EX-99.1 2 ea149410ex99-1_bankofchile.htm CONSOLIDATED FINANCIAL STATEMENTS WITH NOTES AS OF SEPTEMBER 30, 2021

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
Interim Consolidated Statement of Changes in Equity 4
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: 21
5. Relevant Events: 22
6. Business Segments: 25
7. Cash and Cash Equivalents: 28
8. Financial Assets Held-for-trading: 29
9. Investments under resale agreements and obligations under repurchase agreements: 30
10. Derivative Instruments and Accounting Hedges: 32
11. Loans and Advances to Banks, net: 38
12. Loans to Customers, net: 39
13. Investment Securities: 45
14. Investments in Other Companies: 47
15. Intangible Assets: 49
16. Fixed assets, leased assets and lease liabilities: 51
17. Current Taxes and Deferred Taxes: 56
18. Other Assets: 60
19. Current Accounts and Other Demand Deposits: 61
20. Savings Accounts and Time Deposits: 61
21. Borrowings from Financial Institutions: 62
22. Debt Issued: 63
23. Other Financial Obligations: 66
24. Provisions: 66
25. Other Liabilities: 70
26. Contingencies and Commitments: 71
27. Equity: 77
28. Interest Revenue and Expenses: 80
29. Income and Expenses from Fees and Commissions: 82
30. Net Financial Operating Income: 83
31. Foreign Exchange Transactions, Net: 83
32. Provisions for Loan Losses: 84
33. Personnel Expenses: 85
34. Administrative Expenses: 86
35. Depreciation, Amortization and Impairment: 87
36. Other Operating Income: 88
37. Other Operating Expenses: 89
38. Related Party Transactions: 90
39. Fair Value of Financial Assets and Liabilities: 95
40. Maturity of Assets and Liabilities: 108
41. Subsequent Events: 110

 

i

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended September 30, 2021 and December 31, 2020

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

(Expressed in million of Chilean pesos)

 

      September   December 
   Notes  2021   2020 
      MCh$   MCh$ 
ASSETS           
Cash and due from banks  7   3,099,335    2,560,216 
Transactions in the course of collection  7   410,644    582,308 
Financial assets held-for-trading  8   3,141,762    4,666,156 
Investment under resale agreements  9   76,496    76,407 
Derivative instruments  10   2,844,672    2,618,004 
Loans and advances to banks  11   2,017,505    2,938,991 
Loans to customers, net  12   32,404,479    30,190,058 
Financial assets available-for-sale  13   3,440,313    1,060,523 
Financial assets held-to-maturity  13   302,532    — 
Investments in other companies  14   48,088    44,649 
Intangible assets  15   68,401    60,701 
Property and equipment  16   223,688    217,928 
Leased assets  16   103,224    118,829 
Current tax assets  17   671    22,949 
Deferred tax assets  17   387,291    357,945 
Other assets  18   649,322    579,467 
TOTAL ASSETS      49,218,423    46,095,131 
              
LIABILITIES             
Current accounts and other demand deposits  19   17,607,258    15,167,229 
Transactions in the course of payment  7   337,560    1,302,000 
Obligations under repurchase agreements  9   111,438    288,917 
Savings accounts and time deposits  20   8,972,204    8,899,541 
Derivative instruments  10   2,644,144    2,841,756 
Borrowings from financial institutions  21   4,814,758    3,669,753 
Debt issued  22   8,758,172    8,593,595 
Other financial obligations  23   259,116    191,713 
Lease liabilities  16   99,013    115,017 
Current tax liabilities  17   82,930    311 
Deferred tax liabilities  17   —    — 
Provisions  24   882,161    733,911 
Other liabilities  25   608,030    565,120 
TOTAL LIABILITIES      45,176,784    42,368,863 
              
EQUITY  27          
Attributable to Bank’s Owners:             
Capital      2,418,833    2,418,833 
Reserves      703,571    703,206 
Other comprehensive income      (19,214)   (51,250)
Retained earnings:             
Retained earnings from previous years      655,478    412,641 
Income for the period      509,104    463,108 
Less:             
Provision for minimum dividends      (226,135)   (220,271)
Subtotal      4,041,637    3,726,267 
Non-controlling interests      2    1 
TOTAL EQUITY      4,041,639    3,726,268 
TOTAL LIABILITIES AND EQUITY      49,218,423    46,095,131 

 

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 nine-month ended September 30, 2021 and 2020

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

(Expressed in million of Chilean pesos)

 

      September   September 
   Notes  2021   2020 
      MCh$   MCh$ 
            
Interest revenue  28   1,515,435    1,355,618 
Interest expense  28   (470,917)   (392,880)
Net interest income      1,044,518    962,738 
              
Income from fees and commissions  29   427,087    427,827 
Expenses from fees and commissions  29   (85,882)   (81,757)
Net fees and commission income      341,205    346,070 
              
Net financial operating income  30   129,802    15,264 
Foreign exchange transactions, net  31   (15,239)   109,677 
Other operating income  36   25,720    25,679 
Total operating revenues      1,526,006    1,459,428 
              
Provisions for loan losses  32   (223,781)   (377,511)
              
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES      1,302,225    1,081,917 
              
Personnel expenses  33   (335,929)   (319,493)
Administrative expenses  34   (241,193)   (250,481)
Depreciation and amortization  35   (57,003)   (54,868)
Impairment  35   (3)   (882)
Other operating expenses  37   (26,178)   (24,875)
              
TOTAL OPERATING EXPENSES      (660,306)   (650,599)
              
NET OPERATING INCOME      641,919    431,318 
              
Income attributable to associates  14   (2,848)   (392)
Income before income tax      639,071    430,926 
              
Income tax  17   (129,966)   (94,102)
              
NET INCOME FOR THE PERIOD      509,105    336,824 
              
Attributable to:             
Bank’s Owners  27   509,104    336,823 
Non-controlling interests      1    1 
              
Net income per share attributable to Bank’s Owners:      Ch$    Ch$ 
Basic net income per share  27   5.04    3.33 
Diluted net income per share  27   5.04    3.33 

 

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 nine-month ended September 30, 2021 and 2020,

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

(Expressed in million of Chilean pesos)

 

      September   September 
   Notes  2021   2020 
      MCh$   MCh$ 
            
NET INCOME FOR THE PERIOD      509,105    336,824 
              
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Net gains (losses) on available-for-sale instruments valuation  13   (117,098)   (1,397)
Net gains (losses) on derivatives held as cash flow hedges  10   198,321    (17,075)
Subtotal Other comprehensive income before income taxes      81,223    (18,472)
              
Income tax relating to the components of other comprehensive income that are reclassified in income for the period      (49,187)   4,988 
Total other comprehensive income items that will be reclassified subsequently to profit or loss      32,036    (13,484)
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Adjustment for defined benefit plans  24   500    (91)
              
Subtotal other comprehensive income before income taxes      500    (91)
              
Income tax relating to the components of other comprehensive income that will not be reclassified to income for the period  17   (135)   25 
Total other comprehensive income items that will not be reclassified subsequently to profit or loss      365    (66)
              
CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD      541,506    323,274 
              
Attributable to:             
Bank’s Owners      541,505    323,273 
Non-controlling interests      1    1 

 

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 nine-month ended September 30, 2021 and 2020

(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, 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)   (1)   (50,078)
Other comprehensive income:                                                               
Defined benefit plans adjustment, net      —    (66)   —    —    —    —    —    —    —    (66)   —    (66)
Derivatives cash flow hedge  27   —    —    —    —    (17,075)   4,610    —    —    —    (12,465)   —    (12,465)
Valuation adjustment on available-for-sale instruments  27   —    —    —    (1,397)   —    378    —    —    —    (1,019)   —    (1,019)
Income for the period 2020  27   —    —    —    —    —    —    —    336,823    —    336,823    1    336,824 
Provision for minimum dividends      —    —    —    —    —    —    —    —    (169,951)   (169,951)   —    (169,951)
Balances as of September 30, 2020      2,418,833    31,714    671,492    2,430    (98,115)   25,600    412,641    336,823    (169,951)   3,631,467    1    3,631,468 
Other comprehensive income:                                                               
Derivatives cash flow hedge, net      —    —    —    —    27,433    (7,407)   —    —    —    20,026    —    20,026 
Valuation adjustment on available-for-sale instruments      —    —    —    (1,629)   —    438    —    —    —    (1,191)   —    (1,191)
Income for the period 2020      —    —    —    —    —    —    —    126,285    —    126,285    —    126,285 
Provision for minimum dividends      —    —    —    —    —    —    —    —    (50,320)   (50,320)   —    (50,320)
Balances as of December 31, 2020’      2,418,833    31,714    671,492    801    (70,682)   18,631    412,641    463,108    (220,271)   3,726,267    1    3,726,268 
Retention of profits  27   —    —    —    —    —    —    242,837    (242,837)   —    —    —    — 
Dividends distributions and paid  27   —    —    —    —    —    —    —    (220,271)   220,271    —    —    — 
Other comprehensive income:                                                               
Defined benefit plans adjustment, net      —    365    —    —    —    —    —    —    —    365    —    365 
Derivatives cash flow hedge, net  27   —    —    —    —    198,321    (53,546)   —    —    —    144,775    —    144,775 
Valuation adjustment on available-for-sale instruments  27   —    —    —    (117,098)   —    4,359    —    —    —    (112,739)   —    (112,739)
Income for the period 2021  27   —    —    —    —    —    —    —    509,104    —    509,104    1    509,105 
Provision for minimum dividends  27   —    —    —    —    —    —    —    —    (226,135)   (226,135)   —    (226,135)

Balances as of September 30, 2021

      2,418,833    32,079    671,492    (116,297)   127,639    (30,556)   655,478    509,104    (226,135)   4,041,637    2    4,041,639 

 

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

 

4

 

 

BANCO DE CHILE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the periods between January 1 and September 30,

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

(Expressed in million of Chilean pesos)

 

      September   September 
   Notes  2021   2020 
      MCh$   MCh$ 
CASH FLOWS FROM OPERATING ACTIVITIES:           
Net income for the period      509,105    336,824 
Charges (credits) to income that do not represent cash flows:             
Depreciation and amortization  35   57,003    54,868 
Impairment  35   3    882 
Provision for loans and accounts receivable from customers and owed by banks  32   128,894    357,677 
Provision of contingent loans  32   2,293    21,555 
Additional provisions  32   140,000    27,000 
Fair value adjustment of financial assets held-for-trading      7,563    (747)
Changes in assets and liabilities by deferred taxes  17   (25,122)   (11,982)
(Gain) loss attributable to investments in companies with significant influence, net  14   3,237    778 
(Gain) loss from sales of assets received in lieu of payment,net      (2,124)   (6,218)
(Gain) loss on sales of property and equipment, net  36   (208)   (25)
Charge-offs of assets received in lieu of payment  37   1,557    3,022 
Other charges (credits) to income that do not represent cash flows      11,377    20,859 
Net changes in exchange rate, interest and fees accrued on assets and liabilities      (182,966)   78,422 
              
Changes in assets and liabilities that affect operating cash flows:             
(Increase) decrease in loans and advances to banks, net      921,309    (1,272,152)
(Increase) decrease in loans to customers      (2,080,528)   (1,597,574)
(Increase) decrease in financial assets held-for-trading, net      85,822    497,684 
(Increase) decrease in other assets and liabilities      (209,024)   81,289 
Increase (decrease) in current account and other demand deposits      2,436,895    3,195,442 
Increase (decrease) in transactions from reverse repurchase agreements      (163,883)   (34,896)
Increase (decrease) in savings accounts and time deposits      78,611    (1,940,891)
Sale of assets received in lieu of payment or adjudicated      6,827    16,323 
Total cash flows from operating activities      1,726,641    (171,860)
              
CASH FLOWS FROM INVESTING ACTIVITIES:             
(Increase) decrease in financial assets available-for-sale, net      (2,482,319)   82,901 
(Increase) decrease in financial assets held-to-maturity      (299,324)   — 
Net changes in leased assets  16   (1,086)   (559)
Purchases of property and equipment  16   (27,870)   (20,356)
Sales of property and equipment      208    25 
Acquisition of intangible assets  15   (20,759)   (13,596)
Acquisition of investments in companies  14   (7,847)   — 
Dividends received from investments in companies  14   1,486    1,387 
Total cash flows from investing activities      (2,837,511)   49,802 
              
CASH FLOWS FROM FINANCING ACTIVITIES:             
Redemption of letters of credit      (1,263)   (1,801)
Issuance of bonds  22   765,735    814,881 
Redemption of bonds      (938,403)   (1,084,548)
Dividends paid  27   (220,271)   (350,538)
Increase (decrease) in borrowings from foreign financial institutions      (92,466)   (801,465)
Increase (decrease) in other financial obligations      67,602    (38,725)
Increase (decrease) in other obligations with Central Bank of Chile      1,237,800    3,110,600 
Payment of other long-term borrowings      (174)   (16,885)
Payments for lease agreements  16   (22,988)   (21,542)
Total cash flows from financing activities      795,572    1,609,977 
              
TOTAL NET (NEGATIVE) POSITIVE CASH FLOWS FOR THE PERIOD      (315,298)   1,487,919 
              
Effect of exchange rate changes      226,682    54,340 
              
Cash and cash equivalents at beginning of period      6,088,115    3,931,371 
              
Cash and cash equivalents at end of period  7   5,999,499    5,473,630 

 

      September   September 
      2021   2020 
      MCh$   MCh$ 
Operational Cash flow interest:           
Interest received      1,225,512    1,387,997 
Interest paid      (137,278)   (292,497)

 

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.

 

The Bank is a Corporation organized under the laws of the Republic of Chile, regulated by the Chilean Commission for the Financial Market (“CMF”). 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 and financial advisory services.

 

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

 

The Consolidated Financial Statements of Banco de Chile, for the period ended September 30, 2021 were approved by the Directors on October 28, 2021.

 

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:

 

Decree Law No. 3,538 of 1980, in accordance with the text replaced by the first article of Law No. 21,000 that “Creates the Financial Market Commission”, provides in paragraph 6 of its article 5 that the Market Commission Financiero (“CMF”) may “set the rules for the preparation and presentation of the reports, balance sheets, balance sheets and other financial statements of the audited entities and determine the principles according to which they must keep their accounting”.

 

In accordance with the current legal framework, banks must use the accounting principles established by the CMF and in everything that is not dealt with by it or is contrary to its instructions, they must adhere to the generally accepted accounting principles, which correspond to the regulations techniques issued by the Colegio de Contadores de Chile AG, coinciding with the International Financial Reporting Standards (“IFRS”) agreed by the International Accounting Standards Board (“IASB”). In the event of discrepancies between these generally accepted accounting principles and the accounting criteria issued by the CMF, the latter shall prevail.

 

The notes to the Consolidated Financial Statements contain additional information to that presented in the Consolidated Statement of Financial Position, in the Consolidated Statement of Income, Consolidated Statement of Other Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows. They provide narrative descriptions or disaggregation of such statements in a clear, relevant, reliable and comparable way.

 

(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  September   December   September   December   September   December 
RUT  Subsidiaries  Country  Currency  2021   2020   2021   2020   2021   2020 
            %   %   %   %   %   % 
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 

 

(*)Company in the process of dissolution. See Note No. 5 e).

 

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 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. The 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, according to quantify certain assets, liabilities, gains, loss and commitments.

 

During the period ended September 30, 2021, there have been no 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 nine-month period ended September 30, 2021 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 in the accounting and an account receivable is recorded under Loans to Customers, reflected at their present value. 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:

 

(f)Leases, 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.

 

The monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore 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 2021.

 

9

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

3.New Accounting Pronouncements:

 

Standards approved and/or modified by the International Accounting Standards Board (IASB) and by the Chilean Commission for the Financial Market (CMF):

 

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 IASB and the CMF, which have been adopted by the Bank and its subsidiaries, are detailed below:

 

Accounting standards issued by IASB.

 

IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement IFRS 4 Insurance Contracts and IFRS 16 Leases. Interest Rate Benchmark Reform.

 

In August 2020, the IASB issued a set of amendments related to phase 2 of the Benchmark Reform of Interbank Offering Rates (IBOR) and other benchmark interest rates amending IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

 

The amendments complement the changes issued during 2019 and focus on the effects on the financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate. The amendments in phase two refer to changes that affect the contractual cash flows. A company does not need to write off / adjust the book value of financial instruments for changes, but rather update the effective interest rate to reflect the change to an alternative benchmark. In the case of hedge accounting, a company does not need to discontinue hedge accounting when making the changes required by the reform if the hedge meets other hedge accounting criteria. Regarding disclosures, the company must disclose information about the new risks arising from the reform and how it manages the transition to the alternative benchmark rates.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2021. Early adoption of modifications is also allowed.

 

Banco de Chile has been working on the transition of reference rates, implementing an action plan that includes, among other aspects, identifying the main exposures and risks related to the LIBOR transition, developing products linked to the new reference rate, adaptation of systems, reviewing of current contracts and renegotiation with some clients, which will allow us to face the challenges imposed by the changes in the reference rates.

 

IFRS 16 Leases. Extends the one-year term of Covid-19-related lease concessions.

 

In March 2021, the IASB published modifications to IFRS 16 that allow the accounting of concessions or rental facilities due to the effect of the pandemic declared by Covid-19 to be extended until June 30, 2022. The original amendment to IFRS 16 was issued in May 2020 and applied to lease contract facilities that reduce only lease payments due until June 30, 2021.

 

The implementation of this amendment did not have material impact on Banco de Chile and its subsidiaries.

 

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:

 

Other instructions issued by the CMF - Letters to Management.

 

Treatment of provisions and other effects of financing under the FOGAPE Reactivation program.

 

1) By letter to Management dated April 23, 2021, the CMF reported transitory measures for the exceptional treatment of loan allowances in the commercial portfolio, in order to facilitate the implementation of payment alternatives for debtors who meet certain requirements.

 

The conditions for using the flexibility measures for the treatment of allowances are:

 

-Fully evaluate the financial and credit condition of the debtors who will be eligible for the granting of the flexibilization conditions. It is not allowed to include debtors in default in accordance with the regulations.
-Debtors who are up to date or have a default of no more than 30 days at the time of rescheduling.
-Grace periods or postponement credits, of this measure or another, may not add up to more than 6 consecutive months.
-Have special consideration with those debtors who have availed themselves of previous postponement measures, and must have demonstrated a good behavior in the payment of their installments during the period between postponements.

 

In the case of grace periods or postponement credits, and depending on the methodology used in accounting for provisions (standard or internal method) for the group portfolio, the computation of arrears and the expected loss parameters will remain constant until that the payment system is normalized. Once the payment deferral period has elapsed and if the debtor does not pay the next obligation to be due, it must be recognized in the next installment of default to the one found in the standard matrix or in the corresponding provision model at the time of flexibilization in order to recognize their credit risk.

 

In the case of debtors evaluated on an individual basis, their risk category will be maintained at the time of rescheduling until the payment regime is normalized, which does not prevent that for the grace periods and deferral credit from being reclassified to the corresponding category, in the event of signs of worsening in the debtor’s ability to pay and other variables considered in the internal methods.

 

Postponements or rescheduling, in its different modalities, including those that allow to lower the financial burden of the debtors, as long as they comply with the indicated conditions, will not be considered forced renegotiations and therefore, will not lead to the classification of said debtors in default.

 

The validity of the exceptional period for the treatment of provisions is until July 31, 2021.

 

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:

 

2) By letter to Management dated August 13, 2021, the CMF established that considering that the Regulation was modified by Supreme Decree No. 254 dated June 26, 2021, allowing guaranteed financing to companies that file up to 89 days past due, to the extent that its annual sales are less than 25,000 UF, and may also contemplate grace periods, it is considered essential to distinguish the prudential treatment applicable to those operations that are granted under such conditions.

 

To determine the provisions of the amounts guaranteed by FOGAPE Reactivation applicable to those financing operations granted by banks under the new conditions indicated in the Regulations, the following treatment of provisions was established:

 

To determine the provisions for the amounts guaranteed by FOGAPE Reactivation, banks may consider substituting the credit quality of the debtors for that of FOGAPE, for all types of financing indicated, up to the amount covered by the referred guarantee. Naturally, the option to consider the risk attributable to FOGAPE may be made while said guarantee is in force, without considering the capitalized interest, as provided in article 17 of the Regulations.

 

Likewise, for the computation of the provisions of the amount not covered by the guarantee, corresponding to the debtors, the treatment must be differentiated according to the level of arrears of the refinanced loan and the grace period, which must consider the cumulative consecutive months of grace between the refinanced credit and other previous measures. For this purpose, the following situations should be considered:

 

-Refinancing with less than 60 days past due and less than 180 days of grace.

 

When the institution granting the refinancing is the current creditor, depending on the methodology used in accounting for provisions (standard or internal method) for the group portfolio, the computation of the default and the expected loss parameters will remain constant at the time of refinancing, as long as no payment is required.

 

In the case of debtors evaluated on an individual basis, their risk category will be maintained at the time of rescheduling, which does not prevent them from being reclassified to the corresponding category, due to a worsening of their payment capacity.

 

-Refinancing between 60 and 89 days past due or grace periods greater than 180 days and less than 360 days.

 

The guidelines established in the previous point will be applied, and at least one of the following conditions must also be met:

 

i.The bank in its credit granting policies consider at least the following aspects:

 

a.A robust procedure for the categorization of viable debtors, which take into account at least the sector and its solvency and liquidity situation.

 

b.Efficient mechanisms for monitoring the debtor’s situation, with formally defined internal governance.

 

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:

 

ii.Interest is charged in the months of grace, in accordance with the guidelines established in letter a) of Article 15 of the Regulations, or there is a demand for payment in another credit with the bank. In the latter case, if non-compliance is observed, the carry-over rules contained in numerals 2.2 and 3.2 of Chapter B-1 of the CNC must be considered, depending on whether it is a loan subject to individual or group evaluation, respectively.

 

-Refinances with grace periods of more than 360 days.

 

The bank must apply the provisions established in Chapter B-1 of the CNC, considering the operation as forced renegotiation and, therefore, apply the provisions that correspond to the portfolio in default.

