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, 2014

 

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 AND SUBSIDIARIES

 

Index

 

I.

Interim Condensed Consolidated Statements of Financial Position

II.

Interim Condensed Consolidated Statements of Comprehensive Income for the Period

III.

Interim Condensed Consolidated Statements of Other Comprehensive Income for the Period

IV.

Interim Condensed Consolidated Statements of Changes in Equity

V.

Interim Condensed Consolidated Statements of Cash Flows

VI.

Notes to the Interim Condensed Consolidated Financial Statements

 

 

MCh$

=

Millions of Chilean pesos

ThUS$

=

Thousands of U.S. dollars

UF or CLF

=

Unidad de Fomento

 

 

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

Ch$ or CLP

=

Chilean pesos

US$ or USD

=

U.S. dollars

JPY

=

Japanese yen

EUR

=

Euro

MXN

=

Mexican pesos

HKD

=

Hong Kong dollars

PEN

=

Peruvian nuevo sol

CHF

=

Swiss franc

 

IFRS

=

International Financial Reporting Standards

IAS

=

International Accounting Standards

RAN

=

Compilation of Norms of the Chilean Superintendency of Banks

IFRIC

=

International Financial Reporting Interpretations Committee

SIC

=

Standards Interpretation Committee

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

 

Page

Interim Condensed Consolidated Statement of Financial Position

3

Interim Condensed Consolidated Statements of Comprehensive Income

4

nterim Condensed Consolidated Statement of Changes in Equity

6

Interim Condensed Consolidated Statements of Cash Flows

7

1.

Corporate information:

8

2.

Legal provisions, basis of preparation and other information:

8

3.

New Accounting Pronouncements:

12

4.

Changes in Accounting Policies and Disclosures:

16

5.

Relevant Events:

17

6.

Segment Reporting:

20

7.

Cash and Cash Equivalents:

23

8.

Financial Assets Held-for-trading:

24

9.

Cash collateral on securities borrowed and reverse repurchase agreements:

25

10.

Derivative Instruments and Accounting Hedges:

28

11.

Loans and advances to Banks:

34

12.

Loans to Customers, net:

35

13.

Investment Securities:

41

14.

Investments in Other Companies:

43

15.

Intangible Assets:

45

16.

Property and equipment:

48

17.

Current Taxes and Deferred Taxes:

50

18.

Other Assets:

55

19.

Current accounts and Other Demand Deposits:

56

20.

Savings accounts and Time Deposits:

56

21.

Borrowings from Financial Institutions:

57

22.

Debt Issued:

59

23.

Other Financial Obligations:

62

24.

Provisions:

62

25.

Other Liabilities:

66

26.

Contingencies and Commitments:

67

27.

Equity:

72

28.

Interest Revenue and Expenses:

76

29.

Income and Expenses from Fees and Commissions:

78

30.

Net Financial Operating Income:

79

31.

Foreign Exchange Transactions, net:

79

32.

Provisions for Loan Losses:

80

33.

Personnel Expenses:

81

34.

Administrative Expenses:

82

35.

Depreciation, Amortization and Impairment:

83

36.

Other Operating Income:

84

37.

Other Operating Expenses:

85

38.

Related Party Transactions:

86

39.

Fair Value of Financial Assets and Liabilities:

92

40.

Maturity of Assets and Liabilities:

102

41.

Subsequent Events:

104

 



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended March 31, 2014 and December 31, 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

Notes

 

March
2014

 

December
2013

 

 

 

 

 

MCh$

 

MCh$

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

7

 

794,834

 

873,308

 

Transactions in the course of collection

 

7

 

404,457

 

374,471

 

Financial assets held-for-trading

 

8

 

489,216

 

393,134

 

Cash collateral on securities borrowed and reverse repurchase agreements

 

9

 

37,863

 

82,422

 

Derivative instruments

 

10

 

516,919

 

374,688

 

Loans and advances to banks

 

11

 

1,557,200

 

1,062,056

 

Loans to customers, net

 

12

 

20,456,023

 

20,389,033

 

Financial assets available-for-sale

 

13

 

1,156,370

 

1,673,704

 

Financial assets held-to-maturity

 

13

 

 

 

Investments in other companies

 

