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 April, 2018

 

Commission File Number 001-15266

 

BANK OF CHILE

 (Translation of registrant’s name into English)

 

Paseo Ahumada 251  
Santiago, Chile

 (Address of principal executive offices)

 

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

 

Form 20-F x Form 40-F o

 

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

 

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

 

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

 

Yes o No x

 

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

 

 

 



Table of Contents

 

BANCO DE CHILE
REPORT ON FORM 6-K

 

Attached Banco de Chile’s Consolidated Financial Statements with notes as of March 31, 2018.

 



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

INTERIM CONSOLIDATED

 

FINANCIAL STATEMENTS

 

 

 

For the periods ended as of

March 31, 2018 and 2017 and

December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

 

(Free translation of interim consolidated financial statements originally issued in Spanish)

 

INDEX

 

I.                                        Interim Consolidated Statements of Financial Position

II.                                   Interim Consolidated Statements of Income

III.                              Interim Consolidated Statements of Other Comprehensive Income

IV.                               Interim Consolidated Statements of Changes in Equity

V.                                    Interim Consolidated Statements of Cash Flows

VI.                               Notes to the Interim Consolidated Financial Statements

 

MCh$

=

Millions of Chilean pesos

ThUS$

=

Thousands of U.S. dollars

UF or CLF

=

Unidad de Fomento

 

 

(The UF 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. dollar

JPY

=

Japanese yen

EUR

=

Euro

HKD

=

Hong Kong dollar

CHF

=

Swiss Franc

 

 

 

IFRS

=

International Financial Reporting Standards

IAS

=

International Accounting Standards

RAN

=

Compilation of Standards of the Chilean

 

 

Superintendency of Banks (“SBIF”)

IFRIC

=

International Financial Reporting Interpretations

 

 

Committee

SIC

=

Standards Interpretation Committee

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

 

 

Page

Interim Consolidated Statements of Income

2

Interim Consolidated Statements of Other Comprehensive Income

3

Interim Consolidated Statement of Changes in Equity

4

Interim Consolidated Statements of Cash Flows

5

1.

Company information:

6

2.

Legal regulations, basis of preparation and other information:

7

3.

New Accounting Pronouncements:

9

4.

Changes in Accounting policies and Disclosures:

16

5.

Relevant Events:

17

6.

Business Segments:

18

7.

Cash and Cash Equivalents:

21

8.

Financial Assets Held-for-trading:

22

9.

Cash collateral on securities borrowed and reverse repurchase agreements:

23

10.

Derivative Instruments and Accounting Hedges:

25

11.

Loans and advances to Banks:

31

12.

Loans to Customers, net:

32

13.

Investment Securities:

38

14.

Investments in Other Companies:

40

15.

Intangible Assets:

42

16.

Property and equipment:

44

17.

Current Taxes and Deferred Taxes:

47

18.

Other Assets:

51

19.

Current accounts and Other Demand Deposits:

52

20.

Savings accounts and Time Deposits:

52

21.

Borrowings from Financial Institutions:

53

22.

Debt Issued:

54

23.

Other Financial Obligations:

57

24.

Provisions:

57

25.

Other Liabilities:

61

26.

Contingencies and Commitments:

62

27.

Equity:

67

28.

Interest Revenue and Expenses:

71

29.

Income and Expenses from Fees and Commissions:

73

30.

Net Financial Operating Income:

74

31.

Foreign Exchange Transactions, Net:

74

32.

Provisions for Loan Losses:

75

33.

Personnel Expenses:

76

34.

Administrative Expenses:

77

35.

Depreciation, Amortization and Impairment:

78

36.

Other Operating Income:

79

37.

Other Operating Expenses:

80

38.

Related Party Transactions:

81

39.

Fair Value of Financial Assets and Liabilities:

87

40.

Maturity of Assets and Liabilities:

100

41.

Subsequent Events:

102

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended March 31, 2018 and December 31, 2017

(Free translation of interim financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

March

 

December

 

 

 

Notes

 

2018

 

2017

 

 

 

 

 

MCh$

 

MCh$

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

7

 

920,445

 

1,057,393

 

Transactions in the course of collection

 

7

 

741,774

 

521,809

 

Financial assets held-for-trading

 

8

 

1,586,858

 

1,616,647

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

9

 

119,114

 

91,641

 

Derivative instruments

 

10

 

1,229,401

 

1,247,829

 

Loans and advances to banks

 

11

 

788,477

 

759,702

 

Loans to customers, net

 

12

 

25,295,029

 

24,881,353

 

Financial assets available-for-sale

 

13

 

1,420,340

 

1,516,063

 

Financial assets held-to-maturity

 

13

 

 

 

Investments in other companies

 

14

 

38,974

 

38,041

 

Intangible assets

 

15

 

41,766

 

39,045

 

Property and equipment

 

16

 

212,159

 

216,259

 

Current tax assets

 

17

 

37,907

 

23,032

 

Deferred tax assets

 

17

 

265,571

 

267,400

 

Other assets

 

18

 

545,926

 

547,974

 

TOTAL ASSETS

 

 

 

33,243,741

 

32,824,188

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

19

 

8,800,358

 

8,915,706

 

Transactions in the course of payment

 

7

 

467,064

 

295,712

 

Cash collateral on securities lent and repurchase agreements

 

9

 

260,162

 

195,392

 

Savings accounts and time deposits

 

20

 

10,371,047

 

10,067,778

 

Derivative instruments

 

10

 

1,389,117

 

1,414,237

 

Borrowings from financial institutions

 

21

 

1,012,954

 

1,195,028

 

Debt issued

 

22

 

6,911,859

 

6,488,975

 

Other financial obligations

 

23

 

