Edgar Filing: BANK OF CHILE

Form 6-K

As filed with the Securities and Exchange Commission on March 10, 2011

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

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 ¨

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):

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):

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 ¨ No x

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

BANCO DE CHILE

REPORT ON FORM 6-K

Attached is a description of Selected Statistical Information for the year ended December 31, 2010 and Results of Operations for the years ended December 31, 2010 and December 31, 2009. The following information is included for analytical purposes and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2010 included in this Report on Form 6-K.

PRESENTATION OF INFORMATION

As used in this Report on Form 6-K, unless the context otherwise requires, the references to “we,” “us” or the “Company” are to Banco de Chile and its consolidated subsidiaries. All references to “Chile” are references to the Republic of Chile.

We prepare our audited consolidated financial statements in Chilean pesos and in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). References in this Report on Form 6-K to IFRS mean IFRS as issued by the IASB.

Until and including our consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2008, we prepared our audited consolidated financial statements in accordance with generally accepted accounting principles in Chile as supplemented by the applicable rules of the Superintendencia de Bancos e Instituciones Financieras de Chile (the “Superintendency of Banks”) (“Chilean GAAP”), with reconciliations to generally accepted accounting principles in the United States (“U.S. GAAP”). As required by IFRS 1—First Time Adoption of International Financial Reporting Standards, our financial position as of January 1, 2008 and December 31, 2008 and our results of operations for the year ended December 31, 2008 have been restated in accordance with IFRS 1 for comparative purposes. Reconciliations and description of the transition to IFRS, and the effects on assets, liabilities, equity, net income and cash flows are presented in Note 5 to our audited consolidated financial statements included herein. Unless otherwise indicated, the financial information included in this Report on Form 6-K with respect to 2008, 2009 and 2010 has been derived from financial statements that have been prepared in accordance with IFRS. See Note 2(a) to our audited consolidated financial statements as of and for the year ended December 31, 2010 included herein. IFRS differs in certain significant respects from Chilean GAAP. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under Chilean GAAP. Accordingly, readers should avoid such comparison.

Following our adoption of IFRS, we are no longer required to reconcile our financial statements to U.S. GAAP.

In this Report on Form 6-K, references to “$,” “U.S.$,” “U.S. dollars” and “dollars” are to United States dollars, references to “pesos” or “Ch$” are to Chilean pesos (see Note 2(f) to our audited consolidated financial statements as of and for the year ended December 31, 2010 included herein), and references to “UF” are to “Unidades de Fomento.” The UF is an inflation-indexed Chilean monetary unit of account with a value in Chilean pesos that is linked to and adjusted daily to reflect changes in the Consumer Price Index of the Instituto Nacional de Estadísticas (the “Chilean National Statistics Institute”). As of December 31, 2010, one UF equaled Ch$21,455.55.

This Report on Form 6-K contains translations of certain Chilean peso amounts into U.S. dollars at specified rates solely for your convenience. These translations should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts, were converted from U.S. dollars at the rate indicated in preparing our audited consolidated financial statements as of and for the year ended December 31, 2010 or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated from Chilean pesos based on the observed exchange rate reported by the Banco Central de Chile, or the Central Bank of Chile (the “Central Bank”), for December 30, 2010 (the latest practicable date, as December 31, 2010 was a banking holiday in Chile). The observed exchange rate on March 8, 2011 was Ch$473.28 = U.S.$1.00. The rate reported by the Central Bank is based on the rate for the prior business day in Chile and is the exchange rate specified by the Superintendency of Banks to be used by Chilean banks in the preparation of their financial statements. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

Unless otherwise specified, all references in this Report on Form 6-K to total loans are to loans to customers before deduction of allowances for loan losses, and they do not include loans to banks or contingent loans. In addition, all market share data and financial indicators for the Chilean banking system when compared to Banco de Chile’s financial information, presented in this Report on Form 6-K are based on information published periodically by the Superintendency of Banks, which is published under Chilean GAAP and prepared on a consolidated basis. Past-due loans include, with respect to any loan, the portion of principal or interest that is 90 or more days overdue, and do not include the installments of such loan that are not overdue or that are overdue for less than 90 days, unless legal proceedings have been commenced for the entire outstanding balance according to the terms of the loan, in which case the entire loan is considered past due within 90 days of the beginning of such proceedings. See “Item 4. Information on the Company—Selected Statistical Information—Classification of Loan Portfolio Based on the Borrower’s Payment Performance” in our annual report on Form 20-F for the year ended December 31, 2009.

According to Chilean regulations, regulatory capital (“Regulatory Capital”) consists of:

•

basic capital, which is composed of our paid-in capital, reserves and retained earnings, excluding capital attributable to subsidiaries and foreign branches (“Basic Capital”); and

•

supplementary capital, which is composed of the following: (i) our subordinated bonds, considered at issue price (reduced by 20.0% for each year during the period commencing six years prior to maturity), but not exceeding 50.0% of our Basic Capital; plus (ii) our voluntary allowances for loan losses (up to 1.25% of risk-weighted assets to the extent voluntary allowances exceed those that banks are required to maintain by law or regulation); minus (iii) our goodwill and unconsolidated investments in companies.

Certain figures included in this Report on Form 6-K have been rounded for ease of presentation. Percentage figures included in this Report on Form 6-K have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Report on Form 6-K may vary slightly from those obtained by performing the same calculations using the figures in our audited consolidated financial statements as of and for the year ended December 31, 2010. Certain other amounts that appear in this Report on Form 6-K may similarly not sum due to rounding.

Inflation figures are those reported by the Chilean National Statistics Institute, unless otherwise stated herein or required by the context.

SELECTED STATISTICAL INFORMATION

The following information is included for analytical purposes and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2010, and the Results of Operations for the years ended December 31, 2010 and December 31, 2009 included in this Report on Form 6-K.

Average Balance Sheets, Interest Earned on Interest Earning Assets and Interest Paid on Interest Bearing Liabilities

The average balances for interest earning assets and interest bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of our daily balances and on the basis of monthly balances for our subsidiaries. These average balances are presented in Chilean pesos (Ch$), in UF and in foreign currencies (principally the U.S. dollar). The UF is an inflation-indexed Chilean monetary unit of account with a value in Chilean pesos which is linked to, and which is adjusted daily to reflect changes in, the consumer price index of the Chilean National Institute of Statistics.

The nominal interest rate has been calculated by dividing the amount of interest and principal readjustment gain or loss during the period by the related average balance, both amounts expressed in constant pesos. The nominal rates calculated for each period have been converted into real rates using the following formulas:

LOGO

and

LOGO

Where:

Rp = real average rate for peso-denominated assets and liabilities (in Ch$ and UF) for the period;

Rd = real average rate for foreign currency denominated assets and liabilities for the period;

Np = nominal average rate for peso-denominated assets and liabilities for the period;

Nd = nominal average rate for foreign currency denominated assets and liabilities for the period;

D = devaluation rate of the Chilean peso to the dollar for the period; and

I = inflation rate in Chile for the period (based on the variation of the Consumer Price Index).

The real interest rate can be negative for a portfolio of peso-denominated loans when the inflation rate for the period is higher than the average nominal rate of the loan portfolio for the same period. A similar effect could occur for a portfolio of foreign currency denominated loans when the inflation rate for the period is higher than the combined effect of the devaluation rate for the period and the corresponding average nominal rate of the portfolio.

