480

 

Savings accounts and time deposits

 

277,812

 

378,965

 

Derivative instruments

 

85,092

 

83,582

 

Debt issued

 

53,036

 

79,821

 

Borrowings from financial institutions

 

167,134

 

134,820

 

Other liabilities

 

18,014

 

9,044

 

Total

 

750,125

 

773,712

 

 

85



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

38.                               Related Party Transactions, continued:

 

(c)              Income and expenses from related party transactions (*):

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

Income

 

Expense

 

Income

 

Expense

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Type of income or expense recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and revenue expenses

 

15,128

 

12,194

 

12,584

 

14,929

 

Fees and commission income

 

37,752

 

24,948

 

43,093

 

22,184

 

Financial operating

 

104,418

 

148,570

 

161,390

 

132,764

 

Released or established of provision for credit risk

 

133

 

 

 

349

 

Operating expenses

 

 

51,378

 

 

50,478

 

Other income and expenses

 

412

 

23

 

601

 

15

 

Total

 

157,843

 

237,113

 

217,668

 

220,719

 

 


(*)                                 This detail does not correspond constitute a Statement of Comprehensive Income for related party transactions, soassets with these parties are not necessarily equal to liabilities and each item reflects total income and expense and does not correspond to exact transactions.

 

(d)             Related party contracts:

 

There are no contracts entered during the period 2013 and 2012 which does not represent a customary transaction within the Bank’s line of business with general customers and which accounts for amounts greater than UF 1,000.

 

(e)              Payments to key management personnel:

 

 

 

September

 

September

 

 

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Remunerations

 

2,559

 

2,939

 

Short-term benefits

 

3,093

 

3,871

 

Contract termination indemnity

 

418

 

260

 

Paid based on shares

 

 

 

Total

 

6,070

 

7,070

 

 

Composition of key personnel:

 

 

 

N° of executives

 

 

 

September

 

September

 

 

 

2013

 

2012

 

Position

 

 

 

 

 

CEO

 

1

 

1

 

Deputy general manager

 

 

1

 

CEOs of subsidiaries

 

6

 

8

 

Division Managers

 

11

 

14

 

Total

 

18

 

24

 

 

86



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

38.                               Related Party Transactions, continued:

 

(f)                                   Directors’ expenses and remunerations:

 

 

 

Remunerations

 

Fees for attending
Board meetings

 

Fees for attending
Committees and
Subsidiary Board
meetings (1)

 

Consulting

 

Total

 

Name of Directors

 

September
2013

 

September
2012

 

September
2013

 

September
2012

 

September
2013

 

September
2012

 

September
2013

 

September
2012

 

September
2013

 

September
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pablo Granifo Lavín

 

270

(*)

267

(*)

35

 

32

 

240

 

216

 

 

 

545

 

515

 

Andrónico Luksic Craig

 

111

 

110

 

10

 

6

 

 

 

 

 

121

 

116

 

Jaime Estévez Valencia

 

37

 

37

 

16

 

15

 

72

 

69

 

 

 

125

 

121

 

Gonzalo Menéndez Duque

 

37

 

37

 

13

 

13

 

82

 

84

 

 

 

132

 

134

 

Jorge Awad Mehech

 

37

 

37

 

18

 

15

 

84

 

80

 

 

 

139

 

132

 

Francisco Pérez Mackenna

 

37

 

37

 

17

 

13

 

44

 

38

 

 

 

98

 

88

 

Rodrigo Manubens Moltedo

 

37

 

37

 

17

 

16

 

39

 

37

 

 

 

93

 

90

 

Jorge Ergas Heymann

 

37

 

37

 

13

 

13

 

32

 

33

 

 

 

82

 

83

 

Thomas Fürst Freiwirth

 

37

 

37

 

14

 

14

 

30

 

30

 

 

 

81

 

81

 

Guillermo Luksic Craig

 

12

 

37

 

 

4

 

 

 

 

 

12

 

41

 

Jean-Paul Luksic

 

22

 

 

5

 

 

2

 

 

 

 

29

 

 

Jacob Ergas Ergas

 

 

 

 

 

5

 

7

 

 

 

5

 

7

 

Others directors of subsidiaries

 

 

 

 

 

118

 

123

 

 

 

118

 

123

 

Total

 

674

 

673

 

158

 

141

 

748

 

717

 

 

 

1,580

 

1,531

 

 


(1)              Includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda. of MCh$11 (MCh$13 as of September 30, 2012).