14

 

16,811

 

16,670

 

Intangible assets

 

15

 

28,400

 

29,671

 

Property and equipment

 

16

 

197,727

 

197,578

 

Current tax assets

 

17

 

2,809

 

3,202

 

Deferred tax assets

 

17

 

149,961

 

145,904

 

Other assets

 

18

 

321,460

 

318,029

 

TOTAL ASSETS

 

 

 

26,130,050

 

25,933,870

 

LIABILITIES

 

 

 

 

 

 

 

Current accounts and other demand deposits

 

19

 

6,596,559

 

5,984,332

 

Transactions in the course of payment

 

7

 

212,751

 

126,343

 

Cash collateral on securities lent and repurchase agreements

 

9

 

370,735

 

256,766

 

Savings accounts and time deposits

 

20

 

9,973,468

 

10,402,725

 

Derivative instruments

 

10

 

570,886

 

445,132

 

Borrowings from financial institutions

 

21

 

593,258

 

989,465

 

Debt issued

 

22

 

4,746,683

 

4,366,960

 

Other financial obligations

 

23

 

198,014

 

210,926

 

Current tax liabilities

 

17

 

4,932

 

10,333

 

Deferred tax liabilities

 

17

 

38,701

 

36,569

 

Provisions

 

24

 

296,808

 

551,898

 

Other liabilities

 

25

 

235,006

 

268,105

 

TOTAL LIABILITIES

 

 

 

23,837,801

 

23,649,554

 

 

 

 

 

 

 

 

 

EQUITY

 

27

 

 

 

 

 

Attributable to Bank’s Owners:

 

 

 

 

 

 

 

Capital

 

 

 

1,944,920

 

1,849,351

 

Reserves

 

 

 

263,549

 

213,636

 

Other comprehensive income

 

 

 

1,532

 

15,928

 

Retained earnings:

 

 

 

 

 

 

 

Retained earnings from previous periods

 

 

 

16,379

 

16,379

 

Income for the period

 

 

 

150,750

 

513,602

 

Less:

 

 

 

 

 

 

 

Provision for minimum dividends

 

 

 

(84,883

)

(324,582

)

Subtotal

 

 

 

2,292,247

 

2,284,314

 

Non-controlling interests

 

 

 

2

 

2

 

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

 

2,292,249

 

2,284,316

 

TOTAL LIABILITIES AND EQUITY

 

 

 

26,130,050

 

25,933,870

 

 

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

 

3



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD

For the three-month ended March 31, 2014 and 2013

 (Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

A.                                    CONSOLIDATED STATEMENT OF INCOME

 

 

 

Notes

 

March
2014

 

March
2013

 

 

 

 

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

Interest revenue

 

28

 

507,366

 

397,542

 

Interest expense

 

28

 

(205,893

)

(153,082

)

Net interest income

 

 

 

301,473

 

244,460

 

 

 

 

 

 

 

 

 

Income from fees and commissions

 

29

 

95,403

 

94,356

 

Expenses from fees and commissions

 

29

 

(29,119

)

(22,766

)

Net fees and commission income

 

 

 

66,284

 

71,590

 

 

 

 

 

 

 

 

 

Net financial operating income

 

30

 

11,895

 

4,870

 

Foreign exchange transactions, net

 

31

 

22,578

 

9,960

 

Other operating income

 

36

 

5,723

 

7,892

 

Total operating revenues

 

 

 

407,953

 

338,772

 

 

 

 

 

 

 

 

 

Provisions for loan losses

 

32

 

(76,354

)

(49,843

)

 

 

 

 

 

 

 

 

OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES

 

 

 

331,599

 

288,929

 

 

 

 

 

 

 

 

 

Personnel expenses

 

33

 

(82,276

)

(77,932

)

Administrative expenses

 

34

 

(63,231

)

(59,299

)

Depreciation and amortization

 

35

 

(6,505

)

(7,201

)

Impairment

 

35

 

(203

)

(5

)

Other operating expenses

 

37

 

(7,765

)

(4,773

)

 

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

 

(159,980

)

(149,210

)

 

 

 

 

 

 

 

 

NET OPERATING INCOME

 

 

 

171,619

 

139,719

 

 

 

 