The formula for the average real rate for foreign currency denominated assets and liabilities (Rd) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Chilean peso and the inflation rate in Chile during the period.

The following example illustrates the calculation of the real interest rate for a U.S. dollar asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):

LOGO

In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in U.S. dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the same numbers, if the annual inflation rate were greater than 15.5%, the real rate would be negative.

The foreign exchange gains or losses on foreign currency-denominated assets and liabilities have not been included in interest revenue or expense. Similarly, interest accrued on the trading portfolio are not included in interest revenues. Interest is not recognized during periods in which loans are past due except for certain loans where 80% or more of our exposure under the loan is secured. However, interest received on past due loans includes interest on such loans from the original maturity date. For our impaired portfolio and high risk loans, we apply a conservative approach of discontinuing accrual-basis recognition of interest revenue in the income statement and they are only recorded once received.

Included in cash and due from banks are current accounts maintained in the Central Bank and overseas banks. Such assets have a distorting effect on the average interest rate earned on total interest earning assets because of balances maintained in:

•

the Central Bank, only the portion that is legally required to be held for liquidity purposes earns interest; and

•

overseas banks earn interest on certain accounts in certain countries.

Consequently, the average interest earned on such assets is comparatively low. These deposits are maintained by us in these accounts to comply with statutory requirements and to facilitate international business, rather than to earn income.

The monetary gain or loss on interest earning assets and interest bearing liabilities is not included as a component of interest revenue or interest expense because inflation effects are taken into account in the calculation of real interest rates.

The following tables show under IFRS, by currency of denomination, average balances and, where applicable, interest amounts, and nominal and real rates for our assets and liabilities for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,
	2009										2010
	Average balance		Interest earned⁽¹⁾		Average nominal rate			Average real rate			Average balance		Interest earned⁽¹⁾		Average nominal rate			Average real rate
	(in millions of Ch$, except percentages)
IFRS:

Assets
Interest earning assets
Cash and due from banks
Ch$	Ch$	462,300	Ch$	17		—			1.40	%	Ch$	559,039	Ch$	274		0.05	%		(3.71	%)
UF		—		—		—			—			—		—		—			—
Foreign currency		352,163		173		0.05			(18.33	)		289,374		93		0.03			(10.96	)

Total		814,463		190		0.02			(7.13	)		848,413		367		0.04			(6.18	)

Financial investments
Ch$		816,111		28,762		3.52			4.97			608,266		19,777		3.25			(0.62	)
UF		619,451		6,086		0.98			2.40			725,734		32,351		4.46			0.54
Foreign currency		192,708		7,408		3.84			(15.24	)		185,808		2,609		1.40			(9.74	)

Total		1,628,270		42,256		2.60			1.60			1,519,808		54,737		3.60			(1.18	)

Loans in advance to banks
Ch$		204,703		5,479		2.68			4.11			339,844		7,205		2.12			(1.71	)
UF		—		—		—			—			—		—		—			—
Foreign currency		—		—		—			—			—		—		—			—

Total		204,703		5,479		2.68			4.11			339,844		7,205		2.12			(1.71	)

Commercial loans
Ch$		3,758,821		275,631		7.33			8.83			4,076,224		226,117		5.55			1.59
UF		3,239,648		76,109		2.35			3.78			3,231,121		218,776		6.77			2.76
Foreign currency		1,540,276		64,139		4.16			(14.97	)		1,555,737		41,379		2.66			(8.62	)

Total		8,538,745		415,879		4.87			2.62			8,863,082		486,272		5.49			0.22

Consumer loans
Ch$		1,831,744		378,004		20.64			22.32			1,950,497		373,264		19.14			14.66
UF		40,354		1,627		4.03			5.49			46,903		3,685		7.86			3.81
Foreign currency		—		—		—			—			—		—		—			—

Total		1,872,098		379,631		20.28			21.96			1,997,400		376,949		18.87			14.41

Residential mortgage loans
Ch$		—		—		—			—			—		—		—			—
UF		2,359,746		57,351		2.43			3.86			2,698,384		187,363		6.94			2.93
Foreign currency		—		—		—			—			—		—		—			—

Total		2,359,746		57,351		2.43			3.86			2,698,384		187,363		6.94			2.93

Repurchase agreement
Ch$		13,799		1,193		8.65			10.17			74,471		5,387		7.23			3.21
UF		28,331		—		—			—			—		—		—			—
Foreign currency		625		—		—			—			—		—		—			—

Total		42,755		1,193		2.79			3.28			74,471		5,387		7.23			3.21

Total interest earnings assets
Ch$		7,087,478		689,086		9.72			11.26			7,608,341		632,024		8.31			4.24
UF		6,287,530		141,173		2.25			3.68			6,702,142		442,175		6.60			2.60
Foreign currency		2,085,772		71,720		3.44			(15.57	)		2,030,919		44,081		2.17			(9.06	)

Total	Ch$	15,460,780	Ch$	901,979		5.83	%		4.56	%	Ch$	16,341,402	Ch$	1,118,280		6.84	%		1.91	%

(1)	Interest earned includes interest accrued on trading securities.


	For the Year Ended December 31,
	2009									2010
	Average balance			Interest earned⁽¹⁾		Average nominal rate		Average real rate		Average balance			Interest earned⁽¹⁾		Average nominal rate		Average real rate
	(in millions of Ch$, except percentages)
IFRS:

Assets
Non-interest earning assets

Transaction in the course of collection
Ch$	Ch$	234,486		Ch$	—		—		—	Ch$	263,263		Ch$	—		—		—
UF		9			—		—		—		—			—		—		—
Foreign currency		149,347			—		—		—		152,592			—		—		—

Total		383,842			—		—		—		415,855			—		—		—

Allowances for loan losses
Ch$		(260,879	)		—		—		—		(341,313	)		—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		—			—		—		—		—			—		—		—

Total		(260,879	)		—		—		—		(341,313	)		—		—		—

Derivatives
Ch$		604,845			—		—		—		481,674			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		43,429			—		—		—		44,635			—		—		—

Total		648,274			—		—		—		526,309			—		—		—

Investment in other companies
Ch$		9,024			—		—		—		11,057			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		2			—		—		—		2			—		—		—

Total		9,026			—		—		—		11,059			—		—		—

Intangible assets
Ch$		89,144			—		—		—		82,151			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		—			—		—		—		—			—		—		—

Total		89,144			—		—		—		82,151			—		—		—

Fixed assets
Ch$		210,711			—		—		—		207,267			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		—			—		—		—		—			—		—		—

Total		210,711			—		—		—		207,267			—		—		—

Current tax assets
Ch$		1,185			—		—		—		2,520			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		—			—		—		—		—			—		—		—

Total		1,185			—		—		—		2,520			—		—		—

Deferred tax assets
Ch$		62,627			—		—		—		63,935			—		—		—
UF		—			—		—		—		—			—		—		—
Foreign currency		—			—		—		—		—			—		—		—

Total		62,627			—		—		—		63,935			—		—		—

Other assets
Ch$		84,941			—		—		—		216,432			—		—		—
UF		579,991			—		—		—		40,135			—		—		—
Foreign currency		12,650			—		—		—		12,502			—		—		—

Total		677,582			—		—		—		269,069			—		—		—

Total non-interest earning assets
Ch$		1,036,084			—		—		—		986,986			—		—		—
UF		580,000			—		—		—		40,135			—		—		—
Foreign currency		205,428			—		—		—		209,731			—		—		—

Total		1,821,512			—		—		—		1,236,852			—		—		—

Total assets
Ch$		8,123,562			689,086		—		—		8,595,327			632,024		—		—
UF		6,867,530			141,173		—		—		6,742,277			442,175		—		—
Foreign currency		2,291,200			71,720		—		—		2,240,650			44,081		—		—

Total	Ch$	17,282,292		Ch$	901,979		—		—	Ch$	17,578,254		Ch$	1,118,280		—		—

(1)	Interest earned includes interest accrued on trading securities.


