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, 2014

 

Commission File Number 001-15266

 

BANK OF CHILE

(Translation of registrant’s name into English)

 

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 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:

 

11

4.

Changes in Accounting Policies and Disclosures:

 

16

5.

Relevant Events:

 

17

6.

Segment Reporting:

 

21

7.

Cash and Cash Equivalents:

 

24

8.

Financial Assets Held-for-trading:

 

25

9.

Cash collateral on securities borrowed and reverse repurchase agreements:

 

26

10.

Derivative Instruments and Accounting Hedges:

 

29

11.

Loans and advances to Banks:

 

35

12.

Loans to Customers, net:

 

36

13.

Investment Securities:

 

42

14.

Investments in Other Companies:

 

44

15.

Intangible Assets:

 

46

16.

Property and equipment:

 

49

17.

Current Taxes and Deferred Taxes:

 

52

18.

Other Assets:

 

57

19.

Current accounts and Other Demand Deposits:

 

58

20.

Savings accounts and Time Deposits:

 

58

21.

Borrowings from Financial Institutions:

 

59

22.

Debt Issued:

 

61

23.

Other Financial Obligations:

 

64

24.

Provisions:

 

64

25.

Other Liabilities:

 

68

26.

Contingencies and Commitments:

 

69

27.

Equity:

 

74

28.

Interest Revenue and Expenses:

 

78

29.

Income and Expenses from Fees and Commissions:

 

80

30.

Net Financial Operating Income:

 

80

31.

Foreign Exchange Transactions, net:

 

81

32.

Provisions for Loan Losses:

 

82

33.

Personnel Expenses:

 

83

34.

Administrative Expenses:

 

84

35.

Depreciation, Amortization and Impairment:

 

85

36.

Other Operating Income:

 

86

37.

Other Operating Expenses:

 

87

38.

Related Party Transactions:

 

88

39.

Fair Value of Financial Assets and Liabilities:

 

94

40.

Maturity of Assets and Liabilities:

 

106

41.

Subsequent Events:

 

108

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended September 30, 2014 and December 31, 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

September
2014

 

December
2013

 

 

 

Notes

 

MCh$

 

MCh$

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

7

 

939,918

 

873,308

 

Transactions in the course of collection

 

7

 

412,839

 

374,471

 

Financial assets held-for-trading

 

8

 

585,984

 

393,134

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

9

 

11,356

 

82,422

 

Derivative instruments

 

10

 

820,546

 

374,688

 

Loans and advances to banks

 

11

 

675,764

 

1,062,056

 

Loans to customers, net

 

12

 

20,858,305

 

20,389,033

 

Financial assets available-for-sale

 

13

 

1,556,870

 

1,673,704

 

Financial assets held-to-maturity

 

13

 

 

 

Investments in other companies

 

14

 

24,584

 

16,670

 

Intangible assets

 

15

 

26,614

 

29,671

 

Property and equipment

 

16

 

203,764

 

197,578

 

Current tax assets

 

17

 

2,412

 

3,202

 

Deferred tax assets

 

17

 

189,675

 

145,904

 

Other assets

 

18

 

303,269

 

318,029

 

TOTAL ASSETS

 

 

 

26,611,900

 

25,933,870

 

LIABILITIES

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

19

 

6,345,503

 

5,984,332

 

Transactions in the course of payment

 

7

 

290,445

 

126,343

 

Cash collateral on securities lent and repurchase agreements

 

9

 

225,884

 

256,766

 

Savings accounts and time deposits

 

20

 

9,560,022

 

10,402,725

 

Derivative instruments

 

10

 

826,616

 

445,132

 

Borrowings from financial institutions

 

21

 

803,577

 

989,465

 

Debt issued

 

22

 

5,139,773

 

4,366,960

 

Other financial obligations

 

23

 

183,656

 

210,926

 

Current tax liabilities

 

17

 

9,908

 

10,333

 

Deferred tax liabilities

 

17

 

46,579

 

36,569

 

Provisions

 

24

 

511,687

 

551,898

 

Other liabilities

 

25

 

229,939

 

268,105

 

TOTAL LIABILITIES

 

 

 

24,173,589

 

23,649,554

 

EQUITY

 

27

 

 

 

 

 

Attributable to Bank’s Owners:

 

 

 

 

 

 

 

Capital

 

 

 

1,944,920

 

1,849,351

 

Reserves

 

 

 

263,338

 

213,636

 

Other comprehensive income

 

 

 

16,769

 

15,928

 

Retained earnings:

 

 

 

 

 

 

 

Retained earnings from previous periods

 

 

 

16,379

 

16,379

 

Income for the period

 

 

 

462,947

 

513,602

 

Less:

