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, 2020

 

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 ☒     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 ☒

 

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 Banco de Chile’s Consolidated Financial Statements with notes as of March 31, 2020.

 

1

 

 

SIGNATURE

 

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

 

Date: April 29, 2020

 

    Banco de Chile
     
  By: /s/ Eduardo Ebensperger O.
   

Eduardo Ebensperger O.

CEO

 

 

2

 

Exhibit 99.1

  

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

(Free translation of 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
PEN = Peruvian sol
AUD = Australian dollar
NOK = Norwegian krone
     
IFRS = International Financial Reporting Standards
IAS = International Accounting Standards
RAN = Actualized Standards Compilation of the Chilean Commission for Financial Market (“CMF”)
IFRIC = International Financial Reporting Interpretations Committee
SIC = Standards Interpretation Committee

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

    Page
Interim Consolidated Statement of Financial Position 1
Interim Consolidated Statements of Income 2
Interim Consolidated Statements of Other Comprehensive Income 3
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: 10
4. Changes in Accounting Policies and Disclosures: 14
5. Relevant Events: 15
6. Business Segments: 18
7. Cash and Cash Equivalents: 21
8. Financial Assets Held-for-trading: 22
9. Investments under resale agreements and obligations under repurchase agreements: 23
10. Derivative Instruments and Accounting Hedges: 25
11. Loans and Advances to Banks, net: 31
12. Loans to Customers, net: 32
13. Investment Securities: 38
14. Investments in Other Companies: 40
15. Intangible Assets: 42
16. Fixed assets, leased assets and lease liabilities: 44
17. Current Taxes and Deferred Taxes: 49
18. Other Assets: 53
19. Current Accounts and Other Demand Deposits: 54
20. Savings Accounts and Time Deposits: 54
21. Borrowings from Financial Institutions: 55
22. Debt Issued: 56
23. Other Financial Obligations: 59
24. Provisions: 59
25. Other Liabilities: 63
26. Contingencies and Commitments: 64
27. Equity: 69
28. Interest Revenue and Expenses:

72

29. Income and Expenses from Fees and Commissions: 74
30. Net Financial Operating Income: 75
31. Foreign Exchange Transactions, Net: 75
32. Provisions for Loan Losses: 76
33. Personnel Expenses: 77
34. Administrative Expenses: 78
35. Depreciation, Amortization and Impairment: 79
36. Other Operating Income: 80
37. Other Operating Expenses: 81
38. Related Party Transactions: 82
39. Fair Value of Financial Assets and Liabilities: 87
40. Maturity of Assets and Liabilities: 100
41. Subsequent Events: 102

 

i

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended March 31, 2020 and December 31, 2019

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   December 
   Notes  2020   2019 
      MCh$   MCh$ 
ASSETS        
Cash and due from banks  7   2,780,469    2,392,166 
Transactions in the course of collection  7   520,711    584,672 
Financial assets held-for-trading  8   1,690,563    1,872,355 
Investment under resale agreements  9   55,441    142,329 
Derivative instruments  10   4,757,187    2,786,215 
Loans and advances to banks  11   1,342,754    1,139,433 
Loans to customers, net  12   30,156,969    29,334,052 
Financial assets available-for-sale  13   1,632,229    1,357,846 
Financial assets held-to-maturity  13        
Investments in other companies  14   52,647    50,758 
Intangible assets  15   58,763    58,307 
Property and equipment  16   225,135    220,262 
Leased assets  16   145,728    150,665 
Current tax assets  17   1,567    357 
Deferred tax assets  17   316,599    320,948 
Other assets  18   1,059,936    862,968 
TOTAL ASSETS      44,796,698    41,273,333 
              
LIABILITIES             
Current accounts and other demand deposits  19   11,869,854    11,326,133 
Transactions in the course of payment  7   482,664    352,121 
Obligations under repurchase agreements  9   345,808    308,734 
Savings accounts and time deposits  20   11,469,658    10,856,618 
Derivative instruments  10   4,721,257    2,818,121 
Borrowings from financial institutions  21   1,703,821    1,563,277 
Debt issued  22   9,224,225    8,813,414 
Other financial obligations  23   121,674    156,229 
Lease liabilities  16   141,434    146,013 
Current tax liabilities  17   66,545    76,289 
Deferred tax liabilities  17   242     
Provisions  24   419,044    684,663 
Other liabilities  25   679,580    643,498 
TOTAL LIABILITIES      41,245,806    37,745,110 
              
EQUITY  27          
Attributable to Bank’s Owners:             
Capital      2,418,833    2,418,833 
Reserves      703,331    703,272 
Other comprehensive income      (62,327)   (56,601)
Retained earnings:             
Retained earnings from previous years      412,641    170,171 
Income for the period      136,882    593,008 
Less:             
Provision for minimum dividends      (58,469)   (300,461)
Subtotal      3,550,891    3,528,222 
Non-controlling interests      1    1 
TOTAL EQUITY      3,550,892    3,528,223 
TOTAL LIABILITIES AND EQUITY      44,796,698    41,273,333 

 

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

 

 1

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

For the three-month ended March 31, 2020 and 2019

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

      March   March 
   Notes  2020   2019 
      MCh$   MCh$ 
          
Interest revenue  28   554,274    430,654 
Interest expense  28   (204,577)   (129,684)
Net interest income      349,697    300,970 
              
Income from fees and commissions  29   161,671    134,223 
Expenses from fees and commissions  29   (36,200)   (30,813)
Net fees and commission income      125,471    103,410 
              
Net financial operating income  30   9,154    8,566 
Foreign exchange transactions, net  31   19,380    16,117 
Other operating income  36   9,391    15,533 
Total operating revenues      513,093    444,596 
              
