FORM 6-K 


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Commission File Number: 001-14554

Banco Santander Chile
Santander Chile Bank
(Translation of Registrant’s Name into English)
 
Bandera 140
Santiago, Chile
(Address of principal executive office)

 

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

    Form 20-F x     Form 40-F ¨  

 

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

  Yes ¨   No x  

 

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

  Yes ¨   No x  

 

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

  Yes ¨   No x  

 

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

 

 

 

 

 

  

 

 

 

CONTENT

 

Consolidated Interim Financial Statements

 

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION 3
CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD 4
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD 5
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY 6
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS 7

 

Notes to the Consolidated Interim Financial Statements

 

NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 9
NOTE 02 ACCOUNTING CHANGES 38
NOTE 03 SIGNIFICANT EVENTS 39
NOTE 04 REPORTING SEGMENTS 41
NOTE 05 CASH AND CASH EQUIVALENTS 43
NOTE 06 TRADING INVESTMENTS 44
NOTE 07 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING 45
NOTE 08 INTERBANK LOANS 52
NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS 53
NOTE 10 AVAILABLE FOR SALE INVESTMENTS 60
NOTE 11 INTANGIBLE ASSETS 61
NOTE 12 PROPERTY, PLANT AND EQUIPMENT 63
NOTE 13 CURRENT AND DEFERRED TAXES 66
NOTE 14 OTHER ASSETS 69
NOTE 15 TIME DEPOSITS AND OTHER TIME LIABILITIES 70
NOTE 16 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES 71
NOTE 17 MATURITY OF FINANCIAL ASSETS AND LIABILITIES 77
NOTE 18 PROVISIONS 79
NOTE 19 OTHER LIABILITIES 80
NOTE 20 CONTINGENCIES AND COMMITMENTS 81
NOTE 21 EQUITY 84
NOTE 22 CAPITAL REQUIREMENTS (BASEL) 87
NOTE 23 NON-CONTROLLING INTEREST 89
NOTE 24 INTEREST INCOME 91
NOTE 25 FEES AND COMMISSIONS 93
NOTE 26 NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS 95
NOTE 27 NET FOREIGN EXCHANGE INCOME 96
NOTE 28 PROVISIONS FOR LOAN LOSSES 97
NOTE 29 PERSONNEL SALARIES AND EXPENSES 98
NOTE 30 ADMINISTRATIVE EXPENSES 99
NOTE 31 DEPRECIATION, AMORTIZATION AND IMPAIRMENT 100
NOTE 32 OTHER OPERATING INCOME AND EXPENSES 101
NOTE 33 TRANSACTIONS WITH RELATED PARTIES 102
NOTE 34 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 106
NOTE 35 SUBSEQUENT EVENTS 113

2 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

 

      As of   As of 
      September 30,   December 30, 
      2018   2017 
      (Unaudited)     
   NOTE  MCh$   MCh$ 
ASSETS             
              
Cash and deposits in banks  5   1,780,079    1,452,922 
Cash items in process of collection  5   564,245    668,145 
Trading investments  6   392,013    485,736 
Investments under resale agreements      -    - 
Financial derivative contracts  7   2,230,448    2,238,647 
Interbank loans, net  8   14,307    162,599 
Loans and accounts receivables from customers, net  9   29,153,327    26,747,542 
Available for sale investments  10   2,495,623    2,574,546 
Held to maturity investments      -    - 
Investments in associates and other companies      32,498    27,585 
Intangible assets  11   59,748    63,219 
Property, plant, and equipment  12   240,002    242,547 
Current taxes  13   18,149    - 
Deferred taxes  13   388,289    385,608 
Other assets  14   656,928    755,183 
TOTAL ASSETS      38,025,656    35,804,279 
              