 

 

 

 

 

 

 

Provision for minimum dividends

 

 

 

(266,044

)

(324,582

)

Subtotal

 

 

 

2,438,309

 

2,284,314

 

Non-controlling interests

 

 

 

2

 

2

 

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

 

2,438,311

 

2,284,316

 

TOTAL LIABILITIES AND EQUITY

 

 

 

26,611,900

 

25,933,870

 

 

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, 2014 and 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

September
2014

 

September
2013

 

 

 

Notes

 

MCh$

 

MCh$

 

A.                 CONSOLIDATED STATEMENT OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest revenue

 

28

 

1,480,538

 

1,272,595

 

Interest expense

 

28

 

(577,679

)

(503,902

)

Net interest income

 

 

 

902,859

 

768,693

 

 

 

 

 

 

 

 

 

Income from fees and commissions

 

29

 

286,153

 

288,089

 

Expenses from fees and commissions

 

29

 

(85,663

)

(72,239

)

Net fees and commission income

 

 

 

200,490

 

215,850

 

 

 

 

 

 

 

 

 

Net financial operating income

 

30

 

23,551

 

23,687

 

Foreign exchange transactions, net

 

31

 

61,561

 

36,764

 

Other operating income

 

36

 

17,488

 

17,924

 

Total operating revenues

 

 

 

1,205,949

 

1,062,918

 

 

 

 

 

 

 

 

 

Provisions for loan losses

 

32

 

(210,362

)

(173,817

)

 

 

 

 

 

 

 

 

OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES

 

 

 

995,587

 

889,101

 

 

 

 

 

 

 

 

 

Personnel expenses

 

33

 

(255,519

)

(234,191

)

Administrative expenses

 

34

 

(193,403

)

(184,309

)

Depreciation and amortization

 

35

 

(20,897

)

(21,332

)

Impairment

 

35

 

(1,771

)

(133

)

Other operating expenses

 

37

 

(26,229

)

(13,789

)

 

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

 

(497,819

)

(453,754

)

 

 

 

 

 

 

 

 

NET OPERATING INCOME

 

 

 

497,768

 

435,347

 

 

 

 

 

 

 

 

 

Income attributable to associates

 

14

 

1,927

 

2,044

 

Income before income tax

 

 

 

499,695

 

437,391

 

 

 

 

 

 

 

 

 

Income tax

 

17

 

(36,747

)

(56,671

)

 

 

 

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

462,948

 

380,720

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Bank’s Owners

 

 

 

462,947

 

380,720

 

Non-controlling interests

 

 

 

1

 

 

 

 

 

 

 

$

 

$

 

Net income per share attributable to Bank’s Owners:

 

 

 

 

 

 

 

Basic net income per share

 

27

 

4.89

 

4.10

 

Diluted net income per share

 

27

 

4.89

 

4.10

 

 

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, 2014 and 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

September
2014

 

September
2013

 

 

 

Notes

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

NET INCOME FOR THE YEAR

 

 

 

462,948

 

380,720

 

 

 

 

 

 

 

 

 

Other comprehensive income that will be reclassified subsequently to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

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

 

13

 

7,589

 

9,149

 

Gains and losses on derivatives held as cash flow hedges

 

10

 

(5,446

)

(16,389

)

Cumulative translation adjustment

 

 

 

79

 

39

 

Subtotal Other comprehensive income before income taxes

 

 

 

2,222

 

(7,201

)

 

 

 

 

 

 

 

 

Income tax

 

 

 

(1,381

)

1,448

 

 

 

 

 

 

 

 

 

Total other comprehensive income items that will be reclassified subsequently to profit or loss

 

 

 

841

 

(5,753

)

 

 

 

 

 

 

 

 

Other comprehensive income that will not be reclassified subsequently to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss in defined benefit plans

 

 

 

(290

)

 

 

 

 

 

 

 

 

 

Subtotal other comprehensive income before income taxes

 

 

 

(290

)

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

75

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income items that will not be reclassified subsequently to profit or loss

 

 

 

(215

)

 

 

 

 

 

 

 

 

 

TOTAL CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

463,574

 

374,967

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the parent

 

 

 

463,573

 

374,967

 

Non-controlling interest

 

 

 

1

 

 

 

 

 

 

 

$

 

$

 

Comprehensive net income per share from continued operations attributable to equity holders of the parent:

 

 

 

 

 

 

 

Basic net income per share

 

 

 

4.90

 

4.03

 

Diluted net income per share

 

 

 

4.90

 

4.03

 

 

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, 2014 and 2013

 (Translation of financial statements originally issued in Spanish)

(Expressed in millions of Chilean pesos)

 

 

 

 

 

 

 

Reserves

 