150,676

 

137,163

 

Current tax liabilities

 

17

 

4,002

 

3,453

 

Deferred tax liabilities

 

17

 

44

 

 

Provisions

 

24

 

430,793

 

695,868

 

Other liabilities

 

25

 

342,650

 

309,161

 

TOTAL LIABILITIES

 

 

 

30,140,726

 

29,718,473

 

 

 

 

 

 

 

 

 

EQUITY

 

27

 

 

 

 

 

Attributable to Bank’s Owners:

 

 

 

 

 

 

 

Capital

 

 

 

2,418,833

 

2,271,401

 

Reserves

 

 

 

617,689

 

563,188

 

Other comprehensive income

 

 

 

(19,706

)

(8,040

)

Retained earnings:

 

 

 

 

 

 

 

Retained earnings from previous years

 

 

 

16,060

 

16,060

 

Income for the period

 

 

 

142,651

 

576,012

 

Less:

 

 

 

 

 

 

 

Provision for minimum dividends

 

 

 

(72,513

)

(312,907

)

Subtotal

 

 

 

3,103,014

 

3,105,714

 

Non-controlling interests

 

 

 

1

 

1

 

TOTAL EQUITY

 

 

 

3,103,015

 

3,105,715

 

TOTAL LIABILITIES AND EQUITY

 

 

 

33,243,741

 

32,824,188

 

 

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

 

1



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

For the three-month ended March 31, 2018 and 2017

(Free translation of interim financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

March

 

March

 

 

 

Notes

 

2018

 

2017

 

 

 

 

 

MCh$

 

MCh$

 

Interest revenue

 

28

 

469,878

 

456,767

 

Interest expense

 

28

 

(153,361

)

(153,227

)

Net interest income

 

 

 

316,517

 

303,540

 

 

 

 

 

 

 

 

 

Income from fees and commissions

 

29

 

122,505

 

113,812

 

Expenses from fees and commissions

 

29

 

(33,344

)

(26,591

)

Net fees and commission income

 

 

 

89,161

 

87,221

 

 

 

 

 

 

 

 

 

Net financial operating income

 

30

 

2,106

 

11,734

 

Foreign exchange transactions, net

 

31

 

25,483

 

13,888

 

Other operating income

 

36

 

11,652

 

6,336

 

Total operating revenues

 

 

 

444,919

 

422,719

 

 

 

 

 

 

 

 

 

Provisions for loan losses

 

32

 

(70,945

)

(63,115

)

 

 

 

 

 

 

 

 

OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES

 

 

 

373,974

 

359,604

 

 

 

 

 

 

 

 

 

Personnel expenses

 

33

 

(107,766

)

(100,918

)

Administrative expenses

 

34

 

(79,348

)

(79,206

)

Depreciation and amortization

 

35

 

(9,171

)

(8,559

)

Impairment

 

35

 

(11

)

(1

)

Other operating expenses

 

37

 

(7,951

)

(3,509

)

 

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

 

(204,247

)

(192,193

)

 

 

 

 

 

 

 

 

NET OPERATING INCOME

 

 

 

169,727

 

167,411

 

 

 

 

 

 

 

 

 

Income attributable to associates

 

14

 

1,157

 

991

 

Income before income tax

 

 

 

170,884

 

168,402

 

 

 

 

 

 

 

 

 

Income tax

 

17

 

(28,233

)

(28,409

)

 

 

 

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

142,651

 

139,993

 

Attributable to:

 

 

 

 

 

 

 

Bank’s Owners

 

27

 

142,651

 

139,993

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ch$

 

Ch$

 

Net income per share attributable to Bank’s Owners:

 

 

 

 

 

 

 

Basic net income per share

 

27

 

1.43

 

1.41

 

Diluted net income per share

 

27

 

1.43

 

1.41

 

 

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

 

2



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

For the three-month ended March 31, 2018 and 2017

(Free translation of interim financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

March

 

March

 

 

 

Notes

 

2018

 

2017

 

 

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

142,651

 

139,993

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on available-for-sale instruments valuation

 

13

 

(1,206

)

3,768

 

Net gains (losses) on derivatives held as cash flow hedges

 

10

 

(15,249

)

(4,855

)

Subtotal Other comprehensive income before income taxes

 

 

 

(16,455

)

(1,087

)

 

 

 

 

 

 

 

 

Income tax relating to the components of other comprehensive income that are reclassified in income for the period

 

 

 

4,789

 

279

 

 

 

 

 

 

 

 

 

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

 

 

 

(11,666

)

(808

)

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for defined benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal other comprehensive income before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax relating to the components of other comprehensive income that will not be reclassified to income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD

 

 

 

130,985

 

139,185

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Bank’s Owners

 

 

 

130,985

 

139,185

 

Non-controlling interests

 

 

 

 

 

 

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

 

3



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three-month ended March 31, 2018 and 2017

(Free translation of interim financial statements originally issued in Spanish)

(Expressed in millions of Chilean pesos)

 

 

 

 

 

 

 

Reserves

 

Other comprehensive income

 

Retained earnings

 

 

 

 

 

 

 

 

 

Notes

 

Paid-in
Capital

 

Other
reserves

 

Reserves
from
earnings

 

Unrealized
gains (losses)
on available-
for-sale

 

Derivatives
cash flow hedge

 

Income
Tax

 

Retained
earnings
from
previous
periods

 

Income
(losses) for
the period

 

Provision for
minimum
dividends

 

Attributable
to equity
holders of
the parent

 

Non-
controlling
interest

 

Total equity

 

 

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2016

 

 

 

2,138,047

 

31,934

 

454,274

 

847

 

(27,530

)

6,762

 

16,060

 

552,249

 