Provisions for loan losses  32   (125,560)   (89,156)
              
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES      387,533    355,440 
              
Personnel expenses  33   (107,043)   (113,555)
Administrative expenses  34   (82,688)   (78,994)
Depreciation and amortization  35   (18,469)   (17,203)
Impairment  35       (6)
Other operating expenses  37   (12,093)   (11,066)
              
TOTAL OPERATING EXPENSES      (220,293)   (220,824)
              
NET OPERATING INCOME      167,240    134,616 
              
Income attributable to associates  14   1,895    1,110 
Income before income tax      169,135    135,726 
              
Income tax  17   (32,253)   (34,189)
              
NET INCOME FOR THE PERIOD      136,882    101,537 
Attributable to:             
Bank’s Owners  27   136,882    101,537 
Non-controlling interests           
              
Net income per share attributable to Bank’s Owners:      Ch$    Ch$ 
Basic net income per share  27   1.36    1.01 
Diluted net income per share  27   1.36    1.01 

 

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

 

 2

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF

OTHER COMPREHENSIVE INCOME

For the three-month ended March 31, 2020 and 2019

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   March 
      2020   2019 
   Notes  MCh$   MCh$ 
          
NET INCOME FOR THE PERIOD      136,882    101,537 
              
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Net gains (losses) on available-for-sale instruments valuation  13   (9,768)   8,836 
Net gains (losses) on derivatives held as cash flow hedges  10   1,935    889 
Subtotal Other comprehensive income before income taxes      (7,833)   9,725 
              
Income tax relating to the components of other comprehensive income that are reclassified in income for the period      2,107    (2,643)
              
Total other comprehensive income items that will be reclassified subsequently to profit or loss      (5,726)   7,082 
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Adjustment for defined benefit plans  24   81     
              
Subtotal other comprehensive income before income taxes      81     
              
Income tax relating to the components of other comprehensive income that will not be reclassified to income for the period  17   (22)    
              
Total other comprehensive income items that will not be reclassified subsequently to profit or loss      59     
              

CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD

      131,215    108,619 
              
Attributable to:             
Bank’s Owners      131,215    108,619 
Non-controlling interests           

 

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

 

 3

 

 

  

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three-month ended March 31, 2020 and 2019

(Free translation of Interim Consolidated 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
period
   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, 2018      2,418,833    31,961    585,636    (9,936)   (43,494)   14,208    17,481    594,872    (305,409)   3,304,152    1    3,304,153 
Retention of profits                              152,705    (152,705)                
Retention (release) of profits according to bylaws              85,856                    (85,856)                
Dividends distributions and paid  27                               (356,311)   305,409    (50,902)       (50,902)
Equity effect change in accounting policy                              2            2        2 
Other comprehensive income:                                                               
Derivatives cash flow hedge  27                   889    (240)               649        649 
Valuation adjustment on available-for-sale instruments  27               8,836        (2,403)               6,433        6,433 
Income for the period 2019  27                               101,537        101,537        101,537 
Provision for minimum dividends                                      (60,922)   (60,922)       (60,922)
Balances as of March 31, 2019      2,418,833    31,961    671,492    (1,100)   (42,605)   11,565    170,188    101,537    (60,922)   3,300,949    1    3,300,950 
Equity effect change in accounting policy                              (17)           (17)       (17)
Other comprehensive income:                                                               
Defined benefit plans adjustment, net          (181)                               (181)       (181)
Derivatives cash flow hedge                      (38,435)   10,378                (28,057)       (28,057)
Valuation adjustment on available-for-sale instruments                  4,927        (1,331)               3,596        3,596 
Income for the period 2019                                  491,471        491,471        491,471 
Provision for minimum dividends                                      (239,539)   (239,539)       (239,539)
Balances as of December 31, 2019      2,418,833    31,780    671,492    3,827    (81,040)   20,612    170,171    593,008    (300,461)   3,528,222    1    3,528,223 
Retention of profits                              242,470    (242,470)                
Dividends distributions and paid  27                               (350,538)   300,461    (50,077)       (50,077)
Other comprehensive income:                                                               
Defined benefit plans adjustment, net          59                                59        59 
Derivatives cash flow hedge, net  27                   1,935    (521)               1,414        1,414 
Valuation adjustment on available-for-sale instruments  27               (9,768)       2,628                (7,140)       (7,140)
Income for the period 2020  27                               136,882        136,882        136,882 
Provision for minimum dividends  27                                   (58,469)   (58,469)       (58,469)

Balances as of March 31, 2020

      2,418,833    31,839    671,492    (5,941)   (79,105)   22,719    412,641    136,882    (58,469)   3,550,891    1    3,550,892

 

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

 

 4

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three-month ended March 31, 2020 and 2019

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   March 
      2020   2019 
   Notes  MCh$   MCh$ 
CASH FLOWS FROM OPERATING ACTIVITIES:         
Net income for the period      136,882    101,537 
Charges (credits) to income  that do not represent cash flows:             
Depreciation and amortization  35   18,469    17,203 
Impairment  35       6 
Provision for loans and accounts receivable from customers and owed by banks  32   128,356    100,412 
Provision of contingent loans  32   7,007    884 
Fair value adjustment of financial assets held-for-trading      1,016    (1,029)
Changes in assets and liabilities by deferred taxes  17   7,197    (1,019)
(Gain) loss attributable to investments in companies with significant influence, net  14   (1,876)   (1,110)
(Gain) loss from sales of assets received in lieu of payment,net  36   (1,361)   (4,503)
(Gain) loss on sales of property and equipment, net  36   (18)   (31)
Charge-offs of assets received in lieu of payment  37   1,245    2,623 
Other charges (credits) to income that do not represent cash flows      2,695    4,021 
Net changes in exchange rate, interest and fees accrued on assets and liabilities      144,753    18,362 
              