Other comprehensive income

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

Paid-in
Capital

 

Other
reserves

 

Reserves
from
earnings

 

Unrealized
gains (losses) on
available-for-
sale

 

Derivatives
cash flow hedge

 

Cumulatives
translation
adjustement

 

Retained
earnings
from
previous
periods

 

Income for the
year

 

Provision for
minimun
dividends

 

Attributable
to equity
holders of
the parent

 

Non-
controlling
interest

 

Total equity

 

 

 

Notes

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2012

 

 

 

1,629,078

 

30,496

 

145,318

 

17,995

 

1,034

 

(94

)

16,379

 

467,610

 

(300,759

)

2,007,057

 

2

 

2,007,059

 

Capitalization of retained earnings

 

27

 

86,202

 

 

 

 

 

 

 

(86,202

)

 

 

 

 

Income distribution

 

 

 

 

1,760

 

 

 

 

 

 

(1,760

)

 

 

 

 

Income retention (released) according to law

 

27

 

 

 

36,193

 

 

 

 

 

(36,193

)

 

 

 

 

Paid and distributed dividends

 

27

 

 

 

 

 

 

 

 

(343,455

)

300,759

 

(42,696

)

(1

)

(42,697

)

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

39

 

 

 

 

39

 

 

39

 

Derivatives cash flow hedge, net

 

 

 

 

 

 

 

(13,112

)

 

 

 

 

(13,112

)

 

(13,112

)

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

 

 

 

 

 

 

7,320

 

 

 

 

 

 

7,320

 

 

7,320

 

Subscription and payment of shares

 

 

 

134,071

 

 

 

 

 

 

 

 

 

134,071

 

 

134,071

 

Income for the period 2013

 

 

 

 

 

 

 

 

 

 

380,720

 

 

380,720

 

 

380,720

 

Provision for mínimum 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

 

Defined benefit plans adjustment

 

 

 

 

(133

)

 

 

 

 

 

 

 

(133

)

 

(133

)

Equity adjustment associates

 

 

 

 

2

 

 

 

 

 

 

 

 

2

 

 

2

 

Dividends distributions and paid

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

1

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

32

 

 

 

 

32

 

 

32

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(1,343

)

 

 

 

 

(1,343

)

 

(1,343

)

Valuation adjustment on available-for-sale instruments, net

 

 

 

 

 

 

4,057

 

 

 

 

 

 

4,057

 

 

4,057

 

Income for the period 2013

 

 

 

 

 

 

 

 

 

 

132,882

 

 

132,882

 

 

132,882

 

Provision for minimum dividends

 

 

 

 

 

 

 

 

 

 

 

(77,013

)

(77,013

)

 

(77,013

)

Balances as of December 31, 2013

 

 

 

1,849,351

 

32,125

 

181,511

 

29,372

 

(13,421

)

(23

)

16,379

 

513,602

 

(324,582

)

2,284,314

 

2

 

2,284,316

 

Capitalization of retained earnings

 

27

 

95,569

 

 

 

 

 

 

 

(95,569

)

 

 

 

 

Retention (released) earnings

 

27

 

 

 

49,913

 

 

 

 

 

(49,913

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(368,120

)

324,582

 

(43,538

)

(1

)

(43,539

)

Equity adjustment investment in other companies

 

 

 

 

4

 

 

 

 

 

 

 

 

4

 

 

4

 

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

79

 

 

 

 

79

 

 

79

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(4,302

)

 

 

 

 

(4,302

)

 

(4,302

)

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

 

 

 

 

 

 

5,064

 

 

 

 

 

 

5,064

 

 

5,064

 

Defined benefit plans adjustment

 

 

 

 

(215

)

 

 

 

 

 

 

 

(215

)

 

(215

)

Income for the period 2014

 

 

 

 

 

 

 

 

 

 

462,947

 

 

462,947

 

1

 

462,948

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(266,044

)

(266,044

)

 

(266,044

)

Balances as of September 30, 2014

 

 

 

1,944,920

 

31,914

 

231,424

 

34,436

 

(17,723

)

56

 

16,379

 

462,947

 

(266,044

)

2,438,309

 

2

 

2,438,311

 

 

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, 2014 and 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

September
2014

 

September
2013

 

 

 

Notes

 

MCh$

 

MCh$

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income for the period

 

 

 

462,948

 

380,720

 

Items that do not represent cash flows:

 

 

 

 

 

 

 

Depreciation and amortization

 

35

 

20,897

 

21,332

 

Impairment of intangible assets and property and equipment

 

35

 

1,771

 

133

 

Provision for loan losses

 

32

 

227,938

 

186,118

 

Provision of contingent loans

 

32

 

4,111

 