LIABILITIES             
Deposits and other demand liabilities  15   7,984,243    7,768,166 
Cash items in process of being cleared  5   455,368    486,726 
Obligations under repurchase agreements      180,001    268,061 
Time deposits and other time liabilities  15   12,777,365    11,913,945 
Financial derivative contracts  7   2,086,532    2,139,488 
Interbank borrowing      1,793,188    1,698,357 
Issued debt instruments  16   8,186,718    7,093,653 
Other financial liabilities  16   240,902    242,030 
Current taxes  13   -    6,435 
Deferred taxes  13   33,037    9,663 
Provisions  18   275,750    324,329 
Other liabilities  19   883,071    745,363 
TOTAL LIABILITIES      34,896,175    32,696,216 
              
EQUITY             
Attributable to the equity holders of the Bank      3,085,775    3,066,180 
Capital  21   891,303    891,303 
Reserves  21   1,923,022    1,781,818 
Valuation adjustments  21   (33,231)   (2,312)
Retained earnings      304,681    395,371 
Retained earnings from prior years      -    - 
Income for the period      435,258    564,815 
Minus: Provision for mandatory dividends      (130,577)   (169,444)
Non-controlling interest  23   43,706    41,883 
TOTAL EQUITY      3,129,481    3,108,063 
              
TOTAL LIABILITIES AND EQUITY      38,025,656    35,804,279 

 

The accompanying notes 1 to 35 form an integral part of the consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 3 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD

For the periods ended

 

      As of September 30, 
      (Unaudited) 
      2018   2017 
   NOTE  MCh$   MCh$ 
            
OPERATING INCOME             
              
Interest income  24   1,656,904    1,534,147 
Interest expense  24   (600,137)   (553,957)
              
Net interest income      1,056,767    980,190 
              
Fee and commission income  25   365,154    343,250 
Fee and commission expense  25   (141,707)   (130,487)
              
Net fee and commission income      223,447    212,763 
              
Net income (expense) from financial operations  26   15,370    52,933 
Net foreign exchange gain  27   53,942    58,645 
Other operating income  32   28,757    67,939 
              
Net operating profit before provision for loan losses      1,378,283    1,372,470 
              
Provision for loan losses  28   (251,802)   (222,400)
              
NET OPERATING PROFIT      1,126,481    1,150,070 
              
Personnel salaries and expenses  29   (297,692)   (294,881)
Administrative expenses  30   (183,080)   (171,900)
Depreciation and amortization  31   (57,738)   (55,468)
Impairment of property, plant, and equipment  31   (39)   (5,644)
Other operating expenses  32   (32,266)   (72,671)
              
Total operating expenses      (570,815)   (600,564)
              
OPERATING INCOME      555,666    549,506 
              
Income from investments in associates and other companies      5,223    2,954 
            
Income before tax      560,889    552,460 
              
Income tax expense  13   (123,761)   (105,622)
              
NET INCOME FOR THE PERIOD      437,128    446,838 
              
Attributable to:             
Equity holders of the Bank      435,258    430,137 
Non-controlling interest  23   1,870    16,701 
Earnings per share attributable to Equity holders of the Bank:             
(expressed in Chilean pesos)             
Basic earnings  21   2.310    2.283 
Diluted earnings  21   2.310    2.283 

 

The accompanying notes 1 to 35 form an integral part of the consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 4 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE PERIOD

For the periods ended

 

      As of September 30, 
      (Unaudited) 
      2018   2017 
   NOTE  MCh$   MCh$ 
            
NET INCOME FOR THE PERIOD      437,128    446,838 
              
OTHER COMPREHENSIVE INCOME - ITEMS WHICH WILL BE RECLASSIFIED TO PROFIT OR LOSS             
              
Available for sale investments  21   1,229    (1,961)
Cash flow hedge  21   (43,686)   (9,293)
              
Other comprehensive income which may be reclassified subsequently to profit or loss, before tax      (42,457)   (11,254)
              
Income tax related to items which may be reclassified subsequently to profit or loss      11,489    2,725 
              
Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax      (30,968)   (8,529)
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECASSIFIED TO PROFIT OR LOSS      -    - 
              
TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD      406,160    438,309 
              
Attributable to:             
Equity holders of the Bank      404,339    421,207 
Non-controlling interest  23   1,821    17,102 

 

The accompanying notes 1 to 35 form an integral part of the consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 5 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended September 30, 2018 and 2017 (Unaudited)

 

       RESERVES   VALUATION ADJUSTMENTS   RETAINED EARNINGS             
           Effects of                                     
           merger of                           Total         
       Reserves   companies                       Provision   attributable   (*)     
       and other   under   Available for           Prior years   Income   for   to equity   Non-     
       retained   common   sale   Hedge cash   Income   retained   for the   mandatory   holders of the   controlling     
   Capital   earnings   control   investments   flow   tax effects   earnings   period   dividends   Bank   interest   Total Equity 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                 
Equity as of December 31, 2016   891,303    1,642,336    (2,224)   6,449    2,288    (2,097)   -    472,351    (141,700)   2,868,706    29,341    2,898,047 
Distribution of income from previous period   -    -    -    -    -    -    472,351    (472,351)   -    -    -    - 
Equity as of January 1, 2017   891,303    1,642,336    (2,224)   6,449    2,288    (2,097)   472,351    -    (141,700)   2,868,706    29,341    2,898,047 
Increase or decrease of capital and reserves   -    -    -    -    -    -    -    -    -    -    -    - 
Transactions with own shares   -    -    -    -    -    -    -    -    -    -    -    - 
Dividends distributions/ withdrawals made   -    -    -    -    -    -    (330,645)   -    -    (330,645)   -    (330,645)
Transfer of retained earnings to reserves   -    141,706    -    -    -    -    (141,706)   -    -    -    -    - 
Provision for mandatory dividends   -    -    -    -    -    -    -    -    12,659    12,659    -    12,659 
Subtotals   -    141,706    -    -    -    -    (472,351)   -    12,659    (317,986)   -    (317,986)
Other comprehensive income   -    -    -    (2,503)   (9,293)   2,877    -    -    -    (8,919)   401    (8,518)
Income for the period   -    -    -    -    -    -    -    430,137    -    430,137    16,701    446,838 
Subtotals   -    -    -    (2,503)   (9,293)   2,877    -    430,137    -    421,218    17,102    438,320 
                                                             
Equity as of September 30, 2017   891,303    1,784,042    (2,224)   3,946    (7,005)   780    -    430,137    (129,041)   2,971,938    46,443    3,018,381 
                                                             
Equity as of December 31, 2017   891,303    1,784,042    (2,224)   459    (3,562)   791    -    564,815    (169,444)   3,066,180    41,883    3,108,063 
Distribution of income from previous year   -    -    -    -    -    -    564,815    (564,815)   -    -    -    - 
Equity as of January 1, 2018   891,303    1,784,042    (2,224)   459    (3,562)   791    564,815    -    (169,444)   3,066,180    41,883    3,108,063 
Increase or decrease of capital and reserves   -    -    -    -    -    -    -    -    -    -    -    - 
Transactions with own shares   -    -    -    -    -    -    -    -    -    -    -    - 
Dividend distributions/ withdrawals made   -    -    -    -    -    -    (423,611)   -    -    (423,611)   -    (423,611)
Other equity movements   -    141,204    -    -    -    -    (141,204)   -    -    -    2    2 
Provision for mandatory dividends   -    -    -    -    -    -    -    -    38,867    38,867    -    38,867 
Subtotals   -    141,204    -    -    -    -    (564,815)   -    38,867    (384,744)   2    (384,742)
Other comprehensive income   -    -    -    1,267    (43,686)   11,500    -    -    -    (30,919)   (49)   (30,968)
Income for the period   -    -    -    -    -    -    -    435,258    -    435,258    1,870    437,128 
Subtotals   -    -    -    1,267    (43,686)   11,500    -    435,258    -    404,339    1,821    406,160 
                                                             
Equity as of September 30, 2018   891,303    1,925,246    (2,224)   1,726    (47,248)   12,291    -    435,258    (130,577)   3,085,775    43,706    3,129,481 

 

(*) See note 1 b) for non-controlling interest.