 

(*)              Includes a provision of MCh$159 (MCh$155 as of September 30, 2012) for an incentive subject to achieving the Bank’s forecasted earnings.

 

Fees paid for advisory services to the Board of Directors amount to MCh$203 (MCh$198 as of September 30, 2012).

 

Travel and other related expenses amount to MCh$149 (MCh$110 as of September 30, 2012).

 

87



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.            Fair Value of Financial Assets and Liabilities:

 

Banco de Chile and its subsidiaries have defined a corporate framework for the Fair Value measurement and control to accomplish the Fair Value process according to local regulations, market standards and best practices in the industry. This framework is contained into the Banco de Chile’s Fair Value Policy.

 

One of the most important definition in this framework is the Product Control Unit, hereinafter PCU, function. This area is independent from both the principal management and the business unit, and reports to the CFO of Banco de Chile. This area is responsible for the independent verification of Profit and Losses, and Fair Value measurement and control for all Treasury transactions; Trading, Funding and gapping and Investments deals.

 

To accomplish the measurements and controls, Banco de Chile and its subsidiaries, take into account at least the following aspects:

 

(i)                         Industry standards of fair value measurements

 

In the fair value calculation process, Banco de Chile uses standard methodologies; closing prices, discounted cash flows and option models, Black-Scholes models, in case of options. The input parameters are rates, prices and volatility levels for each term and market factor that can change the fair value of any instrument in the portfolio.

 

(ii)                      Quoted prices in active markets

 

The fair value for instruments with quoted prices in active markets is determined using daily quotes from electronic systems information as Bloomberg and Bolsa de Comercio de Santiago terminals. This quote represents the price at which the instrument is frequently buy and sell in financial markets.

 

(iii)                   Valuation techniques

 

If there is not market quotes in active markets for the financial instrument, valuation techniques will be used to determine the fair value.

 

Due to the fact that fair value models requires a set of market parameters as inputs, it is part of the fair value process to maximize the utilization based in observable quoted prices or derived from similar instruments in active markets. Nevertheless there are some cases for which neither quoted prices nor derived prices are available; in these cases external data from specialized providers, brokers such as ICAP, price for similar transactions and historical information it is used for validate the parameters that will be used as inputs.

 

88



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.            Fair Value of Financial Assets and Liabilities, continued:

 

(iv)                  Fair value adjustments

 

Part of the fair value process consist in adjustment, Market Value Adjustments or MVA for short, to take into account two different market facts; bid/offer spreads and market factors liquidity. These adjustments are calculated and analyzed by the PCU and Risk Market areas.

 

The bid/offer spread adjustment reflects the expected impact on fair value due to close long or short positions in a specific market factor and term, valuated at midpoint. For example, long positions in an asset will be impacted in order to reflect the fact that in selling that position will be quoted at bid instead at midpoint. For the bid/offer spread adjustment, market quotes or indicative prices for each position, instrument, currency and term are used. Bid, mid and offer market quotes are considered.

 

The liquidity adjustment considers the relative size to the market of each position in the portfolio. This adjustment is intended to reflect the relative size of Banco de Chile and the deepness of the markets. For this adjustment, the size of each position, recent transaction in active markets and recently observed liquidity are taking into account.

 

(v)                     Fair value control

 

To ensure that the market input parameters that Banco de Chile is using for fair value calculations represent the state of the market and the best estimate of fair value, the PCU unit runs on a daily basis an independent verification of prices and rates. This process aims to set a preventive control on the official market parameters provided by the respective business area. A comparative control based on Mark-to-Market differences, using one set of inputs prepared by the business area and one set prepared by the PCU, is conducted before fair value calculations. The output of this process is a set of differences in fair value by currency, product and portfolio. These differences are compared with specific ranges by grouping level; currency, product and portfolio.

 

In the event when significant differences were detected, these differences are scaled according to the amount of materiality for each grouping level, from a single report to the trader until a report to the Board. These ranges of materiality control are approved by the Assets and Liabilities Committee (ALCO).