10,632

 

Fair value adjustment of financial assets held-for-trading

 

 

 

467

 

(282

)

Income attributable to investments in other companies

 

14

 

(1,609

)

(1,792

)

Income from sales of assets received in lieu of payment

 

36

 

(2,450

)

(3,627

)

Net gain on sales of property and equipment

 

36-37

 

(82

)

(205

)

(Increase) decrease in other assets and liabilities

 

 

 

(80,895

)

(15,828

)

Charge-offs of assets received in lieu of payment

 

37

 

1,231

 

1,308

 

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

 

 

 

10,064

 

4,865

 

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

 

 

 

(183,601

)

(57,007

)

Net changes in interest and fee accruals

 

 

 

(40,580

)

28,759

 

Changes in assets and liabilities that affect operating cash flows:

 

 

 

 

 

 

 

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

 

 

 

384,944

 

666,372

 

(Increase) decrease in loans to customers

 

 

 

(492,848

)

(1,799,468

)

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

 

 

 

23,628

 

(191,188

)

(Increase) decrease in deferred taxes, net

 

17

 

(36,211

)

1,844

 

(Increase) decrease in current account and other demand deposits

 

 

 

360,826

 

456,348

 

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

 

 

 

(10,771

)

21,656

 

(Increase) decrease in savings accounts and time deposits

 

 

 

(814,068

)

717,671

 

Proceeds from sale of assets received in lieu of payment

 

 

 

4,362

 

5,593

 

Total cash flows from operating activities

 

 

 

(159,928

)

433,954

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

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

 

 

 

321,738

 

(532,350

)

Purchases of property and equipment

 

16

 

(21,807

)

(8,535

)

Proceeds from sales of property and equipment

 

 

 

122

 

491

 

Purchases of intangible assets

 

15

 

(3,263

)

(3,773

)

Investments in other companies

 

14

 

(6,608

)

(1,440

)

Dividends received from investments in other companies

 

14

 

195

 

931

 

Total cash flows from investing activities

 

 

 

290,377

 

(544,676

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds of mortgage finance bonds

 

 

 

 

 

Repayment of mortgage finance bonds

 

 

 

(13,107

)

(15,869

)

Proceeds from bond issuances

 

22

 

1,580,224

 

1,245,262

 

Redemption of bond issuances

 

 

 

(839,362

)

(484,375

)

Proceeds from subscription and payment of shares

 

 

 

 

134,071

 

Dividends paid

 

27

 

(368,120

)

(343,455

)

(Increase) decrease in borrowings from financial institutions

 

 

 

(50,524

)

(392,878

)

(Increase) decrease in other financial obligations

 

 

 

(23,896

)

15,731

 

(Increase) decrease in borrowings from Central Bank of Chile

 

 

 

 

 

Borrowings from Central Bank of Chile (long-term)

 

 

 

18

 

 

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

 

 

 

(19

)

(7

)

Long-term foreign borrowings

 

 

 

623,695

 

622,630

 

Payment of long-term foreign borrowings

 

 

 

(758,143

)

(460,418

)

Proceeds from other long-term borrowings

 

 

 

6,669

 

538

 

Payment of other long-term borrowings

 

 

 

(10,927

)

(3,821

)

Total cash flows from financing activities

 

 

 

146,508

 

317,409

 

TOTAL NET POSITIVE CASH FLOWS FOR THE PERIOD

 

 

 

276,957

 

206,687

 

Net effect of exchange rate changes on cash and cash equivalents

 

 

 

33,538

 

33,848

 

Cash and cash equivalents at beginning of year

 

 

 

1,538,618

 

1,236,324

 

Cash and cash equivalents at end of period

 

7

 

1,849,113

 

1,476,859

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest received

 

 

 

1,273,145

 

1,240,417

 

Interest paid

 

 

 

(410,866

)

(442,965

)

 

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

 

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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” or “Superintendency”), 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 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, 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, 2014 were approved for issuance in accordance with the directors on October 23, 2014.

 

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 (“Compendium”), 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.

 

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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 has controlling interest and that are therefore consolidated in these financial statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Owned

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

Indirect

 

Total

 

 

 

 

 

 

 

 

 

September

 

December

 

September

 

December

 

September

 

December

 

 

 

 

 

 

 

Functional

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

Rut

 

Subsidiaries

 

Country

 

Currency

 

%

 

%

 

%

 

%

 

%

 

%

 

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

 

96,571,220-8

 

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

 

 

(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.                           Contingencies and Commitments (Note No. 26);

6.                           Provision for loan losses (Note No. 11, No. 12 and No. 32);

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

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

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

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

 

(c)          Use of estimates and judgment, continued:

 

Estimates and relevant assumptions are regularly reviewed by the management of the Bank, according to quantify certain assets, liabilities, gains, loss and commitments. Estimates reviewed are registered in income in the period that the estimate is reviewed.