(285,233

)

2,887,410

 

1

 

2,887,411

 

Capitalization of retained earnings

 

 

 

133,354

 

 

 

 

 

 

 

(133,354

)

 

 

 

 

Retention (release) of profits according to bylaws

 

27

 

 

 

76,861

 

 

 

 

 

(76,861

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(342,034

)

285,233

 

(56,801

)

 

(56,801

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives cash flow hedge, net

 

27

 

 

 

 

 

(4,855

)

1,238

 

 

 

 

(3,617

)

 

(3,617

)

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

 

27

 

 

 

 

3,768

 

 

(959

)

 

 

 

2,809

 

 

2,809

 

Income for the period 2017

 

 

 

 

 

 

 

 

 

 

139,993

 

 

139,993

 

 

139,993

 

Provision for minimum dividends

 

 

 

 

 

 

 

 

 

 

 

(73,529

)

(73,529

)

 

(73,529

)

Balances as of March 31, 2017

 

 

 

2,271,401

 

31,934

 

531,135

 

4,615

 

(32,385

)

7,041

 

16,060

 

139,993

 

(73,529

)

2,896,265

 

1

 

2,896,266

 

Defined benefit plans adjustment

 

 

 

 

119

 

 

 

 

 

 

 

 

119

 

 

119

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives cash flow hedge, net

 

 

 

 

 

 

 

19,834

 

(5.058

)

 

 

 

14,776

 

 

14,776

 

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

 

 

 

 

 

 

(2,764

)

 

677

 

 

 

 

(2,087

)

 

(2,087

)

Income for the period 2017

 

 

 

 

 

 

 

 

 

 

436,019

 

 

436,019

 

 

436,019

 

Provision for minimum dividends

 

 

 

 

 

 

 

 

 

 

 

(239,378

)

(239,378

)

 

(239,378

)

Balances as of December 31, 2017

 

 

 

2,271,401

 

32,053

 

531,135

 

1,851

 

(12,551

)

2,660

 

16,060

 

576,012

 

(312,907

)

3,105,714

 

1

 

3,105,715

 

Capitalization of retained earnings

 

 

 

147,432

 

 

 

 

 

 

 

(147,432

)

 

 

 

 

Retention (release) of profits according to bylaws

 

27

 

 

 

54,501

 

 

 

 

 

(54,501

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(374,079

)

312,907

 

(61,172

)

 

(61,172

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives cash flow hedge, net

 

27

 

 

 

 

 

(15,249

)

4,117

 

 

 

 

(11,132

)

 

(11,132

)

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

 

27

 

 

 

 

(1,206

)

 

672

 

 

 

 

(534

)

 

(534

)

Income for the period 2018

 

 

 

 

 

 

 

 

 

 

142,651

 

 

142,651

 

 

142,651

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(72,513

)

(72,513

)

 

(72,513

)

Balances as of March 31, 2018

 

 

 

2,418,833

 

32,053

 

585,636

 

645

 

(27,800

)

7,449

 

16,060

 

142,651

 

(72,513

)

3,103,014

 

1

 

3,103,015

 

 

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

 

4



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three-month ended March 31, 2018 and 2017

(Free translation of interim financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

March

 

March

 

 

 

Notes

 

2018

 

2017

 

 

 

 

 

MCh$

 

MCh$

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

 

 

142,651

 

139,993

 

Items that do not represent cash flows:

 

 

 

 

 

 

 

Depreciation and amortization

 

35

 

9,171

 

8,559

 

Impairment

 

35

 

11

 

1

 

Provision for loans and accounts receivable from customers and owed by banks

 

32

 

82,902

 

70,947

 

Provision of contingent loans

 

32

 

630

 

2,803

 

Fair value adjustment of financial assets held-for-trading

 

 

 

(1,289

)

(2,758

)

Changes in assets and liabilities by deferred taxes

 

17

 

2,545

 

12,063

 

(Gain) loss attributable to investments in companies with significant influence, net

 

14

 

(1,144

)

(977

)

(Gain) loss from sales of assets received in lieu of payment,net

 

36

 

(1,537

)

(475

)

(Gain) loss on sales of property and equipment, net

 

36

 

(3,536

)

(76

)

Charge-offs of assets received in lieu of payment

 

37

 

776

 

664

 

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

 

 

 

2,275

 

247

 

Change in the exchange rate of assets and liabilities

 

 

 

8,065

 

13,071

 

Net interest variation, readjustment and accrued fees on assets and liabilities

 

 

 

24,575

 

21,970

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities that affect operating cash flows:

 

 

 

 

 

 

 

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

 

 

 

(28,609

)

161,270

 

(Increase) decrease in loans to customers

 

 

 

(484,553

)

(107,899

)

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

 

 

 

129,256

 

(74,248

)

(Increase) decrease in other assets and liabilities

 

 

 

(18,549

)

(5,590

)

Increase (decrease) in current account and other demand deposits

 

 

 

(115,279

)

1,068

 

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

 

 

 

55,324

 

18,769

 

Increase (decrease) in savings accounts and time deposits

 

 

 

297,479

 

(139,178

)

Sale of assets received in lieu of payment or adjudicated

 

 

 

5,103

 

1,554

 

Total cash flows from operating activities

 

 

 

106,267

 

121,778

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

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

 

 

 

94,170

 

(105,582

)

Purchases of property and equipment

 

16

 

(2,522

)

(4,566

)

Sales of property and equipment

 

 

 

67

 

76

 

Acquisition of intangible assets

 

15

 

(5,187

)

(2,816

)

Acquisition of investments in companies

 

14

 

 

 

Dividends received from investments in companies

 

 

 

13

 

14

 

Total cash flows from investing activities

 