 

Complementary and in parallel, the PCU generates daily reports of P&L and risk market exposure. These two kind of reports allows adequate control and consistency of the parameters used in the valuation, looking backwards revision.

 

89



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.            Fair Value of Financial Assets and Liabilities, continued:

 

(vi)                  Judgmental analysis and information to Senior Management.

 

In particular no cases where there is no market quotations for the instrument, similar transaction prices or indicative parameters, a reasoned analysis and specific controls should be made to estimate the fair value of the operation or transaction. Within the Banco de Chile’s framework for fair value, described in the Fair Value Policy approved by the Board of Banco de Chile, the approval level required for operate this kind of instruments, there is no market information or cannot be inferred from prices or rates, is established.

 

(a)     Fair value hierarchy

 

Banco de Chile and his subsidiaries, taken into account the preceding statements, classify all the financial instruments among the following levels:

 

Level 1:                    Observable, quoted price in active markets for the same instrument or specific type of transaction to be evaluated.

 

In this level are considered the following instruments: currency futures, Chilean central bank and treasury securities, mutual funds investments and equity.

 

For the Chilean central bank and treasury securities, all instruments that belong to one of the following benchmark groups will be considered as Level 1: Pesos-02, Pesos-05, Pesos-07, Pesos-10, UF-02, UF-05, UF-07, UF-10, UF-20, UF-30. A benchmark group is composed by a number of instruments that have similar duration and share the same quoted price within the group. This condition allows for a greater depth of the market, assuring daily observable quotes.

 

For each and every one of these instruments exist daily observable market valuation parameters; internal rates of return and closing prices, respectively, therefore no assumptions are needed to calculate the fair value. For currency futures as well as mutual funds and equity, closing prices times the number of instruments is used for fair value calculations. For Chilean central bank and treasury securities the internal rate of return is used to discount every cash flow and obtain the fair value of each instrument, for each currency; CLP or CLF.

 

The preceding described methodology corresponds to the one utilized for the Bolsa de Comercio de Santiago (Santiago’s main Exchange) and is recognized as the standard in the market.

 

90



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.            Fair Value of Financial Assets and Liabilities, continued:

 

Level 2:                    No market quotes are available for the specific financial instrument. For instruments in this level the valuation is done based on inference from observable market parameters; quoted prices for similar instruments in active markets.

 

This level is composed mostly by derivatives, currency and rate derivatives, bank’s debt securities, mortgage claims, money market instruments and less liquid Chilean Central Bank and treasury securities.

 

For derivatives the fair value process depend upon his value is impacted by volatility as a relevant market factor; if is the case, Black-Scholes-Merton type of formula it is used. For the rest of the derivatives, swaps and forwards, net present value through discounted cash flows is used. For securities classified as level 2, the obtained internal rate of return is used to discount every cash flow and obtain the fair value of each instrument, for each currency.

 

In the event that there is no observable price for an instrument in a specific term, the price will be inferred from the interpolation between periods that do have observable quoted price in active markets. These models incorporate various market variables, including foreign exchange rates and interest rate curves. In some cases external data from specialized providers, brokers such as ICAP and Riskamerica, price for similar transactions and historical information it is used for validate the parameters that will be used as inputs.

 

The techniques described above are used by the Santiago Stock Exchange in Chile, Bloomberg or the Over-the-Counter, and correspond to the standard methodology used in the local and international markets.

 

Level 3:                    The input parameters used in the valuation are not observable through market quotes in active markets neither can be inferred directly from other transaction information in active markets. This category also includes instruments that are valued based on quoted prices for similar instruments where adjustments or assumptions are needed to reflect the differences between them.

 

Instruments classified as level 3 correspond to Corporate Debt issued mainly Chilean and foreign companies, issued both in Chile and abroad. These instruments are classified, for accounting purposes, as Available for Sale. For this securities classified as level 3, the indicative internal rate of return is used to discount every cash flow and obtain the fair value of each instrument, for each currency. In this case only external data from specialized providers, brokers such as ICAP, Riskamerica and Interactive Data, it is used to for validate the parameters that will be used as inputs.