 

Other regulations adopted.

 

Law No. 21,320

 

On April 20, 2021, Law No. 21,320 that modifies consumer protection law (Law No. 19,496), prohibiting and limiting certain extrajudicial debt collection actions was enacted. Among other matters, this new law (i) limits the number and type of out-of-court collection measures, (ii) requires keeping detailed records of such actions up to two years after they have been initiated, and (iii) prohibits continuing with out-of-court collection actions once a collection has been initiated in court.

 

In the Bank’s opinion, this legislation could affect its ability to recover non-performing loans from the loan portfolio granted to individuals and SMEs, affect portfolio expenses, as well as increase collection costs.

 

Law No. 21,342

 

On June 1, 2021, Law No. 21,342 was published in the Official Newspaper, which established the obligation to implement an occupational health safety protocol for the gradual and safe return of employees to their workplace within the framework of the health alert decreed on the occasion of the Covid-19 disease. The aforementioned law established, among other matters, the obligation to contract mandatory insurance in favor of employees who carry out their work in-person, to finance or reimburse the costs of hospitalization and rehabilitation of the employees associated with the Covid-19 disease, in the terms and scope indicated in said standard. The implementation of this law had no material impact for Banco de Chile and its subsidiaries.

 

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:

 

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 September 30, 2021, 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.

 

Limited Scope Amendments and Annual Improvements 2018-2020.

 

In May 2020, the IASB published a package of amendments of limited scope, as well as the 2018-2020 Annual Improvements, whose changes clarify the wording or correct minor consequences, omissions or conflicts between the requirements of the Standards.

 

Among other modifications, it contains amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets which specify the costs that an entity should include when evaluating whether a contract will cause losses, these costs include those that are directly related to the contract and may be costs incremental performance of that contract (for example, direct labor and materials), or an allocation of other costs that are directly related to the performance of contracts (for example, the allocation of the depreciation charge for an item of property, plant and equipment used to fulfill the contract).

 

These amendments will be effective as of January 1, 2022 and it is estimated that Banco de Chile and its subsidiaries will not have significant impacts on the Interim Consolidated Financial Statements as a result of the application of these amendments.

 

14

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

3.New Accounting Pronouncements, continued:

 

IAS 1 Presentation of Financial Statements and IFRS Practice Statement No. 2. Accounting Policy Disclosures.

 

In February 2021, the IASB published amendments to IAS 1 to require companies to disclose material information on accounting policies, the foregoing in order to improve the disclosures of their accounting policies and provide useful information to investors and other users of financial statements.

 

To help entities apply the amendments to IAS 1, the Board also amended IFRS Practice Statement No. 2 to illustrate how an entity can judge whether accounting policy information is material to its financial statements.

 

The amendments to IAS 1 will be effective for Financial Statement presentation periods beginning on or after January 1, 2023. Early application is permitted. If an entity applies those amendments to prior periods, it must disclose that fact.

 

The application of this amendment will not generate material impacts on the disclosure of accounting policies in the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of Accounting Estimate.

 

In February 2021, the IASB incorporated changes to the definition of accounting estimates contained in IAS 8, the amendments to IAS are intended to help entities distinguish changes in accounting estimates from changes in accounting policies.

 

The amendments to IAS 8 will be effective for Financial Statement presentation periods beginning on or after January 1, 2023. Early application is permitted.

 

The application of this amendment will not have an impact on the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IAS 12 Income Tax.

 

In May 2021 the IASB published amendments to IAS 12, to specify how companies should account for deferred taxes on transactions such as leases and decommissioning obligations.

 

IAS 12 Income Tax specifies how a company accounts for income tax, including deferred tax, which represents tax to be paid or recovered in the future. In certain circumstances, companies are exempt from recognizing deferred taxes when they first recognize assets or liabilities. Prior to the amendment, there was some uncertainty as to whether the exemption applied to transactions such as leases and decommissioning obligations, transactions for which companies recognize both an asset and a liability.

 

The amendments clarify that the exemption does not apply and that companies are required to recognize deferred taxes on such transactions. The purpose of the amendments is to reduce the diversity in reporting deferred tax on leases and decommissioning obligations.

 

15

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

3.New Accounting Pronouncements, continued:

 

The modifications are effective for the periods of presentation of the Financial Statements that begin as of January 1, 2023, early application is allowed.

 

The implementation of this amendment will have no material impact on Banco de Chile and its subsidiaries.

 

Accounting standards issued by the CMF.

 

Amends Compendium of Accounting Standards for Banks.

 

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 seek achieve greater 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.

 

16

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

3.New Accounting Pronouncements, continued:

 

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 equal to or 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.

 

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

 

In accordance with that established under the Circular No. 2,249 dated April 20, 2020, 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.

 

On October 7, the CMF issued Circular No. 2,295, which updates the Compendium of Accounting Standards for Banks (CNCB) that is in force from 2022 and introduces various adjustments to the files of the Information System Manual.

 

In this way, the accounting information necessary to agree the Financial Statements with the full implementation of Basel III is incorporated, in addition to making some clarifications in its instructions, arising both from the internal analysis and from inquiries received from actors of the banking system.

 

Likewise, this Circular adds a term to implement the criterion for grouping debtors whose aggregate exposure must be measured jointly, established in literal i) of No. 3 of Chapter B-1, which must be considered as of January 1 July 2022.

 

Regarding the modifications introduced in files, tables and form of the Manual of the Information System for Banks, they must be considered based on the information referred to the month of January 2022, which will be sent during the month of February 2022.

 

The Bank and its subsidiaries have structured an implementation project and have established various Committees to ensure its proper execution. All this in order to comply with the new standards required for the preparation and presentation of the Financial Statements. The application of the rule of suspension of the recognition of interest and UF indexation on an accrual basis after 90 days of default will not have a significant impact on the Interim Consolidated Financial Statements.

 

17

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

3.New Accounting Pronouncements, continued:

 

Standards related to the implementation of Basel III.

 

During 2019, the CMF began the regulatory process for the implementation of Basel III standards in Chile, in accordance with the established on Law No. 21,130 that modernizes banking legislation. The new Law adopts the international standards in banking regulation and supervision.

 

On March 30, 2020, the CMF reported that, in coordination with the Central Bank of Chile, it resolved to postpone the implementation of the Basel III requirements for one year and maintain the general regulatory framework in force for banking capital requirements until December 2021.

 

On December 1, 2020, the CMF finalized the process of issuing the necessary regulations for the implementation of the new capital framework. The culmination of this regulatory process, which began with the first standard in public consultation in August 2019, represents a relevant step in strengthening the solvency and stability of the financial system. The new capital framework will allow for a more solid and robust banking system, a fundamental condition to face the impacts of the economic downturn with better tools.

 

The new standards, in addition to demanding higher levels of capitalization from banks, governance and information to the market; facilitate access to new and better sources of financing; harmonize the requirements between subsidiaries of foreign banks and local banks; and they contribute to the internationalization process of Chilean banking.

 

As of the date of issuance of these Interim Consolidated Financial Statements, the CMF has issued the following circulars related to the Basel III regulations:

 

Circular 2,270. Issued on September 11, 2020, the CMF issued the standard that sets the general criteria and guidelines for the determination of additional equity requirements as a result of the supervision process, called Pillar 2.

 

This standard updates Chapter 1-13 “Management and solvency classification” and introduces the new Chapter 21-13 “Evaluation of the adequacy of effective equity of banks” to the RAN.

 

This standard also establishes that the effective equity self-assessment report to be submitted by banks during 2021 will be based only on credit risk, and the one for 2022 will additionally incorporate market and operational risks. As of 2023, the report with all its sections will be required, considering all the material risks of the institution.

 

Circular No. 2,272. September 25, 2020, the CMF published the regulations that define the operating procedures for the calculation, implementation and supervision of additional capital charges, known as capital buffers (Conservation Buffer and a Countercyclical Buffer).

 

This rule incorporates Chapter 21-12 “Additional basic capital, articles 66 bis and 66 ter of the LGB” into the RAN.

 

This rule establishes that, as of December 1, 2021, the requirement of the Conservation Buffer will be 0.625%, increasing by the same percentage each year, until reaching the regime on December 1, 2024. The same transitory requirement will apply to the maximum value of the Countercyclical Buffer that can be defined by the Chile Central Bank.

 

18

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. 2,273. On October 5, 2020, the CMF issued the norm that regulates the calculation of the relationship between basic capital and total assets (leverage ratio). Incorporates Chapter 21-30 “Relationship between basic capital and total assets” into the RAN. The standard introduces improvements both in the measurement of basic capital (numerator) and of the bank’s total assets (denominator).

 

This standard is effective as of December 1, 2020, without prejudice to the transitory measures for the calculation of regulatory capital, contemplated in Title V of Chapter 21-1 “Equity for legal and regulatory purposes” of the RAN.

 

Circular No. 2,274. On October 8, 2020, the CMF established the guidelines for calculating equity for legal and regulatory purposes, debugging items of low quality or whose value is uncertain in a settlement scenario and sets prudential rules for concentration, in accordance with the current legal framework. Incorporates Chapter 21-1 “Equity for legal and regulatory purposes” replacing Chapter 12-1 “Equity for legal and regulatory purposes” into the RAN.

 

The first adjustment must be made on December 1, 2022, corresponding to 15% of the discounts. This amount will increase to 30% on December 1, 2023 and 65% on December 1, 2024, until reaching full implementation as of December 1, 2025.

 

Circular No. 2,276. On November 2, 2020, the CMF, with the prior favorable agreement of the Central Bank of Chile, established the dispositions that have as a reference framework the evaluation methodology established by the Basel Committee on Banking Supervision and international practice, considered for the identification and treatment of banks classified as systemically important at the local level. It incorporates into the RAN Chapter 21-11 “Factors and methodology for banks or group of banks rated as systemically important and requirements that may be imposed as a result of this rating”.

 

The requirements derived from the first application may be gradually established. The initial charge in December 2021 will be 0% and will increase by 25% each year until reaching the regime in December 2025.

 

Circular No. 2,279. On November 24, 2020, the CMF incorporated Chapter 21-2 into the RAN, which contains the minimum requirements and conditions that preference shares and bonds with no fixed maturity term must satisfy in article 55 bis of the General Banking Act and Chapter 21-3 of the RAN which contains the minimum requirements and conditions that subordinate bonds must satisfy in article 55 of the General Banking Act, this chapter repeals and replaces chapter 9-6 of the RAN. These regulations came into effect on December 1, 2020, the date on which banks determined the level of capital AT1 and T2 that is applicable, in accordance with the provisions of the regulations.

 

During the first year of application, subordinated bonds and voluntary provisions may be computed as equivalent to AT1 instruments, with a limit of 1.5% of the RWA net of required provisions. From December 1, 2021, the substitution limit will progressively decrease (by 0.5%) to reach 0% in 4 years.

 

19

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. 2,280. On December 1, 2020, the CMF issued the definitive norm related to the standardized methodology for computing ORWAs, incorporating chapter 21-8 to the RAN. The dispositions of this new Chapter consider the methodology established by the Basel Committee on Banking Supervision as a reference framework.

 

For the computation of operational risk, a single standard method is established, in accordance with the recommendations of the aforementioned Committee, not allowing the use of proprietary methodologies referred to in the second paragraph of article 67 for this type of risk.

 

The regulations entered into force on December 1, 2020. Also, it was established that until December 1, 2021, assets weighted by operational risk are equal to 0.

 

Circular No. 2,281. Issued on December 1, 2020, it corresponds to the definitive regulations related to the determination of the Credit Risk-Weighted Assets, incorporating chapter 21-6 to the RAN.

 

As set out in the Article 67 of the LGB, it is up to the CMF to establish standardized methodologies to cover the relevant risks of banking companies, among which is credit risk, with a prior favorable agreement from the Central Bank of Chile.

 

This new standard includes a transitory provision, which establishes that the computation of assets weighted by credit risk is carried out in accordance with the current dispositions of Title II of Chapter 12-1 of the RAN, until November 30, 2021; The new methodology must be applied as of December 1, 2021.

 

Circular No. 2,282. Issued on December 1, 2020, this standard incorporated the new Chapter 21-7 on the determination of MRWA into the RAN.

 

For the application of the provisions of this new Chapter, which will be in force as of December 1, 2020, a transitional disposition is contemplated that considers a market risk weight equal to zero until December 1, 2021.

 

20

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. 2,283. On December 1, 2020, the CMF published the definitive regulation related to the promotion of market discipline and transparency through the disclosure of information requirements from banking entities (Pillar 3), incorporating Chapter 21-20 into the Updated Compilation of Standards (RAN).

 

The information referred to in this new Chapter is effective as of December 1, 2022 and must be published for the first time in April 2023 with information regarding the January-March quarter of said year.

 

Circular No. 2,284. On December 31, 2020, the CMF creates the file “Rating of systemically important banks” (R11), related to the measurement of the systemic importance index and dated January 26, 2021, through Circular No. 2,286, the instructions for the preparation of the new R11 file are supplemented.

 

Circular No. 2,288. On April 27, 2021, the CMF creates the files “Solvency limits and effective equity” (R01), “Regulatory capital instruments” (R02), “Credit risk-weighted assets” (R06), “Market risk-weighted assets” (R07) and “Operational risk-weighted assets” (R08).

 

Circular Letter No. 1,207. On April 28, 2021, the CMF specified that the subordinated bonds and additional provisions that are accounted for as equivalent to preferred shares or bonds without a fixed maturity term according to the third transitory article of Law No. 21,130, must be adapted to the limits established in literals c) and d) of article 66 of the General Banking Law.

 

Circular N°2,290. On May 28, 2021, the CMF specifies the implementation calendar of the new Risk System files incorporated into the Information Systems Manual (MSI by its Spanish initials) and additionally adjusts the size of some fields of the R01, R07 and R08 files.

 

Circular N°2,292. On August 19, 2021, the CMF incorporates modifications to the RAN, Chapter B-1 “Provisions for credit risk” of the CNC, which governs from the year 2022, incorporates more precise conditions to determine the debtors that must be evaluated using models based on group analysis and modifications to file R08 on Operational risk-weighted assets of the Information System Manual (ISM).

 

Circular Letter No. 1,226. On October 7, 2021, the CMF clarifies aspects of the procedure that banks must follow for the registration of bonds without a fixed maturity or perpetual term referred to in article 55 bis of the General Banking Law, in those cases in which the issuance and placement is intended to be carried out entirely abroad.

 

4.Changes in Accounting Policies and Disclosures:

 

During the period ended September 30, 2021, no significant accounting changes have occurred that affect the presentation of these Interim Consolidated Financial Statements.

 

21

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 28, 2021, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders Meeting on March 25, 2021 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2020:

 

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 2019 and November 2020, amounting to Ch$95,989,016,547 which will be added to retained earnings from previous periods.

 

ii.From the resulting balance, distribute in the form of a dividend 60% of the remaining liquid profit, corresponding to a dividend of Ch$2.18053623438 to each of the 101,017,081,114 shares of the Bank, retaining the remaining 40%.

 

Consequently, it proposed the distribution as a dividend of 47.6% of the profits for the year ended December 31, 2020.

 

b)On February 4, 2021, the subsidiary Banchile Securitizadora S.A. in an Extraordinary Shareholders’ meeting agreed on the early dissolution of this subsidiary, as previously approved by the Financial Market Commission.

 

c)On March 25, 2021, at the Bank’s Ordinary Shareholders’ Meeting, the shareholders proceeded to make the definitive appointment of Mr. Raúl Anaya Elizalde as Titular Director of Banco de Chile, a position that he will hold until the next renewal of the Board of Directors. Additionally, on the same date, the Board approved the distribution of dividend No. 209, corresponding to Ch$2.18053623438 per share, payable against the profit for the year 2020.

 

d)On April 7, 2021, the subsidiary Banchile Administradora General de Fondos S.A. reported as an essential fact that on that date Mr. Paul Javier Fürst Gwinner, submitted his resignation from the position of Director of the company.

 

e)On July 30, 2021, the Financial Market Commission authorized the subsidiary Banchile Securitizadora S.A. to carry out its own liquidation and to use the company name indicated “Banchile Securitizadora S.A. en liquidación”.

 

f)

On August 27, 2021, the Board of Directors of the subsidiary Banchile Asesoría Financiera S.A. appointed Mr. Ashwin Kumar Natarajan as interim General Manager of the company in replacement of Mr. Pedro Jottar Awad who submitted his resignation from the position of General Manager of the company.

 

g)On August 30, 2021, Banco de Chile informs that it has registered and published before the Securities and Exchange Commission (SEC) of the United States of America an amendment to the Deposit Agreement signed between Banco de Chile and JPMorgan Chase Bank referring to our American Depositary Receipt (“ADR”) program. The modification refers to matters related to international exchange operations that may take place under the aforementioned Program, the jurisdiction applicable to it and the updating of regulatory references, among others.

 

22

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

5.Relevant Events, continued:

 

h)On August 31, 2021, it is reported that Banco de Chile and Citigroup lnc. have agreed to extend the validity of the Cooperation Agreement, the Global Connectivity Agreement and the Amended and Restated Trademark License Agreement, the first two celebrated on October 22, 2015 and the last one on November 29, 2019. In accordance with the aforementioned extension, the validity of said contracts extends from January 1, 2022 to January 1, 2024, and the parties may agree before August 31, 2023 an extension for two years from January 1, 2024. If this does not happen, the contracts will be automatically extended once for a period of one year from January 1, 2024 to January 1, 2025. The same renewal procedure may be used in the future as many times agreed by the parties.

 

Along with the above and on this same date, Banco de Chile and Citigroup lnc. signed a modification to the Global Connectivity Agreement and an Amended and Restated Master Services Agreement, agreeing that the term of the latter will be the same as that established in the Cooperation Agreement referred to in the previous paragraph. The Board of Directors of Banco de Chile, in session No. BCH 2,952 of August 26, 2021, approved the extension, modification and subscription of the aforementioned contracts, in the terms provided in articles 146 and following of the Public Limited Companies Law.

 

i)In the context of the COVID-19 pandemic declared in March 2020 by the World Health Organization (“WHO”), this year, on March 13, 2021 the Government of Chile decided on June 25, 2021 to extend the State of Constitutional Exception, thus allowing maintaining a series of sanitary measures, including mobility restrictions and quarantines in the national territory. Subsequently, on September 30, 2021, the authority put an end to the Constitutional State of Exception, which has allowed a gradual opening of the activity by allowing higher levels of mobility and capacity. Additionally, the mass vaccination plan has continued in order to mitigate and control the spread of the pandemic. As of the date of issuance of these Financial Statements, more than 89% of the target population has completed their vaccination process, also beginning from the month of August the process of inoculation of a booster dose.

 

The Government and the Central Bank of Chile have maintained countercyclical measures, which have contributed to a gradual recovery in activity. At the fiscal level, the government has implemented direct measures that exceed 9 points of GDP, which has been complemented by indirect measures (including resources to finance Fogape-Covid credits and the employment protection law, among others) that mobilize resources for a similar amount. On February 3, 2021, Law No. 21,307 was published in the official newspaper, which modifies the Guarantee Fund for Small and Medium-sized Entrepreneurs (Fogape) in order to promote the reactivation and recovery of the economy, which modifies the Decree Law No. 3,472, of 1980, of the Ministry of Finance, which creates the Guarantee Fund for Small Entrepreneurs (Reactive Fogape). Since the beginning of the program and until September 30, 2021, the Bank has carried out 25,213 operations for an aggregate amount of Ch$1,234,501 million.

 

23

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

5.Relevant Events, continued:

 

For its part, the Central Bank of Chile has maintained a series of unconventional measures, among which the establishment of the Loan Increase Conditional Credit Facility program (FCIC by its Spanish initials) a special financial line for banking companies complemented with the activation of a “Liquidity Credit Line” (LCL) and purchases of bonds in the financial market, among others. As of September 30, 2021, the Bank has made use of these financing facilities for an amount of Ch$4,348,400 million. To access the FCIC, the Bank has established guarantees in favor of the Central Bank of Chile for a total amount of approximately Ch$3,629,716 million, corresponding to commercial placements of the individual portfolio of high credit quality for Ch$2,619,901 million, and securities of fixed income for an approximate amount of Ch$1,009,815 million. In the case of the LCL, the guarantee provided corresponds to the reserve held by the Bank.

 

Additionally, the National Congress approved three reforms to the Political Constitution of the Republic that allowed withdrawals of up to 10% of the resources available in the individual capitalization accounts, which allowed an aggregate withdrawal equivalent to approximately US$47,791 million, a situation that has brought pressure on prices of goods and services, increase in long-term interest rates, increase in liquidity levels for natural and legal persons, and decrease in delinquency levels in the banking industry. As of the date of publication of the financial statements, an additional withdrawal of pension funds is being discussed in the National Congress. As a result of the significant increase in inflation levels, the Central Bank has recently accelerated the withdrawal of monetary stimulus by increasing the monetary policy rate significantly.

 

Even though the impact of the pandemic on our operating results has been significant and its effects will persist even over time, its magnitude will depend on the duration and depth of the effects of the pandemic, as well as the impact on structural variables, including the trend growth of the economy, increase in investment and employment levels. Additionally, in accordance with the current policy on the matter, the Bank has established additional incremental provisions for Ch$140,000 million during this fiscal year, thus totaling Ch$460,252 million as of September 30, 2021.

 

24

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.

 

(*)Company in the process of dissolution. See Note No. 5 e).

 

25

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.

 

●Provisions for credit risk are determined at the customer level based on the characteristics of each of their operations. In the case of additional provisions, these are assigned to the different business segments based on the credit risk weighted assets that each segment has

 

●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 September 30, 2021 and 2020 there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank’s total revenues.