 

 

 

 

 

Income attributable to associates

 

14

 

207

 

608

 

Income before income tax

 

 

 

171,826

 

140,327

 

 

 

 

 

 

 

 

 

Income tax

 

17

 

(21,075

)

(18,857

)

 

 

 

 

 

 

 

 

NET INCOME FOR THE PERIOD

 

 

 

150,751

 

121,470

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Bank’s Owners

 

 

 

150,750

 

121,470

 

Non-controlling interests

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to Bank’s Owners:

 

 

 

$

 

 

$

 

 

Basic net income per share

 

27

 

1.62

 

1.33

 

Diluted net income per share

 

27

 

1.62

 

1.33

 

 

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

 

4



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD

For the three-month ended March 31, 2014 and 2013

 (Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

Notes

 

March
2014

 

March
2013

 

 

 

 

 

MCh$

 

MCh$

 

NET INCOME FOR THE YEAR

 

 

 

150,751

 

121,470

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

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

 

13

 

2,339

 

7,751

 

Gains and losses on derivatives held as cash flow hedges

 

10

 

(20,383

)

(542

)

Cumulative translation adjustment

 

 

 

39

 

(12

)

Subtotal Other comprehensive income before income taxes

 

 

 

(18,005

)

7,197

 

 

 

 

 

 

 

 

 

Income tax

 

 

 

3,609

 

(1,442

)

 

 

 

 

 

 

 

 

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

 

 

 

(14,396

)

5,755

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss in defined benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal other comprehensive income before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

136,355

 

127,225

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the parent

 

 

 

136,354

 

127,225

 

Non-controlling interest

 

 

 

1

 

 

 

 

 

 

 

 

 

 

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

 

 

 

$

 

 

$

 

 

Basic net income per share

 

 

 

1.46

 

1.39

 

Diluted net income per share

 

 

 

1.46

 

1.39

 

 

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

 

5



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three-month ended March 31, 2014 and 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in millions of Chilean pesos)

 

 

 

 

 

 

 

Reserves

 

Other comprehensive income

 

Retained earnings

 

 

 

 

 

 

 

 

 

Notes

 

Paid-in
Capital

 

Other
reserves

 

Reserves
from
earnings

 

Unrealized
gains (losses)
on available-
for- sale

 

Derivatives
cash flow
hedge

 

Cumulative
translation
adjustment

 

Retained
earnings

from
previous
periods

 

Income for
the year

 

Provision for
minimum
dividends

 

Attributable
to equity
holders of the
parent

 

Non-
controlling
interest

 

Total
equity

 

 

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2012

 

 

 

1,629,078

 

30,496

 

145,318

 

17,995

 

1,034

 

(94

)

16,379

 

467,610

 

(300,759

)

2,007,057

 

2

 

2,007,059

 

Capitalization of retained earnings

 

27

 

86,202

 

 

 

 

 

 

 

(86,202

)

 

 

 

 

Income distribution

 

 

 

 

1,760

 

 

 

 

 

 

(1,760

)

 

 

 

 

Retention (released) earnings

 

27

 

 

 

36,193

 

 

 

 

 

(36,193

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(343,455

)

300,759

 

(42,696

)

(1

)

(42,697

)

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(12

)

 

 

 

(12

)

 

(12

)

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(433

)

 

 

 

 

(433

)

 

(433

)

Valuation adjustment on available-for-sale instruments, net

 

 

 

 

 

 

6,200

 

 

 

 

 

 

6,200

 

 

6,200

 

Subscribed and paid shares

 

 

 

134,153

 

 

 

 

 

 

 

 

 

134,153

 

 

134,153

 

Income for the period 2013

 

 

 

 

 

 

 

 

 

 

121,470

 

 

121,470

 

 

121,470

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(80,658

)

(80,658

)

 

(80,658

)

Balances as of March 31, 2013

 

 

 

1,849,433

 

32,256

 

181,511

 

24,195

 

601

 

(106

)

16,379

 

121,470

 

(80,658

)

2,145,081

 

1

 

2,145,082

 

Defined benefit plans adjustment

 

 

 

 

(133

)

 

 

 

 

 

 

 

(133

)

 

(133

)

Equity adjustment associates

 