 

For this level corresponds to the described technique used by both the Bolsa de Comercio de Santiago de Chile as Bloomberg, and correspond to the standard methodology used in the local and international market.

 

91



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.                    Fair Value of Financial Assets and Liabilities, continued:

 

(b)                       Level hierarchy classification and figures

 

The following table shows the figures by hierarchy, for instruments registered at fair value.

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

September
2013

 

December
2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets held-for-trading from the Chilean Government and Central Bank

 

55,221

 

65,548

 

44,685

 

6,831

 

 

 

99,906

 

72,379

 

Other instruments issued in Chile

 

3,367

 

188

 

211,233

 

87,115

 

3,120

 

 

217,720

 

87,303

 

Instruments issued abroad

 

 

 

 

 

 

 

 

 

Mutual fund investments

 

48,266

 

33,042

 

 

 

 

 

48,266

 

33,042

 

Subtotal

 

106,854

 

98,778

 

255,918

 

93,946

 

3,120

 

 

365,892

 

192,724

 

Derivative contracts for trading purposes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

54,439

 

70,166

 

 

 

54,439

 

70,166

 

Swaps

 

 

 

220,894

 

258,496

 

 

 

220,894

 

258,496

 

Call Options

 

 

 

2,015

 

472

 

 

 

2,015

 

472

 

Put Options

 

 

 

1,184

 

341

 

 

 

1,184

 

341

 

Futures

 

 

 

 

 

 

 

 

 

Subtotal

 

 

 

278,532

 

329,475

 

 

 

278,532

 

329,475

 

Hedge accounting derivative contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swaps

 

 

 

11,955

 

22

 

 

 

11,955

 

22

 

Subtotal

 

 

 

11,955

 

22

 

 

 

11,955

 

22

 

Financial assets available-for-sale(1) from the Chilean Government and Central Bank

 

153,688

 

136,554

 

531,295

 

115,230

 

 

 

684,983

 

251,784

 

Other instruments issued in Chile

 

 

 

673,068

 

646,079

 

357,820

 

278,073

 

1,030,888

 

924,152

 

Instruments issued abroad

 

35,288

 

30,538

 

 

 

33,194

 

57,966

 

68,482

 

88,504

 

Subtotal

 

188,976

 

167,092

 

1,204,363

 

761,309

 

391,014

 

336,039

 

1,784,353

 

1,264,440

 

Total

 

295,830

 

265,870

 

1,750,768

 

1,184,752

 

394,134

 

336,039

 

2,440,732

 

1,786,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts for trading purposes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

68,575

 

81,790

 

 

 

68,575

 

81,790

 

Swaps

 

 

 

270,065

 

264,052

 

 

 

270,065

 

264,052

 

Call Options

 

 

 

2,528

 

395

 

 

 

2,528

 

395

 

Put Options

 

 

 

885

 

387

 

 

 

885

 

387

 

Futures

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Subtotal

 

 

 

342,053

 

346,624

 

 

 

342,053

 

346,624

 

Hedge derivative contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swaps

 

 

 

32,975

 

33,698

 

 

 

32,975

 

33,698

 

Subtotal

 

 

 

32,975

 

33,698

 

 

 

32,975

 

33,698

 

Total

 

 

 

375,028

 

380,322

 

 

 

375,028

 

380,322

 

 


(1)   As of September 30, 2013, 96% of instruments of level 3 have the denomination “Investment Grade”, meaning are assets with a classification BBB- or higher. Also, 90% of total of these financial instruments correspond to domestic issuers.

 

Since last quarter of period 2012, it was established more precisely the classification of the level of financial instruments, according to what observables are their prices in the market. The new definition is described above of this disclosure. It should be noted that this change has no impact on the valuation of financial assets and liabilities measured at fair value.