 

During the period ended September 30, 2014 there have been no significant changes to estimates than those disclosed in Note No. 17 made during period 2013 than those disclosed in Note No. 17.

 

(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, 2014.

 

(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.

 

(f)           Reclassifications:

 

During the period of nine-month ended as of September 30, 2014, there are not reclassifications. Different to mentioned in Note No. 39 letter (a).

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                   New Accounting Pronouncements:

 

3.1                 Accounting rules issued by IASB

 

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), which are no effective as of September 30, 2014:

 

3.1                 Accounting rules issued by IASB:

 

IFRS 9 Financial Instruments

 

The July 24, 2014, IASB completed its upgrade project about accounting for financial instruments with the publication of IFRS 9 Financial Instruments.

 

This standard includes new requirements based on new principles for the classification and measurement, it introduces a “more prospective” model of expected credit losses on impairment accounting and a focus substantially renovated for hedge accounting.

 

Classification and measurement

 

The classification determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. IFRS 9 introduces a logical approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements that are complex and difficult to apply. The new model also results in a single impairment model being applied to all financial instruments removing a source of complexity associated with previous accounting requirements.

 

Impairment

 

The IASB has introduced a new, expected loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and it lowers the threshold for recognition of full lifetime expected losses.

 

Hedge Accounting

 

IFRS 9 introduces a substantially-reformed model for hedge accounting with enhanced disclosures about risk management activity. The new model represents a substantial overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements. In addition, as a result of these changes, users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements

 

Entity’s Own Credit Risk

 

IFRS 9 removes the volatility in profit or loss caused by changes in the credit risk to liabilities measured at fair value. This change in accounting means that the profit produced by the quality decline of own credit risk of the entity in this kind of obligations are not recognized in profit or loss of the period. IFRS 9 permits early application of this improved in the financial information, before any other change in the accounting for financial instruments.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 9 Financial Instruments, continued

 

Adoption date mandatory January 1, 2018.

 

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, this standard has not been approved by the Superintendency of Banks, event that is required for their application.

 

IFRS 11 — Joint Ventures

 

In May of 2014 the IASB modified IFRS 11, to provide guides about the accounting of acquisitions of participations in joint operations, whose activity constitute a business.

 

This IFRS requires that the acquirer of an participation in joint operation whose activity constitute a business, like it is defined in IFRS 3 “Business Combination”, applies all the principles about accounting of business combination of IFRS 3 and others IFRS, except those that conflict with guidelines of these IFRS.

 

The effective date is beginning on January 1, 2016 and its early application is permitted.

 

Banco de Chile and its subsidiaries are assessing the impact of these rules in its consolidated financial statements.

 

IAS 16 — Property, plant and equipment and IAS 38 — Intangible assets

 

In May of 2014 the IASB modified IAS 16 and 38 with purpose of clarifies accepted method of depreciation and amortization.

 

The amendment of IAS 16 prohibits for property, plant and equipment, depreciation based on ordinary income.

 

The amendment of IAS 38 introduces the presumption of ordinary income are not an appropriate base for the amortization of intangible asset.  This presumption only is refuted in two circumstances:  (a) intangible asset is expressed like a unit of ordinary income; and (b) ordinary income and consumption of intangible asset are highly correlated.

 

Also, it introduces guidelines to explain that expected futures reductions in the prices of sale could be indicator of reductions in futures economics benefits in an asset.  The effective date is beginning on January 1, 2016, its early application is permitted.

 

Banco de Chile and its subsidiaries are assessing the impact of this rule in its consolidated financial statements.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 15 — Revenue from Contracts with Customers

 

In May 2014 was issued IFRS 15, whose objective is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer.

 

Application of the standard is mandatory for annual reporting periods starting from January 1, 2017 onwards. Earlier application is permitted.

 

Banco de Chile and its subsidiaries are assessing the impact of this rule in its consolidated financial statements.

 

IAS 27 — Consolidated and Separated Financial Statements

 

In August 2014, the IASB published the amendment that will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

 

This amendment has the objective of facilitating the implementation of IFRS in jurisdictions where this method is required, thus reducing the costs of developing separated financial statements.

 

The effective date is beginning on January 1, 2016 and its early application is permitted

 

Banco de Chile and its subsidiaries are assessing the impact of this rule in its consolidated financial statements.

 

IAS 28 — Investments in Associates and Join Venture and IFRS 10 - Consolidated Financial Statements

 

In September 2014, the IASB issued amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures”.