 

 

 

2

 

 

 

 

 

 

 

 

2

 

 

2

 

Dividends distributions and paid

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

1

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

83

 

 

 

 

83

 

 

83

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(14,022

)

 

 

 

 

(14,022

)

 

(14,022

)

Valuation adjustment on available-for-sale instruments, net

 

 

 

 

 

 

5,177

 

 

 

 

 

 

5,177

 

 

5,177

 

Shares issue costs

 

 

 

(82

)

 

 

 

 

 

 

 

 

(82

)

 

(82

)

Income for the period 2013

 

 

 

 

 

 

 

 

 

 

392,132

 

 

392,132

 

 

392,132

 

Provision for minimum dividends

 

 

 

 

 

 

 

 

 

 

 

(243,924

)

(243,924

)

 

(243,924

)

Balances as of December 31, 2013

 

 

 

1,849,351

 

32,125

 

181,511

 

29,372

 

(13,421

)

(23

)

16,379

 

513,602

 

(324,582

)

2,284,314

 

2

 

2,284,316

 

Capitalization of retained earnings

 

27

 

95,569

 

 

 

 

 

 

 

(95,569

)

 

 

 

 

Retention (released) earnings

 

27

 

 

 

49,913

 

 

 

 

 

(49,913

)

 

 

 

 

Dividends distributions and paid

 

27

 

 

 

 

 

 

 

 

(368,120

)

324,582

 

(43,538

)

(1

)

(43,539

)

Other comprehensive income:

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

39

 

 

 

 

39

 

 

39

 

Cash flow hedge adjustment, net

 

 

 

 

 

 

 

(16,306

)

 

 

 

 

(16,306

)

 

(16,306

)

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

 

 

 

 

 

 

1,871

 

 

 

 

 

 

1,871

 

 

1,871

 

Income for the period 2014

 

 

 

 

 

 

 

 

 

 

150,750

 

 

150,750

 

1

 

150,751

 

Provision for minimum dividends

 

27

 

 

 

 

 

 

 

 

 

(84,883

)

(84,883

)

 

(84,883

)

Balances as of March 31, 2014

 

 

 

1,944,920

 

32,125

 

231,424

 

31,243

 

(29,727

)

16

 

16,379

 

150,750

 

(84,883

)

2,292,247

 

2

 

2,292,249

 

 

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

 

6



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three-month ended March 31, 2014 and 2013

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

 

 

 

 

March

 

March

 

 

 

Notes

 

2014

 

2013

 

 

 

 

 

MCh$

 

MCh$

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income for the period

 

 

 

150,751

 

121,470

 

Items that do not represent cash flows:

 

 

 

 

 

 

 

Depreciation and amortization

 

35

 

6,505

 

7,201

 

Impairment of intangible assets and property and equipment

 

35

 

203

 

5

 

Provision for loan losses

 

32

 

84,446

 

57,140

 

Provision of contingent loans

 

32

 

1,831

 

1,561

 

Fair value adjustment of financial assets held-for-trading

 

 

 

84

 

(346

)

Income attributable to investments in other companies

 

14

 

(207

)

(608

)

Income from sales of assets received in lieu of payment

 

36

 

(856

)

(1,777

)

Net gain on sales of property and equipment

 

 

 

(37

)

(160

)

(Increase) decrease in other assets and liabilities

 

 

 

(88,796

)

(80,504

)

Charge-offs of assets received in lieu of payment

 

37

 

333

 

388

 

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

 

 

 

381

 

(237

)

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

 

 

 

(154,459

)

11,400

 

Net changes in interest and fee accruals

 

 

 

19,441

 

24,562

 

Changes in assets and liabilities that affect operating cash flows:

 

 

 

 

 

 

 

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

 

 

 

(494,939

)

376,721

 

(Increase) decrease in loans to customers

 

 

 

(73,988

)

(484,889

)

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

 

 

 

(122,348

)

(118,379

)

(Increase) decrease in deferred taxes, net

 

17

 

(2,393

)

5,102

 

(Increase) decrease in current account and other demand deposits

 

 

 

611,675

 

(15,796

)

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

 

 

 

124,615

 

109,187

 

(Increase) decrease in savings accounts and time deposits

 