 

92



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.                    Fair Value of Financial Assets and Liabilities, continued:

 

(c)                    Level 3 reconciliation

 

The following table shows the reconciliation between stock at the beginning and the end of balance periods for instruments classified in Level 3:

 

 

 

As of September 30, 2013

 

 

 

Balance as of
January 1, 2013

 

Gain (Loss)
Recognized
in Income

 

Gain (Loss)
Recognized
in Equity

 

Purchases, Sales
and Agreements,
net

 

Transfer
between
Lever 1 and 2

 

Balance as
of
September
30, 2013

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets held-for-trading

 

 

 

 

 

 

 

 

 

 

 

 

 

From the Chilean Government and Central Bank

 

 

 

 

 

 

 

Other instruments issued in Chile

 

 

92

 

 

3,028

 

 

3,120

 

Instruments issued abroad

 

 

 

 

 

 

 

Subtotal

 

 

92

 

 

3,028

 

 

3,120

 

Available-for-Sale Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

From the Chilean Government and Central Bank

 

 

 

 

 

 

 

Other instruments issued in Chile

 

278,073

 

(3,571

)

4,968

 

78,350

 

 

357,820

 

Instruments issued abroad

 

57,966

 

(3,945

)

304

 

(21,131

)

 

33,194

 

Subtotal

 

336,039

 

(7,516

)

5,272

 

57,219

 

 

391,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

336,039

 

(7,424

)

5,272

 

60,247

 

 

394,134

 

 

 

 

As of December 31, 2012

 

 

 

Balance as of
January 1, 2012

 

Gain (Loss)
Recognized
in Income

 

Gain (Loss)
Recognized

in Equity

 

Purchases, Sales
and Agreements,
net

 

Transfer
between
Lever 1 and 2

 

Balance as
of
December
31, 2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets held-for-trading

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

585

 

183

 

 

(768

)

 

 

Instruments issued abroad

 

 

 

 

 

 

 

Subtotal

 

585

 

183

 

 

(768

)

 

 

Available-for- Sale Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

321,378

 

1,511

 

(1,410

)

(43,406

)

 

278,073

 

Instruments issued abroad

 

128,403

 

(5,713

)

19,666

 

(59,432

)

(24,958

)

57,966

 

Subtotal

 

449,781

 

(4,202

)

18,256

 

(102,838

)

(24,958

)

336,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

450,366

 

(4,019

)

18,256

 

(103,606

)

(24,958

)

336,039

 

 

93



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.                    Fair Value of Financial Assets and Liabilities, continued:

 

(d)                        Sensitivity of level 3 instruments to changes in key assumptions of the input parameters for the valuation model.

 

The following table shows the sensitivity, by instrument, for instruments classified as level 3 to changes in key assumptions:

 

 

 

As of September 30, 2013

 

As of December 31, 2012

 

 

 

Level 3

 

Sensitivity to changes in
key assumptions of
models

 

Level 3

 

Sensitivity to changes in
key assumptions of
models

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Financial Assets

 

 

 

 

 

 

 

 

 

Financial assets held-for-trading

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

3,120

 

(44

)

 

 

Total

 

3,120

 

(44

)

 

 

Financial assets available-for-Sale

 

 

 

 

 

 

 

 

 

Other instruments issued in Chile

 

357,820

 

(5,301

)

278,073

 

(802

)

Instruments issued abroad

 

33,194

 

(246

)

57,966

 

(762

)

Total

 

391,014

 

(5,547

)

336,039

 

(1,564

)

 

With the purpose to determine the sensitivity of the financial investments to changes in significant factors market, the Bank has made alternative calculations at fair value, changing those key parameters for the valuation and which are not directly observables in screens.  In the case of financial assets presented above table, which corresponds to bank bonds and corporate bonds, considering that these instruments do not have current prices or observables, was used as inputs prices, prices based on broker quotes or runs.  Prices are generally calculated as a base rate plus a spread. For local bonds, this was determined by applying only a 10% impact on the price, while for offshore bonds this was determined by applying only a 10% impact on the spread because the base rate is hedged with instruments on interest rate swaps so-called hedge accounting.  The impact of 10% is considered a reasonable move considering the market performance of these instruments and comparing it against the adjustment bid/offer that is provided for by these instruments.  The methodology described above begins in March 2013.  Before that date, the methodology consisted in compare the valuation of these instruments using market rates given by Trading Desk of the Bank, with the same calculate, but using rates of independent sources.  If this methodology had used in balances as of December 31, 2012, the effect would have been a charge to income of MCh$5,276 million.