 

   Total attributable to equity   Allocated to   Allocated to   Distributed         
  holders of the Bank   reserves   dividends   Percentage   Number of   Dividend per share 
Period  MCh$   MCh$   MCh$   %   shares   (in chilean pesos) 
                         
Year 2017 (Shareholders Meeting April 2018)   564,815    141,204    423,611    75    188,446,126,794    2.248 
                               
Year 2016 (Shareholders Meeting April 2017)   472,351    141,706    330,645    70    188,446,126,794    1.755 

 

The accompanying notes 1 to 35 form an integral part of the consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 6 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

 

      As of September 30, 
      (Unaudited) 
      2018   2017 
   NOTE  MCh$   MCh$ 
            
A – CASH FLOWS FROM OPERATING ACTIVITIES:             
NET INCOME FOR THE PERIOD      437,128    446,838 
Debits (credits) to income that do not represent cash flows      (889,745)   (753,577)
Depreciation and amortization  31   57,738    55,468 
Impairments of property, plant, and equipment and intangibles  31   39    5,644 
Provision for loan losses  28   319,749    285,019 
Provision from trading investments mark to market      1,438    114,989 
Income from investments in associates and other companies      (5,223)   (2,954)
Net gain on sale of assets received in lieu of payment  32   (17,521)   (22,733)
Provision on assets received in lieu of payment  32   939    4,066 
Net gain on sale of associates and other companies      -    - 
Net gain on sale of controlled companies      -    - 
Net gain on sale of property, plant, and equipment  32   (318)   (21,953)
Charge off of assets received in lieu of payment  32   11,795    23,464 
Net interest income  24   (1,056,767)   (980,190)
Net fee and commission income  25   (223,447)   (212,763)
Other debits (credits) to income that do not represent cash flows      (6,600)   (8,553)
Changes in deferred taxes  13   28,433    6,919 
Increase/decrease in operating assets and liabilities      1,274,401    (344,956)
Decrease (increase) of loans and accounts receivables from customers, net      (2,394,955)   (549,746)
Decrease (increase) of financial investments      172,646    1,177,665 
Decrease (increase) due to resale agreements (assets)      -    6,736 
Decrease (increase) of interbank loans      148,292    (5,411)
Decrease (increase) of assets received or awarded in lieu of payment      1,427    12,674 
Increase of debits in customers checking accounts      (68,790)   (267,713)
Increase (decrease) of time deposits and other time liabilities      863,420    (559,838)
Increase (decrease) of obligations with domestic banks      (480)   (365,436)
Increase (decrease) of other demand liabilities or time obligations      284,867    (1,101)
Increase (decrease) of obligations with foreign banks      95,312    (149,814)
Increase (decrease) of obligations with Central Bank of Chile      (1)   (1)
Increase (decrease) of obligations under repurchase agreements      (88,060)   (64,922)
Increase (decrease) in other financial liabilities      (1,128)   (14,196)
Net increase of other assets and liabilities      129,322    (138,526)
Redemption of letters of credit      (6,875)   (5,716)
Mortgage bond issuances      -    - 
Senior bond issuances      1,225,191    263,480 
Redemption of mortgage bonds and payments of interest      (5,527)   (4,588)
Redemption of senior bonds and payments of interest      (360,474)   (871,518)
Interest received      1,656,904    1,534,147 
Interest paid      (600,137)   (553,957)
Dividends received from investments in other companies      -    62 
Fees and commissions received  25   365,154    343,250 
Fees and commissions paid  25   (141,707)   (130,487)
Total cash flow provided by (used in) operating activities      821,784    (651,695)

 

The accompanying notes 1 to 35 form an integral part of these consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 7 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENT OF CASH FLOW