Changes in assets and liabilities that affect operating cash flows:             
              
(Increase) decrease in loans and advances to banks, net      (203,433)   578,924 
(Increase) decrease in loans to customers      (866,758)   (413,306)
(Increase) decrease in financial assets held-for-trading, net      (69,749)   (78,625)
(Increase) decrease in other assets and liabilities      (273,963)   85,193 
Increase (decrease) in current account and other demand deposits      543,498    16,786 
Increase (decrease) in transactions from reverse repurchase agreements      35,540    (11,677)
Increase (decrease) in savings accounts and time deposits      630,811    602,676 
Sale of assets received in lieu of payment or adjudicated      4,310    9,115 
Total cash flows from operating activities      244,621    1,026,442 
              
CASH FLOWS FROM INVESTING ACTIVITIES:             
(Increase) decrease in financial assets available-for-sale, net      (283,201)   (264,952)
Payments for lease agreements  16   (7,509)   (6,116)
Net changes in leased assets  16   (419)   (1,352)
Purchases of property and equipment  16   (11,999)   (12,950)
Sales of property and equipment      18    31 
Acquisition of intangible assets  15   (4,238)   (3,799)
Acquisition of investments in companies  14        
Dividends received from investments in companies  14   19     
Total cash flows from investing activities      (307,329)   (289,138)
              
CASH FLOWS FROM FINANCING ACTIVITIES:             
Redemption of letters of credit      (670)   (981)
Issuance of bonds  22   459,510    281,884 
Redemption of bonds      (334,388)   (316,050)
Dividends paid  27   (350,538)   (356,311)
Increase (decrease) in borrowings from foreign financial institutions      142,618    (141,254)
Increase (decrease) in other financial obligations      (34,421)   (6,596)
Payment of other long-term borrowings      (147)   (532)
Total cash flows from financing activities      (118,036)   (539,840)
              
TOTAL NET POSITIVE CASH FLOWS FOR THE PERIOD      (180,744)   197,464 
              
Effect of exchange rate changes      34,299    8,673 
              
Cash and cash equivalents at beginning of period      3,931,371    2,256,375 
              
Cash and cash equivalents at end of period  7   3,784,926    2,462,512 
              

 

   March   March 
   2020   2019 
   MCh$   MCh$ 
Operational Cash flow interest:      
Interest received   466,572    489,275 
Interest paid   62,177    (161,270)

 

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

 

 5

 

 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Free translation of Interim Consolidated 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 Chilean Commission for the Financial Market (“CMF”), in accordance with the established in the Law 21,130 dated January 12, 2019, which ordered the integration of the Superintendency of Banks and Financial Institutions (“SBIF”) with the Commission for the Financial Market as of June 1, 2019. 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. 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 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, 2020 were approved by the Directors on April 29, 2020.

 

 6

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

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

 

(a)Legal regulations:

 

The Law 21,000 that creates the CMF, in its article 5, empowers it 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 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 standards issued by the Chilean Association of Accountants (Colegio de Contadores de Chile A.G.), that coincide with the International Financial Reporting Standards (“IFRS”) 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 CMF, 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 CMF.

 

(b.2)The following table details the entities in which the Bank has control and are part of this consolidated financial statements:

 

            Interest Owned 
            Direct   Indirect   Total 
         Functional  March   December   March   December   March   December 
RUT  Subsidiaries  Country  Currency  2020   2019   2020   2019   2020   2019 
            %   %   %   %   %   % 
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

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated 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.Provision for loan losses (Notes No. 11, No. 12 and No. 32);
2.Useful life of intangible, property and equipment and leased assets and lease liabilities (Notes No.15 and No.16);
3.Income taxes and deferred taxes (Note No. 17);
4.Provisions (Note No. 24);
5.Contingencies and Commitments (Note No. 26);
6.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.

 

As of March 31, 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, 2020 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)Leases:

 

The Bank acts as a lessor

 

Assets that are leased to clients under contracts that substantially transfer all risks and property recognition, with or without legal title, are classified as a financial lease. When the retained assets are subject to a financial leasing, the leased assets are no longer recognized and are recorded an account receivable, which is equal to the minimum value of the lease payment, discounted at the interest rate of the lease. The initial negotiation expenses in a financial lease are incorporated into the account receivable through the discount rate applied to the lease. Lease income is recognized on lease terms based on a model that consistently reflects a periodic rate of return on the net investment of the lease.

 

 8

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

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

 

Assets that are leased to customers under contracts that do not transfer substantially all the risks and benefits of the property are classified as an operating lease.

 

The leased investment properties, under the operating lease modality, are included in “Other assets” in the statement of financial position and depreciation is determined on the book value of these assets, applying a proportion of the value in a systematic way on the economic use of the estimated useful life. Lease income is recognized on a straight-line basis over the lease period.

 

The Bank acts as a lessee

 

A contract is or contains a lease if it has the right to control the use of an identified asset for a period of time in exchange for a consideration.

 

At the start date of a lease, an asset is determined by right of use of the leased asset at cost, which comprises the amount of the initial measurement of the lease liability plus other disbursements made.

 

The amount of the lease liability is measured at the present value of future lease payments that have not been paid on that date, which are discounted using the Bank’s incremental financing interest.

 

The right-of-use asset is measured using the cost model less accumulated depreciation and accumulated impairment losses. The depreciation of the right-of-use asset is recognized in the Income Statement based on the straight-line method of depreciation from the start date and until the end of the term of the lease.

 

As established by the Circular No. 3,649 of the CMF, the monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore the value effect of this monetary unit as a result of the change in the Consumer Price Index (CPI) modifies the value of the lease liability and in parallel, the amount of the asset for the right to use leased assets must be adjusted for this effect.