 

94



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.                    Fair Value of Financial Assets and Liabilities, continued:

 

(e)                    Other assets and liabilities

 

The following table summarizes the fair values of the Bank’s main financial assets and liabilities that are not recorded at fair value in the Statement of Financial Position. The values shown in this note do not attempt to estimate the value of the Bank’s income-generating assets, nor forecast their future behavior.  The estimated fair value is as follows:

 

 

 

Book Value

 

Fair Value

 

 

 

September

 

December

 

September

 

December

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Assets

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

998,770

 

684,925

 

998,770

 

684,925

 

Transactions in the course of collection

 

513,900

 

396,611

 

513,900

 

396,611

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

20,501

 

35,100

 

20,501

 

35,100

 

Subtotal

 

1,533,171

 

1,116,636

 

1,533,171

 

1,116,636

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

Domestic banks

 

158,905

 

14,304

 

158,905

 

14,304

 

Central Bank of Chile

 

150,674

 

1,100,696

 

150,674

 

1,100,696

 

Foreign banks

 

367,374

 

228,322

 

367,374

 

228,322

 

Subtotal

 

676,953

 

1,343,322

 

676,953

 

1,343,322

 

Loans to customers, net

 

 

 

 

 

 

 

 

 

Commercial loans

 

12,621,317

 

11,484,276

 

12,525,231

 

11,473,251

 

Residential mortgage loans

 

4,565,219

 

4,182,587

 

4,622,541

 

4,201,091

 

Consumer loans

 

2,770,850

 

2,667,467

 

2,804,063

 

2,683,593

 

Subtotal

 

19,957,386

 

18,334,330

 

19,951,835

 

18,357,935

 

Total

 

22,167,510

 

20,794,288

 

22,161,959

 

20,817,893

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

5,927,692

 

5,470,971

 

5,927,692

 

5,470,971

 

Transactions in the course of payment

 

314,489

 

159,218

 

314,489

 

159,218

 

Cash collateral on securities lent and repurchase agreements

 

223,409

 

226,396

 

223,409

 

226,396

 

Savings accounts and time deposits

 

10,332,890

 

9,612,950

 

10,330,483

 

9,589,643

 

Borrowings from financial institutions

 

876,247

 

1,108,681

 

871,530

 

1,103,252

 

Other financial obligations

 

174,967

 

162,123

 

174,967

 

162,123

 

Subtotal

 

17,849,694

 

16,740,339

 

17,842,570

 

16,711,603

 

Debt Issued

 

 

 

 

 

 

 

 

 

Letters of credit for residential purposes

 

71,503

 

85,967

 

74,207

 

87,088

 

Letters of credit for general purposes

 

21,419

 

29,229

 

22,229

 

29,610

 

Bonds

 

3,215,041

 

2,412,233

 

3,126,751

 

2,282,014

 

Subordinate bonds

 

748,922

 

746,504

 

732,368

 

726,369

 

Subtotal

 

4,056,885

 

3,273,933

 

3,955,555

 

3,125,081

 

Total

 

21,906,579

 

20,014,272

 

21,798,125

 

19,836,684

 

 

The fair value of assets not presented at fair value in the Statement of Financial Position is derived from balance sheet stocks and cash flows that Banco de Chile expects to receive, discounted using the relevant market interest rate for each type of transaction. These lasts cash flows are obtained from regulatory reports, in particular the C40 report.

 

95



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

39.                    Fair Value of Financial Assets and Liabilities, continued:

 

The C40 report contains cash flows, in future value, for assets and liabilities, by maturity and currency. For long term assets and liabilities, contractual cash flows are used to calculate the fair value. The cash flows are discounted by type of asset and currency to obtain their present value. The discount rates used to calculate the present value for each type of asset and liability correspond to the marginal rates of each product, considering specific rates by currency and term to capture both the risk inherent to the term as well as the expected level of each currency.

 

For financial assets and liabilities that have a short term maturity (less than three months) it is assumed that the carrying amounts approximate their fair value. This assumption is also applied to demand deposits and savings accounts without specific maturity.

 

For loans, contractual cash flows and loan loss provisions are used to calculate the fair value. The cash flows are discounted by type of asset and currency to obtain their present value. Consecutively, the loan loss provision, by type of asset, is subtracted from the present value to take into account the fact that the Bank has already model the estimate probability that his customers do not fulfill their obligations.