For the periods ended

 

      As of September 30, 
      (Unaudited) 
      2018   2017 
   NOTE  MCh$   MCh$ 
            
B – CASH FLOWS FROM INVESTMENT ACTIVITIES:             
Purchases of property, plant, and equipment  12   (37,553)   (26,159)
Sales of property, plant, and equipment  12   157    17,340 
Purchases of investments in associates and other companies      -    - 
Sales of investments in associates and other companies      -    - 
Purchases of intangible assets  11   (15,138)   (22,567)
Total cash flow provided by (used in) investment activities      (52,534)   (31,386)
              
C – CASH FLOWS FROM FINANCING ACTIVITIES:             
From shareholder’s financing activities      (556,167)   (338,751)
Increase in other obligations      -    - 
Subordinated bonds issuance      -    - 
Redemption of subordinated bonds and payments of interest      (132,556)   (8,106)
Dividends paid      (423,611)   (330,645)
From non-controlling interest financing activities      -    - 
Dividends and/or withdrawals paid      -    - 
Total cash flow used in financing activities      (556,167)   (338,751)
              
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD      (213,083)   (1,021,832)
              
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS      41,532    (27,536)
              
F – CASH AND CASH EQUIVALENTS INITIAL BALANCE  5   1,634,341    2,486,199 
              
CASH AND CASH EQUIVALENTS FINAL BALANCE  5   1,888,956    1,436,831 

 

      As of September 30, 
      (Unaudited) 
      2018   2017 
Reconciliation of provisions for the Consolidated Interim Statement of Cash Flow for the periods             MCh$   MCh$ 
            
Provision for loan losses for cash flow purposes      319,749    285,019 
Recovery of loans previously charged off      (67,947)   (62,619)
Provision for loan losses - net  28   251,802    222,400 

 

           Changes other than cash     
Reconciliation of liabilities arising from financing activities  December 31,
2017
MCh$
  

Cash Flow

MCh$

   Acquisition
MCh$
   Foreign
Currency
Movement
MCh$
   UF Movement
MCh$
   Fair Value
Changes
MCh$
   September 30,
2018
MCh$
 
                             
Subordinated Bonds   773,192    (132,556)   -    -    148,351    -    788,987 
Paid dividends   -    (423,611)   -    -    -    -    (423,611)
Other   -    -       -        -    -        -    - 
Total liabilities from financing activities   773,192    (556,167)   -    -    148,351    -    365,376 

 

The accompanying notes 1 to 35 form an integral part of these consolidated interim financial statements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 8 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

CORPORATE INFORMATION

 

Banco Santander-Chile is a banking corporation (limited company) operating under the laws of the Republic of Chile, headquartered at Bandera N°140, Santiago. The corporation provides a broad range of general banking services to its customers, ranging from individuals to major corporations. Banco Santander-Chile and its subsidiaries (collectively referred to as the “Bank” or “Banco Santander-Chile”) offers commercial and consumer banking services, including (but not limited to) factoring, collection, leasing, securities and insurance brokering, mutual and investment fund management, and investment banking.

 

Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of December 31, 2018, Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This makes Banco Santander Spain have control over 67.18% of the Bank’s shares.

 

a)Basis of preparation

 

These Consolidated Interim Financial Statements have been prepared in accordance with the Compendium of Accounting Standards issued by the Superintendency of Banks and Financial Institutions (SBIF), the Chilean regulatory agency. Article 15 of the General Banking Law states that banks must apply accounting standards established by SBIF. For those issues not covered by the SBIF, the Bank must apply generally accepted standards issued by the Colegio de Contadores de Chile A.G (Association of Chilean Accountants), which conform with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the event that any discrepancies exist between IFRS and accounting standards issued by the SBIF (Compendium of Accounting Standards and Instructions), the latter shall prevail.

 

For purposes of these financial statements the Bank uses certain terms and conventions. References to “US$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, and references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month.