	For the Year Ended December 31,
	2009										2010
	Average balance		Interest paid		Average nominal rate			Average real rate			Average balance		Interest paid		Average nominal rate			Average real rate
	(in millions of Ch$, except percentages)
IFRS:

Liabilities
Interest bearing liabilities
Savings accounts
Ch$	Ch$	3,919,286	Ch$	131,470		3.35	%		4.80	%	Ch$	4,172,738	Ch$	86,691		2.08	%		(1.75	%)
UF		2,434,064		7,475		0.31			1.71			2,087,299		89,517		4.29			0.37
Foreign currency		1,214,967		20,711		1.70			(16.98	)		1,122,089		14,441		1.29			(9.85	)

Total		7,568,317		159,656		2.11			0.31			7,382,126		190,649		2.58			(2.38	)

Repurchase agreements
Ch$		239,295		5,535		2.31			3.74			167,032		1,640		0.98			(2.81	)
UF		31,354		725		2.31			3.74			14,665		367		2.50			(1.34	)
Foreign currency		4,409		99		2.25			(16.54	)		1,259		1		0.08			(10.92	)

Total		275,058		6,359		2.31			3.42			182,956		2,008		1.10			(2.75	)

Borrowings from financial institutions
Ch$		67,314		2,479		3.68			5.13			82,313		2,138		2.60			(1.25	)
UF		2,972		1		0.03			1.43			8,255		21		0.25			(3.51	)
Foreign currency		1,126,865		23		—			(18.37	)		1,275,267		16,663		1.31			(9.83	)

Total		1,197,151		2,503		0.21			(17.00	)		1,365,835		18,822		1.38			(9.27	)

Debt issued
Ch$		17,885		1,264		7.07			8.57			78,957		805		1.02			(2.77	)
UF		1,565,522		26,032		1.66			3.09			1,463,769		104,641		7.15			3.13
Foreign currency		130,222		4,942		3.80			(15.28	)		117,714		4,306		3.66			(7.74	)

Total		1,713,629		32,238		1.88			1.75			1,660,440		109,752		6.61			2.08

Other financial obligations
Ch$		41,019		848		2.07			3.50			60,144		1,146		1.91			(1.92	)
UF		12,242		—		—			—			29,200		1,767		6.05			2.07
Foreign currency		48,738		21,279		43.66			17.26			42,856		362		0.84			(10.24	)

Total		101,999		22,127		21.69			9.66			132,200		3,275		2.48			(3.74	)


Total interest bearing liabilities
Ch$		4,284,799		141,596		3.30			4.75			4,561,184		92,420		2.03			(1.80	)
UF		4,046,154		34,233		0.85			2.26			3,603,188		196,313		5.45			1.49
Foreign currency		2,525,201		47,054		1.86			(16.85	)		2,559,185		35,773		1.40			(9.75	)

Total	Ch$	10,856,154	Ch$	222,883		2.05	%		(1.20	%)	Ch$	10,723,557	Ch$	324,506		3.03	%		(2.59	%)


	For the Year Ended December 31,
	2009								2010
	Average balance		Interest paid		Average nominal rate		Average real rate		Average balance		Interest paid		Average nominal rate		Average real rate
			(in millions of Ch$, except percentages)
IFRS:

Liabilities
Non-interest bearing liabilities
Current account and demand deposits
Ch$	Ch$	2,665,304	Ch$	—		—		—	Ch$	3,452,445	Ch$	—		—		—
UF		13,117		—		—		—		107,937		—		—		—
Foreign currency		454,883		—		—		—		525,418		—		—		—

Total		3,133,304		—		—		—		4,085,800		—		—		—

Transaction in the course of payment
Ch$		132,821		—		—		—		139,131		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		133,966		—		—		—		142,429		—		—		—

Total		266,787		—		—		—		281,560		—		—		—

Derivatives
Ch$		610,155		—		—		—		434,521		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		61,940		—		—		—		77,072		—		—		—

Total		672,095		—		—		—		511,593		—		—		—

Current liabilities
Ch$		15,401		—		—		—		14,143		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		—		—		—		—		—		—		—		—

Total		15,401		—		—		—		14,143		—		—		—

Deferred tax liabilities
Ch$		37,291		—		—		—		19,052		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		—		—		—		—		—		—		—		—

Total		37,291		—		—		—		19,052		—		—		—

Provisions
Ch$		64,697		—		—		—		49,109		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		—		—		—		—		—		—		—		—

Total		64,697		—		—		—		49,109		—		—		—

Other liabilities
Ch$		108,883		—		—		—		206,557		—		—		—
UF		568,572		—		—		—		10,247		—		—		—
Foreign currency		5,367		—		—		—		6,223		—		—		—

Total		682,822		—		—		—		223,027		—		—		—

Equity
Ch$		1,553,104		—		—		—		1,670,413		—		—		—
UF		—		—		—		—		—		—		—		—
Foreign currency		637		—		—		—		—		—		—		—

Total		1,553,741		—		—		—		1,670,413		—		—		—


Total non-interest bearing liabilities and equity
Ch$		5,187,656		—		—		—		5,985,371		—		—		—
UF		581,689		—		—		—		118,184		—		—		—
Foreign currency		656,793		—		—		—		751,142		—		—		—

Total		6,426,138		—		—		—		6,854,697		—		—		—

Total liabilities and equity
Ch$		9,472,455		141,596		—		—		10,546,555		92,420		—		—
UF		4,627,843		34,233		—		—		3,721,372		196,313		—		—
Foreign currency		3,181,994		47,054		—		—		3,310,327		35,773		—		—

Total	Ch$	17,282,292	Ch$	222,883		—		—	Ch$	17,578,254	Ch$	324,506		—		—

Interest Earning Assets and Net Interest Margin

The following table analyzes, by currency of denomination, the levels of our average interest earning assets and net interest, and illustrates the comparative margins obtained, for the years ended December 31, 2009 and 2010.


	For the Year Ended December 31,
	2009			2010
	(in millions of Ch$, except percentages)
IFRS:

Total average interest earning assets
Ch$	Ch$	7,087,478		Ch$	7,608,341
UF		6,287,530			6,702,142
Foreign currency		2,085,772			2,030,919

Total		15,460,780			16,341,402

Net interest earned⁽¹⁾
Ch$		547,490			539,604
UF		106,940			245,862
Foreign currency		24,666			8,308

Total	Ch$	679,096		Ch$	793,774

Net interest margin, nominal basis⁽²⁾
Ch$		7.72	%		7.09	%
UF		1.70			3.67
Foreign currency		1.18			0.41

Total		4.39	%		4.86	%

(1)	Net interest earned is defined as interest revenue earned less interest expense incurred.