 

 

86,541

 

(112,874

)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Redemption of letters of credit

 

 

 

(1,255

)

(1,303

)

Issuance of bonds

 

22

 

557,947

 

603,451

 

Redemption of bonds

 

 

 

(169,570

)

(150,579

)

Dividends paid

 

27

 

(374,079

)

(342,034

)

Increase (decrease) in borrowings from foreign financial institutions

 

 

 

(182,188

)

(10,286

)

Increase (decrease) in other financial obligations

 

 

 

14,372

 

(35,636

)

Increase (decrease) in other obligations with Central Bank of Chile

 

 

 

(1

)

(1

)

Other long-term borrowings

 

 

 

15

 

35,916

 

Payment of other long-term borrowings

 

 

 

(847

)

(36,746

)

Total cash flows from financing activities

 

 

 

(155,606

)

62,782

 

 

 

 

 

 

 

 

 

TOTAL NET POSITIVE (NEGATIVE) CASH FLOWS FOR THE PERIOD

 

 

 

37,202

 

71,686

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes

 

 

 

(8,065

)

(13,071

)

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

 

2,079,398

 

2,096,980

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

7

 

2,108,535

 

2,155,595

 

 

 

 

 

 

March

 

March

 

 

 

 

 

2018

 

2017

 

 

 

 

 

MCh$

 

MCh$

 

Operational Cash flow interest:

 

 

 

 

 

 

 

Interest received

 

 

 

452,877

 

455,383

 

Interest paid

 

 

 

(111,785

)

(129,873

)

 

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

 

5



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Free translation of interim financial statements originally issued in Spanish)

 


 

1.                           Company information:

 

Banco de Chile is authorized to operate as a commercial bank since September 17, 1996, being, in conformity with the stipulations of article 25 of Law No. 19,396, the legal continuation of Banco de Chile resulting from the merger of the Banco Nacional de Chile, Banco Agrícola and Banco de Valparaiso, which was constituted by public deed dated October 28, 1893, granted before the Notary Public of Santiago, Mr. Eduardo Reyes Lavalle, authorized by Supreme Decree of November 28, 1893.

 

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, it is subject to the supervision of the Securities and Exchange Commission of the United States of America (“SEC”), in consideration of the fact that the Bank is registered on the New York Stock Exchange (“NYSE”), through a program of American Depositary Receipt (“ADR”).

 

Banco de Chile offers a broad range of banking services to its customers, ranging from individuals to large corporations. The services are managed in the areas of corporations and large companies, medium and small companies and personal and consumer banking. Additionally, the Bank offers international as well as treasury banking services, in addition to those offered by subsidiaries that include securities brokerage, mutual fund and investment management, insurance brokerage, financial advisory services and securitization.

 

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

 

The Interim Consolidated Financial Statements of Banco de Chile, for the period ended March 31, 2018 were approved by the Directors on April 26, 2018.

 

6



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

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

 

(a)                       Legal regulations:

 

The General Banking Law in its Article No. 15 empowers the Chilean Superintendency of Banks and Financial Institutions (“SBIF”) to issue accounting standards of general application for entities it supervises. The Corporations Law, in turn, requires following the generally accepted accounting principles.

 

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.

 

(b)                       Basis of preparation:

 

(b.1)             These Interim 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 control and are part of this consolidated financial statements:

 

 

 

 

 

 

 

Functional

 

Interest Owned

 

RUT

 

Subsidiaries

 

Country

 

Currency

 

Direct

 

Indirect

 

Total

 

 

 

 

 

 

 

 

 

March

 

December

 

March

 

December

 

March

 

December

 

 

 

 

 

 

 

 

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

%

 

%

 

%

 

%

 

%

 

%

 

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$

 

99.01

 

99.01

 

0.99

 

0.99

 

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

 

 

7



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

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

 

(c)                      Use of estimates and judgments:

 

Preparing the Interim Consolidated Financial Statements requires the Bank’s Management to make judgments, estimations and assumptions that affect the application of accounting policies and the valuation of assets, liabilities, income and expenses presented. Actual results could differ from these estimated amounts. These estimates refer to:

 

1.                         Useful life of intangible and property and equipment (Notes No.15 and No.16);

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

3.                          Provisions (Note No. 24);

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

5.                          Provision for loan losses (Notes No. 11. No. 12 and No. 32);

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

 

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 March 31, 2018 there have been no significant changes in the estimates made.

 

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

 

Given the activities to which the Bank and its subsidiaries are engaged, the transactions of the Bank do not have a cyclical or seasonal nature. For this reason, specific breakdowns in these notes to the Interim Consolidated Financial Statements for the three-month period ended March 31, 2018 are not included.

 

(e)                      Relative Importance:

 

In determining the information to be disclosed on the different items of the financial statements or other matters, the relative importance in relation to the financial statements of the period has been taken into account.

 

(f)                       Reclassifications:

 

There have not been significant reclassifications at the end of this period 2018.

 

8



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements:

 

3.1 Standards approved and/or modified by the International Accounting Standards Board (IASB) and by the Superintendency of Banks and Financial Institutions (SBIF):

 

3.1.1 Standards and interpretations that have been adopted in these Consolidated Financial Statements.

 

As of the date of issuance of these Consolidated Financial Statements, the new accounting pronouncements issued by both the International Accounting Standards Board and the Superintendency of Bank and Financial Institutions, which have been adopted by the Bank, are detailed below:

 

1. Accounting standards issued by IASB.

 

IFRS 9 Financial Instruments.

 

On July 24, 2014, the IASB concluded its improvement project on the accounting for financial instruments with the publication of IFRS 9 Financial Instruments.