 

The Notes to the Consolidated Interim Financial Statements contain additional information to support the figures submitted in the Consolidated Interim Statement of Financial Position, Consolidated Interim Statement of Income, Consolidated Interim Statement of Comprehensive Income, Consolidated Interim Statement of Changes in Equity and Consolidated Interim Statement of Cash Flows for the period. These contain narrative descriptions and details of these statements in a clear, relevant, reliable and comparable manner.

 

b)Basis of preparation for the Consolidated Interim Financial Statements

 

The Consolidated Interim Financial Statements as of September 30, 2018 and 2017 and December 31, 2017, include the financial statements from the Bank entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:

 

I.has power over the investee (i.e., it has rights that grant the current capacity of managing the relevant activities of the investee)
II.is exposed, or has rights, to variable returns from its involvement with the investee; and
III.has the ability to use its power to affect its returns.

 

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements listed above.

 

When the Bank has less than the majority of the voting rights of an investee, it will be considered to have the power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers the following relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, these include:

 

·The size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders.
·Potential voting rights held by the Bank, other vote holders or other parties.
·Rights arising from other contractual agreements.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 9 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

·Any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

 

The consolidation of a subsidiary starts when the Bank obtains control over it and ends when the bank loses this control. So, the income and expenses from a subsidiary acquired or alienated during the period is included in the Consolidated Income Statement and the Consolidated Statement of Other Comprehensive Income from the date in which the Bank obtains control until the date in which the Bank ends its control over the subsidiary.

 

Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interest. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.

 

When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies. All balances and transacctions between consolidated entities are eliminated.

 

Changes in the consolidated entities ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.

 

In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated Interim Statement of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Interim Statement of Income.

 

The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:

 

i.Entities controlled by the Bank through participation in equity

 

                     Percent ownership share             
         As of September 30,   As of December 31,   As of September 30, 
      Place of  2018   2017   2017 
      Incorporation  Direct   Indirect   Total   Direct   Indirect   Total   Direct   Indirect   Total 
      and                                    
Name of the Subsidiary  Main Activity  operation  %   %   %   %   %   %   %   %   % 
                                           
Santander Corredora de Seguros Limitada  Insurance brokerage  Santiago, Chile   99.75    0.01    99.76    99.75    0.01    99.76    99.75    0.01    99.76 
Santander Corredores de Bolsa Limitada  Financial instruments brokerage  Santiago, Chile   50.59    0.41    51.00    50.59    0.41    51.00    50.59    0.41    51.00 
Santander Agente de Valores Limitada (*)  Securities brokerage  Santiago, Chile   99.03    -    99.03    99.03    -    99.03    99.03    -    99.03 
Santander S.A. Sociedad Securitizadora  Purchase of credits and issuance of debt instruments  Santiago, Chile   99.64    -    99.64    99.64    -    99.64    99.64    -    99.64 

 

The details of non-controlling interest in all the subsidiaries can be seen in Note 23 – Non-controlling interest.

 

(*) On July 25, 2018, the entity has stopped carrying out buying and selling operations of foreign currency, the Bank will now take care of these operations.

 

ii.Entities controlled by the Bank through other considerations

 

The following companies have been consolidated as of September 30, 2018 and 2017 and December 31, 2017 based on the fact that the activities relevant to them are determined by the Bank (companies complementary to the banking sector) and therefore the Bank exercises control:

  

-Santander Gestión de Recaudación y Cobranza Limitada (collection services)
-Bansa Santander S.A. (management of repossessed assets and leasing of properties)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 10 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Associates

 

An associate is an entity over which the Bank has the ability to exercise significant influence, but not control or joint control. This ability is usually represented by a share equal to or higher than 20% of the voting rights of the Company and is accounted for using the equity method.