(2)	Net interest margin, nominal basis is defined as net interest earned divided by average interest earning assets.

Changes in Net Interest Revenue—Volume and Rate Analysis

The following tables compare, by currency of denomination, changes in our net interest revenue between 2009 and 2010 caused by (i) changes in the average volume of interest earning assets and interest bearing liabilities and (ii) changes in their respective nominal interest rates. Volume and rate variances have been calculated based on movements in average balances over the period and changes in nominal interest rate, average interest earning assets and average interest bearing liabilities. The net change attributable to changes in both volume and rate has been allocated proportionately to the change in volume and the change in rate.


	Increase (Decrease) from 2009 to 2010 due to changes in						Net change from 2009 to 2010
	Volume			Rate			Net change from 2009 to 2010
	(in millions of Ch$)
IFRS:

Assets
Interest earning assets
Cash and due from banks
Ch$	Ch$	4		Ch$	253		Ch$	257
UF		—			—			—
Foreign currency		(27	)		(53	)		(80	)

Total		(23	)		200			177

Financial investments
Ch$		(6,890	)		(2,095	)		(8,985	)
UF		1,215			25,050			26,265
Foreign currency		(256	)		(4,543	)		(4,799	)

Total		(5,931	)		18,412			12,481

Loans in advance to banks
Ch$		3,045			(1,319	)		1,726
UF		—			—			—
Foreign currency		—			—			—

Total		3,045			(1,319	)		1,726

Commercial loans
Ch$		21,816			(71,330	)		(49,514	)
UF		(201	)		142,868			142,667
Foreign currency		638			(23,398	)		(22,760	)

Total		22,253			48,140			70,393

Consumer loans
Ch$		23,667			(28,407	)		(4,740	)
UF		301			1,757			2,058
Foreign currency		—			—			—

Total		23,968			(26,650	)		(2,682	)

Residential mortgage loans
Ch$		—			—			—
UF		9,327			120,685			130,012
Foreign currency		—			—			—

Total		9,327			120,685			130,012

Repurchase agreement
Ch$		4,419			(225	)		4,194
UF		—			—			—
Foreign currency		—			—			—

Total		4,419			(225	)		4,194

Total interest earning assets
Ch$		46,061			(103,123	)		(57,062	)
UF		10,642			290,360			301,002
Foreign currency		355			(27,994	)		(27,639	)

Total	Ch$	57,058		Ch$	159,243		Ch$	216,301


	Increase (Decrease) from 2009 to 2010 due to changes in						Net change from 2009 to 2010
	Volume			Rate			Net change from 2009 to 2010
	(in millions of Ch$)
IFRS:

Liabilities
Interest bearing liabilities

Savings accounts and time deposits
Ch$	Ch$	8,032		Ch$	(52,811	)	Ch$	(44,779	)
UF		(1,215	)		83,257			82,042
Foreign currency		(1,491	)		(4,779	)		(6,270	)

Total		5,326			25,667			30,993

Repurchase agreements
Ch$		(1,340	)		(2,555	)		(3,895	)
UF		(413	)		55			(358	)
Foreign currency		(42	)		(56	)		(98	)

Total		(1,795	)		(2,556	)		(4,351	)

Borrowing from financial institutions
Ch$		482			(823	)		(341	)
UF		4			16			20
Foreign currency		3			16,637			16,640

Total		489			15,830			16,319

Debt issued
Ch$		1,363			(1,822	)		(459	)
UF		(1,800	)		80,409			78,609
Foreign currency		(462	)		(174	)		(636	)

Total		(899	)		78,413			77,514

Other financial obligation
Ch$		369			(71	)		298
UF		—			1,767			1,767
Foreign currency		(2,292	)		(18,625	)		(20,917	)

Total		(1,923	)		(16,929	)		(18,852	)

Total interest bearing liabilities
Ch$		8,906			(58,082	)		(49,176	)
UF		(3,424	)		165,504			162,080
Foreign currency		(4,284	)		(6,997	)		(11,281	)

Total	Ch$	1,198		Ch$	100,425		Ch$	101,623

Maturity and Interest Rate Sensitivity of Loan as of December 31, 2010

The following table sets forth an analysis by type and time remaining to maturity of our loans as of December 31, 2010:


	Balance as of December 30, 2010		Due within 1 month		Due after 1 month but within 6 months		Due after 6 months but within 12 months		Due after 1 year but within 3 years		Due after 3 years but within 5 years		Due after 5 years
	(in millions of Ch$)
IFRS:

Commercial loans:

Commercial loans	Ch$	6,962,214	Ch$	464,613	Ch$	1,513,090	Ch$	881,753	Ch$	1,655,654	Ch$	1,199,840	Ch$	1,247,264
Foreign trade loans		913,658		174,831		566,223		87,949		61,299		19,413		3,943
Current account debtors		121,507		121,507		—		—		—		—		—
Factoring loans		477,132		233,189		181,744		37,524		23,505		1,170		—
Leasing loans		777,294		23,940		101,266		107,227		276,075		124,772		144,014
Other loans		39,177		36,888		1,834		171		280		4		—

Subtotal		9,290,982		1,054,968		2,364,157		1,114,624		2,016,813		1,345,199		1,395,221

Mortgage Loans:
Mortgage bonds		165,631		4,560		8,557		10,510		40,015		35,555		66,434
Endorsable mortgage loans		205,260		3,203		9,044		9,941		37,508		35,299		110,265
Residential mortgage loans		2,556,395		21,295		54,777		66,909		276,647		288,423		1,848,344
Other loans		492		—		—		—		—		—		492

Subtotal		2,927,778		29,058		72,378		87,360		354,170		359,277		2,025,535

Consumer loans:
Consumer loans		1,488,283		86,910		275,833		271,546		678,626		164,961		10,407
Current account debtors		229,807		229,807		—		—		—		—		—
Credit card		440,791		420,963		19,828		—		—		—		—
Other loans		354		354		—		—		—		—		—

Subtotal		2,159,235		738,034		295,661		271,546		678,626		164,961		10,407

Total loans	Ch$	14,377,995	Ch$	1,822,060	Ch$	2,732,196	Ch$	1,473,530	Ch$	3,049,609	Ch$	1,869,437	Ch$	3,431,163

The following table sets forth the interest rate sensitivity of our outstanding loans due after one year as of December 31, 2010:


	As of December 31, 2010
	(in millions of Ch$)
IFRS:
Variable rate
Ch$	Ch$	862,204
UF		738,552
Foreign currency		244,087

Total		1,844,843

Fixed rate
Ch$		1,733,698
UF		4,686,661
Foreign currency		85,007

Total		6,505,366

Total	Ch$	8,350,209

Maturity of Deposits

The following table sets forth under IFRS information regarding the currency and maturity of our deposits at December 31, 2010, expressed in percentages. UF-denominated deposits are similar to Chilean peso-denominated deposits in all aspects, except that the principal is readjusted periodically based on the value of the UF.