 

After the start date, the lease liability is measured by reducing the carrying amount to reflect the lease payments made and the lease contract modifications.

 

According to IFRS 16 “Leases”, the bank does not apply this standard to contracts with duration of 12 months or less and those that contain a low value underlying asset. In these cases, the payments are recognized as a lease expense.

 

(g)Reclassifications:

 

There have not been significant reclassifications at the end of this period 2020.

 

 9

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated 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 Chilean Commission for the Financial Market (CMF):

 

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

 

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

 

Accounting standards issued by IASB.

 

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.

 

These improvements had no impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of materiality or relative importance.

 

The IASB issued changes to IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to clarify the definition of materiality and align these standards with the Revised Conceptual Framework issued in March 2018, to facilitate companies to make materiality judgments.

 

Under the old definition omissions or misrepresentations of elements are important if they could, individually or collectively, influence the economic decisions that users make on the basis of financial statements (IAS 1 Presentation of Financial Statements).

 

The new definition states that information is material if the omission, distortion or concealment of the information can reasonably be expected to influence decisions that primary users of financial statements of general purpose make on the basis of those financial statements, which provide financial information about a specific reporting entity.

 

 10

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

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

 

IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement. Interest rate benchmark reform.

 

In September 2019, the IASB issued amendments to IFRS 9, IFRS 7 and IAS 39, as a result of the IBOR (Interbank Offered Rate) reform, which results in the replacement of existing reference interest rates, by alternative interest rates.

 

The amendments provide temporary application exceptions that allow hedge accounting to continue during the uncertainty period, prior to the replacement of existing reference interest rates.

 

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

 

Accounting Standards issued by the CMF.

 

Circular No. 2,247.

 

On March 25, 2020, the CMF published this circular, which incorporated modifications to Chapter 10-1 “Assets received or awarded in payment of obligations” of the RAN.

 

The transitory standard establishes an additional term of up to 18 months to dispose of the assets, in the case of assets that have been received or awarded lieu of payment from March 1, 2019 to September 30, 2020.

 

The standard also authorizes banks to make use of this additional period, so that the charge-offs that they must currently carry out at 12 months is carried out in installments, at least a proportion of the value of the property must be charge-off, equivalent to the relationship between the number of months elapsed from the date of receipt and the number of months between that date and that the bank sets for its disposal under the additional term granted.

 

The Bank used the additional term for those assets that meet the requirements required for the application of this standard, not generating a material impact on the results of the period.

 

 11

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Circular No. 2,248.

 

Regarding the minimum ratios that effective equity must meet with respect to its risk-weighted assets defined in Chapter 12-1 of the Actualized Standards Compilation (“RAN”), dated March 30, 2020, the CMF issued instructions for the treatment of Guarantees constituted in favor of third parties for bilateral compensation contracts, allowing banks may deduct from them, the net fair value of negative offset positions, to determine the asset subject to risk weighting, to the extent that certain conditions relating to the legal basis that protects them and the controls that they maintain over them are met.

 

These instructions are consistent with the rules of the Basel III Framework, regarding the determination of the net exposures of assets and liabilities covered by legally recognized compensation contracts in the jurisdictions to which the parties are entitled.

 

The new rules were implemented at the end of March 2020, without generating a significant impact on the indicators of capital adequacy.

 

Other standards adopted.

 

As of January 1, 2020, law 21,167 came into force, which regulates the forms of payment of the lines of credit associated with bank current accounts. This law establishes the automatic payment of the overdraft line associated with the current account, which operates by default, unless the client instructs their respective bank to operate a different payment method that is more comfortable for them.

 

The implementation of this new law generates a decrease in interest income and loan volumes.

 

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 IASB that are not yet effective as of March 31, 2020, are detailed below:

 

Accounting standards issued by IASB.

 

IAS 28 — Investments in Associates and Joint Venture, and IFRS 10 — Consolidated Financial Statements.

 

In September 2014, the IASB published this modification, which clarifies the scope of the profits and losses recognized in a transaction that involves an associate or joint venture, and that this depends on whether the asset sold or contribution constitutes a business. Therefore, the IASB concluded that all gains or losses should be recognized against loss of control of a business. Likewise, the gains or losses that result from the sale or contribution of a subsidiary that does not constitute 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 to set the effective date of this modification in the future, allowing its immediate application.

 

Banco de Chile and its subsidiaries will have no impact on the Interim Consolidated Financial Statements as a result of the application of this amendment.

 

 12

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Accounting standards issued by the CMF.

 

Circular No. 2,243.

 

On December 20, 2019, the CMF published Circular No. 2,243, which updates the instructions of the Accounting Standards Compendium (CNC) for banks.

 

The changes tend to further convergence with IFRS, as well as an improvement in the quality of financial information, to contribute to the financial stability and transparency of the banking system.

 

The main changes introduced to the CNC correspond to:

 

1)Incorporation of IFRS 9 with the exception of the Chapter 5.5 on impairment of loans classified as “financial assets at amortized cost”. This exception is mainly due to prudential criteria set by the CMF. These criteria have given rise, over time, to the establishment of standard models that the banking institutions must apply to determine the impairment of the loan portfolio (Chapter B-1 of the CNC, for provisions).

 

2)Changes in the presentation formats of the Statement of Financial Position and Income Statement, when adopting IFRS 9 in replacement of IAS 39.

 

3)Incorporation of new presentation formats for the Statement of Other Comprehensive Income and the Statement of Changes in Equity and guidelines on financing and investment activities for the Statement of Cash Flows.

 

4)Incorporation of a financial report “Management Comments” (according to the IASB Practice Document No. 1), which will complement the information provided by the interim and annual financial statements.