 

 

(428,102

)

196,836

 

Proceeds from sale of assets received in lieu of payment

 

 

 

1,450

 

1,885

 

Total cash flows from operating activities

 

 

 

(364,410

)

210,762

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

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

 

 

 

415,789

 

(150,906

)

Purchases of property and equipment

 

16

 

(4,587

)

(3,358

)

Proceeds from sales of property and equipment

 

 

 

40

 

416

 

Purchases of intangible assets

 

15

 

(821

)

(1,040

)

Investments in other companies

 

14

 

 

 

Dividends received from investments in other companies

 

14

 

 

 

Total cash flows from investing activities

 

 

 

410,421

 

(154,888

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds of mortgage finance bonds

 

 

 

 

 

Repayment of mortgage finance bonds

 

 

 

(4,219

)

(5,785

)

Proceeds from bond issuances

 

22

 

555,108

 

374,323

 

Redemption of bond issuances

 

 

 

(124,865

)

(188,958

)

Proceeds from subscription and payment of shares

 

 

 

 

134,153

 

Dividends paid

 

27

 

(368,120

)

(343,455

)

(Increase) decrease in borrowings from financial institutions

 

 

 

(97,911

)

(85,528

)

(Increase) decrease in other financial obligations

 

 

 

(11,170

)

(10,708

)

(Increase) decrease in borrowings from Central Bank of Chile

 

 

 

 

 

Borrowings from Central Bank of Chile (long-term)

 

 

 

7

 

 

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

 

 

 

(8

)

(3

)

Long-term foreign borrowings

 

 

 

110,627

 

252,109

 

Payment of long-term foreign borrowings

 

 

 

(408,355

)

(90,468

)

Proceeds from other long-term borrowings

 

 

 

6,373

 

53

 

Payment of other long-term borrowings

 

 

 

(8,491

)

(1,248

)

Total cash flows from financing activities

 

 

 

(351,024

)

34,485

 

TOTAL NET POSITIVE CASH FLOWS FOR THE PERIOD

 

 

 

(305.013

)

90,359

 

Net effect of exchange rate changes on cash and cash equivalents

 

 

 

15,375

 

(5,935

)

Cash and cash equivalents at beginning of year

 

 

 

1,538,618

 

1,236,324

 

Cash and cash equivalents at end of period

 

7

 

1,248,980

 

1,320,748

 

 

 

 

2014

 

2013

 

 

 

MCh$

 

MCh$

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest received

 

434,806

 

396,318

 

Interest paid

 

(113,892

)

(127,296

)

 

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

 

7



Table of Contents

 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Translation of financial statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 


 

1.                   Corporate information:

 

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

 

Banco de Chile (“Banco de Chile” or the “Bank”) is a Corporation organized under the laws of the Republic of Chile, regulated by the Superintendency of Banks and Financial Institutions (“SBIF” or “Superintendency”), Since 2001, - when the bank was first listed on the New York Stock Exchange (“NYSE”), in the course of its American Depository Receipt (ADR) program, which is also registered at the London Stock Exchange — Banco de Chile additionally follows the regulations published by the United States Securities and Exchange Commission (“SEC”).

 

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

 

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

 

The Interim Condensed Consolidated Financial Statements of Banco de Chile, for the period ended March 31, 2014 were approved for issuance in accordance with the directors on April 24, 2014.

 

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

 

(a)                                 Legal provisions:

 

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

 

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

 

8



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

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

 

(b)                        Basis of preparation:

 

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

 

(b.2)            The following table details the entities in which the Bank has controlling interest and that are therefore consolidated in these financial statements:

 

 

 

 

 

 

 

 

 

Interest Owned

 

 

 

 

 

 

 

 

 

Direct

 

Indirect

 

Total

 

 

 

 

 

 

 

 

 

March

 

December

 

March

 

December

 

March

 

December

 

 

 

 

 

 

 

Functional

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

Rut

 

Subsidiaries

 

Country

 

Currency

 

%

 

%

 

%

 

%

 

%

 

%

 

44,000,213-7

 

Banchile Trade Services Limited

 

Hong Kong

 

US$

 

100.00

 

100.00

 

 

 

100.00

 

100.00

 

96,767,630-6

 

Banchile Administradora General de Fondos S.A.