 

26

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 September 30, 2021 and 2020 for each of the segments defined above:

 

   Retail   Wholesale   Treasury   Subsidiaries   Subtotal  

Consolidation

adjustment

   Total 
   September   September   September   September   September   September   September   September   September   September   September   September   September   September 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Net interest income   736,765    700,618    303,703    271,425    4,044    (8,569)   (153)   (1,845)   1,044,359    961,629    159    1,109    1,044,518    962,738 
Net commissions income (loss)   189,438    211,347    44,905    40,970    (1,285)   (1,618)   119,079    108,033    352,137    358,732    (10,932)   (12,662)   341,205    346,070 
Financial and exchange operations results   11,761    5,886    49,875    35,209    30,948    59,349    22,017    25,499    114,601    125,943    (38)   (1,002)   114,563    124,941 
Other operating income   18,047    16,328    9,627    10,630    —    —    1,860    1,934    29,534    28,892    (3,814)   (3,213)   25,720    25,679 
Total operating revenue   956,011    934,179    408,110    358,234    33,707    49,162    142,803    133,621    1,540,631    1,475,196    (14,625)   (15,768)   1,526,006    1,459,428 
Provision for loan losses (*)   (152,304)   (287,976)   (71,811)   (89,502)   —    —    334    (33)   (223,781)   (377,511)   —    —    (223,781)   (377,511)
Personnel expenses   (214,611)   (204,395)   (63,188)   (59,585)   (1,666)   (1,450)   (56,477)   (54,075)   (335,942)   (319,505)   13    12    (335,929)   (319,493)
Administrative expenses   (186,285)   (195,814)   (44,425)   (46,393)   (960)   (1,118)   (24,135)   (22,912)   (255,805)   (266,237)   14,612    15,756    (241,193)   (250,481)
Depreciation and amortization   (46,506)   (44,610)   (5,977)   (5,491)   (268)   (225)   (4,252)   (4,542)   (57,003)   (54,868)   —    —    (57,003)   (54,868)
Other operating expenses   (15,580)   (14,934)   (10,690)   (10,575)   (12)   (13)   101    (235)   (26,181)   (25,757)   —    —    (26,181)   (25,757)
Total operating expenses   (462,982)   (459,753)   (124,280)   (122,044)   (2,906)   (2,806)   (84,763)   (81,764)   (674,931)   (666,367)   14,625    15,768    (660,306)   (650,599)
Income attributable to associates   (4,441)   (1,526)   1,129    668    48    50    416    416    (2,848)   (392)   —    —    (2,848)   (392)
Income before income taxes   336,284    184,924    213,148    147,356    30,849    46,406    58,790    52,240    639,071    430,926    —    —    639,071    430,926 
Income taxes                                                               (129,966)   (94,102)
Income after income taxes                                                               509,105    336,824 

 

 

(*)As of September 30, 2021 and 2020, the Retail and Wholesale segments include additional provisions allocated based on their risk-weighted assets.

 

The following table presents assets and liabilities of the periods ended September 30, 2021 and December 31, 2020 by each segment defined above:

 

   Retail   Wholesale   Treasury   Subsidiaries   Subtotal  

Consolidation

adjustment

   Total 
   September   December   September   December   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                                       
Assets   20,376,626    18,800,897    11,708,974    10,811,021    16,106,632    15,400,139    871,044    830,910    49,063,276    45,842,967    (232,815)   (128,730)   48,830,461    45,714,237 
Current and deferred taxes                                                               387,962    380,894 
Total assets                                                               49,218,423    46,095,131 
                                                                       
Liabilities   16,408,191    13,647,952    9,860,634    9,980,003    18,363,386    18,208,458    694,458    660,869    45,326,669    42,497,282    (232,815)   (128,730)   45,093,854    42,368,552 
Current and deferred taxes                                                               82,930    311 
Total liabilities                                                               45,176,784    42,368,863 

 

27

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:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Cash and due from banks:        
Cash (*)   1,089,125    615,842 
Deposit in Chilean Central Bank (*)   398,184    641,890 
Deposits in other domestic banks   113,821    14,506 
Deposits abroad   1,498,205    1,287,978 
Subtotal - Cash and due from banks   3,099,335    2,560,216 
           
Net transactions in the course of collection   73,084    (719,692)
Highly liquid financial instruments (**)   2,778,523    4,212,719 
Repurchase agreements (**)   48,557    34,872 
Total cash and cash equivalents   5,999,499    6,088,115 

 

(*)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:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Assets        
Documents drawn on other banks (clearing)   115,372    123,267 
Funds receivable   295,272    459,041 
Subtotal - assets   410,644    582,308 
           
Liabilities          
Funds payable   (337,560)   (1,302,000)
Subtotal - liabilities   (337,560)   (1,302,000)
Net transactions in the course of settlement   73,084    (719,692)

 

28

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:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Instruments issued by the Chilean Government and Central Bank of Chile        
Central Bank of Chile bonds   1,117    3,186 
Central Bank of Chile promissory notes   2,797,334    4,006,490 
Other instruments issued by the Chilean Government and Central Bank   175,365    149,616 
           
Other instruments issued in Chile          
Bonds from other domestic companies   —    5,396 
Bonds from domestic banks   28,913    5,494 
Deposits in domestic banks   134,022    93,905 
Other instruments issued in Chile   1,892    1,003 
           
Instruments issued Abroad          
Instruments from foreign governments or central banks   —    — 
Other instruments issued abroad   —    164 
           
Mutual fund investments          
Funds managed by related companies   3,119    400,902 
Funds managed by third-party   —    — 
Total   3,141,762    4,666,156 

 

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$14,874 million as of September 30, 2021 (Ch$217,614 million as of December 31, 2020). Repurchase agreements have a 1 day average expiration at the end of September 2021 (4 days at the year-end 2020). Additionally, under this line are maintained instruments to comply with the requirements for the constitution of the technical reserve for an amount equivalent to Ch$2,738,000 million as of September 30, 2021 (Ch$2,986,000 million in December 2020).

 

Under “Other instruments issued in Chile” are included instruments sold under repurchase agreements with customers and financial instruments amounting to Ch$91,461 million as of September 30, 2021 (Ch$52,809 million as of December 31, 2020). The repurchase agreements have an average expiration of 6 days as of period-end 2021 (9 days in December 2020).

 

Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of Ch$4,067 million as of September 30, 2021 (Ch$5,156 million as of December 31, 2020), which are presented as a reduction of the liability line item “Debt issued”.

 

29

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 September 30, 2021 and December 31, 2020, 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
   September   December   September   December   September   December    September   December    September   December   September   December   September   December
   2021   2020   2021   2020   2021   2020    2021   2020    2021   2020   2021   2020   2021   2020
   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   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Central Bank promissory notes   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Other instruments issued by the Chilean Government and Central Bank of Chile   —    10,006    —    —    —    —     —    —     —    —    —    —    —    10,006
Subtotal   —    10,006    —    —    —    —     —    —     —    —    —    —    —    10,006
Other Instruments issued in Chile                                                                       
Deposit promissory notes from domestic banks   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Mortgage bonds from domestic banks   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Bonds from domestic banks   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Deposits in domestic banks   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Bonds from other Chilean companies   —    —    —    —    —    —     —    —     —    —    —    —    —    —
Other instruments issued in Chile   37,487    29,089    24,125    20,591    14,884    16,721     —    —     —    —    —    —    76,496    66,401
Subtotal   37,487    29,089    24,125    20,591    14,884    16,721     —    —     —    —    —    —    76,496    66,401
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   37,487    39,095    24,125    20,591    14,884    16,721     —    —     —    —    —    —    76,496    76,407

 

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 September 30, 2021, the fair value of the instruments received amounts to Ch$76,324 million (Ch$82,585 million as of December, 2020).

 

30

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 September 30, 2021 and December 31, 2020, 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
   September   December   September   December   September   December   September   December   September   December   September   December   September   December
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020
   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   —    —    —    —    —    —        —     —    —    —    —    —    —   —
Central Bank promissory notes   14,875    183,083    —    —    —    —    —     —    —    —    —    —    14,875   183,083
Other instruments issued by the Chilean Government and Central Bank of Chile   2,507    47,763    —    —    —    —    —     —    —    —    —    —    2,507   47,763
Subtotal   17,382    230,846    —    —    —    —    —     —    —    —    —    —    17,382   230,846
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Mortgage bonds from domestic banks   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Bonds from domestic banks   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Deposits in domestic banks   91,380    57,648    49    43    40    —    —     —    —    —    —    —    91,469   57,691
Bonds from other Chilean companies   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Other instruments issued in Chile   1,289    380    —    —    —    —    —     —    —    —    —    —    1,289   380
Subtotal   92,669    58,028    49    43    40    —    —     —    —    —    —    —    92,758   58,071
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or central bank   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Other instruments issued by foreing   —    —    —    —    1,298    —    —     —    —    —    —    —    1,298   —
Subtotal   —    —    —    —    1,298    —    —          —    —    —    —    1,298   —
Mutual fund investments                                                                      
Funds managed by related companies   —    —    —    —    —    —    —          —    —    —    —    —   —
Funds managed by third-party   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Subtotal   —    —    —    —    —    —    —     —    —    —    —    —    —   —
Total   110,051    288,874    49    43    1,338    —    —     —    —    —    —    —    111,438   288,917

 

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 September 30, 2021 amounts to Ch$108,844 million (Ch$288,523 million in December 2020). 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.

 

31

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 September 30, 2021 and December 31, 2020, the Bank’s portfolio of derivative instruments is detailed as follows:

 

 

   Notional amount of contract with final expiration date in   Fair Value 
 

 

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$ 
As of September 30, 2021                                    
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap   —    —    3,472    —    —    —    3,472    —    1,162 
Interest rate swap   —    —    —    —    —    2,954    2,954    —    581 
Total derivatives held for hedging purposes   —    —    3,472    —    —    2,954    6,426    —    1,743 
                                              
Derivatives held as cash flow hedges                                             
Currency forward   —    —    3,009    —    —    —    3,009    —    48 
Interest rate swap and cross currency swap   114,109    55,976    34,665    143,281    221,298    758,526    1,327,855    268,786    905 
Total derivatives held as cash flow hedges   114,109    55,976    37,674    143,281    221,298    758,526    1,330,864    268,786    953 
                                              
Trading derivatives                                             
Currency forward   7,639,947    4,158,290    8,387,193    1,468,763    82,871    17,855    21,754,919    648,290    492,694 
Interest rate swap   1,325,175    2,933,120    11,530,569    11,226,915    6,878,534    10,356,374    44,250,687    754,050    756,112 
Interest rate swap and cross currency swap   395,082    999,660    3,448,891    6,266,384    4,078,090    5,567,204    20,755,311    1,170,518    1,390,310 
Call currency options   6,362    22,479    40,741    5,091    —    —    74,673    2,979    2,003 
Put currency options   5,639    32,725    35,336    3,143    —    —    76,843    49    329 
Total trading derivatives   9,372,205    8,146,274    23,442,730    18,970,296    11,039,495    15,941,433    86,912,433    2,575,886    2,641,448 
                                              
Total   9,486,314    8,202,250    23,483,876    19,113,577    11,260,793    16,702,913    88,249,723    2,844,672    2,644,144 

 

32

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 
 

 

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$ 
As of December 31, 2020                                    
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap   —    —    —    5,031    —    —    5,031    —    1,646 
Interest rate swap   —    —    —    —    —    29,508    29,508    —    4,873 
Total derivatives held for hedging purposes   —    —    —    5,031    —    29,508    34,539    —    6,519 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap   —    —    164,330    171,925    213,811    667,391    1,217,457    51,062    65,172 
Total derivatives held as cash flow hedges   —    —    164,330    171,925    213,811    667,391    1,217,457    51,062    65,172 
                                              
Trading derivatives                                             
Currency forward   7,320,775    5,754,021    7,753,967    823,355    60,193    26,340    21,738,651    551,964    637,186 
Interest rate swap   1,516,969    2,797,327    10,330,399    12,705,904    6,658,095    10,180,750    44,189,444    1,167,416    1,189,828 
Interest rate swap and cross currency swap   439,244    809,124    3,459,603    5,892,574    3,442,030    4,850,644    18,893,219    845,831    940,646 
Call currency options   10,581    25,382    34,294    1,657    —    —    71,914    269    306 
Put currency options   9,605    20,470    26,893    427    —    —    57,395    1,462    2,099 
Total trading derivatives   9,297,174    9,406,324    21,605,156    19,423,917    10,160,318    15,057,734    84,950,623    2,566,942    2,770,065 
                                              
Total   9,297,174    9,406,324    21,769,486    19,600,873    10,374,129    15,754,633    86,202,619    2,618,004    2,841,756 

 

33

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 September 30, 2021 and December 31, 2020:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Hedge element        
Commercial loans   3,472    5,031 
Corporate bonds   2,954    29,508 
           
Hedge instrument          
Cross currency swap   3,472    5,031 
Interest rate swap   2,954    29,508 

 

(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 impact the item “Interest Revenue” of the Income Financial Statements.

 

34

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 
   September   December   September   December   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Outflows:                                                        
Corporate Bond EUR   —    —    (734)   —    (850)   (1,473)   (3,166)   (2,946)   (47,331)   (44,037)   (54,900)   (51,871)   (106,981)   (100,327)
Corporate Bond HKD   (6,359)   —    —    —    (8,812)   (13,352)   (100,908)   (90,988)   (83,651)   (78,369)   (305,247)   (269,894)   (504,977)   (452,603)
Corporate Bond PEN   —    —    —    (775)   (1,545)   (775)   (3,089)   (3,098)   (2,317)   (3,098)   (40,587)   (41,484)   (47,538)   (49,230)
Corporate Bond CHF   —    —    (894)   —    —    (829)   (101,760)   (94,332)   (130,724)   (121,182)   —    —    (233,378)   (216,343)
Corporate Bond USD   (864)   —    —    —    (864)   (1,515)   (3,454)   (3,030)   (3,454)   (3,030)   (44,897)   (40,140)   (53,533)   (47,715)
Obligation USD   (121,973)   (202)   (56,899)   (76)   —    (157,455)   —    —    —    —    —    —    (178,872)   (157,733)
Corporate Bond JPY   —    —    (1,118)   —    (37,797)   (2,115)   (4,181)   (38,110)   (4,181)   (3,472)   (239,110)   (191,351)   (286,387)   (235,048)
Corporate Bond AUD   —    —    (1,673)   (970)   (4,021)   (3,928)   (10,908)   (9,796)   (9,218)   (9,799)   (255,188)   (206,991)   (281,008)   (231,484)
Corporate Bond NOK   —    —    (2,537)   —    —    (2,275)   (5,073)   (4,550)   (5,073)   (4,550)   (79,723)   (71,491)   (92,406)   (82,866)
                                                                       
Hedge instrument                                                                      
Inflows:                                                                      
Cross Currency Swap EUR   —    —    734    —    850    1,473    3,166    2,946    47,331    44,037    54,900    51,871    106,981    100,327 
Cross Currency Swap HKD   6,359    —    —    —    8,812    13,352    100,908    90,988    83,651    78,369    305,247    269,894    504,977    452,603 
Cross Currency Swap PEN   —    —    —    775    1,545    775    3,089    3,098    2,317    3,098    40,587    41,484    47,538    49,230 
Cross Currency Swap CHF   —    —    894    —    —    829    101,760    94,332    130,724    121,182    —    —    233,378    216,343 
Cross Currency Swap USD   864    —    —    —    864    1,515    3,454    3,030    3,454    3,030    44,897    40,140    53,533    47,715 
Cross Currency Swap USD   121,973    202    56,899    76    —    157,455    —    —    —    —    —    —    178,872    157,733 
Cross Currency Swap JPY   —    —    1,118    —    37,797    2,115    4,181    38,110    4,181    3,472    239,110    191,351    286,387    235,048 
Cross Currency Swap AUD   —    —    1,673    970    4,021    3,928    10,908    9,796    9,218    9,799    255,188    206,991    281,008    231,484 
Cross Currency Swap NOK   —    —    2,537    —    —    2,275    5,073    4,550    5,073    4,550    79,723    71,491    92,406    82,866 
                                                                       
Net cash flows   —    —    —    —    —    —    —    —    —    —    —    —    —    — 

 

35

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 underlying assets and the cash flows of the liability 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 
   September   December   September   December   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Inflows:                                                        
Cash flows in CLF   119,094    160    61,032    280    51,530    186,116    185,883    213,673    255,320    246,244    833,803    741,654    1,506,662    1,388,127 
                                                                       
Hedge instrument                                                                      
Outflows:                                                                      
Cross Currency Swap HKD   (3,681)   (160)   —    —    (5,850)   (9,035)   (73,366)   (72,728)   (78,736)   (76,073)   (209,807)   (206,514)   (371,440)   (364,510)
Cross Currency Swap PEN   —    —    —    (48)   (100)   (49)   (201)   (194)   (200)   (194)   (32,984)   (31,965)   (33,485)   (32,450)
Cross Currency Swap JPY   —    —    (2,185)   —    (37,479)   (4,195)   (8,143)   (40,526)   (8,132)   (6,596)   (246,721)   (201,852)   (302,660)   (253,169)
Cross Currency Swap USD   (115,021)   —    (55,737)   —    (339)   (165,634)   (1,359)   (1,311)   (1,361)   (1,317)   (38,561)   (37,584)   (212,378)   (205,846)
Cross Currency Swap CHF   —    —    (2,039)   —    (2,035)   (3,929)   (94,458)   (91,923)   (117,064)   (114,409)   —    —    (215,596)   (210,261)
Cross Currency Swap EUR   (392)   —    (603)   —    (984)   (1,912)   (3,944)   (3,805)   (45,422)   (44,464)   (46,640)   (45,439)   (97,985)   (95,620)
Cross Currency Swap AUD   —    —    (143)   (232)   (1,414)   (738)   (3,119)   (1,939)   (3,114)   (1,942)   (191,522)   (152,709)   (199,312)   (157,560)
Cross Currency Swap NOK   —    —    (325)   —    (320)   (624)   (1,293)   (1,247)   (1,291)   (1,249)   (67,568)   (65,591)   (70,797)   (68,711)
Forward UF   —    —    —    —    (3,009)   —    —    —    —    —    —    —    (3,009)   — 
                                                                       
Net cash flows   —    —    —    —    —    —    —    —    —    —    —    —    —    — 

 

36

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:

 

With respect to CLF assets hedged; these are revalued monthly according to the variation of the UF, which is equivalent to monthly reinvest the assets until maturity of the relationship hedging.

 

(c.3)The unrealized results generated during the period 2021 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy, have been recorded with credit to equity amounting to Ch$198,321 million (charge to equity of Ch$17,075 million in September 30, 2020). The net effect of taxes credit to equity amounts to Ch$144,775 million (net charge to equity of Ch$12,465 million equity during the period September 2020).

 

The accumulated balance for this concept as of September 30, 2021 corresponds to a credit in equity amounted to Ch$127,639 million (charge to equity of Ch$70,682 million as of December 2020).

 

(c.4)The effect of the cash flow hedging derivatives that offset the result of the hedged instruments corresponds to a credit to income of Ch$87,894 million during the period 2021 (credit to results for Ch$67,572 million during the period September 2020).

 

(c.5)As of September 30, 2021 and 2020, it not exist inefficiency in cash flow hedge, because both, hedge item and hedge instruments, are mirrors of each other, it means that all variation of value attributable to rate and revaluation components are netted totally.

 

(c.6)As of September 30, 2021 and 2020, the Bank does not have hedges of net investments in foreign business.

 

37

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

11.Loans and Advances to Banks, net:

 

(a)At the end of each reporting period, the balances presented in the item “Loans and advances to Banks” are as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Domestic Banks        
Interbank loans of liquidity   20,000    260,002 
Provisions for loans to domestic banks   (17)   (140)
Subtotal   19,983    259,862 
Foreign Banks          
Interbank loans commercial   174,902    185,858 
Credits with third countries   482    167 
Chilean exports trade loans   122,639    113,596 
Provisions for loans to foreign banks   (501)   (525)
Subtotal   297,522    299,096 
Central Bank of Chile          
Central Bank deposits   1,700,000    2,380,033 
Subtotal   1,700,000    2,380,033 
Total   2,017,505    2,938,991 

 

(b)The changes in provisions of the credits owed by the banks, during the periods 2021 and 2020, are summarized as follows:

 

   Bank’s Location     
Detail  Chile   Abroad   Total 
   MCh$   MCh$   MCh$ 
             
Balance as of January 1, 2020   54    704    758 
Provisions established   —    —    — 
Provisions released   (54)   (205)   (259)
Balance as of September 30, 2020   —    499    499 
Provisions established   140    26    166 
Provisions released   —    —    — 
Balance as of December 31, 2020   140    525    665 
Provisions established   —    —    — 
Provisions released   (123)   (24)   (147)
Balance as of September 30, 2021   17    501    518 

 

38

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers, net:

 

(a.i)Loans to Customers:

 

As of September 30, 2020 and December 31, 2020, the portfolio of loans is composed as follows:

 

   As of September 30, 2021 
   Assets before allowances   Allowances established     
   Normal
Portfolio		   Substandard
Portfolio		   Non-
Complying
Portfolio		   Total   Individual
Provisions		   Group
Provisions		  

 

 

Total

   Net assets 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans                                
Commercial loans   14,855,154    137,005    392,156    15,384,315    (188,184)   (147,299)   (335,483)   15,048,832 
Foreign trade loans   1,143,289    12,955    15,198    1,171,442    (39,751)   (2,646)   (42,397)   1,129,045 
Current account debtors   116,595    4,380    1,993    122,968    (2,114)   (2,078)   (4,192)   118,776 
Factoring transactions   512,636    2,233    527    515,396    (8,847)   (783)   (9,630)   505,766 
Student loans   55,507    —    2,505    58,012    —    (4,312)   (4,312)   53,700 
Commercial lease transactions (1)   1,541,402    42,465    19,448    1,603,315    (5,438)   (5,473)   (10,911)   1,592,404 
Other loans and accounts receivable   87,903    531    14,575    103,009    (6,861)   (3,892)   (10,753)   92,256 
Subtotal   18,312,486    199,569    446,402    18,958,457    (251,195)   (166,483)   (417,678)   18,540,779 
Mortgage loans                                        
Letters of credit   6,437    —    365    6,802    —    (8)   (8)   6,794 
Endorsable mortgage loans   18,270    —    812    19,082    —    (24)   (24)   19,058 
Other residential lending   9,648,492    —    271,381    9,919,873    —    (28,771)   (28,771)   9,891,102 
Credit from ANAP   —    —    —    —    —    —    —    — 
Residential lease transactions   —    —    —    —    —    —    —    — 
Other loans and accounts receivable   142,267    —    9,493    151,760    —    (3,459)   (3,459)   148,301 
Subtotal   9,815,466    —    282,051    10,097,517    —    (32,262)   (32,262)   10,065,255 
Consumer loans                                        
Consumer loans in installments   2,599,841    —    202,535    2,802,376    —    (181,504)   (181,504)   2,620,872 
Current account debtors   149,709    —    3,696    153,405    —    (8,452)   (8,452)   144,953 
Credit card debtors   1,048,547    —    19,064    1,067,611    —    (35,776)   (35,776)   1,031,835 
Consumer lease transactions (1)   486    —    —    486    —    (5)   (5)   481 
Other loans and accounts receivable   12    —    994    1,006    —    (702)   (702)   304 
Subtotal   3,798,595    —    226,289    4,024,884    —    (226,439)   (226,439)   3,798,445 
Total   31,926,547    199,569    954,742    33,080,858    (251,195)   (425,184)   (676,379)   32,404,479 

 

(1)In this item, the Bank finances its clients the acquisition of real estate and chattels through financial lease agreements. As of September 30, 2021 Ch$804,399 million correspond to finance leases on real estate and Ch$799,402 million correspond to finance leases on chattels.