 

5)Modifications of some notes of the financial statements, among which are: Financial assets at amortized cost and Risk management, in order to better comply with the disclosure criteria contained in the IFRS 7. In addition, disclosures about related parties are aligned according to IAS 24.

 

6)Changes in the accounting plan of Chapter C-3 of the CNC, both in the accounts coding as well as in their description. The foregoing corresponds to the detailed information of the formats for the Statement of Financial Position, the Income Statement and the Statement of Other Comprehensive Income.

 

7)Modification of the criteria for the suspension of the recognition of interest income and UF indexation on an accrual basis, for any credit with a default greater than 90 days (Chapter B-2 of the CNC). Currently, the suspension of the recognition of interests and UF indexation occurs after 180 days.

 

 13

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

8)Adaptation of the limitations and precisions to the use of IFRS contained in Chapter A-2 of the CNC.

 

In accordance with the Circular 2,249 dated April 20 issued by the CMF, the new standard will be applicable from January 1, 2022, with a transition date of January 1, 2021, for purposes of the comparative Financial Statements that must be published from March 2022.

 

Nevertheless, the change in criteria for the suspension of the recognition of interest income and UF indexation on an accrual basis as provided in Chapter B-2, shall be adopted no later than January 1, 2022.

 

The Bank and its subsidiaries since 2019 have worked on the analysis and definition of technological changes and other solutions to address the needs generated by the application of the modifications to the CNC, in addition, Operating and Management Committees have been implemented to address the project and is already working on the technological changes required by these modifications. All this in order to comply with the new standards required for the preparation and presentation of the Financial Statements. The effects of applying the rule of suspension of interest and UF indexation at 90 days will not have a significant impact

 

Basel III Implementation

 

On March 30, 2020, the Council of the Commission for the Financial Market resolved to postpone by one year the start of the implementation of the requirements regarding Risk Weighted Assets, which will take effect from 2022. Additionally, it was agreed to postpone by one year, the additional capital charges for systemically important banks, the requirements associated with the conservation buffer and discounts to effective equity.

 

Circular No. 2,250.

 

In response to the situation faced by financial markets and audited entities as a result of the health crisis caused by the Covid-19 pandemic, on April 20 the CMF published Circular 2,250, through which Banks may add to the additional provisions, within the limit of 1.25%, an amount of up to 15% of the guarantees that cover the risk-weighted assets, the guarantees that correspond to endorsements or refinancing granted by the Chilean Treasury, CORFO and FOGAPE.

 

This modification will be applied from April 2020.

 

4.Changes in Accounting Policies and Disclosures:

 

During the period ended March 31, 2020, no significant accounting changes have occurred that affect the presentation of these Interim Consolidated Financial Statements.

 

 14

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

5.Relevant Events:

 

a)On January 20, 2020, the subsidiary Banchile Administradora General de Fondos S.A. informed that during the Ordinary Session held that day, the Board of Directors appointed Mr. José Luis Vizcarra Villalobos as director, replacing Mr. Joaquín Contardo Silva, who presented resignation to the director position.

 

b)On January 30, 2020, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders Meeting on March 26, 2020 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2019:

 

i.Deduct and withhold from the net income of the year, an amount equivalent to the effect of inflation of the paid capital and reserves according to the variation of the Consumer Price Index that occurred between November 2018 and November 2019, amounting to Ch$92,239,840,420, which will be added to retained earnings from previous periods.

 

ii.From the resulting balance, distribute in the form of a dividend 70% of the remaining liquid profit, corresponding to a dividend of Ch$3.47008338564 to each of the 101,017,081,114 shares of the Bank, retaining the remaining 30%.

 

Consequently, the distribution as a dividend that will be proposed will amount to 59.1% of the profits for the year ended December 31, 2019.

 

c)On February 21, 2020, in accordance with the disposed in the articles 19 and the following of Law No. 19,913, the Financial Analysis Unit imposed a written admonishment and a fine amounting to UF 800 to Banco de Chile, for not having promptly reported suspicious transactions in accordance with the disposed under numeral 1 of Chapter I of the UAF Circular No. 49 of 2012.

 

d)On March 12, 2020, in the Ordinary session celebrated that day, the Board of Directors of Banco de Chile agreed to establish a provision for minimum dividends of the net distributable profit that results from reducing or adding to the net income of the corresponding period, the value effect of the monetary unit of paid capital and reserves, as a result of any change in the Consumer Price Index (CPI) between the month prior to the current month and the month of November of the previous year. It was also agreed to maintain the monthly provision at 60% of the income balance thus calculated.

 

e)On March 26, 2020, at the Bank’s Ordinary Shareholders’ Meeting, our shareholders approved the distribution of the dividend No. 208 of $3.47008338564 per share, to be charged to the income obtained during the fiscal year 2019.

 

Additionally, the shareholders proceeded to the complete renewal of the Board of Directors, due to the end of the legal and statutory three-year term with respect to the Board of Directors that has ceased in its functions.

 

 15

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

  

5.Relevant Events, continued:

 

After the corresponding voting at the aforesaid meeting, the following persons were appointed as the Bank’s Directors for a new three-year term:

 

Directors: Hernán Büchi Buc
  Andrés Ergas Heymann  
  Alfredo Cutiel Ergas Segal (Independent)
  Jaime Estévez Valencia (Independent)
  Julio Santiago Figueroa
  Pablo Granito Lavín
  Álvaro Jaramillo Escallon
  Samuel Libnic
  Andrónico Luksic Craig
  Jean Paul Luksic Fontbona
  Francisco Pérez Mackenna
   
First Alternate Director: Paul Fürst Gwinner (Independent)
Second Alternate Director: Sandra Marta Guazzotti  

 

Moreover, on March 26, 2020, in its Ordinary Session, the Board of Directors of the Bank agreed to the following officer nominations and appointments:

 

Chairman:

Pablo Granifo Lavín
Vice Chairman: Andrónico Luksic Craig  
Vice Chairman: Julio Santiago Figueroa  

 

f)During March 2020, the World Health Organization (“WHO”) recognized the novel strain of coronavirus (“COVID-19”) as a pandemic. The global spread of this disease has forced the authorities to take drastic sanitary and financial measures to contain and mitigate its effects on global health and economic activity.