 

Chile

 

Ch$

 

99.98

 

99.98

 

0.02

 

0.02

 

100.00

 

100.00

 

96,543,250-7

 

Banchile Asesoría Financiera S.A.

 

Chile

 

Ch$

 

99.96

 

99.96

 

 

 

99.96

 

99.96

 

77,191,070-K

 

Banchile Corredores de Seguros Ltda.

 

Chile

 

Ch$

 

99.83

 

99.83

 

0.17

 

0.17

 

100.00

 

100.00

 

96,571,220-8

 

Banchile Corredores de Bolsa S.A.

 

Chile

 

Ch$

 

99.70

 

99.70

 

0.03

 

0.03

 

100.00

 

100.00

 

96,932,010-K

 

Banchile Securitizadora S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

96,645,790-2

 

Socofin S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

96,510,950-1

 

Promarket S.A.

 

Chile

 

Ch$

 

99.00

 

99.00

 

1.00

 

1.00

 

100.00

 

100.00

 

 

9



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

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

 

(c)          Use of estimates and judgment:

 

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

 

1.                           Goodwill valuation (Note No. 15);

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

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

4.                           Provisions (Note No. 24);

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

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

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

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

9.                           Counterparty value adjustment (Note No. 10).

 

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, 2014 there have been no significant changes to estimates made during period 2013.

 

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

 

Due to the nature of its business, the Bank and its subsidiaries’ activities do not have a cyclical or seasonal character. Accordingly, no specific details have been included on the notes to this Interim Condensed Consolidated Financial Statements with the information regarding the period of three-month ended March 31, 2014.

 

(e)          Relative Importance:

 

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

 

10



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

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

 

(f)       Reclassifications:

 

During the period of three-month ended as of March 31, 2013, the expense that, by their nature is directly related with credit cards was reclassified from “Other operational expenses” to “Expenses from fees and commissions”, in order to relate them better with the revenues from that product.  The effect of this reclassification is the following:

 

 

 

Balance
as of
March 31, 2013

 

Reclassification

 

Reclassified
Balance as of

March 31, 2013

 

 

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

Expenses from fees and commissions

 

(17,388

)

(5,378

)

(22,766

)

Other operational expenses

 

(10,151

)

5,378

 

(4,773

)

 

This reclassification does not affect any comply of covenants.

 

During the period ended as of March 31, 2014 there are not other significant reclassifications, different to described above.

 

11



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                   New Accounting Pronouncements:

 

3.1                                         Accounting rules issued by IASB

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB), which are no effective as of March 31, 2014:

 

3.1                                         Accounting rules issued by IASB:

 

IFRS 9 Financial Instruments: Financial liabilities

 

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

 

IFRS 9 Financial Instruments: Recognition and Measurement

 

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

 

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

 

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

 

12



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

IFRS 9 Financial Instruments: Recognition and Measurement, continued

 

In November 2013, the IASB issued amendments to IFRS 9 for introduce a new model of hedge accounting, which align hedge accounting and risk management.  In that amendment is deleted January 1, 2015 as effective date of application, the new effective date is in process of definition by the IASB.

 

Banco de Chile and its subsidiaries are assessing the possible impact of adoption of these changes on the consolidated financial statements, however, that impact will depend on the assets maintained by the institution as of the adoption date.  It is not practicable to quantify the effect on the issuance of these consolidated financial statements.  To date, this standard has not been approved by the Superintendency of Banks, event that is required for their application.

 

IAS 19 Employee benefits

 

On November 2013, IASB modified requirements of IAS 19 respect to employee contributions or third parties contributions, which are related to defined benefit plans.

 

Adoption date of this modification is beginning July 1, 2014, and anticipated adoption is permitted.

 

The Bank has not employee contributions related to defined benefit plans, so this amendment has not impacts over consolidated financial statements of Banco de Chiles and its subsidiaries.