  

The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:

 

         Percentage of ownership share 
         As of   As of   As of 
         September 30,   December 31,   September 30, 
      Place of  2018   2017   2017 
      Incorporation            
      and            
Associates  Main activity  operation  %   %   % 
Redbanc S.A.  ATM services  Santiago, Chile   33.43    33.43    33.43 
Transbank S.A.  Debit and credit card services  Santiago, Chile   25.00    25.00    25.00 
Centro de Compensación Automatizado  Electronic fund transfer and compensation services  Santiago, Chile   33.33    33.33    33.33 
Sociedad Interbancaria de Depósito de Valores S.A.  Repository of publically offered securities  Santiago, Chile   29.29    29.29    29.29 
Cámara de Compensación de Pagos de Alto Valor S.A.  Payments clearing  Santiago, Chile   15.00    15.00    14.93 
Administrador Financiero del Transantiago S.A.  Administration of boarding passes to public transportation  Santiago, Chile   20.00    20.00    20.00 
Sociedad Nexus S.A.  Credit card processor  Santiago, Chile   12.90    12.90    12.90 
Servicios de Infraestructura de Mercado OTC S.A.  Administration of the infrastructure for the financial market of derivative instruments  Santiago, Chile   12.48    12.48    12.07 

 

During 2017, the entities Rabobank Chile in Liquidation and Banco París, ceded a portion of its participation to Banco Santander in "Sociedad Operadora de la Cámara de Compensación de pagos de Valores S.A.", increasing the Bank's participation to 15.00%.

 

In the case of Nexus S.A. and Cámara Compensación de Alto Valor S.A., Banco Santander-Chile has a representative in the Board of Directors of such companies, which is why the Administration has concluded that it exercises significant influence over them.

 

In the case of Servicios de Infraestructura de Mercado OTC S.A. The Bank participates, through its executives, actively in the administration and in the organizational process, which is why the Administration has concluded that it exerts significant influence over it.

 

iv.Share or rights in other companies

 

Entities over which the Bank has no control or significant influences are presented in this category. These holdings are shown at acquisition value (historical cost) less impairment, if any.

 

c)Non-controlling interest

 

Non-controlling interest represents the portion of gains or losses and net assets which the Bank does not own, either directly or indirectly. It is presented separately in the Consolidated Interim Statement of Income, and separately from shareholders’ equity in the Consolidated Interim Statement of Financial Position.

 

In the case of entities controlled by the Bank through other considerations, income and equity are presented in full as non-controlling interest, since the Bank controls them, but does not have any ownership.

 

d)Reporting segments

 

Operating segments with similar economic characteristics often exhibit similar long-term financial performance. Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:

 

i.the nature of the products and services;
ii.the nature of the production processes;

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 11 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.the methods used to distribute their products or services; and
iv.if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

 

The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:

 

i.its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments.
ii.the absolute amount of its reported profit or loss is equal to or greater than 10% : (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss.
iii.its assets represent 10% or more of the combined assets of all the operating segments.

 

The reporting segments that aren’t included in these thresholds could be considered as segments to be reported in these financial statements and if that’s the case, separate financial information will be revealed for these cases if the Board considers this information to be useful.

 

Information related to other economic characteristics that don’t correspond to any of the reportable segments is combined and revealed in the “Others” category.

 

According to the information presented, the Bank’s segments were selected based on an operating segment being a component of an entity that:

 

i.Engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity);
ii.whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and
iii.for which discrete financial information is available.

 

e)Functional and presentation currency

 

In accordance with IAS 21 "Effects of Variations in Exchange Rates of the Foreign Currency", the “Bank” has defined as functional and presentation currency the Chilean Peso, which is the currency of the primary economic environment in which the Bank operates, it also obeys the currency that influences the structure of costs and revenues.

 

Therefore, all balances and transactions denominated in currencies other than the Chilean Peso are considered as "Foreign currency".