 

On this basis, on March 18, 2020 the Government decreed a Constitutional State of Exception defined as State of Catastrophe due to “State of Public Calamity” for the entire national territory, as well as has adopted various sanitary measures such as isolation or quarantine of general populations, localities and people determined; sanitary cords; sanitary customs and other protection measures. Additionally, the Government and the Central Bank of Chile have implemented a set of fiscal and financial measures aimed to mitigate COVID-19’s impact on the economy, and to ensure the proper functioning of the financial system.

 

The CMF, for its part, adopted temporary flexibility measures for the treatment of provisions for credit risk of group portfolios for the period between March 18, 2020 and July 31, 2020. This exceptional treatment will allow reprogramming that meets the eligibility requirements to maintain the associated allowances in the standard matrix (mortgage and commercial) that corresponds at the time of reprogramming. In the case of consumer portfolios, the parameters of Expected Credit Loss may be maintained, in accordance with the allowance internal models used.

 

 16

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

5.Relevant Events, continued:

 

Within this context, our Bank has carried out several measures, along with executing contingency plans, in order to: (i) safeguard the health of clients and employees, including the temporary suspension of operation of some branches, (ii) ensure the operational continuity of our services and mitigate potential operational risks, and (iii) strengthen our remote channels and the implementation of telecommuting for a large group of our employees.

 

While the potential impact of the pandemic on our operating results remains uncertain and difficult to quantify, it is possible to anticipate that factors such as: (i) economic contraction, (ii) low interest rates for a long period of time, (iii) deflationary pressures owed to lowered domestic demand, (iv) increased unemployment, (v) total or partial quarantines affecting commercial activities, and (vi) mobility restrictions that will have an adverse effect on our operating revenues, loan loss provisions and operating expenses. Although these effects could be significant, it is not yet possible to determine their magnitude, which will depend on the duration and depth of the pandemic, as well as on the effectiveness of the measures taken to mitigate its consequences.

 

 17

 

  

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated 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, among others.

 

Subsidiaries:Corresponds to the businesses generated by the companies controlled by the Bank, which carry out activities complementary to the bank business. 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

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated 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 and financial operations and changes, discounting provisions for credit risk 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. Additionally, the net margin includes the result of interest and indexation from the accounting hedges.

 

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, 2020 and 2019, there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank's total revenues.

 

 19

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

6.Business Segments, continued:

 

The following table presents the income by segment for the periods ended March 31, 2020 and 2019 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 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Net interest income  253,116   228,589   91,261   69,620   5,865   3,724   (1,576)  (1,698)  348,666   300,235   1,031   735   349,697   300,970 
Net commissions income (loss)   77,906    57,731    13,847    12,309    (635)   (720)   37,686    36,628    128,804    105,948    (3,333)   (2,538)   125,471    103,410 
Other operating income   17,501    15,977    29,653    16,110    (6,328)   (661)   (897)   10,218    39,929    41,644    (2,004)   (1,428)   37,925    40,216 
Total operating revenue   348,523    302,297    134,761    98,039    (1,098)   2,343    35,213    45,148    517,399    447,827    (4,306)   (3,231)   513,093    444,596 
Provision for loan losses   (95,182)   (84,567)   (30,310)   (4,559)           (68)   (30)   (125,560)   (89,156)           (125,560)   (89,156)
Depreciation and amortization   (15,201)   (14,255)   (1,529)   (1,282)   (219)   (178)   (1,520)   (1,488)   (18,469)   (17,203)           (18,469)   (17,203)
Other operating expenses   (142,792)   (142,257)   (40,414)   (38,529)   (1,400)   (1,119)   (21,524)   (24,947)   (206,130)   (206,852)   4,306    3,231    (201,824)   (203,621)
Income attributable to associates   1,802    860    36    177    53    51    4    22    1,895    1,110            1,895    1,110 
Income before income taxes   97,150    62,078    62,544    53,846    (2,664)   1,097    12,105    18,705    169,135    135,726            169,135    135,726 
Income taxes                                                               (32,253)   (34,189)
Income after income taxes                                                               136,882    101,537 

  

The following table presents assets and liabilities of the periods ended March 31, 2020 and December 31, 2019 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 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Assets  18,244,492   18,139,505   11,542,400   10,766,374   14,063,854   11,426,849   1,014,053   964,695   44,864,799   41,297,423   (386,267)  (345,395)  44,478,532   40,952,028 
Current and deferred taxes                                                               318,166    321,305 
Total assets                                                               44,796,698    41,273,333 
                                                                       
Liabilities   11,855,145    11,407,066    11,405,221    10,750,446    17,429,231    15,075,652    875,689    781,052    41,565,286    38,014,216    (386,267)   (345,395)   41,179,019    37,668,821 
Current and deferred taxes                                                               66,787    76,289 
Total liabilities                                                               41,245,806    37,745,110 

 

 20

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated 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 
   2020   2019 
   MCh$   MCh$ 
         
Cash and due from banks:        
Cash (*)   791,473    889,911 
Deposit in Chilean Central Bank (*)   756,894    178,429 
Deposits in other domestic banks   45,953    75,651 
Deposits abroad   1,186,149    1,248,175 
Subtotal - Cash and due from banks   2,780,469    2,392,166 
           
Net transactions in the course of collection   38,047    232,551 
Highly liquid financial instruments (**)   940,367    1,192,188 
Repurchase agreements (**)   26,043    114,466 
Total cash and cash equivalents   3,784,926    3,931,371 

 

(*)Amounts in cash funds and in Central Bank are regulatory reserve deposits that the Bank must maintain as a monthly average.