 

39

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers net, continued:

 

(a.i)Loans to Customers, continued:

 

   As of December 31, 2020 
   Assets before allowances   Allowances established     
   Normal
Portfolio		   Substandard
Portfolio		   Non-
Complying
Portfolio		   Total   Individual
Provisions		   Group
Provisions		  

Total

   Net assets 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans                                        
Commercial loans   13,818,088    136,072    438,535    14,392,695    (197,777)   (139,718)   (337,495)   14,055,200 
Foreign trade loans   941,825    7,347    17,791    966,963    (33,441)   (2,374)   (35,815)   931,148 
Current account debtors   111,888    3,617    4,973    120,478    (2,789)   (6,762)   (9,551)   110,927 
Factoring transactions   369,656    3,617    601    373,874    (8,512)   (837)   (9,349)   364,525 
Student loans   55,058    —    2,449    57,507    —    (4,201)   (4,201)   53,306 
Commercial lease transactions (1)   1,513,776    44,968    33,348    1,592,092    (7,504)   (6,169)   (13,673)   1,578,419 
Other loans and accounts receivable   72,769    455    16,206    89,430    (6,892)   (6,319)   (13,211)   76,219 
Subtotal   16,883,060    196,076    513,903    17,593,039    (256,915)   (166,380)   (423,295)   17,169,744 
Mortgage loans                                        
Letters of credit   8,646    —    692    9,338    —    (44)   (44)   9,294 
Endorsable mortgage loans   22,885    —    1,220    24,105    —    (81)   (81)   24,024 
Other residential lending   8,894,326    —    305,815    9,200,141    —    (32,427)   (32,427)   9,167,714 
Credit from ANAP   2    —    —    2    —    —    —    2 
Residential lease transactions   —    —    —    —    —    —    —    — 
Other loans and accounts receivable   146,174    —    8,894    155,068    —    (1,212)   (1,212)   153,856 
Subtotal   9,072,033    —    316,621    9,388,654    —    (33,764)   (33,764)   9,354,890 
Consumer loans                                        
Consumer loans in installments   2,418,658    —    299,469    2,718,127    —    (236,408)   (236,408)   2,481,719 
Current account debtors   153,855    —    4,869    158,724    —    (10,186)   (10,186)   148,538 
Credit card debtors   1,052,342    —    25,103    1,077,445    —    (42,789)   (42,789)   1,034,656 
Consumer lease transactions (1)   302    —    —    302    —    (3)   (3)   299 
Other loans and accounts receivable   10    —    667    677    —    (465)   (465)   212 
Subtotal   3,625,167    —    330,108    3,955,275    —    (289,851)   (289,851)   3,665,424 
Total   29,580,260    196,076    1,160,632    30,936,968    (256,915)   (489,995)   (746,910)   30,190,058 

 

(1)In this item, the Bank finances its clients the acquisition of real estate and chattels through financial lease agreements. As of December 31, 2020 Ch$802,828 million correspond to finance leases on real estate and Ch$789,566 million correspond to finance leases on chattels.

 

40

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers, net, continued:

 

(a.ii)Impaired Portfolio:

 

As of September 30, 2021 and December 31, 2020, the Bank presents the following details of normal and impaired portfolio:

 

   Assets before Allowances   Allowances established         
   Normal Portfolio   Impaired Portfolio   Total   Individual Provisions   Group Provisions   Total   Net assets 
   September   December   September   December   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans   18,474,766    17,039,307    483,691    553,732    18,958,457    17,593,039    (251,195)   (256,915)   (166,483)   (166,380)   (417,678)   (423,295)   18,540,779    17,169,744 
Mortgage loans   9,815,466    9,072,033    282,051    316,621    10,097,517    9,388,654    —    —    (32,262)   (33,764)   (32,262)   (33,764)   10,065,255    9,354,890 
Consumer loans   3,798,595    3,625,167    226,289    330,108    4,024,884    3,955,275    —    —    (226,439)   (289,851)   (226,439)   (289,851)   3,798,445    3,665,424 
Total   32,088,827    29,736,507    992,031    1,200,461    33,080,858    30,936,968    (251,195)   (256,915)   (425,184)   (489,995)   (676,379)   (746,910)   32,404,479    30,190,058 

 

41

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers, continued:

 

(b)Credit risk provisions:

 

The changes in credits risk provisions, during the period 2021 and 2020, are summarized as follows:

 

   Commercial   Mortgage   Consumer     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of January 1, 2020   176,942    150,831    28,047    329,598    685,418 
Charge-offs   (7,567)   (38,782)   (5,826)   (224,769)   (276,944)
Sales or transfers of credits   (186)   —    —    —    (186)
Allowances established   79,507    71,658    11,175    195,596    357,936 
Allowances released   —    —    —    —    — 
Balance as of September 30, 2020   248,696    183,707    33,396    300,425    766,224 
Charge-offs   (3,262)   (14,535)   (3,052)   (18,767)   (39,616)
Sales or transfers of credits   (145)   —    —    —    (145)
Allowances established   11,626    —    3,420    8,193    23,239 
Allowances released   —    (2,792)   —    —    (2,792)
Balance as of December 31, 2020   256,915    166,380    33,764    289,851    746,910 
Charge-offs   (14,379)   (44,026)   (8,103)   (118,607)   (185,115)
Sales or transfers of credits   (14,457)   —    —    —    (14,457)
Allowances established   23,116    44,129    6,601    55,195    129,041 
Allowances released   —    —    —    —    — 
Balance as of September 30, 2021   251,195    166,483    32,262    226,439    676,379 

 

In addition to these credit risk provisions, also provisions are maintained for country risk to cover foreign operations and additional loan provisions agreed upon by the Board of Directors, which are presented in liabilities under the item Provisions (see Note No. 24).

 

Other disclosures:

 

1.As of September 30, 2021, the Bank and its subsidiaries have made sales of loan portfolios. The effect in income is no more than 5% of net income before taxes, as described in Note No. 12 letter (e).

 

2.As of September 30, 2021, the Bank and its subsidiaries derecognized 100% of its portfolio of loans sold and on which all or substantially all of the risks and benefits associated to these financial assets have been transferred (see Note No. 12 letter (e)).

 

3.As of September 30, 2021 and December 31, 2020, under the Commercial Loans item, operations are maintained that guarantee obligations maintained with the Central Bank of Chile as part of the Loan Increase Conditional Credit Facility (FCIC by its Spanish initials) program for an approximate amount of Ch$2,619,901 million (Ch$2,021,688 million in December 2020).

 

42

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers, continued:

 

(c)Finance lease contracts:

 

The cash flows to be received by the Bank from finance lease contracts have the following maturities:

 

   Total receivable   Unearned income   Net balance receivable (*) 
   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Within one year   519,348    521,445    (50,854)   (52,438)   468,494    469,007 
From 1 to 2 years   380,954    373,304    (37,122)   (37,958)   343,832    335,346 
From 2 to 3 years   256,227    245,667    (24,356)   (25,084)   231,871    220,583 
From 3 to 4 years   165,802    161,492    (16,644)   (17,433)   149,158    144,059 
From 4 to 5 years   114,440    110,743    (11,973)   (12,841)   102,467    97,902 
After 5 years   329,877    350,679    (25,522)   (28,994)   304,355    321,685 
Total   1,766,648    1,763,330    (166,471)   (174,748)   1,600,177    1,588,582 

 

(*)The net balance receivable does not include past-due portfolio totaling Ch$3,624 million as of September 30, 2021 (Ch$3,812 million as of December 2020).

 

The Bank maintains financial lease operations associated with real estate, industrial machinery, vehicles and transportation equipment. These leases contracts have an average term between 2 and 15 years.

 

(d)Purchase of loan portfolio:

 

During the period ended September 30, 2021 and the year ended 2020 no portfolio purchases were made.

 

43

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

12.Loans to Customers, continued:

 

(e)Sale or transfer of loans from the loan portfolio:

 

During the period 2021 and 2020 there have been operations of sale or transfer of the loan portfolio according to the following:

 

   As of September 30, 2021 
   Carrying amount   Allowances   Sale price  

Effect on income

(loss) gain (*)

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Sale of current loans   16,327    (14,457)   6,537    4,667 
Sale of written – off loans   —    —    —    — 
Total   16,327    (14,457)   6,537    4,667 

 

   As of September 30, 2020 
   Carrying amount   Allowances   Sale price  

Effect on income

(loss) gain (*)

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Sale of current loans   43,804    (186)   43,804    186 
Sale of written – off loans   —    —    —    — 
Total   43,804    (186)   43,804    186 

 

(*)See Note No. 30.

 

(f)Securitization of own assets:

 

During the period 2021 and the year 2020, there is no securitization transactions executed involving its own assets.

 

44

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

13.Investment Securities:

 

As of September 30, 2021 and December 31, 2020, investment securities classified as available-for-sale and held-to-maturity are detailed as follows:

 

   September 2021   December 2020 
   Available- for-sale   Held-to- maturity   Total   Available-for -sale   Held-to- maturity   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Instruments issued by the Chilean Government and Central Bank of Chile                              
Bonds issued by the Central Bank of Chile   102    —    102    109    —    109 
Promissory notes issued by the Central Bank of Chile   —    —    —    —    —    — 
Other instruments of the Chilean Government and the Central Bank of Chile   2,248,411    302,532    2,550,943    163,491    —    163,491 
                               
Other instruments issued in Chile                              
Deposit promissory notes from domestics banks   —    —    —    —    —    — 
Mortgage bonds from domestic banks   116,770    —    116,770    128,763    —    128,763 
Bonds from domestic banks   2,495    —    2,495    15,887    —    15,887 
Deposits from domestic banks   1,046,221    —    1,046,221    685,392    —    685,392 
Bonds from other Chilean companies   22,615    —    22,615    34,539    —    34,539 
Promissory notes issued by other Chilean companies   —    —    —    —    —    — 
Other instruments issued in Chile   3,699    —    3,699    32,342    —    32,342 
                               
Instruments issued Abroad                              
Instruments from foreign governments or Central Banks   —    —    —    —    —    — 
Other instruments   —    —    —    —    —    — 
                               
Total   3,440,313    302,532    3,742,845    1,060,523    —    1,060,523 

 

45

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

13.Investment Securities, continued:

 

Instruments of the Government and the Central Bank of Chile include instruments sold under repurchase agreements to clients and financial institutions for an amount of Ch$2,507 million in September 30, 2021 (Ch$13,268 million in December 2020). The repurchase agreements have an average maturity of 5 days in September 2021 (5 days in December 2020). Additionally, under this item, instruments are maintained to comply with the requirements for the constitution of a technical reserve for an amount equivalent to Ch$2,087,958 million as of September 30, 2021 (Ch$64,000 million in December 2020).

 

Under the same item, instruments that guarantee margins for cleared derivatives transactions are classified through Comder Contraparte Central S.A. for an amount of Ch$30,211 million as of September 30, 2021 (Ch$36,146 million as of December 31, 2020).

 

Under Instruments of Other National Institutions are classified instruments delivered as collateral as part of FCIC program for an approximate amount of Ch$1,009,815 as of September 30, 2021 (Ch$350,154 million as of December 31, 2020).

 

As of September 30, 2021, the portfolio of financial assets available-for-sale includes an accumulated unrealized loss of Ch$116,297 million (accumulated unrealized gain of Ch$801 million in December 2020), recorded as an equity valuation adjustment.

 

During the periods 2021 and 2020, there is no evidence of impairment of financial assets.

 

Gross profits and losses realized on the sale of available-for-sale investments as of September 30, 2021 and 2020 are shown in Note No. 30 “Net Financial Operating Income”. The changes on results at the end of each period are as fallow:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
           
Unrealized (losses) gains   (113,178)   19,745 
Realized gains reclassified to income   (3,920)   (21,142)
Subtotal   (117,098)   (1,397)
Income tax on other comprehensive income   4,359    378 
Net effect in equity   (112,739)   (1,019)

 

46

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

14.Investments in Other Companies:

 

(a)Investments in other companies include investments of Ch$48,088 million as of September 30, 2021 (Ch$44,649 million as of December 31, 2020), as follows:

 

              Investment 
      Ownership Interest   Equity   Assets   Income 
      September   December   September   December   September   December   September   September 
Company  Shareholder  2021   2020   2021   2020   2021   2020   2021   2020 
      %   %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Associates                                           
Transbank S.A. (*)  Banco de Chile   26.16    26.16    53,886    67,337    19,003    17,613    (6,457)   (1,833)
Administrador Financiero del Transantiago S.A.  Banco de Chile   20.00    20.00    18,448    19,171    3,744    3,951    182    261 
Redbanc S.A.  Banco de Chile   38.13    38.13    9,603    8,663    3,702    3,307    398    (421)
Soc. Operadora de Tarjetas de Crédito Nexus S.A.  Banco de Chile   29.63    29.63    11,551    8,626    3,519    2,556    963    227 
Centro de Compensación Automatizado S.A.  Banco de Chile   33.33    33.33    10,145    8,182    3,448    2,787    660    330 
Sociedad Interbancaria de Depósitos de Valores S.A.  Banco de Chile   26.81    26.81    6,182    5,526    1,657    1,564    196    193 
Sociedad Imerc OTC S.A.  Banco de Chile   12.33    12.33    12,013    12,248    1,481    1,510    (26)   (28)
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.  Banco de Chile   15.00    15.00    6,601    6,436    1,010    980    40    24 
Subtotal Associates                128,429    136,189    37,564    34,268    (4,044)   (1,247)
                                            
Joint Ventures                                           
Servipag Ltda.  Banco de Chile   50.00    50.00    14,078    13,268    7,039    6,631    405    93 
Artikos Chile S.A.  Banco de Chile   50.00    50.00    2,483    2,547    1,242    1,439    402    376 
Subtotal Joint Ventures                16,561    15,815    8,281    8,070    807    469 
Subtotal                144,990    152,004    45,845    42,338    (3,237)   (778)
                                            
Investments valued at cost (1)                                           
Bolsa de Comercio de Santiago S.A.  Banchile Corredores de Bolsa                       1,646    1,646    355    333 
Banco Latinoamericano de Comercio Exterior S.A. (Bladex)  Banco de Chile                       309    309    33    43 
Bolsa Electrónica de Chile S.A.  Banchile Corredores de Bolsa                       257    257    —    9 
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales (Swift)  Banco de Chile                       23    91    —    — 
CCLV Contraparte Central S.A.  Banchile Corredores de Bolsa                       8    8    1    1 
Subtotal                          2,243    2,311    389    386 
Total                          48,088    44,649    (2,848)   (392)

 

(1)Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends).

 

(*)On April 22, 2021, the Extraordinary Shareholders’ Meeting of the company unanimously approved a capital increase in the amount of Ch$30,000 million through the issuance of 152,905,194 payment shares. As of September 30, 2021, Banco de Chile has subscribed and full payment of 39,994,508 shares equivalent to Ch$7,847 million.

 

47

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

14.Investments in Other Companies, continued:

 

(b)The change of investments in companies registered under the equity method in the periods of 2021 and 2020, are as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
           
Initial book value   42,338    48,442 
Acquisition of investments in companies   7,847    — 
Participation on income in companies with significant influence and joint control   (3,237)   (778)
Dividends received   (1,097)   (1,001)
Others   (6)   1 
Total   45,845    46,664 

 

(c)During the period ended as of September 30, 2021 and 2020 no impairment has incurred in these investments.

 

48

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

15.Intangible Assets:

 

(a)As of September 30, 2021 and December 31, 2020 intangible assets are composed as follows:

 

   Useful Life   Average remaining amortization   Gross balance   Accumulated Amortization   Net balance 
   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   Years   Years   Years   Years   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Other Intangible Assets:                                              
Software or computer programs  6   6   4   4    201,235    180,669    (132,834)   (119,968)   68,401    60,701 
Total                   201,235    180,669    (132,834)   (119,968)   68,401    60,701 

 

49

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

15.Intangible Assets, continued:

 

(b)The change of intangible assets as of September 30, 2021 and December 31, 2020 are as follows:

 

   Software or computer programs 
   September   December 
   2021   2020 
   MCh$   MCh$ 
Gross Balance        
Balance as of January 1,   180,669    163,485 
Acquisition   20,759    18,631 
Disposals/ write-downs   (352)   (387)
Reclassification   159    (16)
Impairment   —    (1,044)
Total   201,235    180,669 
           
Accumulated Amortization          
Balance as of January 1,   (119,968)   (105,178)
Amortization for the period (*)   (13,019)   (15,865)
Disposals/ write-downs   352    660 
Reclassification   (199)   — 
Impairment   —    415 
Total   (132,834)   (119,968)
           
Balance Net   68,401    60,701 

 

(*)See Note No. 35 Depreciation, amortization and impairment.

 

(c)As of September 30, 2021 and December 31, 2020, the Bank maintains the following amounts with technological developments:

 

Detail  Commitment Amount 
   September   December 
   2021   2020 
   MCh$   MCh$ 
           
Software and licenses   5,196    3,830 

 

50

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

16.Fixed assets, leased assets and lease liabilities:

 

(a)The properties and equipment as of September 30, 2021 and December 31, 2020 are composed as follows:

 

   Useful Life   Average remaining depreciation   Gross balance   Accumulated Depreciation   Net balance 
   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   Years   Years   Years   Years   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 

Type of property and equipment:

                                              
Land and Buildings  26   26   19   20    309,991    304,951    (146,631)   (142,543)   163,360    162,408 
Equipment  5   5   4   4    240,051    222,624    (187,298)   (175,141)   52,753    47,483 
Others  7   7   4   4    56,294    55,898    (48,719)   (47,861)   7,575    8,037 
Total                   606,336    583,473    (382,648)   (365,545)   223,688    217,928 

 

51

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

(b)The changes in properties and equipment as of September 30, 2021 and December 31, 2020 are as follows:

 

   September 2021 
   Land and Buildings   Equipment   Others   Total 
   MCh$   MCh$   MCh$   MCh$ 
Gross Balance                    
Balance as of January 1, 2021   304,951    222,624    55,898    583,473 
Additions   7,911    18,064    1,895    27,870 
Write-downs and sales of the period   (2,871)   (637)   (1,496)   (5,004)
Impairment (*)   —    —    (3)   (3)
Total   309,991    240,051    56,294    606,336 
                     
Accumulated Depreciation                    
Balance as of January 1, 2021   (142,543)   (175,141)   (47,861)   (365,545)
Reclassification   —    —    16    16 
Depreciation charges of the period (*) (**)   (6,621)   (12,777)   (2,362)   (21,760)
Write-downs and sales of the period   2,533    620    1,488    4,641 
Total   (146,631)   (187,298)   (48,719)   (382,648)
                     
Balance as of September 30, 2021   163,360    52,753    7,575    223,688 

 

   December 2020 
   Land and Buildings   Equipment   Others   Total 
   MCh$   MCh$   MCh$   MCh$ 
Gross Balance                    
Balance as of January 1, 2020   301,619    207,605    55,519    564,743 
Additions   6,303    20,658    1,510    28,471 
Write-downs and sales of the year   (2,903)   (5,606)   (1,105)   (9,614)
Impairment (***)   (68)   (33)   (26)   (127)
Total   304,951    222,624    55,898    583,473 
                     
Accumulated Depreciation                    
Balance as of January 1, 2020   (136,394)   (162,560)   (45,527)   (344,481)
Depreciation charges of the year (**)   (8,844)   (17,273)   (3,371)   (29,488)
Write-downs and sales of the year   2,695    4,692    1,025    8,412 
Impairment (***)   —    —    12    12 
Total   (142,543)   (175,141)   (47,861)   (365,545)
                     
Balance as of December 31, 2020   162,408    47,483    8,037    217,928 

 

(*)See Note No.35 Depreciation, Amortization and Impairment.

 

(**)This amount does not include the depreciation of the year of the Investment Properties, amount is included in “Other Assets” for Ch$268 million (Ch$357 million as of December 2020).

 

(***)As of December 31, 2020 does not include charge-offs of Property and Equipment of Ch$916 million.