 

The amendments address an acknowledged inconsistency between the requirements of IFRS 10 and IAS 28 (2011), in the treatment of the sale or contribution of assets between an investor and the associate or joint venture.

 

The main consequence of the amendments is that all gain or loss is recognized when the transaction involves a business (if it is a subsidiary or not).

 

A partial profit or loss is recognized when the transaction involves assets that do not constitute a business, even if these assets are in a subsidiary.

 

The effective date is beginning on January 1, 2016 and its early application is permitted

 

Banco de Chile and its subsidiaries are assessing the impact of this rule in its consolidated financial statements.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

Annual improvements IFRS

 

In September 2014, the IASB issued Annual improvements to IFRS: 2012 — 2014 Cycle, which include changes to the following standards.

 

·                  IFRS 5 Non-current assets held for sale and discontinued operations.

This amendment is related with the accounting treatment when there is a change of disposition of the asset or disposal group and the result is the reclassification from held for sale to held for distribution (or vice versa).

 

·                  IFRS 7 Financial Instruments: Disclosures.

This amendment clarifies the additional disclosures required by the amendments to IFRS 7, where more information is required to be disclosed in the condensed interim financial statements in accordance with IAS 34 information.

 

In addition, are added guidelines that clarify how an entity should apply the guides of the paragraph 42C of IFRS 7.

 

·                  IAS 19 Employee Benefits. Discount rate: topic of the regional market.

It is clarified that corporate bonds with high quality credit used to estimate the discount rate for obligations for post-employment benefits should be denominated in the same currency as the liabilities, clarifying the extent of the market for corporate bonds to be assessed at the level of the currency and no country.

 

·                  IAS 34 Interim Financial Reporting.

In regarding significant events and transaction on entity shall include of the financial statements, if necessary, when doesn’t have access to the information by cross-reference on the same terms and at the same time, the interim financial report is incomplete.

 

The effective date is beginning on January 1, 2016 and its early application is permitted

 

Banco de Chile and its subsidiaries are assessing the impact of this rule in its consolidated financial statements.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

3.2                 Accounting rules issued by SBIF:

 

On February 17, 2014 SBIF issued a Circular No. 3,565, which introduces changes to the instructions related to monthly information sent to the Superintendency. Changes have as objective inform in separate way the investment in entities controlled abroad and requires information of credit and its overdue maintained for the subsidiaries controlled.  These changes are applied in present consolidated financial statements.

 

3.3                 Rules issued by the Superintendency of Securities and Insurance (“Superintendencia de Valores y Seguros” (SVS))

 

On January 13, 2014 SVS issued a Circular No. 2,137, which regulates financial statements that insurance brokers (not individuals) must be sent to SVS.  This rule establishes the presentation of financial statements under IFRS since January 1, 2015 and establishes accounting criteria related to income recognition for concept of commissions.

 

On October 17, 2014 SVS issued an Oficio Circular No. 856, which establishes exceptionally, accounting for differences produced assets and liabilities for deferred taxes caused by the increase in the tax rate introduced by Law No. 20,780 “tax reform amending the system of taxation of income and introduces various adjustments in the tax system, in equity.”This oficio circular does not impact the consolidated financial statements of Banco de Chile.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

4.                   Changes in Accounting Policies and Disclosures:

 

On December 1, 2013, new rules are beginning in application.  These are about return of premiums not accrued for the insurance contracts, according to established by law No. 20,667 of 9th. of May of 2013 and Circular No. 2,114 issued by the SVS on July 26, 2013.  The legal change requires returns of premiums collected in advance but not accrued, due to the early termination or extinction of an insurance contract.  The premium to return it will be calculated in proportion of the remaining time.

 

During the period ended as of September 30, 2014, the Bank and its subsidiary Banchile Corredores de Seguros have established provisions for the concept of commission’s refunds to the insurance companies for the policies (paid in advance) commercialized since December 1, 2013.  This estimation is based in the history of the prepayments and disclaimers of its products portfolio that originate the commissions.

 

Additionally, the legal exchange for the return of premiums collected in advance and unearned, also had an impact on the income — expense of commissions recognized directly in income. This means that it has begun to defer a portion of the commission earned jointly with future costs of sales.

 

These estimates correspond to changes in an accounting estimates, whose effects are registered in income under item “Income from fees and commissions”. The effect of the change involves a lesser income in the period by an amount of Ch$6,006 million.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                   Relevant Events:

 

(a)              On January 9, 2014 LQ Inversiones Financieras S.A. (“LQIF”) informed Banco de Chile that LQIF will carry out a process to offer for sale or transfer up to 6,900,000,000 shares of Banco de Chile (a secondary offering). In addition, LQIF has requested that Banco de Chile perform all the actions related to the execution of this kind of transaction in the local and international markets.