 

(**)It corresponds to negotiation instruments and repurchases contracts that meet the definition of cash and cash equivalents.

 

(b)Transactions in course of settlement:

 

Transactions in course of settlement are transactions for which the only remaining step is settlement, which will increase or decrease the funds in the Central Bank or in foreign banks, normally occurring within 24 to 48 business hours, and are detailed as follows:

 

   March   December 
   2020   2019 
   MCh$   MCh$ 
Assets        
Documents drawn on other banks (clearing)   74,782    222,261 
Funds receivable   445,929    362,411 
Subtotal - assets   520,711    584,672 
           
Liabilities          
Funds payable   (482,664)   (352,121)
Subtotal - liabilities   (482,664)   (352,121)
Net transactions in the course of settlement   38,047    232,551 

 

 21

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

8.Financial Assets Held-for-trading:

 

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

 

   March   December 
   2020   2019 
   MCh$   MCh$ 
Instruments issued by the Chilean Government and Central Bank of Chile        
Central Bank of Chile bonds   36,209    16,490 
Central Bank of Chile promissory notes   761,130    1,008,035 
Other instruments issued by the Chilean Government and Central Bank   329,445    99,164 
           
Other instruments issued in Chile          
Bonds from other domestic companies       1,556 
Bonds from domestic banks   72,794    55,094 
Deposits in domestic banks   202,825    315,415 
Other instruments issued in Chile   2,378    3,272 
           
Instruments issued Abroad          
Instruments from foreign governments or central banks        
Other instruments issued abroad        
           
Mutual fund investments          
Funds managed by related companies   285,782    373,329 
Funds managed by third-party        
Total   1,690,563    1,872,355 

 

Under “Instruments issued by the Chilean Government and Central Bank of Chile” are classified instruments sold under repurchase agreements to customers and financial instruments, by an amount of Ch$148,387 million as of March 31, 2020 (Ch$15,243 million as of December 31, 2019). Repurchase agreements had a 1 day average expiration as of period-end 2020 (3 days in December 2019).

 

Moreover, under this same item, other financial instruments are maintained as collateral guaranteeing the derivative transactions executed through Comder Contraparte Central S.A. for an amount of Ch$65,661 as of March 31, 2020 (Ch$57,639 million as of December 31, 2019).

 

“Other instruments issued in Chile” include instruments sold under repurchase agreements with customers and financial instruments amounting to Ch$131,106 million as of March 31, 2020 (Ch$251,158 million as of December 31, 2019). The repurchase agreements have an average expiration of 5 days as of period-end 2020 (7 days in December 2019).

 

Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of Ch$7,368 million as of March 31, 2020 (Ch$8,029 million as of December 31, 2019), which are presented as a reduction of the liability line item “Debt issued”.

 

 22

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

9.Investments under resale agreements and obligations under repurchase agreements:

 

(a)Rights arising from resale repurchase agreements: The Bank provides financing to its customers through repurchase agreements and securities lending, in which the financial instrument serves as collateral. As of March 31, 2020 and December 31, 2019, the detail is as follows:

  

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Instruments issued by the Chilean Governments and Central Bank of Chile                                                        
Central Bank bonds     11,184                                    11,184 
Central Bank promissory notes                                                        
Other instruments issued by the Chilean Government and Central Bank of Chile   5,636    18,459                                            5,636    18,459 
Subtotal   5,636    29,643                                            5,636    29,643 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks                                                        
Mortgage bonds from domestic banks                                                        
Bonds from domestic banks       15,407                                                15,407 
Deposits in domestic banks                                                        
Bonds from other Chilean companies                                                        
Other instruments issued in Chile   19,724    57,007    5,548    29,393    24,533    10,879                            49,805    97,279 
Subtotal   19,724    72,414    5,548    29,393    24,533    10,879                            49,805    112,686 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or Central Bank                                                        
Other instruments                                                        
Subtotal                                                        
Mutual fund investments                                                                      
Funds managed by related companies                                                        
Funds managed by third-party                                                        
Subtotal                                                        
Total   25,360    102,057    5,548    29,393    24,533    10,879                            55,441    142,329 

 

Securities received:

 

The Bank and its subsidiaries have received financial instruments that they can sell or give as collateral in case the owner of these instruments enters into default or in bankruptcy. As of March 31, 2020, the fair value of the instruments received amounts to Ch$51,643 million (Ch$142,370 million as of December, 2019).

 

 23

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

  

9.Investments under resale agreements and obligations under repurchase agreements, continued:

 

(b)Obligations arising from repurchase agreements: The Bank obtains financing by selling financial instruments and agreeing to repurchase them in the future, plus interest at a prefixed rate. As of March 31, 2020 and December 31, 2019, the repurchase agreements are the following:

  

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Instruments issued by the Chilean Governments and Central Bank of Chile                                                        
Central Bank bonds     7,301                                    7,301 
Central Bank promissory notes   1,750    9,067                                            1,750    9,067 
Other instruments issued by the Chilean Government and Central Bank of Chile   146,405                                                146,405     
Subtotal   148,155    16,368                                            148,155    16,368 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks                                                        
Mortgage bonds from domestic banks                                                        
Bonds from domestic banks   20,664                                                20,664     
Deposits in domestic banks   173,830    280,696    452    8,583    46                                174,328    289,279 
Bonds from other Chilean companies                                                        
Other instruments issued in Chile   1,212    1,647            1,449    1,440                            2,661    3,087 
Subtotal   195,706    282,343    452    8,583    1,495    1,440                            197,653    292,366 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or central bank                                                        
Other instruments issued by foreing                                                        
Subtotal                                                        
Mutual fund investments                                                                      
Funds managed by related companies                                                        
Funds managed by third-party                                                        
Subtotal                                                        
Total   343,861    298,711    452    8,583    1,495    1,440                            345,808    308,734 