 

52

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

(c)The composition of the rights over leased assets as of September 30, 2021 and December 31, 2020 is as follows:

 

  

Gross

Balance

   Accumulated Depreciation  

Net

Balance

 
   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Categories                        
Buildings   122,660    123,215    (43,071)   (33,560)   79,589    89,655 
Floor space for ATMs   41,621    40,445    (23,360)   (16,496)   18,261    23,949 
Improvements to leased properties   25,765    26,579    (20,391)   (21,354)   5,374    5,225 
Total   190,046    190,239    (86,822)   (71,410)   103,224    118,829 

 

(d)The changes of the rights over leased assets as of September 30, 2021 and December 31, 2020 is as follows:

 

   September 2021 
  

 

Buildings

  

 

Floor space for ATMs

   Improvements to leased properties  

 

Total

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Gross Balance                
Balance as of January 1, 2021   123,215    40,445    26,579    190,239 
Additions   8,129    1,929    1,086    11,144 
Write-downs   (8,684)   (753)   (1,900)   (11,337)
Total   122,660    41,621    25,765    190,046 
                     
Accumulated Depreciation                    
Balance as of January 1, 2021   (33,560)   (16,496)   (21,354)   (71,410)
Depreciation of the period (*)   (13,716)   (7,587)   (653)   (21,956)
Write-downs   4,205    723    1,616    6,544 
Total   (43,071)   (23,360)   (20,391)   (86,822)
                     
Balance as of September 30, 2021   79,589    18,261    5,374    103,224 

 

(*)See Note No. 35 Depreciation, Amortization and Impairment.

 

53

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

  

16.Fixed assets, leased assets and lease liabilities, continued:

 

   December 2020 
  

 

Buildings

  

 

Floor space for ATMs

   Improvements to leased properties  

 

Total

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Gross Balance                
Balance as of January 1, 2020   130,853    41,960    27,254    200,067 
Additions   7,907    1,319    847    10,073 
Write-downs   (15,538)   (1,197)   (1,522)   (18,257)
Remeasurement   (7)   (1,637)   —    (1,644)
Total   123,215    40,445    26,579    190,239 
                     
Accumulated Depreciation                    
Balance as of January 1, 2020   (18,722)   (9,091)   (21,589)   (49,402)
Depreciation of the year (*)   (18,867)   (7,774)   (1,006)   (27,647)
Write-downs   4,029    369    1,241    5,639 
Total   (33,560)   (16,496)   (21,354)   (71,410)
                     
Balance as of  December 31, 2020   89,655    23,949    5,225    118,829 

 

(*)Does not include provision for impairment of Ch$1 million.

 

(e)The future maturities (including unearned interest) of the lease liabilities as of September 30, 2021 and December 31, 2020 are shown below:

 

   September 2021 
  

 

 

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

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Lease associated to:                            
Buildings   1,723    3,448    14,096    27,092    21,252    29,208    96,819 
ATMs   923    1,840    8,029    8,284    167    175    19,418 
Total   2,646    5,288    22,125    35,376    21,419    29,383    116,237 

 

   December 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 years and up to
5 years		  

 

Over 5 years

  

 

 

Total

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Lease associated to:                            
Buildings   1,646    3,371    14,501    28,663    20,869    30,865    99,915 
ATMs   824    1,644    7,229    14,467    419    483    25,066 
Total   2,470    5,015    21,730    43,130    21,288    31,348    124,981 

 

54

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

The Bank and its subsidiaries maintain contracts with certain renewal options and for which there is reasonable certainty that said option shall be carried out. In such cases, the lease period used to measure the liability and assets corresponds to an estimate of future renewals.

 

The changes of the obligations for lease liabilities and the flows for the periods 2021 and 2020 are as follows:

 

  

Total cash flow
for the period

 
   MCh$ 
Lease liability    
Balances as of January 1, 2020   146,013 
Liabilities for new lease agreements   2,432 
Interest expenses   1,993 
Payments of capital and interests   (21,542)
Remeasurement   (1,331)
Derecognized contracts   (4,342)
Others   2,000 
Balances as of September 30, 2020   125,223 
Liabilities for new lease agreements   3,336 
Interest expenses   539 
Payments of capital and interests   (7,164)
Remeasurement   (313)
Derecognized contracts   (7,995)
Others   1,391 
Balances as of December 31, 2020   115,017 
Liabilities for new lease agreements   6,292 
Interest expenses   1,514 
Payments of capital and interests   (22,988)
Derecognized contracts   (4,588)
Others   3,766 
Balances as of September 30, 2021   99,013 

  

(f)The future cash flows related to short-term lease agreements in effect as of September 30, 2021 correspond to Ch$6,597 million (Ch$6,814 as of December 31, 2020).

 

55

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

17.Current Taxes and Deferred Taxes:

 

(a)Current Taxes:

 

The Bank and its subsidiaries at the end of each period, have constituted a First Category Income Tax Provision, which was determined based on current tax regulations, and has been reflected in the Statement of Financial Position net of taxes to be recovered or payable, as applicable, as of September 30, 2021 and December 31, 2020, according to the following detail:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Income tax   208,485    153,084 
Less:          
Monthly prepaid taxes   (123,728)   (172,683)
Credit for training expenses   (1,267)   (1,900)
Others   (1,231)   (1,139)
Total   82,259    (22,638)
           
Tax rate   27%   27%

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Current tax assets   671    22,949 
Current tax liabilities   (82,930)   (311)
Total tax receivable (payable), net   (82,259)   22,638 

 

(b)Income Tax:

 

The effect of the tax expense during the periods between January 1 and September 30, 2021 and 2020, are broken down as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Income tax expense:        
Current year tax   154,939    104,917 
Tax Previous year   (2,375)   (1,269)
Subtotal   152,564    103,648 
Charge for deferred taxes:          
Origin and reversal of temporary differences   (25,122)   (11,982)
Subtotal   (25,122)   (11,982)
Others   2,524    2,436 
Net charge to income for income taxes   129,966    94,102 

 

56

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

17.Current and Deferred Taxes, continued:

 

(c)Reconciliation of effective tax rate:

 

The following is a reconciliation of the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of September 30, 2021 and 2020:

 

   September 2021   September 2020 
   Tax rate       Tax rate     
   %   MCh$   %   MCh$ 
                 
Income tax calculated on net income before tax   27.00    172,549    27.00    116,350 
Price-level restatement   (7.14)   (45,600)   (4.52)   (19,457)
Others Additions or deductions   0.47    3,017    (0.64)   (2,791)
Effective rate and income tax expense   20.33    129,966    21.84    94,102 

 

The effective rate for income tax for the period 2021 is 20.33% (21.84% in September 2020).

 

57

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

17.Current and Deferred Taxes, continued:

 

(d)Effect of deferred taxes on income and equity:

 

The Bank and its subsidiaries have recorded the effects of deferred taxes in their Interim Consolidated Financial Statements. The effects of deferred taxes on assets, liabilities and income accounts as of September 30, 2021 are detailed as follows:

 

  

Balances

as of

December 31,

   Effect on  

Balances

as of

September 30,

 
   2020   Income   Equity   2021 
   MCh$   MCh$   MCh$   MCh$ 
Debit Differences:                
Allowances for loan losses   268,482    14,109    —    282,591 
Personnel provisions   16,233    (931)   —    15,302 
Staff vacations provisions   9,164    894    —    10,058 
Accrued interests adjustments from impaired loans   4,570    (105)   —    4,465 
Staff severance indemnities provision   537    (1)   (135)   401 
Provision of credit cards expenses   7,959    1,457    —    9,416 
Provision of accrued expenses   14,083    (2,470)   —    11,613 
Adjustment for valuation of financial assets available-for-sale   —    —    4,136    4,136 
Leasing   28,835    12,193    —    41,028 
Incomes received in advance   16,088    (2,881)   —    13,207 
Other adjustments   26,905    10,135    —    37,040 
Total Debit Differences   392,856    32,400    4,001    429,257 
                     
Credit Differences:                    
Depreciation and price-level restatement of property and equipment   17,256    7    —    17,263 
Adjustment for valuation of financial assets available-for-sale   223    —    (223)   — 
Transitory assets   5,378    3,939    —    9,317 
Loans accrued to effective rate   2,779    (268)   —    2,511 
Prepaid expenses   2,234    4,363    —    6,597 
Other adjustments   7,041    (763)   —    6,278 
Total Credit Differences   34,911    7,278    (223)   41,966 
                     
Total, Net   357,945    25,122    4,224    387,291 

 

58

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

17.Current and Deferred Taxes, continued:

 

(d)Effect of deferred taxes on income and equity, continued:

 

The effects of deferred taxes on assets, liabilities and income accounts as of September 30, 2020 and December 31, 2020 are detailed as follows:

 

   Balance
as of
December 31,		   Effect on   Balance
as of
September 30, 		   Effect on   Balance
as of
December 31,		 
   2019   Income   Equity   2020   Income   Equity   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Debit differences:                            
Allowances for loan losses   221,079    28,736    —    249,815    18,667    —    268,482 
Personnel provisions   16,714    (4,085)   —    12,629    3,604    —    16,233 
Staff vacations provisions   7,444    1,176    —    8,620    544    —    9,164 
Accrued interest adjustments from impaired loans   3,674    703    —    4,377    193    —    4,570 
Staff severance indemnities provision   607    (102)   25    530    7    —    537 
Provisions of credit card expenses   8,221    359    —    8,580    (621)   —    7,959 
Provisions of accrued expenses   10,564    2,354    —    12,918    1,165    —    14,083 
Leasing   41,792    (12,473)   —    29,319    (484)   —    28,835 
Incomes received in advance   32,170    (13,633)   —    18,537    (2,449)   —    16,088 
Other adjustments   15,485    11,285    —    26,770    135    —    26,905 
Total Debit Differences   357,750    14,320    25    372,095    20,761    —    392,856 
                                    
Credit differences:                                   
Depreciation of property and equipment and investment properties   15,524    1,388    —    16,912    344    —    17,256 
Adjustment for valuation financial assets available-for-sale   1,039    —    (378)   661    —    (438)   223 
Transitory assets   7,174    829    —    8,003    (2,625)   —    5,378 
Loans accrued to effective rate   1,386    (375)   —    1,011    1,768    —    2,779 
Prepaid expenses   3,334    (1,991)   —    1,343    891    —    2,234 
Other adjustments   8,345    2,487    —    10,832    (3,791)   —    7,041 
Total Credit Differences   36,802    2,338    (378)   38,762    (3,413)   (438)   34,911 
                                    
Total, Net   320,948    11,982    403    333,333    24,174    438    357,945 

 

59

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

18.Other Assets:

 

(a)Item composition:

 

At the end of each period, the item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Assets held for leasing (*)   96,249    85,626 
           
Assets received or awarded as payment (**)          
Assets awarded at judicial sale   8,606    5,571 
Assets received in lieu of payment   988    99 
Provision for assets received in lieu of payment or awarded   (74)   (52)
Subtotal   9,520    5,618 
           
Other Assets          
Deposits by derivatives margin   190,529    232,732 
Trading and brokerage (***)   138,718    84,993 
Recoverable income taxes   64,924    8,691 
Prepaid expenses   58,493    29,654 
Other accounts and notes receivable   20,739    63,796 
Investment properties   12,565    12,833 
VAT receivable   10,542    10,777 
Commissions receivable   9,935    11,810 
Servipag available funds   7,663    11,385 
Pending transactions   3,960    1,825 
Assets recovered from leasing for sale   3,014    715 
Rental guarantees   2,093    2,014 
Accounts receivable for sale of assets received in lieu of payment   1,104    2,469 
Materials and supplies   629    784 
Others   18,645    13,745 
Subtotal   543,553    488,223 
Total   649,322    579,467 

 

(*)These correspond to property and equipment to be given under finance lease.

 

(**)Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets acquired must not exceed the aggregate 20% of the Bank’s effective equity. These assets currently represent 0.0186% (0.0024% as of December 31, 2020) of the Bank’s effective equity.

 

(***)This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de Bolsa S.A.

 

60

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

18.Other Assets, continued:

 

(b)The changes of the provision for assets received in lieu of payment during the periods 2021 and 2020 are as follows:

 

Provision for assets received in lieu of payment  MCh$ 
     
Balance as of January 1, 2020   188 
Provisions used   (967)
Provisions established   820 
Provisions released   — 
Balance as of September 30, 2020   41 
Provisions used   (121)
Provisions established   132 
Provisions released   — 
Balance as of December 31, 2020   52 
Provisions used   (97)
Provisions established   119 
Provisions released   — 
Balance as of September 30, 2021   74 

 

19.Current Accounts and Other Demand Deposits:

 

At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Current accounts   14,230,205    12,477,719 
Other demand deposits   1,769,221    1,431,904 
Other deposits and sight accounts   1,607,832    1,257,606 
Total   17,607,258    15,167,229 

 

20.Savings Accounts and Time Deposits:

 

At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Time deposits   8,207,537    8,442,536 
Term savings accounts   434,894    342,550 
Other term balances payable   329,773    114,455 
Total   8,972,204    8,899,541 

 

61

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

21.Borrowings from Financial Institutions:

 

At the end of each period, borrowings from financial institutions are detailed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Domestic banks        
Banco do Brasil   —    7,100 
Banco Scotiabank   —    1,257 
Banco Itaú   61    — 
Subtotal domestic banks   61    8,357 
           
Foreign banks          
Foreign trade financing          
Wells Fargo Bank   138,838    85,734 
Citibank N.A. United State   65,446    114,525 
Sumitomo Mitsui Banking   40,588    11,394 
Bank of America   37,535    20,475 
Bank of New York Mellon   16,234    21,389 
Standard Chartered Bank   10,469    715 
Commerzbank AG   1,340    21,687 
Bank of Tokyo   444    40 
The Bank of Nova Scotia   —    121,085 
Zürcher Kantonalbank   —    39,116 
           
Borrowings and other obligations          
Wells Fargo Bank   154,654    106,965 
Standard Chartered Bank   461    — 
Citibank N.A. United Kingdom   —    233 
Deutsche Bank Trust Company Americas   —    7,333 
Others   288    105 
Subtotal foreign banks   466,297    550,796 
           
Chilean Central Bank (*)   4,348,400    3,110,600 
           
Total   4,814,758    3,669,753 

 

(*)Financing provided by the Chilean Central Bank to deliver liquidity to the economy and support the flow of credit to households and companies, among which are the Conditional Credit Facility to Increase Placements (FCIC by its Spanish initials) and the Liquidity Credit Line (LCL).

 

62

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

22.Debt Issued:

 

At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Mortgage bonds   4,670    6,786 
Bonds   7,849,226    7,700,402 
Subordinated bonds   904,276    886,407 
Total   8,758,172    8,593,595 

 

During the year 2021, the Bank has placed bonds for Ch$765,735 million, which corresponds to Short-Term Bonds and Long-Term Current Bonds for amount of Ch$698,435 million and Ch$67,300 million respectively, according to the following details:

 

Short-term Bonds

 

Counterparty  Currency  Amount MCh$   Annual interest rate %   Issued date  Maturity date
                  
Wells Fargo Bank  USD   72,240    0.23   20/01/2021  20/04/2021
Wells Fargo Bank  USD   36,736    0.38   09/02/2021  04/02/2022
Citibank N.A.  USD   36,736    0.28   09/02/2021  02/08/2021
Wells Fargo Bank  USD   35,700    0.26   25/02/2021  24/08/2021
Citibank N.A.  USD   71,400    0.23   25/02/2021  01/06/2021
Wells Fargo Bank  USD   35,700    0.26   25/02/2021  26/08/2021
Citibank N.A.  USD   36,294    0.34   04/03/2021  03/09/2021
Citibank N.A.  USD   72,589    0.34   04/03/2021  07/09/2021
Wells Fargo Bank  USD   18,147    0.25   04/03/2021  01/06/2021
Wells Fargo Bank  USD   78,814    0.25   08/09/2021  01/06/2022
Citibank N.A.  USD   78,873    0.23   10/09/2021  10/03/2022
Wells Fargo Bank  USD   39,437    0.25   10/09/2021  08/06/2022
Citibank N.A.  USD   78,413    0.23   13/09/2021  17/03/2022
Wells Fargo Bank  USD   4,283    0.28   15/09/2021  14/09/2022
Citibank N.A.  USD   3,073    0.28   22/09/2021  16/09/2022
Total as of September 30, 2021      698,435            

 

Long-Term Current Bonds

 

Serie  Currency  

Amount

MCh$

  

Terms

Years

   Annual issue rate %   Issue date   Maturity date 
                         
BONO JPY  JPY    36,097   10    0.7   17/08/2021   17/08/2031 
BONO AUD  AUD    31,203   10    +138 pb   12/08/2021   12/08/2031 
Total as of September 30, 2021       67,300                  

 

Subordinated bonds

 

During the period ended September 30, 2021, there were no subordinated bonds, issued.

 

63

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

22.Debt Issued, continued:

 

During fiscal year 2020, the Bank placed bonds for Ch$889,135 million, which corresponds to Short-Term Bonds and Long-Term Current Bonds for amounts of Ch$634,952 million and Ch$254,183 million respectively, according to the following details:

 

Short-term Bonds

 

Counterparty  Currency  Amount MCh$   Annual interest rate %   Issued date  Maturity date
                  
Citibank N.A.  USD   23,078    2.00   07/01/2020  07/07/2020
Citibank N.A.  USD   38,371    1.95   09/01/2020  09/04/2020
Citibank N.A.  USD   34,886    1.91   13/01/2020  13/04/2020
Citibank N.A.  USD   11,629    1.87   14/01/2020  14/04/2020
Citibank N.A.  USD   31,667    1.91   29/01/2020  31/07/2020
Citibank N.A.  USD   7,917    1.91   29/01/2020  31/07/2020
Citibank N.A.  USD   27,709    1.86   29/01/2020  29/05/2020
Citibank N.A.  USD   10,350    1.85   30/01/2020  01/06/2020
Citibank N.A.  USD   19,720    1.85   03/02/2020  03/06/2020
Citibank N.A.  USD   31,391    1.55   08/04/2020  05/06/2020
Citibank N.A.  USD   21,262    1.30   13/04/2020  12/05/2020
Citibank N.A.  USD   12,758    1.30   13/04/2020  13/05/2020
Citibank N.A.  USD   34,020    1.30   13/04/2020  13/05/2020
Citibank N.A.  USD   25,593    1.55   16/04/2020  16/06/2020
Citibank N.A.  USD   25,593    1.55   16/04/2020  18/06/2020
Citibank N.A.  USD   34,158    1.61   17/04/2020  21/08/2020
Wells Fargo Bank  USD   42,697    1.60   17/04/2020  21/08/2020
Wells Fargo Bank  USD   42,858    1.50   22/04/2020  14/08/2020
Wells Fargo Bank  USD   42,943    1.45   24/04/2020  29/01/2021
Wells Fargo Bank  USD   4,175    1.30   29/04/2020  29/10/2020
Citibank N.A.  USD   32,834    0.45   18/05/2020  20/07/2020
Citibank N.A.  USD   5,089    0.45   18/05/2020  20/07/2020
Wells Fargo Bank  USD   74,254    0.45   07/12/2020  06/12/2021
Total as of December 31, 2020      634,952            

 

64

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

22.Debt Issued, continued:

 

Long-Term Current Bonds

 

Serie  Currency   

Amount

MCh$

  

Terms

Years

   Annual issue rate %   Issue date   Maturity date 
                          
BCHIEM0817   UF     93,096   7    0.80   06/01/2020   06/01/2027 
BCHIEL0717   UF     123,957   8    0.72   04/02/2020   04/02/2028 
Subtotal UF        217,053                  
                            
BONO AUD  AUD     37,130   15    2.65   02/03/2020   02/03/2035 
Subtotal Others currency        37,130                  
Total as of December 31, 2020        254,183                  

 

Subordinated bonds

 

During the year ended December 31, 2020, no Subordinate Bond placements were made.

 

As of September 30, 2021 and December 31, 2020, the Bank has not presented defaults in the payment of principal and interest on its debt instruments. Likewise, there have been no breaches of covenants and other commitments associated with the debt instruments issued.

 

65

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

23.Other Financial Obligations:

 

At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Other Chilean obligations   258,860    191,258 
Public sector obligations   256    455 
Total   259,116    191,713 

 

24.Provisions:

 

(a)At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Provisions for minimum dividends (*)   226,135    220,271 
Provisions for personnel benefits and payroll expenses   108,006    111,243 
Provisions for contingent loan risks   78,484    76,191 
Provisions for contingencies:          
Additional loan provisions (**)   460,252    320,252 
Country risk provisions   8,669    5,446 
Other provisions for contingencies   615    508 
Total   882,161    733,911 

 

(*)See Note No. 27 letter (c).

 

(**)As of September 30, 2021, Ch$140,000 million have been established for additional provisions (Ch$107,000 million in December 2020). See Note No. 24 letter (b).

 

66

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

24.Provisions, continued:

 

(b)The following table shows the changes in provisions and accrued expenses during the period 2021 and 2020:

 

   Minimum dividends   Personnel benefits and payroll   Contingent loan Risks   Additional loan provisions   Country risk provisions and other contingencies   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2020   300,461    109,075    57,042    213,252    4,833    684,663 
Provisions established   169,951    51,659    21,555    27,000    3,992    274,157 
Provisions used   (300,461)   (67,406)   —    —    —    (367,867)
Provisions released   —    —    —    —    —    — 
Balances as of September 30, 2020   169,951    93,328    78,597    240,252    8,825    590,953 
Provisions established   50,320    31,294    —    80,000    —    161,614 
Provisions used   —    (13,379)   —    —    —    (13,379)
Provisions released   —    —    (2,406)   —    (2,871)   (5,277)
Balances as of December 31, 2020   220,271    111,243    76,191    320,252    5,954    733,911 
Provisions established   226,135    91,890    2,293    140,000    3,434    463,752 
Provisions used   (220,271)   (95,127)   —    —    (104)   (315,502)
Provisions released   —    —    —    —    —    — 
Balances as of September 30, 2021   226,135    108,006    78,484    460,252    9,284    882,161 

 

 

(c)Provisions for personnel benefits and payroll:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Staff accrued vacation provision   37,250    33,993 
Provisions for performance bonuses   49,719    43,941 
Other personnel benefits provision   14,513    25,728 
Staff severance indemnities   6,524    7,581 
Total   108,006    111,243 

 

67

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

24.Provisions, continued:

 

(d)Staff severance indemnities:

 

(i)Changes in the staff severance indemnities:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Present value of the obligations at the beginning of the period   7,581    7,566 
Increase in provision   306    239 
Benefit paid   (863)   (453)
Effect of change in actuarial factors   (500)   91 
Total   6,524    7,443 

 

(ii)Net benefits expenses:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
(Decrease)  Increase in provisions   (64)   74 
Interest cost of benefits obligations   370    165 
Effect of change in actuarial factors   (500)   91 
Net benefit expenses   (194)   330 

 

(iii)Factors used in the calculation of the provision:

 

The main assumptions used in the determination of severance indemnity obligations for the Bank’s plan are shown below:

 

   September 30,
2021		   December 31,
2020		 
   %   % 
         
Discount rate   5.50    2.31 
Salary increase rate   3.94    4.04 
Payment probability   99.99    99.99 

 

The most recent actuarial valuation of the staff severance indemnities provision was carried out during the third quarter of 2021.