	As of December 31, 2010
	Ch$		UF		Foreign Currency		Total
	(in millions of Ch$)
IFRS:
Demand deposits		3,924,065		29,837		492,279		4,446,181
Savings accounts		—		173,404		—		173,404
Time deposits:
Maturing within three months		3,461,580		434,489		789,788		4,685,857
Maturing after three but within six months		854,781		344,495		118,760		1,318,036
Maturing after six but within 12 months		274,733		853,685		4,897		1,133,315
Maturing after 12 months		76,063		310,581		712		387,356

Total time deposits		4,667,157		1,943,250		914,157		7,524,564

Total deposits		8,591,222		2,146,491		1,406,436		12,144,149

The following table sets forth information under IFRS regarding the currency and maturity of deposits in excess of U.S.$100,000 as of December 31, 2010:


	As of December 31, 2010
	Ch$			UF			Foreign Currency			Total
	(in millions of Ch$)
IFRS:
Demand deposits		45.68	%		1.39	%		35.00	%		36.61	%
Savings accounts		—			8.08			—			1.43
Time deposits:
Maturing within three months		40.29			20.24			56.16			38.59
Maturing after three but within six months		9.95			16.05			8.44			10.85
Maturing after six but within 12 months		3.20			39.77			0.35			9.33
Maturing after 12 months		0.88			14.47			0.05			3.19
Total time deposits		54.32			90.53			65.00			61.96

Total deposits		100.00	%		100.00	%		100.00	%		100.00	%

RECENT RESULTS OF OPERATIONS

Introduction

The following discussion should be read in conjunction with, and is entirely qualified by reference to, our audited consolidated financial statements as of and for the years ended December 31, 2009 and 2010 included in this Report on Form 6-K and prepared in accordance with IFRS.

Until and including our consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2009, we prepared our audited consolidated financial statements in accordance with Chilean GAAP, with reconciliations to U.S. GAAP. As required by IFRS 1—First Time Adoption of International Financial Reporting Standards, our financial position as of January 1, 2008 and December 31, 2008 and our results of operations for the year ended December 31, 2008 have been restated in accordance with IFRS 1 for comparative purposes. Reconciliations and description of the transition to IFRS, and the effects on assets, liabilities, equity, net income and cash flows are presented in Note 5 to our audited consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2009. Unless otherwise indicated, the financial information included in this Report on Form 6-K with respect to 2008, 2009 and 2010 has been derived from financial statements that have been prepared in accordance with IFRS. See Note 2(a) to our audited consolidated financial statements as of and for the years ended December 31, 2009 and 2010 included in this Report on Form 6-K. IFRS differs in certain significant respects from Chilean GAAP. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under Chilean GAAP. Accordingly, readers should avoid such comparison.

Overview

We are a leading bank within the Chilean financial system, providing a broad range of financial products and services to individual and corporate customers who are primarily located in Chile. Accordingly, our financial condition, results of operations and our ability to achieve our strategic business goals could be adversely affected by changes in economic indicators (such as interest rates, inflation and GDP growth), modifications of non-economic policies of the Chilean government that can affect the private sector, or other political and economic developments in Chile, as well as regulatory changes or administrative practices of Chilean authorities, over which we have no control. We also face a number of other risks, such as increasing competition and changing market conditions that could impact our ability to achieve our goals. For more details, see “Item 3. Key Information—Risk Factors” of our annual report on Form 20-F for the year ended December 31, 2009 which has been incorporated by reference herein.

After a period of accelerated growth between 1985 and 1997, when Chile’s gross domestic product grew at an average annual rate of 7.2%, Chile’s economic growth slowed to an average rate of 3.8% between 2000 and 2010. Since 2008 the Chilean economy has faced extraordinarily difficult circumstances, ranging from a general worldwide economic slowdown caused by the United States subprime mortgage crisis to the worst earthquake reported in over 50 years in Chile. Nevertheless, the country has been able to successfully overcome these challenges due to its stable financial condition resulting from an earlier accumulation of international reserves and its internationally recognized sound fiscal policy.

Throughout 2009, the local Chilean economy was negatively affected by the international financial turmoil, which reduced foreign trade and fostered high volatility in the global financial markets, mainly because the Chilean economy is highly integrated in the international trading system and dependent on the export of commodities (principally copper). As a result, Chile’s mining activity shrank as demand for, and the price of, copper decreased dramatically. Other industrial sectors which rely heavily on exports, such as the cellulose and steel sectors, also suffered the negative impact caused by the global economic downturn.

In terms of domestic demand, as a result of the uncertainty caused by the global economic downturn and the increase in the Chilean unemployment rate, private consumption significantly decreased in 2009, leading to a decrease in the demand for durable goods (mainly cars and houses), which directly affected the construction sector and indirectly affected both the forestry and transportation sectors. The consumption of non-durable goods also declined and, accordingly, the retail sector was negatively affected and reported a decrease in its commercial activity.

As a result, investment (which grew by 18.8% in 2008) stagnated due to a decline in expectations of economic growth, leading companies to postpone their investment projects, which raised the unemployment rate in Chile.

All of these elements resulted in a 1.5% reduction in the Chilean GDP and an average unemployment rate of 9.7% for 2009. Also, the reduction in domestic and international consumption entailed a significant adjustment in inventory volumes and an excess of

productive capacity, which resulted in a sharp decrease in prices, leading to a deflation of 1.4% as measured by the consumer price index as published by the Chilean National Statistics Institute for 2009. The absence of inflationary pressures encouraged the Central Bank to carry out monetary stimulus, which led the monetary policy annual interest rate to a historical low of 0.5% in order to ensure sufficient liquidity in the local monetary system.

Starting in the third quarter of 2009, the Chilean economy began to show signs of recovery which temporarily faded immediately after the earthquake that struck the center-south region of Chile on February 27, 2010, negatively affecting Chile’s GDP growth during the first quarter of 2010. Nevertheless, the Chilean economy recovered from the effects of the earthquake and, for the year ended December 31, 2010, the estimated GDP growth was 5.2% and the inflation rate was 3.0%, as measured by the consumer price index published by the Chilean National Statistics Institute.

Most of Chile’s GDP growth in 2010 came from domestic consumption and investment, with estimated growth rates of 8.9% and 17.6%, respectively, during the year. Private consumption was the main driver of GDP growth during the first half of 2010 while investment became increasingly important during the second half of 2010, as companies began to restart investment projects in response to a more positive business environment.

As a result of the improved economic indicators described above, the Chilean stock market has also shown significant signs of recovery. During 2010, the IPSA Index (the most important Chilean stock index composed of the 40 stocks with the highest average annual trading volume on the Santiago Stock Exchange) reached 5,000 points, well above the 3,580 reported on December 31, 2009. This increase was particularly fuelled by the recovery of stocks from companies associated with retail, commodities and banking activities, which reflected the more upbeat outlook for the domestic and global economies. In the first two months of 2011, the IPSA Index decreased by 9.8% to 4,444.57 points.

Inflation

Historically, Chile has experienced high levels of inflation that have significantly affected our financial condition and results of operations. Although inflation remained relatively low during much of the past decade, price level changes were relatively high during 2008 (7.1%), primarily as a result of the sharp increase in international oil and food prices. However, throughout 2009, we experienced deflation at a rate of 1.4% as a consequence of the global financial crisis, which affected many of Chile’s economic indicators, such as exports, employment, consumption and investment, thereby reducing purchasing power and leading to weaker aggregate demand. Nevertheless, in early 2010 and consistent with the recovery trend shown by the Chilean economy since the last quarter of 2009, inflation started to return to more normal levels and was within the long term range proposed by the Central Bank of 2.0% to 4.0% per year. During the year ended December 31, 2010, inflation was 3.0%, as measured by the consumer price index published by the Chilean National Statistics Institute. According to the Central Bank, the increase in the inflation rate is in line with higher levels of activity in the Chilean economy prompted by an increase in private consumption after a full year characterized by a deteriorated demand for goods and services as a result of the worldwide financial crisis.