  

Securities sold:

 

The fair value of the financial instruments delivered as collateral by the Bank and its subsidiaries, in sales transactions with repurchase agreement and securities lending as of March 31, 2020 amounts to Ch$341,928 million (Ch$305,593 million in December 2019). In the event that the Bank and its subsidiaries enter into default or bankruptcy, the counterparty is authorized to sell or deliver these investments as collateral.

 

 24

 

  

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges:

 

(a)As of March 31, 2020 and December 31, 2019, the Bank’s portfolio of derivative instruments is detailed as follows:

  

   Notional amount of contract with final expiration date in   Fair Value 
As of March 31, 2020  Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months  

Over 1 year and up to 3 years

   Over 3 year and up to 5 years  

 

Over 5 years

   Total   Assets   Liabilities 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap           8,249         8,249      2,666 
Interest rate swap               7,729        59,125    66,854        10,433 
Total derivatives held for hedging purposes               15,978        59,125    75,103        13,099 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap               194,604    246,158    756,891    1,197,653    169,307    8,945 
Total derivatives held as cash flow hedges               194,604    246,158    756,891    1,197,653    169,307    8,945 
                                              
Trading derivatives                                             
Currency forward   10,580,276    6,781,323    14,720,513    1,700,957    104,541    43,543    33,931,153    1,702,538    1,265,362 
Interest rate swap   1,492,148    8,144,435    18,512,476    16,702,951    7,378,351    12,023,380    64,253,741    1,344,029    1,376,898 
Interest rate swap and cross currency swap   366,076    1,345,566    3,791,643    6,192,650    3,732,361    4,376,925    19,805,221    1,529,664    2,051,987 
Call currency options   36,019    29,460    88,761    9,336            163,576    11,504    4,043 
Put currency options   23,488    21,547    89,718    8,482            143,235    145    923 
Total trading derivatives   12,498,007    16,322,331    37,203,111    24,614,376    11,215,253    16,443,848    118,296,926    4,587,880    4,699,213 
                                              
Total   12,498,007    16,322,331    37,203,111    24,824,958    11,461,411    17,259,864    119,569,682    4,757,187    4,721,257 

 

 25

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(a)Portfolio of derivative instruments, continued:

 

   Notional amount of contract with final expiration date in   Fair Value 
As of December 31, 2019 

 

Up to 1 month

   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years  

Over 3 year and up to 5 years

   Over 5 years  

Total

   Assets  

 

Liabilities

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap               8,166            8,166        2,547 
Interest rate swap               6,806        79,511    86,317    32    6,739 
Total derivatives held for hedging purposes               14,972        79,511    94,483    32    9,286 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap       33,182        192,647    134,812    821,241    1,181,882    61,562    34,443 
Total derivatives held as cash flow hedges       33,182        192,647    134,812    821,241    1,181,882    61,562    34,443 
                                              
Trading derivatives                                             
Currency forward   8,770,180    8,736,613    14,803,058    2,067,618    65,321    38,346    34,481,136    956,632    673,630 
Interest rate swap   1,790,715    5,806,453    19,749,389    16,219,325    7,021,586    10,823,786    61,411,254    888,581    886,963 
Interest rate swap and cross currency swap   414,717    858,732    3,849,108    5,679,500    3,569,635    4,204,064    18,575,756    873,371    1,210,061 
Call currency options   22,620    47,513    96,988    11,293            178,414    4,961    1,529 
Put currency options   19,583    36,024    92,524    10,541            158,672    1,076    2,209 
Total trading derivatives   11,017,815    15,485,335    38,591,067    23,988,277    10,656,542    15,066,196    114,805,232    2,724,621    2,774,392 
                                              
Total   11,017,815    15,518,517    38,591,067    24,195,896    10,791,354    15,966,948    116,081,597    2,786,215    2,818,121 

 

 26

 

  

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

  

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(b)Fair value Hedges:

 

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

 

Below is a detail of the hedged elements and instruments under fair value hedges as of March 31, 2020 and December 31, 2019:

 

   March   December 
   2020   2019 
   MCh$   MCh$ 
Hedge element        
Commercial loans   8,249    8,166 
Corporate bonds   66,854    86,317 
           
Hedge instrument          
Cross currency swap   8,249    8,166 
Interest rate swap   66,854    86,317 

 

(c)Cash flow Hedges:

 

(c.1)The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates and foreign exchange of foreign banks obligations and bonds issued abroad in US Dollars, Hong Kong dollars, Swiss Franc, Japanese Yens, Peruvian Sol, Australian Dollars, Euros and Norwegian kroner. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate.

 

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

 

 27

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

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

 

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Outflows:                                                        
Corporate Bond EUR   (848)               (732)   (1,421)   (3,159)   (2,842)   (3,159)   (2,842)   (101,259)   (91,089)   (109,157)   (98,194)
Corporate Bond HKD   (2,497)               (13,539)   (12,829)   (32,032)   (25,627)   (106,627)   (91,034)   (404,195)   (320,604)   (558,890)   (450,094)
Corporate Bond PEN               (894)   (1,953)   (894)   (3,906)   (3,575)   (2,929)   (3,575)   (54,248)   (49,651)   (63,036)   (58,589)
Corporate Bond CHF