 

68

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

24.Provisions, continued:

 

(e)Changes in compliance bonuses provision:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Balances as of January 1   43,941    51,051 
Net provisions established   41,207    24,502 
Provisions used   (35,429)   (40,937)
Total   49,719    34,616 

 

(f)Changes in staff accrued vacation provision:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Balances as of January 1   33,993    27,609 
Net provisions established   9,473    7,638 
Provisions used   (6,216)   (3,274)
Total   37,250    31,973 

 

(g)Employee benefits share-based provision:

 

As of September 30, 2021 and 2020, the Bank and its subsidiaries do not have a stock-based compensation plan.

 

(h)Contingent loan provisions:

 

As of September 30, 2021 the Bank and its subsidiaries maintain contingent loan provisions by an amount of Ch$78,484 million (Ch$76,191 million at December 2020). See Note No. 26 letter (d).

 

69

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

25.Other Liabilities:

 

At the end of each period, this item is composed as follows:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Accounts and notes payable   234,545    273,143 
Income received in advance (*)   61,883    68,907 
Dividends payable   5,516    4,309 
           
Other liabilities          
Documents intermediated (**)   209,878    137,546 
Cobranding   34,611    29,213 
VAT debit   16,913    16,519 
Securities unliquidated   12,762    2,725 
Outstanding transactions   477    725 
Insurance payments   463    1,802 
Others   30,982    30,231 
Total   608,030    565,120 

 

(*)In relation to the Strategic Alliance Framework Agreement, on June 4, 2019, Banco de Chile received the payment from the Insurance Companies for an amount of Ch$149,061 million, which was recorded according to IFRS 15. The related income is recognized over time, depending on compliance with the associated performance obligation.

 

(**)This item mainly includes financing of simultaneous operations performed by subsidiary Banchile Corredores de Bolsa S.A.

 

70

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments:

 

(a)Commitments and responsibilities accounted for in off-balance-sheet accounts:

 

In order to satisfy its customers’ needs, the Bank entered into several irrevocable commitments and contingent obligations. Although these obligations are not recognized in the Statement of Financial Position, they entail credit risks and, therefore, form part of the Bank’s overall risk.

 

The Bank and its subsidiaries keep recorded in off-balance sheet accounts the main balances related to commitments or with responsibilities inherent to the course of its normal business:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Contingent loans        
Guarantees and sureties   360,599    224,079 
Confirmed foreign letters of credit   190,713    58,299 
Issued letters of credit   432,825    343,663 
Bank guarantees   2,323,068    2,214,370 
Undrawn credit lines   8,264,021    7,650,382 
Other credit commitments   67,432    107,707 
           
Transactions on behalf of third parties          
Documents in collections   93,464    157,671 
Third-party resources managed by the Bank:          
Financial assets managed on behalf of third parties   5,432    16,024 
Other assets managed on behalf of third parties   —    — 
Financial assets acquired on its own behalf   82,784    80,788 
Other assets acquired on its own behalf   —    — 
           
Custody of securities          
Securities held in safe custody in the Bank and subsidiaries   2,567,912    2,023,313 
Securities held in safe custody in other entities   18,407,797    18,467,801 
Total   32,796,047    31,344,097 

 

71

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments, continued:

 

(b)Lawsuits and legal proceedings:

 

(b.1)Normal judicial contingencies in the industry:

 

At the date of issuance of these Interim Consolidated Financial Statements, there are legal actions filed against the Bank related with the ordinary course operations. As of September 30, 2021 the Bank maintain provisions for judicial contingencies amounting to Ch$351 million (Ch$244 million as of December 2020), which are part of the item “Provisions” in the Statement of Financial Position.

 

The estimated end dates of the respective legal contingencies are as follows:

 

   As of September 30, 2021 
   2021   2022   2023   2024   2025   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                               
Legal contingencies   13    20    174    144    —    351 

 

(b.2)Contingencies for significant lawsuits in courts:

 

As of September 30, 2021 and December 31, 2020 there are not significant lawsuits in court that affect or may affect these Interim Consolidated Financial Statements.

 

72

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments, continued:

 

(c)Guarantees granted by operations:

 

i.In subsidiary Banchile Administradora General de Fondos S.A.:

 

In compliance with Article No, 12 of Law No. 20,712, Banchile Administradora General de Fondos S.A., has designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established, and in such role the Bank has issued bank guarantees totaling UF 4,149,200, maturing January 7, 2022 (UF 3,778,100, maturing on January 8, 2021 as of December 2020). The subsidiary took a policy with Mapfre Seguros Generales S.A. for the Real State Funds by a guaranteed amount of UF 809,700.

 

As of September 30, 2021 and December 31, 2020 the Bank has not guaranteed mutual funds.

 

ii.In subsidiary Banchile Corredores de Bolsa S.A.:

 

For the purposes of ensuring correct and complete compliance with all of its obligations as broker-dealer entity, in conformity with the provisions from Article 30 and subsequent of Law No. 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF 20,000, insured by Mapfre Seguros Generales S.A., that matures April 22, 2022, whereby the Securities Exchange of the Santiago Stock Exchange was appointed as the subsidiary’s creditor representative.

 

   September   December 
   2021   2020 
Guarantees:  MCh$   MCh$ 
Shares delivered to cover simultaneous forward sales transactions:        
Santiago Securities Exchange, Stock Exchange   55,283    47,684 
Electronic Chilean Securities Exchange, Stock Exchange   4,690    20,227 
           
Fixed income securities to guarantee CCLV system:           
Santiago Securities Exchange, Stock Exchange   9,997    10,000 
Shares delivered to guarantee equity lending and short-selling:           
Santiago Securities Exchange, Stock Exchange   2,732    2,858 
Total   72,702    80,769 

 

73

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments, continued:

 

(c)Guarantees granted, continued:

 

ii.In subsidiary Banchile Corredores de Bolsa S.A., continued:

 

In conformity with the internal regulation of the stock exchange in which this subsidiary participates, and for the purpose of securing the broker’s correct performance, the Company established a pledge over 1,000,000 shares of the Santiago Stock Exchange, in favor of that institution, as stated in the Public Deed dated September 13, 1990 before the notary of Santiago Mr. Raul Perry Pefaur, and over 100,000 shares of the Electronic Chilean Stock Exchange, in favor of that Institution, as stated in a contract signed between both entities dated May 16, 1990.

 

Banchile Corredores de Bolsa S.A. keeps an insurance policy current with Chubb Seguros Chile S.A. that expires May 2, 2022, this considers matters of employee fidelity, physical losses, falsification or adulteration, and currency fraud with a coverage amount equivalent to US$20,000,000.

 

It also provided a bank guarantee in the amount of UF 286,600 for the benefits of investors in portfolio management contracts. This bank guarantee is revaluated in UF to fixed term, non-endorsable and has a maturity date of January 7, 2022.

 

It also provided a cash guarantee in the amount of US$122,494.32 for the purpose of complying with the obligations to Pershing, for any operations conducted through that broker.

 

74

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments, continued:

 

(c)Guarantees granted, continued:

 

iii.In subsidiary Banchile Corredores de Seguros Ltda.:

 

According to established in article 58, letter D of D.F.L. 251, as of September 30, 2021 the entity maintains two insurance policies with effect from April 15, 2021 to April 14, 2022 which protect it against of potential damages caused by infractions of the law, regulations and complementary rules that regulate insurance brokers, especially when the non-compliance comes from acts, errors or omissions of the broker, its representatives, agents or dependents that participate in the intermediation.

 

The policies contracted are:

 

Matter insured  Amount Insured (UF) 
     
Errors and omissions liability policy   500 
Civil liability policy   60,000 

 

(d)Provisions for contingencies loans:

 

Established provisions for credit risk from contingencies operations are the followings:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
         
Undrawn credit lines  40,364   40,404 
Bank guarantees provision   28,591    27,596 
Guarantees and sureties provision   7,749    7,060 
Letters of credit provision   1,696    1,074 
Other credit commitments   84    57 
Total   78,484    76,191 

 

75

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

26.Contingencies and Commitments, continued:

 

(e)By Exempt Resolution No. 270 dated October 30, 2014, the Superintendency of Securities and Insurance (current Commission for the Financial Market) imposed a fine of UF 50,000 to Banchile Corredores de Bolsa S.A. for violations of the second paragraph of article 53 of the Securities Market Law, said company filed a claim with the competent Civil Court requesting the annulment of the fine. On December 10, 2019, a judgement in the case was issued reducing the fine to the amount of UF 7,500. The judgment indicated has been subject to cassation appeals filed by both parties, which are pending before the Illustrious Court of Appeals of Santiago.

 

The company has not made provisions considering that the Bank’s legal advisors in charge of the procedure estimate that there are solid grounds that the claim filed by Banchile Corredores de Bolsa S.A. can be accepted.

 

76

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

27.Equity:

 

(a)Capital:

 

(i)Authorized, subscribed and paid shares:

 

As of September 30, 2021, the paid-in capital of Banco de Chile is represented by 101,017,081,114 registered shares (101,017,081,114 shares as of December 31, 2020), with no par value, subscribed and fully paid.

 

(ii)Shares:

 

The following table shows the changes in share from December 31, 2019 to September 30, 2021:

 

   Total 
  

Ordinary

Shares

 
     
Total shares as of December 31, 2019   101,017,081,114 
      
Total shares as of December 31, 2020   101,017,081,114 
      
Total shares as of September 30, 2021   101,017,081,114 

 

(b)Approval and payment of dividends:

 

At the Bank Ordinary Shareholders’ Meeting held on March 25, 2021 it was approved the distribution and payment of dividend No. 209 of Ch$2.18053623438 per share of the Banco de Chile, with charge to the net distributable income for the year ended as of December 31, 2020. The dividends paid in the period 2021 amounted to Ch$220,271 million.

 

At the Bank Ordinary Shareholders’ Meeting held on March 26, 2020 it was approved the distribution and payment of dividend No. 208 of Ch$3.47008338564 per share of the Banco de Chile, with charge to the net distributable income for the year ended as of December 31, 2019. The dividends paid in the year 2020 amounted to Ch$350,538 million.

 

77

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

27.Equity, continued:

 

(c)Provision for minimum dividends:

 

The Board of Directors of Banco de Chile agreed for the purposes of minimum dividends, to establish a provision of 60% of the net income resulting from reducing or adding to the net income for 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. The amount to be reduced of the liquid income for the period ended as of September 30, 2021 amounted to Ch$132,213 million.

 

As indicated, as of September 30, 2021, the amount of the net income determined in accordance with the preceding paragraph is equivalent to Ch$376,891 million (Ch$367,119 million as of December 31, 2020). Consequently, the Bank recorded a provision for minimum dividends under “Provisions” as of September 30, for an amount of Ch$226,135 million (Ch$220,271 million in December 2020), which reflects as a counterpart an equity reduction for the same amount in the item “Retained earnings”.

 

(d)Earnings per share:

 

(i)Basic earnings per share:

 

Basic earnings per share are determined by dividing the net income attributable to the Bank ordinary equity holders in a period between the weighted average number of shares outstanding during that period, excluding the average number of own shares held throughout the period.

 

(ii)Diluted earnings per share:

 

In order to calculate the diluted earnings per share, both the amount of income attributable to common shareholders and the weighted average number of shares outstanding, net of own shares, must be adjusted for all the inherent dilutive effects to the potential common shares (stock options, warrants and convertible debt).

 

78

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

27.Equity, continued:

 

Accordingly, the basic and diluted earnings per share as of September 30, 2021 and 2020 were determined as follows:

 

   September   September 
   2021   2020 
Basic earnings per share:        
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)   509,104    336,823 
Weighted average number of ordinary shares   101,017,081,114    101,017,081,114 
Earning per shares (in Chilean pesos)   5.04    3.33 
           
Diluted earnings per share:          
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)   509,104    336,823 
Weighted average number of ordinary shares   101,017,081,114    101,017,081,114 
Assumed conversion of convertible debt   —    — 
Adjusted number of shares   101,017,081,114    101,017,081,114 
Diluted earnings per share (in Chilean pesos)   5.04    3.33 

 

As of September 30, 2021 and 2020, the Bank does not have instruments that generate dilutive effects.

 

(e)Other comprehensive income:

 

This item includes the following concepts:

 

The adjustment of cash flow hedge derivatives comprises the portion of income recorded in equity resulting from changes in fair value due to changes in market factors. During the period 2021 it was made a credit to equity for Ch$198,321 million (charge to equity of Ch$17,075 million in 2020). The income tax effect presented a charge to equity of Ch$53,546 million (credit of Ch$4,610 million in September 2020).

 

The valuation adjustment of investments available for sale originates from fluctuations in the fair value of such portfolio, with a charge or credit to equity. During the period 2021, it was made a charge to equity for Ch$117,098 million (charge of Ch$1,397 million during the year 2020). The deferred tax effect meant a credit to equity of Ch$4,359 million (credit to equity of Ch$378 million in September 2020).

 

(f)Retained earnings from previous years:

 

During the year 2021, the Ordinary Shareholders Meeting of Banco de Chile agreed to deduct and withhold from the 2020 liquid income, an amount equivalent to the value effect of the monetary unit of paid capital and reserves according to the variation in the Consumer Price Index, which occurred between November 2019 and November 2020, amounting to Ch$95,989 million. Additionally, the Board determined to withhold 40% of the distributable net income, which was equivalent to Ch$146,848 million.

 

79

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

28.Interest Revenue and Expenses:

 

(a)On the closing date of the Interim Consolidated Financial Statement, the interest and indexation income, excluding hedge results, are composed as follows:

 

   September 2021   September 2020 
   Interest  

UF

Indexation

   Prepaid fees   Total   Interest  

UF

Indexation

   Prepaid fees   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans   450,040    211,581    4,122    665,743    501,093    86,736    4,741    592,570 
Consumer loans   319,172    2,416    4,545    326,133    412,649    898    4,457    418,004 
Residential mortgage loans   206,636    333,200    2,832    542,668    204,502    127,716    4,146    336,364 
Financial investment   19,192    13,557    —    32,749    25,092    3,861    —    28,953 
Repurchase agreements   1,297    —    —    1,297    1,133    —    —    1,133 
Loans to banks   5,613    —    —    5,613    9,084    —    —    9,084 
Other interest and indexation revenue   4,481    1,001    —    5,482    7,450    1,499    —    8,949 
Total   1,006,431    561,755    11,499    1,579,685    1,161,003    220,710    13,344    1,395,057 

 

The amount of interest recognized on a received basis for impaired portfolio in the period 2021 amounts to Ch$2,373 million (Ch$2,923 million in September 2020).

 

(b)At the each period end, the stock of interest and UF indexation not recognized in incomes is the following:

 

   September 2021   September 2020 
   Interest  

UF

Indexation

   Total   Interest  

UF

Indexation

   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Commercial loans   11,146    1,731    12,877    11,652    1,124    12,776 
Residential mortgage loans   1,755    1,846    3,601    2,121    1,268    3,389 
Consumer loans   23    —    23    45    —    45 
Total   12,924    3,577    16,501    13,818    2,392    16,210 

 

80

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

28.Interest Revenue and Expenses, continued:

 

(c)At each period end, interest and UF indexation expenses excluding hedge results, are detailed as follows:

 

   September 2021   September 2020 
   Interest  

UF

Indexation

   Total   Interest  

UF

Indexation

   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Savings accounts and time deposits   30,943    32,141    63,084    101,995    16,098    118,093 
Debt securities issued   151,571    242,050    393,621    163,010    100,786    263,796 
Other financial obligations   10    12    22    390    11    401 
Repurchase agreements   263    —    263    1,773    2    1,775 
Obligations with banks   17,038    —    17,038    22,561    —    22,561 
Demand deposits   271    16,267    16,538    276    7,508    7,784 
Lease liabilities   1,514    —    1,514    1,993    —    1,993 
Other interest and indexation expenses   19    715    734    628    235    863 
Total   201,629    291,185    492,814    292,626    124,640    417,266 

 

(d)As of September 30, 2021 and 2020, the Bank uses cross currency and interest rate swaps to hedge its position on movements on the fair value of corporate bonds and commercial loans and cross currency swaps to hedge the risk of variability of obligations flows with foreign banks and bonds issued in foreign currency.

 

   September 2021   September 2020 
   Income   Expense   Total   Income   Expense   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Gain from fair value accounting hedges   4,930    —    4,930    1,216    —    1,216 
Loss from fair value accounting hedges   (4,309)   —    (4,309)   (7,856)   —    (7,856)
Gain from cash flow accounting hedges   11,664    36,850    48,514    46,921    77,021    123,942 
Loss from cash flow accounting hedges   (72,145)   (14,953)   (87,098)   (80,384)   (52,635)   (133,019)
Net gain on hedge items   (4,390)   —    (4,390)   664    —    664 
Total   (64,250)   21,897    (42,353)   (39,439)   24,386    (15,053)

 

(e)At each period end, the summary of interest is as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Interest revenue   1,579,685    1,395,057 
Interest expense   (492,814)   (417,266)
           
Subtotal interest income   1,086,871    977,791 
           
Net gain (loss) from accounting hedges   (42,353)   (15,053)
           
Total net interest income   1,044,518    962,738 

 

81

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

29.Income and Expenses from Fees and Commissions:

 

The income and expenses for commissions that are shown in the Interim Consolidated Statement of Income refers to the following items:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Commission income        
Debit and credit card services   131,264    118,276 
Investments in mutual funds and others   79,268    69,716 
Collections and payments   46,233    40,719 
Portfolio management   37,136    37,505 
Fees for insurance transactions   28,007    23,874 
Use of distribution channel and access to customers   23,657    62,639 
Guarantees and letters of credit   22,056    20,525 
Trading and securities management   18,320    16,572 
Brand use agreement   16,020    15,727 
Financial advisory services   4,872    3,128 
Lines of credit and overdrafts   3,293    3,447 
Other commission earned   16,961    15,699 
Total commissions income   427,087    427,827 
           
Commission expenses          
Fees for card transactions   (55,640)   (55,649)
Interbank transactions   (22,473)   (17,594)
Securities transactions   (3,287)   (3,455)
Collections and payments   (3,225)   (3,606)
Sales force   (80)   (128)
Other commission   (1,177)   (1,325)
Total commissions expenses   (85,882)   (81,757)

 

82

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

30.Net Financial Operating Income:

 

The gains (losses) from trading and brokerage activities are detailed as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Trading derivative   114,932    (62,611)
Financial assets held-for-trading   5,376    52,396 
Sale of available-for-sale instruments   4,694    24,963 
Sale of loan portfolios (Note No.12 (e))   4,667    186 
Net income on other transactions   133    330 
Total   129,802    15,264 

 

31.Foreign Exchange Transactions, Net:

 

Net foreign exchange transactions are detailed as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Indexed foreign currency   (151,896)   27,754 
Gain from accounting hedges   126,478    76,649 
Exchange difference, net   10,179    5,274 
Total   (15,239)   109,677 

 

83

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

32.Provisions for Loan Losses:

 

The change registered in income during the periods 2021 and 2020 due to provisions, are summarized as follows:

 

       Loans to customers             
   Loans and advance to banks   Commercial Loans   Mortgage Loans   Consumer Loans  

 

Subtotal

   Contingent Loans  

 

Total

 
   September   September   September   September   September   September   September   September   September   September   September   September   September   September 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Provisions established:                                                        
- Individual provisions   —    —    (23,116)   (79,507)   —    —    —    —    (23,116)   (79,507)   (2,372)   (8,978)   (25,488)   (88,485)
- Group provisions   —    —    (44,129)   (71,658)   (6,601)   (11,175)   (55,195)   (195,596)   (105,925)   (278,429)   —    (12,577)   (105,925)   (291,006)
Provisions established, net   —    —    (67,245)   (151,165)   (6,601)   (11,175)   (55,195)   (195,596)   (129,041)   (357,936)   (2,372)   (21,555)   (131,413)   (379,491)
                                                                       
Provisions released:                                                                      
- Individual provisions   147    259    —    —    —    —    —    —    —    —    —    —    147    259 
- Group provisions   —    —    —    —    —    —    —    —    —    —    79    —    79    — 
Provisions realeased, net   147    259    —    —    —    —    —    —    —    —    79    —    226    259 
                                                                       
Provision, net   147    259    (67,245)   (151,165)   (6,601)   (11,175)   (55,195)   (195,596)   (129,041)   (357,936)   (2,293)   (21,555)   (131,187)   (379,232)
                                                                       
Additional provisions   —    —    (140,000)   (27,000)   —    —    —    —    (140,000)   (27,000)   —    —    (140,000)   (27,000)
                                                                       
Recovery of written-off assets   —    —    8,643    6,648    4,308    2,620    34,455    19,453    47,406    28,721    —    —    47,406    28,721 
                                                                       
Provision for loan losses, net   147    259    (198,602)   (171,517)   (2,293)   (8,555)   (20,740)   (176,143)   (221,635)   (356,215)   (2,293)   (21,555)   (223,781)   (377,511)

 

In the opinion of the Administration, provisions constituting for credit risk cover all possible losses that may arise from the non-recovery of assets, according to the records examined by the Bank.