 

In the case of held to maturity investment, the fair value is based on market prices. The fair value of liabilities that do not have quoted market prices, it is based on discounted cash flows, using interest rates to similar terms.

 

96



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

40.            Maturity of Assets and Liabilities:

 

The table below shows details of loans and other financial assets and liabilities grouped in accordance with their remaining maturity, including accrued interest as of September 30, 2013 and December 31, 2012, respectively.  Trading and available-for-sale instruments are included at their fair value:

 

 

 

As of September 30, 2013

 

 

 

Up to 1
month

 

Over 1 month
and up to 3
months

 

Over 3 month
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 year
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

998,770

 

 

 

 

 

 

998,770

 

Transactions in the course of collection

 

513,900

 

 

 

 

 

 

513,900

 

Financial Assets held-for-trading

 

365,892

 

 

 

 

 

 

365,892

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

19,331

 

672

 

498

 

 

 

 

20,501

 

Derivative instruments

 

19,472

 

17,047

 

61,705

 

63,766

 

56,048

 

72,449

 

290,487

 

Loans and advances to banks(**)

 

391,332

 

32,650

 

254,423

 

 

 

 

678,405

 

Loans to customers(*)(**)

 

1,857,652

 

1,928,885

 

3,413,068

 

4,723,780

 

2,223,640

 

5,010,164

 

19,157,189

 

Financial assets available-for-sale

 

376,379

 

35,218

 

499,979

 

134,363

 

496,388

 

242,026

 

1,784,353

 

Financial assets held-to-maturity

 

 

 

 

 

 

 

 

Total assets

 

4,542,728

 

2,014,472

 

4,229,673

 

4,921,909

 

2,776,076

 

5,324,639

 

23,809,497

 

 

 

 

As of December 31, 2012

 

 

 

Up to 1
month

 

Over 1 month
and up to 3
months

 

Over 3 month
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 year
and up to 5
years

 

Over 5 years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

684,925

 

 

 

 

 

 

684,925

 

Transactions in the course of collection

 

396,611

 

 

 

 

 

 

396,611

 

Financial Assets held-for-trading

 

192,724

 

 

 

 

 

 

192,724

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

8,338

 

855

 

25,907

 

 

 

 

35,100

 

Derivative instruments

 

19,155

 

26,190

 

85,576

 

93,733

 

40,801

 

64,042

 

329,497

 

Loans and advances to banks(**)

 

1,152,642

 

14,409

 

177,230

 

 

 

 

1,344,281

 

Loans to customers(*)(**)

 

1,743,729

 

1,863,499

 

3,512,461

 

4,110,399

 

1,945,584

 

4,653,379

 

17,829,051

 

Financial assets available-for-sale

 

272,371

 

171,017

 

343,665

 

152,075

 

132,382

 

192,930

 

1,264,440

 

Financial assets held-to-maturity

 

 

 

 

 

 

 

 

Total assets

 

4,470,495

 

2,075,970

 

4,144,839

 

4,356,207

 

2,118,767

 

4,910,351

 

22,076,629

 

 


(*)             This only includes loans that are current as of period end.  Therefore, it excludes past due loans amounting to MCh$1,256,481 (MCh$932,714 as of December 31, 2012) of which MCh$727,515 (MCh$524,552 as of December 31, 2012) were less than 30 days past due.

(**)      The respective provisions, which amount to MCh$456,284 (MCh$427,435 as of December 31, 2012) for loans to customers and MCh$1,452 (MCh$959 as of December 31, 2012) for borrowings from financial institutions, have not been deducted from these balance.