 

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

 

The designation of the classification, determining how financial assets and liabilities are accounted for in the financial statements and, in particular, how they are measured. IFRS 9 introduces a new approach to the classification of financial assets, based on the entity’s business model for the management of financial assets and the characteristics of contractual flows.

 

In terms of impairment, the standard establishes a single model that will be applied to all financial instruments, thus eliminating a source of complexity associated with previous accounting requirements, which will require a timely recognition of expected credit losses.

 

IFRS 9 introduces flexibility to the regulatory requirements for hedge accounting, and also new alternatives of strategies to be use; the new amendments represent a substantial overhaul of hedge accounting, which will allow aligning the accounting treatment with the 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 on risk management and the effect of hedge accounting in the financial statements.

 

This standard also establishes that the change in fair value that corresponds to own credit risk will be recorded in Other Comprehensive Income, thus reducing any eventual volatility that could arise from entity’s income as a result of its recognition. Earlier application of this improvement is permitted, prior to any other requirement of IFRS 9.

 

The mandatory date of application is from January 1, 2018. However, for the purposes of these financial statements, this regulation has not yet been approved by the Superintendency of Banks and Financial Institutions, an event that is required for its local application.

 

9



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 9 Financial Instruments, continued:

 

Banco de Chile as securities issuer of Equity Securities listed on the New York Stock Exchange (“NYSE”), and in order to comply with the new standards required for the preparation and presentation of the Annual Report 20F to the Securities and Exchange Commission (“SEC”), during the year 2017 the Bank and its subsidiaries initiated technological developments and other solutions to address the needs generated by the application of the new accounting pronouncement IFRS 9, such as the implementation of models and procedures related to the Expected Credit Loss Model (“ECL”), the SPPI Test (Only Payment of Principal and Interest) and the evaluation of the Business Model.

 

As of December 31, 2017 the Bank and subsidiaries have been able to estimate the transitioning impact on ECL for certain portfolios of financial assets and contingent commitments affected by the standard. These portfolios are comprised of wholesale and retail financial assets which represent 71.5% of the whole portfolio of financial assets to be impacted by the ECL model as of December 31, 2017.

 

With relation to the portfolios mentioned above, the partial estimate of the impact of the transition from IAS 39 to IFRS 9 regarding ECL as of January 1, 2018, is disclosed in Note No. 43 of the Financial Statement included in the Report 20-F of the year 2017.

 

IFRS 15 Revenue from Contracts with Customers.

 

In May 2014 was issued IFRS 15, which it has like purpose established the principles that will apply an entity to present useful information to users of financial statements about the nature, amount, opportunity and uncertainty of the income for ordinaries activities and cash flows that it is related to a contract with a client.

 

This new standard replace the following current standard and interpretations: IAS 18 — Revenue, IAS 11 — Construction contracts, IFRIC 13 — Customer Loyalty Programs, IFRIC 15 — Agreements for the Construction of Real State, IFRIC 18 — Transfers of Assets from Customers and SIC 31 — Revenue: Barter Transactions involving.

 

The new model will apply to all contracts with customers, except those that are inside to the scope of the others IFRS, such as leases, insurance contracts and financial instruments.

 

On April 12, 2016, IASB issued amendments to IFRS 15, clarifying requirements and providing a temporary relief to companies that are implementing the new standard. In short the amendments clarify how to:

 

-               Identify a performance obligation (the promise to transfer a good or service to a customer) in a contract;

 

-               Determining whether a company is the principal (the provider of a good or service) or an agent (the organization responsible for the good or service provided); and

 

-               Determine whether the product of a license must be recognized at a point in time or over time.

 

The date of application of this standard is from January 1, 2018, which did not generate equity effects in the Bank and its subsidiaries.

 

10



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements, continued:

 

IAS 28 Investments in associates and joint ventures.

 

In December 2016, the IASB issued the Annual Improvements to IFRS Cycle 2014-2016, which included the amendment to IAS 28. This amended to clarify that a venture capital organization or a mutual fund, investment trust and similar entities may choose to account for their investments in joint ventures and associates at fair value or using the equity method. The amendment also makes it clear that the method chosen for each investment should be made at the initial time.

 

This modification had no impact on the Banco de Chile and its subsidiaries.

 

IAS 40 Investment Property.

 

IAS 40 requires that an asset be transferred to (or from), investment property only when there is a change in its use.

 

The amendment, issued in December 2016, clarifies that a change in management’s intentions for the use of a property does not provide, in isolation, evidence of a change in its use. An entity must, therefore, have taken observable actions to support such a change.

 

This modification had no impact on the Banco de Chile and its subsidiaries.

 

IFRIC 22 Foreign Currency Transactions and Advance Consideration.

 

In December 2016, the IASB issued Interpretation IFRIC 22 “Foreign Currency Transactions and Advance Consideration”.

 

This interpretation applies to a foreign currency transaction when an entity recognizes a non-financial asset or non-financial liability arising from the payment or collection of an early consideration before the entity recognizes the related asset, expense or income.

 

The IFRIC specifies that at the date of the transaction for the purpose of determining the exchange rate to be used in the initial recognition of the related asset, expense or income, it is the date on which the entity initially recognizes the non-monetary asset or non-monetary liability that Arising from the payment or collection of the anticipated consideration. That is, the related income, expenses or assets should not be re-evaluated with changes in the exchange rates between the date of the initial recognition of the early consideration and the date of recognition of the transaction to which said consideration relates.

 

This interpretation had no impact on the Banco de Chile and its subsidiaries.

 

11



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements, continued:

 

3.1.2 New standards and interpretations that have been issued but its date of application have not yet come into force:

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by the International Accounting Standards Board and Superintendency of Banks and Financial Institutions that are not yet effective as of March 31, 2018, are detailed below:

 

1. Accounting standards issued by International Accounting Standards Board.

 

IFRS 16 Leases.