 

Annual improvements IFRS 2010 — 2012 Cycle and 2011 — 2013 Cycle

 

On December 12, 2013, IASB issued two cycles of annual improvements to IFRS: 2010 — 2012 and 2011 — 2013 Cycles, these contain 11 changes in 9 rules:

 

2010-2012 Cycle

 

IFRS 2 — Share based payments; Definition relating to vesting conditions. Not applicable

 

This rule was amended to change definitions of “vesting conditions” and “market condition” and add definition for “performance condition” and “service condition” which were previously included within the definition of “vesting condition”. The amendment is applicable since July 1, 2014.

 

IFRS 3 — Business combination; Accounting for contingent consideration in a business combination. Without impact.

 

This amendment clarifies that contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date. The amendment is applicable since July, 2014.

 

13



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

Annual improvements IFRS 2010 — 2012 Cycle and 2011 — 2013 Cycle, continued

 

2010-2012 Cycle, continued

 

IFRS 8 — Operating Segments. The Bank and its subsidiaries are assessing the impact of adoption of these changes in its financial position.

 

The amendment requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment is applicable since July, 2014.

 

IAS 16 — Property, plant and equipment. Not applicable

 

The amendment clarifies that gross carrying amount and depreciation are adjusted for to make consistent with revaluation, when an entity uses revaluation model. The amendment is applicable since July, 2014.

 

IAS 24 — Related party disclosures; Key management personnel. Not applicable

 

The amendment clarifies that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity.

 

IAS 38 — Intangible assets; Revaluation method proportionate restatement of accumulated depreciation. Not applicable

 

The amendment requirements clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount, when an entity uses revaluation model. The amendment is applicable since July, 2014.

 

2011-2013 Cycle

 

IFRS 1 — First time adoption. Not applicable

 

The amendment clarifies that a first-time adopters is allowed, but not required, to apply a new IFRS that is not yet mandatory if that IFRS permits early application.  If an entity chooses to early apply a new IFRS, it must apply that new IFRS retrospectively throughout all periods presented unless IFRS 1 provides and exemption or an exception that permits or requires otherwise.

 

IFRS 3 — Business combination. Not applicable

 

The amendment clarifies that IFRS 3 does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangements itself. The amendment is applicable since July, 2014.

 

14



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

3.                           New Accounting Pronouncements, continued:

 

Annual improvements IFRS 2010 — 2012 Cycle and 2011 — 2013 Cycle, continued

 

2011-2013 Cycle, continued

 

IFRS 13 — Fair Value Measurement. The Bank and its subsidiaries are assessing the impact of adoption of these changes in its financial position.

 

The scope of the portfolio exeption for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with IAS 39 or IFRS 9, even if those contracts do not meet the definition of financial assets or financial liabilities within IAS 32. The amendment is applicable since July, 2014.

 

IAS 40 — Investment Properties

 

IAS 40 was amended to clarify that this standard and IFRS 3 — Business Combinations are not mutually exclusive and application of both standards may be required.  Consequently, an entity acquiring investment property must determine whether, the property meets the definition of investment property in IAS 40 and, the transactions meet the definition of business combination under IFRS 3. The amendment is applicable since July, 2014.

 

IFRS 14 — Regulatory Deferral Accounts. The Bank and its subsidiaries are assessing the impact of adoption of these changes in its financial position.

 

On January 31, 2014 IASB issued IFRS 14, which specifies the financial reporting requirements for “regulatory deferral account balances” that arise when an entity provides good or services to customers at a price or rate that is subject to rate regulation. This rule is effective since January 1, 2016.  Its early application is permitted.

 

3.2                                         Accounting rules issued by SBIF:

 

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

 

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

 

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

 

15



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

4.                   Changes in Accounting Policies and Disclosures:

 

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

 

During the period ended as of March 31, 2014, the Bank and its subsidiary Banchile Corredores de Seguros have established provisions for the concept of commission’s refunds to the insurance companies for the policies (paid in advance) commercialized since December 1, 2013.  This estimation is based in the history of the prepayments and disclaimers of its products portfolio that originate the commissions.  This estimation corresponds to a change in accounting estimates and its effect is recognised in income under item of “Income from fees and commissions”.  The effect of the change was a charge to income of MCh$2,340.