 

97



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

40.                               Maturity of Assets and Liabilities, continued:

 

 

 

As of September 30, 2013

 

 

 

Up to 1
month

 

Over 1 month
and up to 3
months

 

Over 3 month
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 year
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

5,927,692

 

 

 

 

 

 

5,927,692

 

Transactions in the course of payment

 

314,489

 

 

 

 

 

 

314,489

 

Cash collateral on securities lent and repurchase agreements

 

218,156

 

5,217

 

36

 

 

 

 

223,409

 

Savings accounts and time deposits(***)

 

5,132,138

 

2,057,195

 

2,679,039

 

285,621

 

126

 

30

 

10,154,149

 

Derivative instruments

 

31,600

 

23,040

 

94,046

 

70,714

 

56,198

 

99,430

 

375,028

 

Borrowings from financial institutions

 

57,955

 

78,821

 

583,960

 

155,511

 

 

 

876,247

 

Debt issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds

 

4,786

 

5,381

 

13,911

 

28,448

 

17,250

 

23,146

 

92,922

 

Bonds

 

185,229

 

92,383

 

183,984

 

411,085

 

703,674

 

1,638,686

 

3,215,041

 

Subordinate bonds

 

9,759

 

13,310

 

16,194

 

158,774

 

48,768

 

502,117

 

748,922

 

Other financial obligations

 

122,931

 

1,874

 

3,970

 

9,354

 

7,112

 

29,726

 

174,967

 

Total liabilities

 

12,004,735

 

2,277,221

 

3,575,140

 

1,119,507

 

833,128

 

2,293,135

 

22,102,866

 

 

 

 

As of December 31, 2012

 

 

 

Up to 1
month

 

Over 1 month
and up to 3
months

 

Over 3 month
and up to 12
months

 

Over 1 year
and up to 3
years

 

Over 3 year
and up to 5
years

 

Over 5
years

 

Total

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

5,470,971

 

 

 

 

 

 

5,470,971

 

Transactions in the course of payment

 

159,218

 

 

 

 

 

 

159,218

 

Cash collateral on securities lent and repurchase agreements

 

224,793

 

1,603

 

 

 

 

 

226,396

 

Savings accounts and time deposits(***)

 

3,832,538

 

2,356,386

 

2,846,609

 

397,643

 

279

 

30

 

9,433,485

 

Derivative instruments

 

27,981

 

30,469

 

60,284

 

116,048

 

48,616

 

96,924

 

380,322

 

Borrowings from financial institutions

 

181,972

 

153,702

 

631,051

 

141,956

 

 

 

1,108,681

 

Debt issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage bonds

 

5,351

 

5,853

 

15,859

 

35,502

 

21,843

 

30,788

 

115,196

 

Bonds

 

47,119

 

133,570

 

56,633

 

456,334

 

358,097

 

1,360,480

 

2,412,233

 

Subordinate bonds

 

1,164

 

2,276

 

34,731

 

48,378

 

151,612

 

508,343

 

746,504

 

Other financial obligations

 

106,972

 

1,005

 

5,140

 

10,534

 

7,201

 

31,271

 

162,123

 

Total liabilities

 

10,058,079

 

2,684,864

 

3,650,307

 

1,206,395

 

587,648

 

2,027,836

 

20,215,129

 

 


(***)                   Excluding term saving accounts, which amount to MCh$178,741 (MCh$179,465 as of December 31, 2012).

 

98



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

41.       Subsequent Events:

 

On October 17, 2013 Banco de Chile informed that the Board of Directors of Latibex (“Consejo de Administración de Bolsas y Mercados Españoles Sistemas de Negociación, S.A.”), within its authority pursuant to the Regulations of the Mercado de Valores Latinoamericanos (“Latibex”), and based on Banco de Chile’s request, has resolved to exclude the negotiation of Banco de Chile issued shares from the “Mercado de Valores Latinoamericanos (“Latibex”)”, effective October 18, 2013.

 

All the supporting documentation filled by Banco de Chile is publicly available at the website of Latibex (www.latibex.com) and on our website (www.bancochile.cl).

 

In Management’s opinion, there are no other significant subsequent events that affect or could affect the Interim Condensed Consolidated Financial Statements of the Bank and its subsidiaries between September 30, 2013 and the date of issuance of these Interim Condensed Consolidated Financial Statements.

 


 

 

 

 

 

 

Héctor Hernández G.
General Accounting Manager

 

Arturo Tagle Q.
Chief Executive Officer

 

99



Table of Contents

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Date: October 29, 2013

 

 

 

 

 

 

 

 

Banco de Chile

 

 

 

 

 

/S/ Arturo Tagle Q.

 

By:

Arturo Tagle Q.

 

 

CEO

 

100