 

On January 2016 was issued IFRS 16, which has as purpose to establish principles to recognize, measurement, presentation and disclosure of leases contracts, for both lessee and lessor.

 

This new rule does not differ significantly from IAS 17 Leases that precedes it, related to the accounting treatment for the lessor. However, related to the lessee, the new rule requires the recognition of assets and liabilities for most lease contracts.

 

The date of application of this new standard is from January 1, 2019. Early adoption permitted but only if IFRS 15 - Revenue from contracts with customers is also applied.

 

This standard will not have a material impact on the Banco de Chile and its subsidiaries.

 

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

 

In September 2014, the IASB issued this amendment, which clarifies the scope of recognized gains and losses in a transaction involving an associate or joint venture, and this depends on whether the asset sold or contribution is a business. Therefore, IASB concluded that all of the profit or loss should be recognized against loss of control of a business. Likewise, gains or losses resulting from the sale or contribution of a subsidiary that is not a business (definition of IFRS 3) to an associate or joint venture should be recognized only to the extent of unrelated interests in the associate or joint venture.

 

During December 2015 the IASB agreed that the amendments should apply in the future, allowing its immediate application.

 

This amendment will not impact on the consolidated financial statements of Banco de Chile and its subsidiaries.

 

12



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRIC 23 Uncertainty over Income Tax Treatments.

 

In June 2017, the IASB published IFRIC 23, which clarifies the application of the recognition and measurement criteria required by IAS 12 Income Taxes when there is uncertainty about tax treatments.

 

The date of application of this interpretation is from January 1, 2019.

 

The Bank and its subsidiaries are evaluating the impact of this amendment.

 

IAS 28 Investments in associates and joint ventures and IFRS 9 Financial instruments.

 

In October 2017, the IASB published the amendments to IFRS 9 Financial Instruments and IAS 28 Investments in Associated Entities and Joint Ventures.

 

The amendments to IFRS 9 allow entities to measure financial assets, prepaid with negative compensation at amortized cost or fair value, through other comprehensive income if a specific condition is met, instead of at fair value with effect on results.

 

Regarding IAS 28, the amendments clarify that entities must account for long-term results in an associate or joint venture, to which the equity method is not applied, using IFRS 9.

 

The IASB also released an example that illustrates how companies should apply the requirements of IFRS 9 and IAS 28 to long-term interests in an associated entity or joint venture.

 

The date of application of these amendments is January 1, 2019.

 

This modification has no impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

13



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.                           New Accounting Pronouncements, continued:

 

Annual improvements IFRS

 

In December 2017, the IASB issued the Annual Improvements to IFRS Cycle 2015-2017, which includes amendments to the following regulations:

 

- IFRS 3 Business Combinations. Interests previously held in a joint operation.

 

The amendment provides additional guidance for applying the procurement method to particular types of business combinations.

 

The amendment states that when a party to a joint arrangement obtains control of a business, which is a joint arrangement and had rights over the assets and liabilities for the liabilities related to this joint arrangement, immediately before the acquisition date, the transaction it is a business combination achieved in stages.

 

Therefore, the acquirer will apply the requirements for a business combination achieved in stages, including re-measuring its previously held interest in the joint operation. By doing so, the acquirer will re-measure its total value that it previously had in the joint operation.

 

The date of application of these amendments is January 1, 2019. Early adoption is permitted.

 

The Bank and its subsidiaries have no impact on the consolidated financial statement as a result from this amendment.

 

- IFRS 11 Joint Agreements.

 

The amendments to IFRS 11 relate to the accounting for acquisitions of interests in Joint Agreements.

 

The amendment establishes that a party that participates, but does not have control, in a joint agreement, can obtain control of the joint agreement. Given the above, the activity of the joint agreement would constitute a Business Combination as defined in IFRS 3, in such cases, the interests previously held in the joint agreement are not remeasured.

 

The date of application of these amendments is January 1, 2019. Early adoption is permitted.

 

The Bank and its subsidiaries have no impact on the consolidated financial statement as a result from this amendment.

 

- IAS 23 Costs for loans. Costs for loans that can be capitalized.

 

The amendment to the standard is intended to clarify that, when an asset is available for use or sale, an entity will treat any outstanding loan taken specifically to obtain that asset, as part of the funds it has taken as current loans.

 

The date of application of these amendments is January 1, 2019. Early adoption is permitted.

 

This modification has no impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

14



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.         New Accounting Pronouncements, continued:

 

- Conceptual Framework.

 

On March 29, 2018, the IASB issued a “Reviewed” Conceptual Framework. Changes to the Conceptual Framework may affect the application of IFRS when no rule applies to a particular transaction or event.

 

The Conceptual Framework introduces mainly the following improvements:

 

-               It incorporates some new concepts of measurement, presentation and disclosure and derecognition of assets and liabilities in the Financial Statements.

 

-               Provides updated definitions of assets, liabilities and includes criteria for the recognition of assets and liabilities in the financial statements.

 

-               Clarifies some important concepts such as background on form, prudential criteria and measurement of uncertainty.

 

The Conceptual Framework enters into force for periods beginning on January 1, 2020.

 

The Bank and its subsidiaries are evaluating the impact of this amendment.

 

2. Accounting standards issued by the Superintendency of Banks and Financial Institutions

 

-     Standards in consultation on “Provisions for Credit Risk”

 

On January 11, 2018, the SBIF published for consultation, amendments to the regulations contained in Chapter B-1 “Provisions for Credit Risk” of the Compendium of Accounting Standards. These modifications are related to the use of standard methods for calculating provisions of the commercial portfolio evaluated as of January 1, 2019. To date, the provisions for this type of portfolio are calculated using internal methods.