 

84

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

33.Personnel Expenses:

 

Salaries and personnel expenses during the periods 2021 and 2020 are as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Remunerations   194,763    193,592 
Bonuses and incentives   50,360    34,604 
Variable compensation   22,382    25,490 
Gratifications   22,361    21,095 
Lunch and health benefits   18,857    20,804 
Staff severance indemnities   9,765    5,877 
Training expenses   1,489    1,516 
Other personnel expenses   15,952    16,515 
 Total   335,929    319,493 

 

85

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

34.Administrative Expenses:

 

This item is composed as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
General administrative expenses        
Information technology and communications   78,328    74,170 
Maintenance and repair of property and equipment   31,669    36,279 
External advisory services and professional services fees   11,092    10,532 
Surveillance and securities transport services   9,912    7,802 
Insurance premiums   5,772    6,235 
Office supplies   5,183    8,493 
External service of financial information   4,701    4,294 
Postal box, mail, postage and home delivery services   3,386    3,151 
Energy, heating and other utilities   3,246    4,552 
Legal and notary expenses   3,224    3,098 
Expenses for short-term leases and low value   3,041    3,636 
External service of custody of documentation   2,206    2,612 
Representation and travel expenses   2,154    2,021 
Other expenses of obligations for lease agreements   2,113    1,972 
Donations   1,535    2,400 
Other general administrative expenses   12,465    11,785 
Subtotal   180,027    183,032 
           
Outsource services          
External technological developments expenses   7,889    8,475 
Data processing   7,106    7,418 
Certification and technology testing   5,337    4,735 
Credit pre-evaluation   3,513    11,470 
Other   1,075    2,051 
Subtotal   24,920    34,149 
           
Board expenses          
Board of Directors Compensation   2,155    2,056 
Other Board expenses   8    18 
Subtotal   2,163    2,074 
           
Marketing expenses          
Advertising   19,659    18,647 
Subtotal   19,659    18,647 
           
Taxes, payroll taxes and contributions          
Contribution to the banking regulator   8,950    8,473 
Real estate contributions   3,139    2,746 
Patents   1,071    988 
Other taxes   1,264    372 
Subtotal   14,424    12,579 
Total   241,193    250,481 

 

86

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

35.Depreciation, Amortization and Impairment:

 

(a)The amounts corresponding to charges to results for depreciation and amortization during the periods 2021 and 2020, are detailed as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Depreciation and amortization        
Depreciation of property and equipment (Note No. 16 (b))   22,028    22,361 
Depreciation of leased assets (Note No. 16 (d))   21,956    20,698 
Amortization of intangibles assets (Note No. 15 (b))   13,019    11,809 
Total   57,003    54,868 

 

(b)As of September 30, 2021 and 2020 the impairment expenses is composed as follows:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Impairment        
Impairment of property and equipment (Note No. 16 (b))   3    882 
Impairment of intangible assets (Note No. 15 (b))   —    — 
Impairment of leased assets (Note No. 16 (d))   —    — 
Total   3    882 

 

87

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

36.Other Operating Income:

 

During the periods 2021 and 2020, the Bank and its subsidiaries present other operating income, according to the following:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Income for assets received in lieu of payment        
Income from sale of assets received in lieu of payment   4,286    6,218 
Other income   225    66 
Subtotal   4,511    6,284 
           
Release of provisions for contingencies          
Country risk provisions   —    — 
Other provisions for contingencies   —    — 
Subtotal   —    — 
           
Other income          
Release of provisions and expense recovery   7,292    4,557 
Rental investment properties   4,329    3,924 
Tax management income   3,069    1,565 
Recovery from correspondent banks   2,029    2,190 
Revaluation of prepaid monthly payments   1,569    229 
Income from sale leased assets   1,051    1,816 
Credit/debit card income   346    459 
Gain on sale of fixed assets   208    25 
Fiduciary and trustee commissions   170    219 
Reimbursements for insurance policies   103    3,502 
Others   1,043    909 
Subtotal   21,209    19,395 
           
Total   25,720    25,679 

 

88

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

37.Other Operating Expenses:

 

During the periods 2021 and 2020, the Bank and its subsidiaries present other operating expenses, according to the following:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
Provisions and expenses for assets received in lieu of payment        
Charge-off assets received in lieu of payment   1,557    3,022 
Maintenance expenses of assets received in lieu of payment   434    640 
Provisions for assets received in lieu of payment   140    868 
Subtotal   2,131    4,530 
           
Provisions for contingencies          
Country risk provisions   3,223    3,978 
Other provisions   211    14 
Subtotal   3,434    3,992 
           
Other expenses          
Write-offs for operating risks   9,781    6,152 
Leasings operational expenses   3,704    4,110 
Card administration   2,085    2,380 
Correspondent banks   1,851    1,268 
Expenses for charge-off leased assets recoveries   747    570 
Credit life insurance   205    353 
Contribution to other organisms   192    331 
Civil lawsuits   149    109 
Others   1,899    1,080 
Subtotal   20,613    16,353 
           
Total   26,178    24,875 

 

89

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

38.Related Party Transactions:

 

Related parties are considered to be those natural or legal persons who are in positions to directly or indirectly have significant influence through their ownership or management of the Bank and its subsidiaries, as set out in the Compendium of Accounting Standards and Chapter 12-4 of the current Compilation of Standards issued by the CMF.

 

According to the above, the Bank has considered as related parties those natural or legal persons who have a direct participation or through third parties on Bank ownership, where such participation exceeds 5% of the shares, and also people who, regardless of ownership, have authority and responsibility for planning, management and control of the activities of the entity or its subsidiaries. There also are considered as related the companies in which the parties related by ownership or management of the Bank have a share which reaches or exceeds 5%, or has the position of director, general manager or equivalent.

 

90

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

38.Related Party Transactions, continued:

 

(a)Loans with related parties:

 

The following are the loans and accounts receivable and contingent loans, corresponding to related entities.

 

   Productive and Services Companies (*)   Investment and Commercial Companies (**)   Individuals (***)   Total 
   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Loans and accounts receivable:                                
Commercial loans   208,045    122,716    124,642    164,213    13,476    12,445    346,163    299,374 
Residential mortgage loans   —    —    —    —    65,527    61,131    65,527    61,131 
Consumer loans   —    —    —    —    10,001    8,743    10,001    8,743 
Gross loans   208,045    122,716    124,642    164,213    89,004    82,319    421,691    369,248 
Allowance for loan losses   (1,258)   (1,264)   (543)   (802)   (564)   (390)   (2,365)   (2,456)
Net loans   206,787    121,452    124,099    163,411    88,440    81,929    419,326    366,792 
                                         
Contingent loans:                                        
Guarantees and sureties   8,204    7,277    11,372    9,469    —    —    19,576    16,746 
Letters of credits   104    2,885    —    —    —    —    104    2,885 
Banks guarantees   26,712    25,129    26,812    35,733    —    —    53,524    60,862 
Undrawn credit lines   76,550    46,887    16,194    14,308    21,439    20,306    114,183    81,501 
Other contingencies loans   —    —    —    —    —    —    —    — 
Total contingent loans   111,570    82,178    54,378    59,510    21,439    20,306    187,387    161,994 
Provision for contingencies loans   (244)   (218)   (52)   (55)   (50)   (51)   (346)   (324)
Contingent loans, net   111,326    81,960    54,326    59,455    21,389    20,255    187,041    161,670 
                                         
Amount covered by guarantee:                                        
Mortgage   13,495    15,575    63,172    54,891    84,339    82,777    161,006    153,243 
Warrant   —    —    —    —    —    —    —    — 
Pledge   —    —    —    —    —    —    —    — 
Others (****)   27,641    33,474    18,051    12,117    6,906    6,582    52,598    52,173 
Total collateral   41,136    49,049    81,223    67,008    91,245    89,359    213,604    205,416 

 

91

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

38.Related Party Transactions, continued:

 

(a)Loans with related parties, continued:

 

(*)For these effects are considered productive companies, those that meet the following conditions:

 

i)They engage in production activities and generate a separate flow of income.

 

ii)Less than 50% of their assets are financial assets held-for-trading or investments.

 

Service companies are considered entities whose main purpose is oriented to rendering services to third parties.

 

(**)Investment companies and commercial include those legal entities that do not meet the conditions for productive companies or services providers and are profit-oriented.

 

(***)Individuals include key members of the management and correspond to those who directly or indirectly have authority and responsibility for planning, administrating and controlling the activities of the organization, including directors. This category also includes their family members who influence or are influenced by such individuals in their interactions with the organization.

 

(****)These guarantees mainly correspond to warranty by endorsement and sureties, state guarantees and other financial guarantees.

 

(b)Other assets and liabilities with related parties:

 

   September   December 
   2021   2020 
   MCh$   MCh$ 
Assets        
Cash and due from banks   382,281    261,386 
Transactions in the course of collection   29,859    35,833 
Financial assets held-for-trading   526    96 
Derivative instruments   265,279    252,748 
Investment instruments   9,496    31,548 
Other assets   14,573    96,362 
Total   702,014    677,973 
           
Liabilities          
Demand deposits   196,122    239,139 
Transactions in the course of payment   25,352    37,799 
Obligations under repurchase agreements   10    24,500 
Savings accounts and time deposits   267,531    338,732 
Derivative instruments   291,256    355,099 
Borrowings with banks   65,446    114,758 
Lease liabilities   10,038    10,354 
Other liabilities   17,681    14,699 
Total   873,436    1,135,080 

 

92

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

38.Related Party Transactions, continued:

 

(c)Income and expenses from related party transactions (*):

 

   September 2021   September 2020 
   Income   Expense   Income   Expense 
   MCh$   MCh$   MCh$   MCh$ 
Type of income or expense recognized                
Interest and revenue expenses   12,135    121    11,501    181 
Fees and commissions income   71,906    22,041    72,466    28,512 
Net Financial Operating Income                    
Derivative instruments (**)   50,076    16,129    39,223    61,725 
Other financial operations   15    21    40    — 
Released or established of provision for credit risk   139         —    330 
Operating expenses   —    92,085    —    94,904 
Other income and expenses   343    32    351    4 

 

(*)This detail does not constitute a Statement of Comprehensive Income for related party transactions since the assets with these parties are not necessarily equal to liabilities and each item reflects total income and expense and not those corresponding to exact transactions.

 

(**)The outcome of derivative operations is presented net at each related counterparty level. Additionally, this line includes operations with local counterpart banks (unrelated) which have been novated by Comder Contraparte Central S.A. (Related entity) for centralized clearing purposes, which generated a net gain of Ch$11,877 million as of September 30, 2021 (net gain of Ch$33,811 million as of September 30, 2020).

 

(d)Contracts with related parties:

 

During the period ended September 30, 2021, the Bank has signed, renewed or amended the contractual terms and conditions of the following contracts with related parties that do not correspond to the ordinary transactions with clients in general, for above UF 1,000:

 

Company name   Concept or service description
     
Depósito Central de Valores S.A.   Custodial services

Sistemas Oracle de Chile S.A.

 Licensing services, support renewal and implementation of hardware and software.
Universidad del Desarrollo   Entrepreneurship programs
Artikos S.A.   Electronic billing services
Transbank S.A.   Services associated with credit card transactions
Servipag Ltda.   Collection services
Centro de Compensación Automatizado S.A.   Electronic transfer services
Ionix SpA.   Technical assistance service, licensing and platform support
Canal 13 S.A.   Advertising service
Nexus S.A.   Credit card operation services
Bolsa de Comercio de Santiago   Information services for custodians
Redbanc S.A.   Electronic Transfer Services (EFT)
Citigroup Inc.   Cooperation Agreement, Global Connectivity and Trademark License Agreement

 

93

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

38.Related Party Transactions, continued:

 

(e)Directors’ remunerations and payments to key management personnel:

 

   September   September 
   2021   2020 
   MCh$   MCh$ 
         
Personnel remunerations   3,147    2,907 
Short-term benefits   3,534    3,642 
Severance pay   314    1,550 
Directors’ remunerations and fees (*)   2,155    2,056 
Total   9,150    10,155 

 

(*)It includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda, of Ch$11 million (Ch$10 million in September 2020).

 

The travel and other related expenses amount to Ch$8 million (Ch$18 million in September 2020).

 

Composition of key personnel:

 

   No. of executives 
   September   September 
   2021   2020 
Position        
CEO   1    1 
CEOs of subsidiaries   5    6 
Division Managers   14    13 
Directors Bank and subsidiaries   18    18 
Total   38    38 

 

94

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities:

 

Banco de Chile and its subsidiaries have defined a corporate framework for valuation and control related with the process to the fair value measurement.

 

Within the established framework includes the Product Control Unit, which is independent of the business areas and reports to the Financial Management and Control Division Manager. This function befall to the Financial Control, Treasury and Capital Manager, through the Financial Risk Information and Control Section, is responsible for independent verification of price and results of trading (including derivatives) and investment operations and all fair value measurements.

 

To achieve the appropriate measurements and controls, the Bank and its subsidiaries, take into account at least the following aspects:

 

(i)Industry standard valuation.

 

To value financial instruments, Banco de Chile uses industry standard modeling; quota value, share price, discounted cash flows and valuation of options through Black-Scholes-Merton, according to the case. The input parameters for the valuation correspond to rates, prices and levels of volatility for different terms and market factors that are traded in the national and international market and that are provided by the main sources of the market.

 

(ii)Quoted prices in active markets.

 

The fair value for instruments with quoted prices in active markets is determined using daily quotes from electronic systems information (such as Bolsa de Comercio de Santiago, Bloomberg, LVA and Risk America, etc). This quote represents the price at which these instruments are regularly traded in the financial markets.

 

(iii)Valuation techniques.

 

If no specific quotes are available for the instrument to be valued, valuation techniques will be used to determine the fair value.

 

Due to, in general, the valuation models require a set of market parameters as inputs, the aim is to maximize information based on observable or price-related quotations for similar instruments in active markets. To the extent there is no information in direct from the markets, data from external suppliers of information, prices of similar instruments and historical information are used to validate the valuation parameters.

 

95

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(iv)Fair value adjustments.

 

Part of the fair value process considers three adjustments to the market value, calculated based on the market parameters, including; a liquidity adjustment, a Bid/Offer adjustment and an adjustment is made for credit risk of derivatives (CVA and DVA). The calculation of the liquidity adjustment considers the size of the position in each factor, the particular liquidity of each factor, the relative size of Banco de Chile with respect to the market, and the liquidity observed in transactions recently carried out in the market. In turn, the Bid/Offer adjustment, represents the impact on the valuation of an instrument depending on whether the position corresponds to a long (bought) or a short (sold).To calculate this adjustment is used the direct quotes from active markets or indicative prices or derivatives of similar assets depending on the instrument, considering the Bid, Mid and Offer, respectively. Finally, the adjustment made for CVA and DVA for derivatives corresponds to the credit risk recognition of the issuer, either of the counterparty (CVA) or of Banco de Chile (DVA).

 

Liquidity value adjustments are made to trading instruments (including derivatives) only, while Bid / Offer adjustments are made for trading instruments and available for sale. Adjustments for CVA / DVA are carried out only for derivatives.

 

(v)Fair value control.

 

A process of independent verification of prices and interest rates is executed daily, in order to control that the market parameters used by Banco de Chile in the valuation of the financial instruments relating to the current state of the market and from them the best estimate derived of the fair value. The objective of this process is to control that the official market parameters provided by the respective business areas, before being entered into the valuation, are within acceptable ranges of differences when compared to the same set of parameters prepared independently by the Financial Risk Information and Control Section. As a result, value differences are obtained at the level of currency, product and portfolio. In the event significant differences exist, these differences are scaled according to the amount of individual materiality of each market factor and aggregated at the portfolio level, according to the grouping levels within previously defined ranges. These ranges are approved by the Finance, International and Financial Risk Committee.

 

Complementary and in parallel, the Financial Risk Information and Control Section generates and reports on a daily basis Profit and Loss (“P&L”) and Exposure to Market Risks, which allow for proper control and consistency of the parameters used in the valuation.

 

96

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(vi)Judgmental analysis and information to Management.

 

In particular cases, where there are no market quotations for the instrument to be valued and there are no prices for similar transactions instruments or indicative parameters, a specific control and a reasoned analysis must be carried out in order to estimate the fair value of the operation. Within the valuation framework described in the Reasonable Value Policy (and its procedure) approved by the Board of Directors of Banco de Chile, a required level of approval is set in order to carry out transactions where market information is not available or it is not possible to infer prices or rates from it.

 

(a)Hierarchy of instrument valued at Fair value:

 

Banco de Chile and its subsidiaries, classify all the financial instruments among the following levels:

 

Level 1:These are financial instruments whose fair value is calculated at quoted prices (unadjusted) in extracted from liquid and deep markets. For these instruments there are quotes or prices (return internal rates, quote value, price) the observable market, so that assumptions are not required to determine the value.

 

In this level, the following instruments are considered: currency futures, debt instruments issued Chilean Central Bank and Treasury, which belong to benchmarks, mutual fund investments and equity shares.

 

For the instruments of the Central Bank of Chile and the General Treasury of the Republic, all those mnemonics belonging to a Benchmark, in other words corresponding to one of the following categories published by the Santiago Stock Exchange, will be considered as Level 1: Pesos-02, Pesos-03, Pesos-04, Pesos-05, Pesos-07, Pesos-10, UF-02, UF-04, UF-05, UF-07, UF-10, UF-20, UF-30. A Benchmark corresponds to a group of mnemonics that are similar in duration and are traded in an equivalent way, i.e., the price (return internal rates in this case) obtained is the same for all the instruments that make up a Benchmark. This feature defines a greater depth of market, with daily quotations that allow classifying these instruments as Level 1.

 

In the case of debt issued by the Chilean Government, the internal rate of return of the market is used to discount all flows to present value. In the case of mutual funds and equity shares, the current market price per share, which multiplied by the number of instruments results in the fair value.

 

The preceding described valuation methodology is equivalent to the one used by the Bolsa de Comercio de Santiago (Santiago Stock Exchange) and correspond to the standard methodology used in the market.

 

97

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Level 2:They are financial instruments whose fair value is calculated based on prices other than in quoted in Level 1 that are observable for the asset or liability, directly (that is, as prices or internal rates of return) or indirectly (that is, derived from prices or internal rates of return from similar instruments). These categories include:

 

a)Quoted prices for similar assets or liabilities in active markets.
b)Quoted prices for identical or similar assets or liabilities in markets that are not active.
c)Inputs data other than quoted prices that are observable for the asset or liability.
d)Inputs data corroborated by the market.

 

At this level there are mainly derivatives instruments, debt issued by banks, debt issues of Chilean and foreign companies, issued in Chile or abroad, mortgage claims, financial brokerage instruments and some issuances by the Central Bank of Chile and the General Treasury of the Republic, which do not belong to benchmarks.

 

To value derivatives, depends on whether they are impacted by volatility as a relevant market factor in standard valuation methodologies; for options the Black-Scholes-Merton formula is used; for the rest of the derivatives, forwards and swaps, discounted cash flows method is used.


For the remaining instruments at this level, as for debt issues of level 1, the valuation is done through cash flows model by using an internal rate of return that can be derived or estimated from internal rates of return of similar securities as mentioned above.

 

In the event that there is no observable price for an instrument in a specific term, the price will be inferred from the interpolation between periods that have observable quoted price in active markets. These models incorporate various market variables, including the credit quality of counterparties, exchange rates and interest rate curves.

 

98

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Valuation Techniques and Inputs for Level 2 Instrument:

 

Type of Financial

Instrument

   Valuation Method   Description: Inputs and Sources

Local Bank and

Corporate Bonds

  

Discounted cash

flows model

 

  

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on a Base Yield (Central Bank Bonds) and issuer spread.

 

The model is based on daily prices and risk/maturity similarities between

Instruments.

 

Offshore Bank and

Corporate Bonds

    

Prices are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices.

 

Local Central Bank

and Treasury Bonds

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices.

 

Mortgage

Notes

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on a Base Yield (Central Bank Bonds) and issuer spread.

 

The model takes into consideration daily prices and risk/maturity similarities between instruments.

 

Time

Deposits

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices and considers risk/maturity similarities between instruments.

 

Cross Currency Swaps,

Interest Rate Swaps,

FX Forwards, Inflation

Forwards

    

Forward Points, Inflation forecast and local swap rates are provided by market brokers that are widely used in the Chilean market.

 

Offshore rates and spreads are obtained from third party price providers that are widely used in the Chilean market.

 

Zero Coupon rates are calculated by using the bootstrapping method over swap rates.

 

FX Options  

Black-Scholes

Model

   Prices for volatility surface estimates are obtained from market brokers that are widely used in the Chilean market.

 

99

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Level 3:These are financial instruments whose fair value is determined using non-observable inputs data neither for the assets or liabilities under analysis nor for similar instruments. An adjustment to an input that is significant to the entire measurement can result in a fair value measurement classified within Level 3 of the fair value hierarchy, if the adjustment uses significant non-observable data entry.

 

The instruments likely to be classified as level 3 are mainly Corporate Debt by Chilean and foreign companies, issued both in Chile and abroad.

 

Valuation Techniques and Inputs for Level 3 Instrument:

 

Type of Financial Instrument   Valuation Method   Description: Inputs and Sources

Local Bank and

Corporate Bonds

  

Discounted cash

flows model

 

   Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (Central Bank Bonds) and issuer spread. These inputs (base yield and issuer spread) are provided on a daily basis by third party price providers that are widely used in the Chilean market.
         
Offshore Bank and Corporate Bonds  

Discounted cash

flows model

 

  

Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (US-Libor) and issuer spread. These inputs (base yield and issuer spread) are provided on a weekly basis by third party price providers that are widely used in the Chilean market.

 

100

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(b)Level chart:

 

The following table shows the classification by levels, for financial instruments registered at fair value.