 

16



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

5.                   Relevant Events:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

45.                               Relevants events, continued

 

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

 

Likewise, the Board of Directors resolved to call an Extraordinary Shareholders Meeting to be held on the same date in order to propose, among other things, the capitalization of the 30% of the distributable net income of the Bank obtained during the fiscal year ending on December 31st, 2013, through the issuance of fully paid-in shares, of no par value, with a value of $64.56 per “Banco de Chile “share, which will be distributed among the shareholders in the proportion of 0.02312513083 shares for each “Banco de Chile” share and to adopt the necessary agreements subject to the exercise of the options established in article 31 of Law 19,396.

 

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

 

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

 

Directors:

 

Francisco Aristeguieta Silva

 

 

Jorge Awad Mehech

(Independent)

 

 

Juan José Bruchou

 

 

Jorge Ergas Heymann

 

 

Jaime Estévez Valencia

(Independent)

 

 

Pablo Granifo Lavín

 

 

Andrónico Luksic Craig

 

 

Jean Paul Luksic Fontbona

 

 

Gonzalo Menéndez Duque

 

 

Francisco Pérez Mackenna

 

 

Juan Enrique Pino Visinteiner

 

 

 

First Alternate Director:

 

Rodrigo Manubens Moltedo

Second Alternate Director:

 

Thomas Fürst Freiwirth

(Independent)

 

18



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

45.                               Relevants events, continued

 

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

 

President:

 

Pablo Granifo Lavín

Vice-President:

 

Andrónico Luksic Craig

Vice-President:

 

Francisco Aristeguieta Silva

 

 

 

Advisers to the Board:

 

Hernán Büchi Buc

 

 

Francisco Garcés Garrido

 

 

Jacob Ergas Ergas

 

19



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                   Segment Reporting:

 

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

 

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

 

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

 

Treasury and money market operations:

 

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

 

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

 

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

 

Entity

 

· Banchile Trade Services Limited

· Banchile Administradora General de Fondos S.A.

· Banchile Asesoría Financiera S.A.

· Banchile Corredores de Seguros Ltda.

· Banchile Corredores de Bolsa S.A.

· Banchile Securitizadora S.A.

· Socofin S.A.

· Promarket S.A.

 

20



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                           Segment Reporting, continued:

 

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

 

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

 

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

 

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

 

The Bank did not enter into transactions with a particular customer or third parties that exceed 10% or more of its total income during the three-month period ended March 31, 2014 and 2013.

 

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

 

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

 

On July 1, 2013, Banco de Chile absorbed its subsidiary Banchile Factoring SA. This subsidiary was previously presented under the “Subsidiaries” operating segment. As a result of being absorbed by the Bank, now its operations are presented under “Retail” and “Wholesale” segments. Operating segment information for March 31, 2013 has been reclassified for comparative purposes.

 

21



Table of Contents

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued

 


 

6.                            Segment Reporting, continued:

 

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

 

 

 

Retail

 

Wholesale

 

Treasury(1)

 

Subsidiaries

 

Subtotal

 

Consolidation
adjustment

 

Total

 

 

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

March

 

 

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

 

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

MCh$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

225,060

 

174,534

 

87,260

 

68,749

 

(9,515

)

1,395

 

(2,036

)

(3,049

)

300,769

 

241,629

 

704

 

2,831

 

301,473

 

244,460

 

Net fees and commissions income (loss)

 

32,002

 

39,498

 

10,128

 

10,210

 

(450

)

(67

)

28,038

 

24,729

 

69,718

 

74,370

 

(3,434

)

(2,780

)

66,284

 

71,590

 

Other operating income

 

973

 

4,271

 

8,128

 

8,690

 

23,537

 

3,639

 

8,899

 

9,539

 

41,537

 

26,139

 

(1,341

)

(3,417

)

40,196

 

22,722

 

Total operating revenue

 

258,035

 

218,303

 

105,516

 

87,649

 

13,572

 

4,967

 

34,901

 

31,219

 

412,024

 

342,138

 

(4,071

)

(3,366

)

407,953

 

338,772

 

Provisions for loan losses

 

(61,603

)

(51,999

)

(14,877

)

2,184

 

 

 

126

 

(28

)

(76,354

)

(49,843

)

 

 

(76,354

)

(49,843

)

Depreciation and amortization

 

(4,740

)

(5,190

)

(1,223

)

(1,449

)

(54

)

(139

)

(488