 

Without limiting the foregoing, banks must recognize minimum provisions in accordance with standard methodologies. The use of this minimum basis for provisions, in no case exempt financial institutions from their responsibility to have their own methodologies to determine provisions that are sufficient to protect the credit risk of each of their portfolios, and therefore must have both methods The constitution of provisions will be made considering the higher value obtained between the respective standard method and the internal method.

 

Notwithstanding the foregoing, the Superintendency may allow the establishment of provisions of the commercial group analysis portfolio based on the results of the application of internal models, provided that these have been duly approved within the normal process of reviewing the SBIF.

 

15



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

3.         New Accounting Pronouncements, continued:

 

- Circular No. 3,634

 

The SBIF through circular No. 3,634 dated March 9, 2018, introduces modifications to the weighted assets by risk, credit equivalent and credit limits applicable to derivative instruments cleared and settled by a Central Counterparty Entity (ECC).

 

The main modifications are:

 

-               An intermediate category is introduced to classify the credit equivalent of the derivative instruments settled and liquidated in a CCP, when these types of entities are irrevocably constituted in creditors and debtors of the rights and obligations arising from such operations, being legally binding for the parties the obligations resulting from such acts. The risk weight for these assets will be equal to 2%.

 

-               For purposes of determining the credit equivalent, which is defined in chapter 12-1 of the RAN of the SBIF, which corresponds to the fair value of the derivative instrument, plus an additional amount that is obtained by applying an additional factor to the additional conversion amount that depends on the underlying and the additional term of the derivative. The SBIF reclassified from the category “Contracts on foreign currencies” to the category “interest rate contracts” to derivative instruments whose underlying is the Development Unit.

 

-               Modifications to Chapter 12-3 are introduced, given that the SBIF considers that operations on derivative instruments negotiated between banks incorporated in Chile, including branches of foreign banks, are subject to the interbank credit limit, even though such transactions are subsequently compensate and settle in a CCP.

 

The new dispositions must be implemented no later than June 30, 2018.

 

4.         Changes in Accounting policies and Disclosures:

 

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the Bank’s consolidated annual financial statements for the year ended December 31, 2017, except for the adoption of new regulations in force at 1 January 2018. The Bank has not adopted in advance any standard, interpretation or amendment that has been issued but is not yet effective.

 

The Bank adopted, for the first time, IFRS 15 Revenue from ordinary contracts with customers (See Note No. 3), there being no capital effects resulting from its application, therefore, the information disclosed as of December 31, 2017 it has not been restated in these financial statements.

 

During the period ended March 31, 2018, there have been no others accounting changes that may significantly affect these interim consolidated financial statements.

 

16



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

5.         Relevant Events:

 

(a)         On January 22, 2018, the Board of the subsidiary Banchile Securitizadora S.A., agreed to appoint Claudia Marcela Herrera García as the new Director of the company, until the next Ordinary Shareholders’ Meeting.

 

(b)         On January 25, 2018 in the Ordinary Session No. BCH 2,874, the Board of Directors of Banco de Chile agreed to convene an Ordinary Meeting of Shareholders for March 22, 2018, with the purpose of proposing, among other matters, the distribution of dividend No. 206 of Ch$3.14655951692 to each of the 99,444,132,192 shares, payable with charge to the distributable net income for the year ended December 31, 2017, corresponding to 60% of such net profits.

 

In addition, the Board of Directors agreed to convene an Extraordinary Shareholders’ Meeting to be held on the same date, in order to propose, among other matters, the capitalization of 40% of the Bank’s net distributable income pertaining to the 2017 financial year, through the issuance of fully paid-in shares, without nominal value, determined at a value of Ch$93.73 per share, which will be distributed among the shareholders at the rate of 0.02238030880 shares per share and adopting the necessary agreements subject to the exercise of the options provided under Article 31 of Law No. 19,396.

 

(c)          On January 25, 2018, Banco de Chile informed that in the Ordinary Session, the Board of Directors accepted the resignation presented by the Principal and Vice-Chairman, Mrs. Jane Fraser. Likewise, the Board of Directors appointed Mr. Álvaro Jaramillo Escallon as its Regular Director until his next Ordinary Shareholders’ Meeting. Additionally, in the same session, Mr. Jaramillo was appointed Vice Chairman of the Board.

 

(d)         At the Ordinary Shareholders’ Meeting, held on March 22, 2018, our shareholders agreed to the dividend No 206, and its distribution in the amount of Ch$3.14655951692 per “Banco de Chile” share, to be charged to net distributable income of Banco de Chile for 2017. Moreover, at the Extraordinary Shareholders Meeting held on the same date, our shareholders agreed to a stock dividend in connection with the capitalization of 40% of our distributable net income obtained during the fiscal year 2017, through the issuance of fully paid-in shares, of no par value, with a value of Ch$93.73 per share.

 

Additionally, the shareholders appointed of Mr. Álvaro Jaramillo Escallon as its Director until the next renewal of the Board of Directors.

 

(e)          The Central Bank of Chile communicated to Banco de Chile that the Board of such institution (Consejo), in Special Session No 2140E, held on March 26, 2018, considered the resolutions adopted by the shareholders’ meetings of Banco de Chile on March 22, 2018, regarding distribution of dividends and the increase of capital through the issuance of fully paid-in shares corresponding to the 40% of the net income obtained during the fiscal year ending on December 31, 2017, the Council of the Central Bank of Chile 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 letter b) of article 31 of law No 19.396, regarding a modification of the way of payment of the subordinated obligation and other applicable legislation.