An increase in inflation rates could adversely affect the Chilean economy and have an adverse effect on our business, financial condition and results of operations. Our results of operations reflect the effect of inflation in the following ways:

•

a substantial portion of our assets and liabilities are denominated in UFs, a unit that is indexed daily to reflect inflation recorded in the previous month, with the net gain or loss resulting from such indexation reflected in income; and

•

the interest rates earned and paid on peso-denominated assets and liabilities to some degree reflect inflation and expectations regarding inflation.

UF-Denominated Assets and Liabilities. The UF is revalued in monthly cycles. On each day in the period beginning the tenth day of each month through the ninth day of the next month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect each day a pro rata amount of the prior calendar month’s change in the consumer price index published by the Chilean National Statistics Institute. One UF was equal to Ch$20,942.88 as of December 31, 2009 and Ch$21,455.55 as of December 31, 2010. The effect of any changes in the nominal peso value of our UF-denominated assets and liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest revenue and expense. Our net interest income will be positively affected by inflation (and negatively affected by deflation) to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities, while our net interest income will be negatively affected by inflation (and positively affected by deflation) when average UF-denominated liabilities exceed average UF-denominated assets. Our average UF-denominated assets exceeded our average UF-denominated liabilities by Ch$2,239,687 million (U.S.$4,781.88 million) during the year ended December 31, 2009 and Ch$3,020,905 million (U.S.$6,449.82 million) during the year ended December 31, 2010. These

figures exclude capital, reserves and derivatives. See “Item 4. Information on the Company—Selected Statistical Information” of our annual report on Form 20-F for the year ended December 31, 2009 which has been incorporated by reference herein and “Selected Statistical Information” in this Report on Form 6-K.

Peso-Denominated Assets and Liabilities. Interest rates in Chile tend to reflect the rate of inflation during the relevant period and expectations regarding future inflation. The sensitivity of our peso-denominated interest earning assets and interest bearing liabilities to the inflation rate varies. See “—Interest Rates.” We maintain a substantial amount of non-interest bearing, peso-denominated current accounts and other demand deposits. The ratio of such deposits to average interest bearing peso-denominated liabilities was 62% during the year ended December 31, 2009 and 76% during the year ended December 31, 2010. Because a large part of such deposits are not indexed to inflation, even a slight decline in the rate of inflation may adversely affect our net interest margin on assets funded with such deposits and even a slight increase in the rate of inflation may increase the net interest margin on such assets. See “Item 4. Information on the Company—Selected Statistical Information—Interest Earning Assets and Net Interest Margin” of our annual report on Form 20-F for the year ended December 31, 2009 which has been incorporated by reference herein and “Selected Statistical Information—Interest Earning Assets and Net Interest Margin” in this Report on Form 6-K.

Interest Rates

Interest rates earned and paid on our assets and liabilities reflect in part inflation and expectations regarding future inflation, shifts in short-term interest rates related to the Central Bank’s monetary policies and movements in long-term real rates. The Central Bank manages short-term interest rates based on its objectives of balancing low inflation and economic growth. Accordingly, due to the high inflation experienced during 2008, the Central Bank increased its reference interest rate five times during that year, resulting in a final monetary policy interest rate of 8.25% at the end of 2008. On the other hand, the sharp decrease in economic activity during 2009, as well as the decrease in inflationary pressures, led the Central Bank to reduce the monetary policy interest rate to a historical low of 0.50% in order to ensure sufficient liquidity levels and to enhance aggregate demand. However, as a consequence of strong recovery signs for the economic activity and the more normalized inflationary environment, the Central Bank began to withdraw the monetary stimulus in June 2010, when it increased the monetary policy annual interest rate to 1.00% from the 0.5% maintained during the first half of that year. Since June 2010, the Central Bank has repeatedly raised the monetary policy interest rate and, accordingly, on March 9, 2011, the Chilean monetary policy annual interest rate was 3.5%.

Since our liabilities generally re-price faster than our assets, changes in the rate of inflation or short-term interest rates are reflected in the interest rates we pay on our liabilities before they are reflected in the interest rates we earn on our assets. Accordingly, our net interest margin on assets and liabilities is usually adversely affected in the short-term by increases in inflation or short-term interest rates and benefits in the short term from decreases in inflation or short-term interest rates, although the existence of non-interest bearing peso-denominated demand deposits tends to mitigate both effects. See “—Inflation—Peso-Denominated Assets and Liabilities” above. In addition, because our peso-denominated liabilities have relatively short re-pricing periods, those liabilities generally are more sensitive to changes in inflation or short-term interest rates than our UF-denominated liabilities. As a result, during periods when current inflation exceeds the previous month’s inflation, customers often switch funds from peso-denominated deposits to more expensive UF-denominated deposits, thereby adversely affecting our net interest margin.

According to information published by the Central Bank, the average annual short-term nominal interest rate, based on the rate paid by Chilean financial institutions for 90 to 360-day Chilean peso-denominated deposits, was 2.34% in 2009 and 2.73% in 2010. The average annual long-term nominal interest rate, based on the interest rate of the Central Bank’s five-year Chilean peso-denominated bonds, was 4.65% in 2009 and 5.54% in 2010.

Foreign Currency Exchange Rates

A significant portion of our assets and liabilities are denominated in foreign currencies, principally U.S. dollars, and we have historically maintained and may continue to maintain gaps between the balances of such assets and liabilities. This gap includes assets and liabilities denominated in foreign currencies and assets and liabilities denominated in Chilean pesos that contain repayment terms linked to changes in foreign currency exchange rates. Because foreign currency denominated assets and liabilities, as well as interest earned or paid on such assets and liabilities and gains (losses) realized upon the sale of such assets, are translated into pesos in preparing our financial statements, our reported income is affected by changes in the value of the peso with respect to foreign currencies, primarily the U.S. dollar. Adjustments to U.S. dollar-indexed assets are reflected as adjustments in net interest earnings and offset results in the foreign exchange position.

Critical Accounting Policies

There have been no material changes to accounting policies since December 31, 2009.

For more information on our critical accounting policies, please refer to “Item 5. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies” of our annual report on Form 20-F for the year ended December 31, 2009 which has been incorporated by reference herein. For information on our significant accounting principles, please see Note 2 to our audited consolidated financial statements for the year ended December 31, 2010 included elsewhere in this Report on Form 6-K.

Results of Operations for the Year Ended December 31, 2009 Compared to the Year Ended December 31, 2010

The consolidated financial information presented in this section for years ended December 31, 2009 and 2010 has been audited and prepared in accordance with IFRS.