 

Furthermore, the letter indicates that, if consummated, this transaction will reduce LQIF’s share of outstanding voting rights from 58.4% to 51%, so that the control status of LQIF with respect to Banco de Chile will not be altered.

 

With regard to the above, on this date the Board of Directors of Banco de Chile has agreed to LQIF’s request and the conditions under which Banco de Chile will participate in the appropriate filings with foreign regulators, the entering into of contracts and other documents required by law and consistent with securities market practice in the United States of America and other international markets, and in the performing of such other steps and actions as are necessary for the consummation of this transaction in the local and international markets and that are related to the commercial and financial condition of Banco de Chile.

 

(b)              On January 14, 2014, in relation to the relevant event dated January 9, 2014, it is informed that Banco de Chile has filed with the Securities and Exchange Commission of the United States of America (SEC), Supplemental Preliminary a prospectus which contains financial and business information of the Bank.

 

Also, it has been registered the agreed contract text called Underwriting Agreement that will be subscribed by LQ Inversiones Financieras S.A. (LQIF), as a seller of securities, Banco de Chile as issuer, and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and Banco BTG Pactual S.A. - Cayman Branch, as underwriters.

 

Additionally, LQIF and Banco de Chile have agreed the terms and general conditions under which the Bank will participate in this process.

 

(c)               On January 29, 2014, LQ Inversiones Financieras S.A. informed as a relevant event that was placed of 6,700,000,000 shares of Banco de Chile, in the local market and the United States of America, by American Depositary Receipts Program, at a price of $ 67 per share, declaring successful offer for sale. Additionally, it informed that the 6,700,000,000 shares of Banco de Chile offered for sale will be placed in stock exchange at price stated on January 29, 2014.

 

(d)              On January 29, 2014, Bank is informed that in relation to the secondary offering shares of Banco de Chile that is performing with LQ Inversiones Financieras S.A., in this date Banco de Chile as issuer, LQ Investments SA, as seller of the securities, and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., and Banco BTG Pactual SA - Cayman Branch as underwriters, have been subscribed a contract called Underwriting Agreement, according to relevant event dated January 14, 2014.

 

Also, later than January 30, 2014, Banco de Chile will proceed to register in Securities and Exchange Commission of the United States of America (SEC), Final Prospectus Supplement, which contains financial and commercial information of the Bank.

 

17



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                                      Relevants events, continued

 

(e)          On January 30, 2014, it was informed that in the Ordinary Meeting No. BCH 2,790 held on January 30th, 2014, the Board of Directors of Banco de Chile resolved to call an Ordinary Shareholders Meeting to be held on March 27th, 2014, with the objective of proposing, among other matters, the distribution of the Dividend number 202 of $3.48356970828 per each of the 93,175,043,991 “Banco de Chile” shares, which will be payable at the expense of the distributable net income obtained during the fiscal year ending on December 31st, 2013, corresponding to the 70% of such income.

 

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 the 30% of the distributable net income of the Bank obtained during the fiscal year ending on December 31st, 2013, through the issuance of fully paid-in shares, of no par value, with a value of $64.56 per “Banco de Chile “share, which will be distributed among the shareholders in the proportion of 0.02312513083 shares for each “Banco de Chile” share and to adopt the necessary agreements subject to the exercise of the options established in article 31 of Law 19,396.

 

(f)           On March 27, 2014 was informed as essential information that in the Ordinary Shareholders’ Meeting of this institution, which took place on March 27, 2014, the Board of Directors was completely renew, due to the end of the legal and statutory three years term established for the Board of Directors that has ceased in its functions.

 

After the corresponding voting at the aforesaid meeting, the following persons were appointed as Directors for a new three years term:

 

Directors:

Francisco Aristeguieta Silva

 

Jorge Awad Mehech

(Independent)

 

Juan José Bruchou

 

Jorge Ergas Heymann

 

Jaime Estévez Valencia

(Independent)

 

Pablo Granifo Lavín

 

Andrónico Luksic Craig

 

Jean Paul Luksic Fontbona

 

Gonzalo Menéndez Duque

 

Francisco Pérez Mackenna

 

Juan Enrique Pino Visinteiner

 

 

First Alternate Director:

Rodrigo Manubens Moltedo

Second Alternate Director:

Thomas Fürst Freiwirth

(Independent)

 

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5.                                      Relevants events, continued

 

Moreover, at the ordinary Board of Directors meeting No BCH 2,793 held on March 27, 2014, it was agreed to make the following appointments and designations:

 

President:

Pablo Granifo Lavín

Vice-President:

Andrónico Luksic Craig

Vice-President:

Francisco Aristeguieta Silva

 

 

Advisers to the Board:

Hernán Büchi Buc

 

Francisco Garcés Garrido

 

Jacob Ergas Ergas

 

(g)          On April 1, 2014 it was informed as an Essential Information that, as of this date, the Central Bank of Chile has communicated to Banco de Chile that the Board of such institution (Consejo), in Extraordinary Session No 1813E, held today, considering the resolutions adopted by the shareholders’ meetings of Banco de Chile of March 27, 2014, regarding distribution of dividends and the increase of capital through the issuance of fully paid-in shares corresponding to the 30% of the net income obtained during the fiscal year ending on December 31st, 2013, resolved to take the option that the entirety of its corresponding surplus, including the part of the profits proportional to the agreed capitalization, be paid to the Central Bank of Chile in cash currency, according to the letter b) of the article 31 of the law No 19,396, regarding a modification of the way of payment of the subordinated obligation and other applicable legislation.

 

(h)         On May 29, 2014 in Ordinary Meeting No. 2,796, the Board of Bank of Chile agreed dissolution, liquidation and termination of Subsidiary Banchile Trade Services Limited, as well as of contracts and operations of this subsidiary.  The Board gave full powers and rights, to execute the dissolution, liquidation and termination of the subsidiary mentioned above.

 

At the date of these financial statements dissolution, liquidation and termination of this subsidiary is in process.

 

(i)             On June 23, 2014, the Second Extraordinary General Meeting of Shareholders of the subsidiary Banchile Securitizadora SA, unanimously agreed to increase the statutory capital by Ch$240 million. Superintendency of Securities and Insurance commented to the approval of the reform statutes dated July 18, 2014. Therefore, on July 21, 2014, the Board requested a new Extraordinary Shareholders Meeting in order to address the comments of the regulator.

 

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5.                                      Relevants events, continued

 

(j)            On June 26, 2014 and regarding the capitalization of 30% of the distributable net income obtained during the fiscal year ending the 31st of December, 2013, through the issuance of fully paid-in shares, agreed in the Extraordinary Shareholders Meeting held on the 27th of March, 2014, It was informed as an essential information:

 

a.         In the said Extraordinary Shareholders Meeting, it was agreed to increase the Bank´s capital in the amount of $ 95,569,688,582 through the issuance of 1,480,323,553 fully paid-in shares, of no par value, payable under the distributable net income for the year 2013 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 N°153 dated May 30, 2014, which was registered on page 24,964 N°40,254 of the register of the Chamber of Commerce of Santiago for the year 2014, and was published at “Diario Oficial” on June 5, 2014.

 

The issuance of fully in paid shares was registered in the Securities Register of the Superintendence of Banks and Financial Institutions with N°3/2014, on June 19, 2014.

 

b.         The Board of Directors of Banco de Chile, at the meeting N°2,798, dated June 26, 2014, set July 10, 2014, as the date for issuance and distribution of the fully paid in shares.

 

c.          The shareholders that will be entitled to receive the new shares, at a ratio of 0.02312513083 fully in paid shares for each Banco de Chile share, shall be those registered in the Register of Shareholders on July 4, 2014.

 

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

 

e.          As a consequence of the issuance of the fully in paid shares, the capital of the Bank will be divided in 94,655,367,544 nominative shares, without par value, completely subscribed and paid.

 

(k)         On August 20, 2014, in relation to comments made by the SVS to the approval of the reform of statutes referred to in point (i), held the Third Extraordinary Meeting of Shareholders of the subsidiary Banchile Securitizadora SA The minutes of that meeting was a public deed on 25 of the same year, before Don Juan Francisco Alamos Shepherd, deputy head of the 45th Notary Public of Santiago Notary Mr. René Benavente Cash.

 

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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 Corredores de Bolsa S.A.

· Banchile Securitizadora S.A.

· Socofin S.A.

· Promarket S.A.

 

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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 applying 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, 2014 and 2013.

 

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.

 

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6.                            Segment Reporting, continued:

 

The following table presents the income by segment for the periods ended September 2014 and 2013 for each of the segments defined above:

 

 

 

Retail

 

Wholesale

 

Treasury

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

September

 

 

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

611,664

 

537,090

 

273,209

 

222,301

 

23,143

 

11,350

 

(7,013

)

(9,266

)

901,003

 

761,475

 

1,856

 

7,218

 

902,859

 

768,693

 

Net fees and commissions income (loss)

 

98,770

 

114,029

 

30,138

 

32,458

 

(1,280

)

(371

)

83,966

 

77,996

 

211,594

 

224,112

 

(11,104

)

(8,262

)

200,490

 

215,850

 

Other operating income

 

21,111

 

22,648