 

17



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

6.         Business Segments:

 

For management purposes, the Bank is organized into four segments, which are defined based on the types of products and services offered, and the type of client in which focuses as described below:

 

Retail:

This segment focuses on individuals and small and medium-sized companies (SMEs) with annual sales up to UF 70,000, 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 UF 70,000, where the product offering focuses primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts and leases.

 

 

Treasury:

This segment includes the associated revenues to the management of the investment portfolio and the business of financial transactions and currency trading.

 

 

 

Transactions with 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, though its management is related to the segments mentioned previously, the income is obtained individually by the respective subsidiary. The companies that comprise this segment are:

 

 

 

Entity

 

 

 

-     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.

 

18



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

6.         Business Segments, continued:

 

The financial information used to measure the performance of the Bank’s business segments is not comparable with similar information from other financial institutions because each institution relies on its own definitions. The accounting policies applied to the segments is the same as those described in the summary of accounting principles. The Bank obtains the majority of the results for: interest, indexation and commissions, provisions for loan losses and operating expenses. Management is mainly based on these concepts to evaluate the performance of the segments and make decisions about the goals and allocations of resources of each unit. Although the results of the segments reconcile with those of the Bank at the total level, this is not necessarily the case in terms of the different concepts, given that management is measured and controlled individually and not on a consolidated basis, applying the following criteria:

 

·                                The net interest margin of loans and deposits is obtained aggregating the net financial margins of each individual operation of credit and uptake made by the bank. For these purposes, the volume of each operation and its contribution margin are considered, which in turn corresponds to the difference between the effective rate of the customer and the internal transfer price established according to the term and currency of each operation.

 

·                                The capital and its financial impacts on outcome have been assigned to each segment based on the risk-weighted assets.

 

·                                Operational expenses are reflected at the level of the different functional areas of the Bank. The allocation of expenses from functional areas to business segments is done using different allocation criteria, at the level of the different concepts and expense items.

 

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

 

For the periods ended March 31, 2018 and 2017, there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank’s total revenues.

 

19



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

6.         Business Segments, continued:

 

The following table presents the income by segment for the periods ended March, 2018 and 2017 for each of the segments defined above:

 

 

 

Retail

 

Wholesale

 

Treasury

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

 

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

231,013

 

225,994

 

83,722

 

80,407

 

2,405

 

(2,019

)

(1,329

)

(1,425

)

315,811

 

302,957

 

706

 

583

 

316,517

 

303,540

 

Net commissions income (loss)

 

46,918

 

48,475

 

11,183

 

10,852

 

(1,028

)

(532

)

35,306

 

31,504

 

92,379

 

90,299

 

(3,218

)

(3,078

)

89,161

 

87,221

 

Other operating income

 

12,745

 

8,119

 

10,014

 

7,199

 

10,316

 

10,472

 

7,563

 

7,502

 

40,638

 

33,292

 

(1,397

)

(1,334

)

39,241

 

31,958

 

Total operating revenue

 

290,676

 

282,588

 

104,919

 

98,458

 

11,693

 

7,921

 

41,540

 

37,581

 

448,828

 

426,548

 

(3,909

)

(3,829

)

444,919

 

422,719

 

Provision for loan losses

 

(65,903

)

(67,658

)

(5,127

)

4,540

 

 

 

85

 

3

 

(70,945

)

(63,115

)

 

 

(70,945

)

(63,115

)

Depreciation and amortization

 

(7,201

)

(6,721

)

(1,202

)

(1,088

)

(23

)

(37

)

(745

)

(713

)

(9,171

)

(8,559

)

 

 

(9,171

)

(8,559

)

Other operating expenses

 

(134,096

)

(125,081

)

(37,913

)

(36,053

)

(1,308

)

(1,286

)

(25,668

)

(25,043

)

(198,985

)

(187,463

)

3,909

 

3,829

 

(195,076

)

(183,634

)

Income attributable to associates

 

943

 

798

 

180

 

168

 

15

 

14

 

19

 

11

 

1,157

 

991

 

 

 

1,157

 

991

 

Income before income taxes

 

84,419

 

83,926

 

60,857

 

66,025

 

10,377

 

6,612

 

15,231

 

11,839

 

170,884

 

168,402

 

 

 

170,884

 

168,402

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,233

)

(28,409

)

Income after income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142,651

 

139,993

 

 

The following table presents assets and liabilities of the periods ended March 31, 2018 and December 31, 2017 by each segment defined above

 

 

 

Retail

 

Wholesale

 

Treasury

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

March

 

December

 

March

 

December

 

March

 

December

 

March

 

December

 

March

 

December

 

March

 

December

 

March

 

December

 

 

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

16,538,096

 

16,099,926

 

10,834,453

 

10,558,278

 

4,977,907

 

5,469,829

 

867,986

 

637,860

 

33,218,442

 

32,765,893

 

(278,179

)

(232,137

)

32,940,263

 

32,533,756

 

Current and deferred taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

303,478

 

290,432

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,243,741

 

32,824,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

10,466,873

 

10,380,250

 

10,187,620

 

10,272,607

 

9,033,181

 

8,815,056

 

727,185

 

479,244

 

30,414,859

 

29,947,157

 

(278,179

)

(232,137

)

30,136,680

 

29,715,020

 

Current and deferred taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,046

 

3,453

 

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,140,726

 

29,718,473

 

 

20



Table of Contents

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of interim financial statements originally issued in Spanish)

 


 

7.         Cash and Cash Equivalents:

 

(a)                       The detail of the balances included under cash and cash equivalents and their reconciliation with the statement of cash flows at the end of each period are detailed as follows:

 

 

 

March

 

December

 

 

 

2018

 

2017

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

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