Net Income

The following table sets forth information regarding our net income for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,
	2009			2010			% Increase
	(in millions of Ch$)						(Decrease)
IFRS:
Net interest income	Ch$	677,524		Ch$	767,497			13.3	%
Net fees and commissions income		251,855			292,262			16.0
Other income (loss), net		105,010			104,638			(0.4	)
Provisions for loan losses		(241,345	)		(157,651	)		(34.7	)
Operating expenses		(491,749	)		(544,227	)		10.7
Income attributable to associates		840			1,609			91.5

Income before income taxes		302,135			464,128			53.6
Income taxes		(40,389	)		(46,513	)		15.2

Net income	Ch$	261,746		Ch$	417,615			59.5	%

The main factors contributing to our 59.5% annual increase in our net income were:

•

Higher interest income associated with a 6.2% growth in our average balances of total loans in 2010 as compared to 2009 mainly due to a more dynamic economic activity and relatively low interest rates in the local market that encouraged our customers to borrow and undertake their investment projects.

•

Lower funding costs due to an increase of 19.6% in our year-end balances of current accounts and demand deposits in 2010 as compared to 2009.

•

An increase of approximately Ch$124,000 million in our results obtained from a proactive management of our balance sheet UF gap, amid a normalized inflationary scenario in 2010 as compared to 2009.

•

An increase of 16.0% in our net fees and commissions income in 2010 as compared to 2009 mainly due to higher lending and transactional activity, as well as greater volumes traded and managed by our stock brokerage and mutual funds subsidiaries, respectively.

•

A reduction of 34.7% in our provisions for loan losses in 2010 as compared to 2009, mainly due to an improved economic environment, accurate credit assessments of new borrowers and more efficient collection efforts.

The factors described above allowed us to offset a 10.7% increase in our operating expenses in 2010 as compared to 2009, mainly due to higher commercial activity and extraordinary items incurred in 2010, such as expenses related to the earthquake that struck Chile on February 27, 2010, the one-time impact of information technology projects developed during the year, the implementation of marketing plans intended to enhance our brand recognition and customer loyalty, and greater expenses related to special benefits to our staff for commemorating Chile’s bicentennial.

Net Interest Income

The following table sets forth information regarding our net interest income and net interest margin for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,						% Increase (Decrease)
	2009			2010
	(in millions of Ch$)
IFRS:
Interest revenue		900,407			1,092,003			21.3	%
Interest expense		(222,883	)		(324,506	)		45.6

Net interest income		677,524			767,497			13.3	%

Net interest margin⁽¹⁾		4.38	%		4.70	%		—

(1)	Net interest income divided by average interest earning assets. The average balances for interest earning assets, including interest readjustments, have been calculated on the basis of our daily balances and on the basis of monthly balances for our subsidiaries.

The main factors contributing to our 13.3% annual increase in net interest income were:

•

The positive inflation effect on our UF net asset position. During 2010, the inflation rate (measured as the UF variation) increased by 2.45% as compared to deflation of 2.38% recorded in 2009. This variance, along with a proactive management of our UF net asset position, increased the contribution from that exposure for an amount of approximately Ch$124,000 million in 2010.

•

Higher interest income related to a 6.2% growth in our average balances of total loans in 2010 as compared to 2009 mainly due to a more dynamic economic activity and relatively low interest rates in the local market. Although the annual short-term nominal interest rate increased from 2.34% in 2009 to 2.73% in 2010 and the long-term nominal interest rate rose from

4.65% in 2009 to 5.54% in 2010, they still remain at low levels as compared to historical data. As a result, customers have been encouraged to borrow and undertake their investment projects. The final effect of these higher loan volumes accounted for approximately Ch$4,500 million.

•

An increase of 19.6% in our year-end balances of current accounts and demand deposits in 2010 as compared to 2009, which became an important funding source for us and accounted for 26.0% of our total funding structure.

The factors described above enabled us to offset the effects of lower lending spreads (aligned with improved risk profiles of individuals and companies as a result of the better economic outlook) and still low nominal interest rate that translate into a lower yield of our non-interest bearing liabilities.

As a result of all the factors described above, our net interest margin grew from 4.38% in 2009 to 4.70% in 2010.

Interest Revenue

The following table sets forth information regarding our interest revenue and average interest earning assets for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,						% Increase (Decrease)
	2009			2010
	(in millions of Ch$)
IFRS:
Interest revenue	Ch$	900,407		Ch$	1,092,003			21.3	%
Average interest earning assets:
Commercial loans		8,538,745			8,863,082			3.8
Residential mortgage loans		2,359,746			2,698,384			14.4
Consumer loans		1,872,098			1,997,400			6.7

Total loans		12,770,589			13,558,866			6.2
Cash and due from banks		814,463			848,413			4.2
Repurchase agreements		42,755			74,471			74.2
Financial investments		1,628,270			1,519,808			(6.7	)
Loans and advance to banks		204,703			339,844			66.0

Total	Ch$	15,460,780		Ch$	16,341,402			5.7	%

Average rates earned on total interest earning assets:
Average nominal rates		5.83	%		6.84	%		—
Average real rates		4.56	%		1.91	%		—

The 21.3% annual increase of our interest revenue in 2010 as compared to 2009 resulted mainly from: (i) higher nominal interest rates in the local market as a consequence of a positive inflation, which resulted in a higher contribution from our interest earning UF-denominated assets (indexed to inflation), and (ii) a 5.7% increase of our average interest earning assets, mainly due to a 6.2% increase in our average balances of total loans (particularly associated with our expansion in residential mortgage loans) in 2010 as compared to 2009. These factors enabled us to increase the yield of our average interest earning assets from 5.83% in 2009 to 6.84% in 2010, in nominal terms.

Interest Expense

The following table sets forth information regarding our interest expense and average interest bearing liabilities for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,
	2009			2010			% Increase
	(in millions of Ch$)						(Decrease)
IFRS:
Interest expense	Ch$	222,883		Ch$	324,506			45.6	%
Average interest bearing liabilities:
Savings accounts and time deposits⁽¹⁾		7,568,317			7,382,126			(2.5	)
Securities under agreements to repurchase		275,058			182,956			(33.5	)
Borrowings from financial institutions		1,197,151			1,365,835			14.1
Debt issued		1,713,629			1,660,440			(3.1	)
Other financial obligations		101,999			132,200			29.6

Total	Ch$	10,856,154		Ch$	10,723,557			(1.2	%)

Average rates paid on total interest bearing liabilities:
Average nominal rates		2.05	%		3.03	%		—
Average real rates		(1.20	%)		(2.59	%)		—
Average (Chilean peso denominated) non interest bearing current account and demand deposits		3,133,304			4,085,800			30.4	%

(1)	Includes interest earning demand deposits.

The 45.6% increase in our interest expense in 2010 as compared to 2009 is mostly the result of an inflation of 3.0% in 2010 compared to a deflation of 1.4% in 2009 in response to more optimistic market projections about GDP growth for the Chilean economy. The higher inflation increased the cost of our interest bearing liabilities, which was partly offset by the 1.2% annual decrease in average volumes.