 

   Level 1   Level 2   Level 3   Total 
   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
Financial Assets  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial assets held-for-trading                                
From the Chilean Government and Central Bank   168,843    75,701    2,804,973    4,083,591    —    —    2,973,816    4,159,292 
Other instruments issued in Chile   1,892    1,002    141,264    99,302    21,671    5,494    164,827    105,798 
Instruments issued abroad   —    164    —    —    —    —    —    164 
Mutual fund investments   3,119    400,902    —    —    —    —    3,119    400,902 
Subtotal   173,854    477,769    2,946,237    4,182,893    21,671    5,494    3,141,762    4,666,156 
Derivative contracts for trading purposes                                        
Forwards   —    —    648,290    551,964    —    —    648,290    551,964 
Swaps   —    —    1,924,568    2,013,247    —    —    1,924,568    2,013,247 
Call Options   —    —    2,979    269    —    —    2,979    269 
Put Options   —    —    49    1,462    —    —    49    1,462 
Futures   —    —    —    —    —    —    —    — 
Subtotal   —    —    2,575,886    2,566,942    —    —    2,575,886    2,566,942 
Hedge derivative contracts                                        
Fair value hedge (Swap)   —    —    —    —    —    —    —    — 
Cash flow hedge (Swap)   —    —    268,786    51,062    —    —    268,786    51,062 
Subtotal   —    —    268,786    51,062    —    —    268,786    51,062 
Financial assets available-for-sale (1)                                        
From the Chilean Government and Central Bank   678,549    —    1,569,964    163,600    —    —    2,248,513    163,600 
Other instruments issued in Chile   —    —    1,169,952    860,327    21,848    36,596    1,191,800    896,923 
Instruments issued abroad   —    —    —    —    —    —    —    — 
Subtotal   678,549    —    2,739,916    1,023,927    21,848    36,596    3,440,313    1,060,523 
Total   852,403    477,769    8,530,825    7,824,824    43,519    42,090    9,426,747    8,344,683 
                                         
Financial Liabilities                                        
Derivative contracts for trading purposes                                        
Forwards   —    —    492,694    637,186    —    —    492,694    637,186 
Swaps   —    —    2,146,422    2,130,474    —    —    2,146,422    2,130,474 
Call Options   —    —    2,003    306    —    —    2,003    306 
Put Options   —    —    329    2,099    —    —    329    2,099 
Futures   —    —    —    —    —    —    —    — 
Subtotal   —    —    2,641,448    2,770,065    —    —    2,641,448    2,770,065 
Hedge derivative contracts                                        
Cash flow hedge (Forwards)   —    —    48    —    —    —    48    — 
Fair value hedge (Swap)   —    —    1,743    6,519    —    —    1,743    6,519 
Cash flow hedge (Swap)   —    —    905    65,172    —    —    905    65,172 
Subtotal   —    —    2,696    71,691    —    —    2,696    71,691 
Total   —    —    2,644,144    2,841,756    —    —    2,644,144    2,841,756 

 

(1)As of September 30, 2021, 100% of instruments of Level 3 have denomination “Investment Grade”. Also, 100% of total of these financial instruments correspond to domestic issuers.

 

101

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(c)Level 3 reconciliation:

 

The following table shows the reconciliation between the balances at the beginning and at the end of period for those instruments classified in Level 3, whose fair value is reflected in the Interim Consolidated Financial Statements:

 

   September 2021 
   Balance
as of January 1,
2021		   Gain (Loss) Recognized in Income (1)   Gain (Loss) Recognized in Equity (2)   Purchases   Sales   Transfer from Level 1 and 2   Transfer to Level 1 and 2  

Balance
as of
September 30,
2021

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial Assets                                
Financial assets held-for-trading:                                
Other instruments issued in Chile   5,494    (6)   —    19,343    (3,160)   —    —    21,671 
Subtotal   5,494    (6)   —    19,343    (3,160)   —    —    21,671 
                                         
Available-for-Sale Instruments:                                        
Other instruments issued in Chile   36,596    (6)   —    19,343    (3,160)   —    —    21,671 
Subtotal   36,596    (6)   —    19,343    (3,160)   —    —    21,671 
                                         
Total   42,090    984    (2,045)   23,478    (19,914)   4,393    (5,467)   43,519 

 

   December 2020 
   Balance
as of
January 1,
2020		   Gain (Loss) Recognized in Income (1)   Gain (Loss) Recognized in Equity (2)   Purchases   Sales   Transfer from Level 1 and 2   Transfer to Level 1 and 2  

Balance
as of
December 31,
2020

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial Assets                                
Financial assets held-for-trading:                                
Other instruments issued in Chile   55,094    (708)   —    49,424    (98,316)   —    —    5,494 
Subtotal   55,094    (708)   —    49,424    (98,316)   —    —    5,494 
                                         
Available-for-Sale Instruments:                                        
Other instruments issued in Chile   7,069    323    (647)   71,539    (70,897)   29,209    —    36,596 
Subtotal   7,069    323    (647)   71,539    (70,897)   29,209    —    36,596 
                                         
Total   62,163    (385)   (647)   120,963    (169,213)   29,209    —    42,090 

 

(1)Recorded in income under item “Net financial operating income”.
(2)Recorded in equity under item “Other Comprehensive Income”.

 

102

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(d)Sensitivity of instruments classified in Level 3 to changes in key assumptions of models:

 

The following table shows the sensitivity, by type of instrument, of those instruments classified in Level 3 using alternative in key valuation assumptions:

 

   As of September 30, 2021   As of December 31, 2020 
   Level 3   Sensitivity to changes in key assumptions of models   Level 3   Sensitivity to changes in key assumptions of models 
Financial Assets  MCh$   MCh$   MCh$   MCh$ 
Financial assets held-for-trading                
Other instruments issued in Chile   21,671    (52)   5,494    (8)
Subtotal   21,671    (52)   5,494    (8)
Available-for- Sale Instruments                    
Other instruments issued in Chile   21,848    (477)   36,596    (525)
Subtotal   21,848    (477)   36,596    (525)
                     
Total   43,519    (529)   42,090    (533)

 

With the purpose of determining the sensitivity of the financial investments to changes in significant market factors, the Bank has made alternative calculations at fair value, changing those key parameters for the valuation and which are not directly observable in screens. In the case of the financial assets listed in the table above, which correspond to Bank Bonds and Corporate Bonds, it was considered that, since there are no current observables prices, the input prices will be based on brokers’ quotes. The prices are usually calculated as a base rate plus a spread. For Local Bonds it was determined to apply a 10% impact on the price, while for the Off Shore Bonds it was determined to apply a 10% impact only on the spread, since the base rate is covered by interest rate swaps instruments in the so-called accounting hedges. The 10% impact is considered reasonable, taking into account the market performance of these instruments and comparing it against the bid / offer adjustment that is provisioned by these instruments.

 

103

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(e)Other assets and liabilities:

 

The following table summarizes the fair values of the Bank’s main financial assets and liabilities that are not recorded at fair value in the Statement of Financial Position. The values shown in this note are not attempt to estimate the value of the Bank’s income-generating assets, nor forecast their future behavior. The estimated fair value is as follows:

 

   Book Value   Estimated Fair Value 
   September   December   September   December 
   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$ 
Assets                
Cash and due from banks   3,099,335    2,560,216    3,099,335    2,560,216 
Transactions in the course of collection   410,644    582,308    410,644    582,308 
Investments under resale agreements   76,496    76,407    76,496    76,407 
Subtotal   3,586,475    3,218,931    3,586,475    3,218,931 
Loans and advances to banks                    
Domestic banks   19,983    259,862    19,983    259,862 
Central Bank of Chile   1,700,000    2,380,033    1,700,000    2,380,033 
Foreign banks   297,522    299,096    296,277    297,778 
Subtotal   2,017,505    2,938,991    2,016,260    2,937,673 
Loans to customers, net                    
Commercial loans   18,540,779    17,169,744    17,763,207    16,968,143 
Residential mortgage loans   10,065,255    9,354,890    9,954,390    10,075,011 
Consumer loans   3,798,445    3,665,424    3,731,356    3,711,582 
Subtotal   32,404,479    30,190,058    31,448,953    30,754,736 
Financial assets held-to-maturity   302,532    —    289,808    — 
Total   38,310,991    36,347,980    37,341,496    36,911,340 
                     
Liabilities                    
Current accounts and other demand deposits   17,607,258    15,167,229    17,607,258    15,167,229 
Transactions in the course of payment   337,560    1,302,000    337,560    1,302,000 
Obligations under repurchase agreements   111,438    288,917    111,438    288,917 
Savings accounts and time deposits   8,972,204    8,899,541    8,955,890    8,885,015 
Borrowings from banks   4,814,758    3,669,753    4,293,189    3,415,959 
Other financial obligations   259,116    191,713    284,482    217,311 
Subtotal   32,102,334    29,519,153    31,589,817    29,276,431 
Debt Issued                    
Letters of credit for residential purposes   4,549    6,532    4,785    7,201 
Letters of credit for general purposes   121    254    127    280 
Bonds   7,849,226    7,700,402    7,752,840    8,390,594 
Subordinate bonds   904,276    886,407    870,268    1,004,196 
Subtotal   8,758,172    8,593,595    8,628,020    9,402,271 
Total   40,860,506    38,112,748    40,217,837    38,678,702 

 

Other financial assets and liabilities not measured at their fair value, but for which a fair value is estimated, even if not managed based on such value, include assets and liabilities such as placements, deposits and other time deposits, debt issued, and other financial assets and obligations with different maturities and characteristics. The fair value of these assets and liabilities is calculated using the Discounted Cash Flow model and the use of various data sources such as yield curves, credit risk spreads, etc. In addition, due to some of these assets and liabilities are not traded on the market, periodic reviews and analyzes are required to determine the suitability of the inputs and determined fair values.

 

104

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial assets and liabilities, continued:

 

(f)Levels of other assets and liabilities:

 

The following table shows the estimated fair value of financial assets and liabilities not valued at their fair value, as of September 30, 2021 and December 31, 2020:

 

  

Level 1

Estimated Fair Value

  

Level 2

Estimated Fair Value

  

Level 3

Estimated Fair Value

  

Total

Estimated Fair Value

 
   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Assets                                
Cash and due from banks   3,099,335    2,560,216    —    —    —    —    3,099,335    2,560,216 
Transactions in the course of collection   410,644    582,308    —    —    —    —    410,644    582,308 
Investments under resale agreements   76,496    76,407    —    —    —    —    76,496    76,407 
Subtotal   3,586,475    3,218,931    —    —    —    —    3,586,475    3,218,931 
Loans and advances to banks                                        
Domestic banks   19,983    259,862    —    —    —    —    19,983    259,862 
Central Bank   1,700,000    2,380,033    —    —    —    —    1,700,000    2,380,033 
Foreign banks   —    —    —    —    296,277    297,778    296,277    297,778 
Subtotal   1,719,983    2,639,895    —    —    296,277    297,778    2,016,260    2,937,673 
Loans to customers, net                                        
Commercial loans   —    —    —    —    17,763,207    16,968,143    17,763,207    16,968,143 
Residential mortgage loans   —    —    —    —    9,954,390    10,075,011    9,954,390    10,075,011 
Consumer loans   —    —    —    —    3,731,356    3,711,582    3,731,356    3,711,582 
Subtotal   —    —    —    —    31,448,953    30,754,736    31,448,953    30,754,736 
Financial assets held-to-maturity   289,808    —    —    —         —    289,808    — 
Total   5,596,266    5,858,826    —    —    31,745,230    31,052,514    37,341,496    36,911,340 
                                         
Liabilities                                        
Current accounts and other demand deposits   17,607,258    15,167,229    —    —    —    —    17,607,258    15,167,229 
Transactions in the course of payment   337,560    1,302,000    —    —    —    —    337,560    1,302,000 
Obligations under repurchase agreements   111,438    288,917    —    —    —    —    111,438    288,917 
Savings accounts and time deposits   —    —    —    —    8,955,890    8,885,015    8,955,890    8,885,015 
Borrowings from banks   —    —    —    —    4,293,189    3,415,959    4,293,189    3,415,959 
Other financial obligations   —    —    —    —    284,482    217,311    284,482    217,311 
Subtotal   18,056,256    16,758,146    —    —    13,533,561    12,518,285    31,589,817    29,276,431 
Debt Issued                                        
Letters of credit for residential purposes   —    —    4,785    7,201    —    —    4,785    7,201 
Letters of credit for general purposes   —    —    127    280    —    —    127    280 
Bonds   —    —    7,752,840    8,390,594    —    —    7,752,840    8,390,594 
Subordinated bonds   —    —    —    —    870,268    1,004,196    870,268    1,004,196 
Subtotal   —    —    7,757,752    8,398,075    870,268    1,004,196    8,628,020    9,402,271 
Total   18,056,256    16,758,146    7,757,752    8,398,075    14,403,829    13,522,481    40,217,837    38,678,702 

 

105

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(f)Levels of other assets and liabilities, continued:

 

The Bank determines the fair value of these assets and liabilities according to the following:

 

●Short-term assets and liabilities: For assets and liabilities with short-term maturity, it is assumed that the book values approximate to their fair value. This assumption is applied to the following assets and liabilities:

 

Assets:   Liabilities:
     
- Cash and deposits in banks   - Current accounts and other demand deposits
- Transactions in the course of collection   - Transactions in the course of payments
- Investments under resale agreements   - Obligations under repurchase agreements
- Loans and advance to domestic banks    

 

●Loans to Customers and Advance to foreign banks: Fair value is determined by using the discounted cash flow model and internally generated discount rates, based on internal transfer rates derived from our internal transfer price process. Once the present value is determined, we deduct the related loan loss allowances in order to incorporate the credit risk associated with each contract or loan. As we use internally generated parameters for valuation purposes, we categorize these instruments in Level 3.

 

●Investment Instruments Until Maturity: The fair value is calculated with the methodology of the Stock Exchange, using the market IRR observed in the market. Because the instruments that are in this category correspond to Treasury Bonds that are Benchmark, they are classified in Level 1.

 

●Letters of Credit and Bonds: In order to determine the present value of contractual cash flows, we apply the discounted cash flow model by using market interest rates that are available in the market, either for the instruments under valuation or instruments with similar features that fit valuation needs in terms of currency, maturities and liquidity. The market interest rates are obtained from third party price providers widely used by the market. As a result of the valuation technique and the quality of inputs (observable) used for valuation, we categorize these financial liabilities in Level 2.

 

●Saving Accounts, Time Deposits, Borrowings from Financial Institutions, Subordinated Bonds and Other borrowings financial: The discounted cash flow model is used to obtain the present value of committed cash flows by applying a bucket approach and average adjusted discount rates that derived from both market rates for instruments with similar features and our internal transfer price process. As we use internally generated parameters and/or apply significant judgmental analysis for valuation purposes, we categorize these financial liabilities in Level 3.

 

106

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(g)Offsetting of financial assets and liabilities:

 

The Bank trades financial derivatives with foreign counterparties using ISDA Master Agreement (International Swaps and Derivatives Association, Inc.), under legal jurisdiction of the City of New York – USA or London – United Kingdom. Legal framework in these jurisdictions, along with documentation mentioned, it allows Banco de Chile the right to anticipate the maturity of the transaction and then, offset the net value of those transactions in case of default of counterparty. Additionally, the Bank has negotiated with these counterparties an additional annex (CSA Credit Support Annex), that includes other credit mitigating, such as entering margins on a certain amount of net value of transactions, early termination (optional or mandatory) of transactions at certain dates in the future, coupon adjustment of transaction in exchange for payment of the debtor counterpart over a certain threshold amount, etc.

 

Below are detail the contracts susceptible to offset:

 

   Fair Value   Negative Fair Value of contracts with right to offset   Positive Fair Value of contracts with right to offset   Financial Collateral   Net Fair Value 
   September   December   September   December   September   December   September   December   September   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Derivative financial assets   2,844,672    2,618,004    (1,011,216)   (653,145)   (1,047,387)   (1,605,409)   (290,679)   (85,614)   495,390    273,836 
                                                   
Derivative financial liabilities   2,644,144    2,841,756    (1,011,216)   (653,145)   (1,047,387)   (1,605,409)   (168,557)   (218,329)   416,984    364,873 

 

107

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

40.Maturity of Assets and Liabilities:

 

The table below details the main financial assets and liabilities grouped in accordance with their remaining maturity, including accrued interest as of September 30, 2021 and December 31, 2020, respectively. As these are for trading and available-for-sale instruments are included at their fair value:

 

   As of September 30, 2021 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal
up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal
over
1 year		   Total 
Assets  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Cash and due from banks   3,099,335    —    —    —    3,099,335    —    —    —    —    3,099,335 
Transactions in the course of collection   —    410,644    —    —    410,644    —    —    —    —    410,644 
Financial Assets held-for-trading   —    3,141,762    —    —    3,141,762    —    —    —    —    3,141,762 
Investments under resale agreements   —    37,487    24,125    14,884    76,496    —    —    —    —    76,496 
Derivative instruments   —    139,382    151,147    576,363    866,892    644,800    422,959    910,021    1,977,780    2,844,672 
Loans and advances to banks (*)   —    1,818,214    48,350    150,495    2,017,059    964    —    —    964    2,018,023 
Loans to customers (*)   —    3,251,678    2,572,916    5,923,387    11,747,981    7,575,793    3,862,757    9,894,327    21,332,877    33,080,858 
Financial assets available-for-sale   —    123,708    61,562    1,852,077    2,037,347    587,355    217,473    598,138    1,402,966    3,440,313 
Financial assets held-to-maturity   —    —    —    —    —    —    280,516    22,016    302,532    302,532 
Total financial assets   3,099,335    8,922,875    2,858,100    8,517,206    23,397,516    8,808,912    4,783,705    11,424,502    25,017,119    48,414,635 

 

   As of December 31, 2020 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal
up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal
over
1 year		   Total 
Assets  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Cash and due from banks   2,560,216    —    —    —    2,560,216    —    —    —    —    2,560,216 
Transactions in the course of collection   —    582,308    —    —    582,308    —    —    —    —    582,308 
Financial Assets held-for-trading   —    4,666,156    —    —    4,666,156    —    —    —    —    4,666,156 
Investments under resale agreements   —    39,095    20,591    16,721    76,407    —    —    —    —    76,407 
Derivative instruments   —    131,978    211,871    423,431    767,280    593,691    405,153    851,880    1,850,724    2,618,004 
Loans and advances to banks (*)   —    2,743,134    71,401    125,121    2,939,656    —    —    —    —    2,939,656 
Loans to customers (*)   —    3,135,152    2,173,685    5,791,178    11,100,015    6,876,058    3,711,756    9,249,139    19,836,953    30,936,968 
Financial assets available-for-sale   —    78,180    140,367    487,075    705,622    162,683    16,856    175,362    354,901    1,060,523 
Financial assets held-to-maturity   —    —    —    —    —    —    —    —    —    — 
Total financial assets   2,560,216    11,376,003    2,617,915    6,843,526    23,397,660    7,632,432    4,133,765    10,276,381    22,042,578    45,440,238 

 

(*)These balances are presented without deduction of their respective provisions, which amount to Ch$676,379 million (Ch$746,910 million in December 2020) for loans to customers and Ch$518 million (Ch$665 million in December 2020) for borrowings from financial institutions.

 

108

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

40.Maturity of Assets and Liabilities, continued:

 

   As of September 30, 2021 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal
up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal
over
1 year		   Total 
Liabilities  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Current accounts and other demand deposits   17,607,258    —    —    —    17,607,258    —    —    —    —    17,607,258 
Transactions in the course of payment   —    337,560    —    —    337,560    —    —    —    —    337,560 
Obligations under repurchase agreements   —    110,051    49    1,338    111,438    —    —    —    —    111,438 
Savings accounts and time deposits (**)   —    6,089,030    2,120,467    317,853    8,527,350    7,831    1,739    390    9,960    8,537,310 
Derivative instruments   —    116,516    148,090    548,469    813,075    682,988    427,774    720,307    1,831,069    2,644,144 
Borrowings from financial institutions   —    171,289    83,802    1,231,267    1,486,358    3,328,400    —    —    3,328,400    4,814,758 
Debt issued:                                                  
Mortgage bonds   —    555    747    1,056    2,358    1,642    300    370    2,312    4,670 
Bonds   —    268,965    381,568    857,211    1,507,744    1,742,099    1,870,170    2,729,213    6,341,482    7,849,226 
Subordinate bonds   —    5,807    98,721    13,554    118,082    22,234    18,072    745,888    786,194    904,276 
Lease liabilities   —    258,870    31    109    259,010    106    —    —    106    259,116 
Other financial obligations   —    2,245    4,497    18,514    25,256    29,893    18,145    25,719    73,757    99,013 
Total financial liabilities   17,607,258    7,360,888    2,837,972    2,989,371    30,795,489    5,815,193    2,336,200    4,221,887    12,373,280    43,168,769 

 

   As of December 31, 2020 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal
up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal
over
1 year		   Total 
Pasivos  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Current accounts and other demand deposits   15,167,229    —    —    —    15,167,229    —    —    —    —    15,167,229 
Transactions in the course of payment   —    1,302,000    —    —    1,302,000    —    —    —    —    1,302,000 
Obligations under repurchase agreements   —    288,874    43    —    288,917    —    —    —    —    288,917 
Savings accounts and time deposits (**)   —    5,909,865    1,945,177    642,125    8,497,167    58,441    1,232    151    59,824    8,556,991 
Derivative instruments   —    185,196    243,096    442,551    870,843    666,493    427,190    877,230    1,970,913    2,841,756 
Borrowings from financial institutions   —    76,018    141,809    341,188    559,015    1,020,138    2,090,600    —    3,110,738    3,669,753 
Debt issued:                                                  
Mortgage bonds   —    806    793    1,714    3,313    2,321    838    314    3,473    6,786 
Bonds   —    220,455    113,448    891,973    1,225,876    1,704,497    1,586,221    3,183,808    6,474,526    7,700,402 
Subordinate bonds   —    3,547    1,221    113,397    118,165    29,354    16,688    722,200    768,242    886,407 
Lease liabilities   —    191,303    40    163    191,506    189    18    —    207    191,713 
Other financial obligations   —    2,271    4,621    20,025    26,917    39,697    19,424    28,979    88,100    115,017 
Total financial liabilities   15,167,229    8,180,335    2,450,248    2,453,136    28,250,948    3,521,130    4,142,211    4,812,682    12,476,023    40,726,971 

 

(**)Excludes term saving accounts, which amount to Ch$434,894 million (Ch$342,550 million in December 2020).

 

109

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

 

 

 

41.Subsequent Events:

 

In Management’s opinion, there are no significant subsequent events that affect or could affect the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries between September 30, 2021 and the date of issuance of these Interim Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

     

Héctor Hernández G.

General Accounting Manager

  

Eduardo Ebensperger O.

Chief Executive Officer

 

 

110