Net Fees and Commissions Income

The following table sets forth certain components of our fees and commissions income (net of fees paid to third parties that provide support for those services, principally fees related to credit pre-evaluation services and receipts and collection services provided to us) for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,
	2009			2010			% Increase
	(in millions of Ch$)						(Decrease)
IFRS:
Mutual funds	Ch$	45,246		Ch$	61,476			35.9	%
Insurance		46,146			49,170			6.6
Current accounts, overdrafts, credit lines and credit cards		64,993			72,685			11.8
Sight accounts and ATMs		21,072			21,225			0.7
Stock brokerage		12,177			23,752			95.1
Collection of over-due loans		16,628			17,870			7.5
Cash management services		12,294			13,715			11.6
Letters of credit, guarantees, collateral and other contingent loans		12,599			14,167			12.4
Custody and trust services		4,989			4,838			(3.0	)
Foreign trade and currency exchange		5,085			4,760			(6.4	)
Financial advisory services		7,860			4,800			(38.9	)
Credits and factoring		3,912			5,932			51.6
Collection services		1,622			1,383			(14.7	)
Teller services expenses		(2,548	)		(2,054	)		(19.4	)
Credit pre-evaluation services		(481	)		(1,821	)		278.6
Other		261			364			39.5

Total	Ch$	251,855		Ch$	292,262			16.0	%

The main factors contributing to our 16.0% increase in our net fees and commissions income were:

•

Higher commercial activity from two of our main subsidiaries which benefited from a better economic outlook for the local economy and relatively low interest rates that encouraged investors to reinvest in riskier assets, such as stocks and mutual funds during 2010. Our mutual funds subsidiary increased its assets under management by 14.3% in 2010 as compared to 2009, which translated into an increase of 35.9% (or Ch$16,230 million) in its net fees and commissions income during the same period. Similarly, the stocks trading turnover handled by our securities brokerage subsidiary rose by 26.6% in 2010 as compared to 2009 that, along with the settlement of several one-off transactions, led to an increase of 95.1% (or Ch$11,575 million) in the subsidiary’s net fees and commissions income during the same period.

•

Higher fees and commissions resulting from the effectiveness of our improved cross-selling strategies for core banking products, such as current accounts, overdrafts, credit lines, and credit cards. The total amount of commissions from these products reached Ch$72,685 million in 2010, which represents an increase of 11.8% (or Ch$7,692 million) as compared to the Ch$64,993 million in 2009. This is the result of specific products and marketing plans, designed and implemented by our new Credit and Debit Cards Division, intended to enhance customer loyalty and the use of our credit cards. Also, the economic rebound encouraged customers to increase their consumption and therefore the monthly amount of transactions with credit cards.

•

An increase of 51.6% (or Ch$2,020 million) in our net fees and commissions income from a higher demand for credits and factoring in 2010 as compared to 2009, as a result of more dynamism in the Chilean economy during 2010 as compared to 2009.

These factors were partly offset by a 38.9% (or Ch$3,080 million) decrease in fees and commissions from financial advisory activities mainly due to lower activity in connection with debt restructuring in 2010 as compared to 2009, when our financial advisory subsidiary benefited from the higher demand amid the economic downturn.

Other Income (Loss), Net

Other income (loss), net, consists of net gains and losses from financial operating income, net gains and losses from foreign exchange transactions and other operating income. Financial operating income results include gains and losses realized on the sale of securities, gains and losses from the mark to market of securities and interest rate and currency derivatives at the end of the period. Net gains and losses from foreign exchange transactions include gains and losses realized upon the sale of foreign currency and foreign exchange derivatives and gains and losses arising from the period-end translation of foreign currency denominated assets and liabilities into pesos. Foreign exchange results also include net adjustments on U.S. dollar-indexed domestic currency transactions and existing interest rate differences in currency derivatives.

The following table sets forth certain components of our other income (loss), net, for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,						% Increase (Decrease)
	2009			2010
	(in millions of Ch$)
IFRS:
Net financial operating income
Interest accrued on trading securities	Ch$	4,518		Ch$	9,248			104.7	%
Gains (losses) on sales and mark to market:		32,758			31,536			(3.7	)
Gains (losses) on derivatives contracts		(175,455	)		(23,342	)		(86.7	)
Gains (losses) from sales of loans		—			(150	)		—

Total net financial operating income (losses)		(138,179	)		17,292			—
Foreign exchange transactions, net		220,999			63,762			(71.1	)
Other operating income		22,190			23,584			6.3

Total	Ch$	105,010		Ch$	104,638			(0.4	%)

The slight (0.4%) decrease in our net other income in 2010 as compared to 2009 is primarily explained by lower results from the management of derivative contracts, net of foreign exchange transactions, that decreased by 11.3% from Ch$45,544 million in 2009 to Ch$40,420 million in 2010. This decrease is the result of a combination of different market factors, such as: (i) lower trading volumes during 2010 as compared to 2009 due to lower foreign exchange rate volatility and (ii) a spread compression effect during 2010 as compared to 2009. This decrease was mostly offset by higher results from our investment portfolio, whose income from interest accrued, sales and mark-to-market increased by 9.4%, from Ch$37,276 million in 2009 to Ch$40,784 million in 2010.

Provisions for Loan Losses

The following table sets forth information with respect to our provisions and allowances for loan losses and charge-offs for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,						% Increase (Decrease)
	2009			2010
	(in millions of Ch$, except percentages)
IFRS:
Provisions:
Net provisions for loan losses	Ch$	241,345		Ch$	157,651			(34.7	)%
Gross provisions for loan losses		268,224			189,820			(29.2	)
Total loan loss recoveries		26,879			32,169			19.7
Charge-offs:
Total charge-offs		181,793			149,093			(18.0	)
Net charge-offs		154,914			116,924			(24.5	)
Other asset quality data:
Total loans		13,191,256			14,377,995			9.0
Allowances for loan losses		312,101			348,027			11.5
Allowances for loan losses as a percentage of total loans		2.37	%		2.42	%		—
Average loans		12,770,589			13,558,866			6.2
Provisions for loan losses as a percentage of average loans		1.89	%		1.16	%		—

The 34.7% (or Ch$83,694 million) decrease in provisions for loan losses in 2010 as compared to 2009 is mainly the consequence of an improved local economy that increased our customers’ payment capacity. This trend was reinforced by effective credit approval processes. Thus, regarding our provisions for loan losses, particularly noteworthy are:

•

A decrease of 19.9% in provisions for loan losses related to our Retail Banking segment in 2010 as compared to 2009, as a result of improved economic indicators that benefited customers evaluated through grouped credit risk models.

•

A decrease of 38.2% in provisions for loan losses associated with our Wholesale Banking segment in 2010 as compared to 2009, as a result of both the local economy’s rebound and the ability of certain industrial sectors to partly overcome difficulties faced in 2009, which led us to improve credit risk scoring for certain sectors and corporate customers, and consequently reduce the corresponding provisions for loan losses.

These reductions in our segments’ provisions for loan losses were also fuelled by an increase of 19.7% in our recoveries from Ch$26,879 million in 2009 to Ch$32,169 million in 2010, as a result of a greater efficiency in our collection processes that were redesigned and improved during 2010.

As a result of the factors described above, our credit quality indicators improved in 2010 as compared to 2009, almost returning to pre-crisis levels. Our ratio of provisions to average loans decreased from 1.89% in 2009 to 1.16% in 2010.

Operating Expenses

The following table sets forth information regarding our operating expenses for the years ended December 31, 2009 and 2010:


	For the Year Ended December 31,				% Increase (Decrease)
	2009		2010
	(in millions of Ch$)
IFRS:
Personnel expenses	Ch$	256,782	Ch$	272,737		6.2	%
Administrative expenses:
Advertising		17,943		23,182		29.2
Building maintenance		21,611		25,647		18.7
Rentals and insurance		17,905		18,419		2.9
Office supplies		6,818		5,735		(15.9	)
Other expenses		112,721		124,686		10.6

Total administrative expenses		176,998

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