 

f)Foreign currency transactions

 

The Bank performs transactions in foreign currencies, mainly U.S. dollar. Assets and liabilities denominated in foreign currencies and held by the Bank are translated to Chilean pesos based on the representative market rate published by Reuters at 1:30 p.m. on the month end date. The rate used was Ch$656.74 per US$1 for September, 2018 (Ch$639.15 per US$1 for September, 2017 and Ch$616.85 per US$1 for December, 2017).

 

The amount of net foreign exchange gains and losses include recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.

 

g)Definitions and classification of financial instruments

 

i.Definitions

 

A “financial instrument” is any contract that gives rise to a financial asset of an entity, and a financial liability or equity instrument of another entity.

 

An “equity instrument” is a legal transaction that evidences a residual interest on the assets of an entity deducting all of its liabilities.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 12 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

A “financial derivative” is a financial instrument whose value changes in response to changes with regard to an observed market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.

 

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative. As of September 30, 2018 and 2017 and December 31, 2017, Banco Santander did not keep implicit derivatives in its portfolio.

 

ii.Classification of financial assets for measurement purposes

 

Financial assets are classified into the following specified categories: financial assets trading investments at fair value through profit or loss (FVTPL), ‘held to maturity investments’, ‘available for sale investments’ (AFS) financial assets and ‘loans and accounts receivable from customers'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Regular way purchases or sales of financial assets require delivery of the asset within the time frame established by regulation or convention in the marketplace.

  

Financial assets are initially recognized at fair value plus, in the case of financial assets that aren’t accounted for at fair value with changes in profit or loss, transaction costs that are directly attributable to the acquisition or issue.

 

Effective interest method

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

Income is recognised on an effective interest basis for loans and accounts receivables other than those financial assets classified at fair value through profit or loss.

 

Financial assets FVTPL - Trading investments

 

Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as fair value through profit or loss.

 

A financial asset is classified as held for trading if:

 

-       it has been acquired with the purpose of selling it in the short term; or

-       on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or

-       it is a derivative that is not designated and effective as a hedging instrument

 

A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:

 

-       such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

-       the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

-       it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL.

 

Financial assets FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations' line item.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 13 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Held to maturity investments

 

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less impairment.

 

Available for sale investments (AFS investments)

 

AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments).

 

Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available for sale investments are recognised in other comprehensive income and accumulated under the heading of “Valuation Adjustment”. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

 

Dividends on AFS equity instruments are recognised in profit or loss when the Bank's right to receive the dividends is established.

 

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated as the described in f) above. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset.

 

Loans and accounts receivables from customers

 

Loans and accounts receivable from customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and accounts receivables from customers (including loans and accounts receivable from customers and interbank loans) are measured at amortised cost using the effective interest method, less any impairment.

 

Interest income is recognised by applying the effective interest rate, except for short-term receivables where discounting effects are immaterial.

 

iii.Classification of financial assets for presentation purposes

 

For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:

 

·Cash and deposits in banks: this line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested as overnight deposits are included in this item and in the corresponding items. If a special item for these operations is not mentioned, they will be included along with the accounts being reported.

 

·Cash items in process of collection: this item includes values of documents in process of transfer and balances from operations that, as agreed, are not settled the same day, and purchase of currencies not yet received.

 

·Trading investments: this item includes financial instruments held-for-trading and investments in mutual funds which must be adjusted to their fair value.

 

·Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounted for as derivatives held for hedging, as shown in Note 6.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 14 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

·Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

 

·Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

 

·Interbank loans: this item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in certain other financial asset classifications listed above.

 

·Loans and accounts receivables from customers: these loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and rewards incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers while the leased asset is removed from the Bank´s financial statements.

 

·Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment classification includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale.

 

iv.Classification of financial liabilities for measurement purposes

 

Financial liabilities are classified as either financial liabilities FVTPL or other financial liabilities.

 

Financial liabilities FVTPL

 

As of September 30, 2018 and December 31, 2017, the bank does not possess any financial liabilities FVTPL.

 

Other financial liabilities

 

Other financial liabilities (including loans and accounts payable) are subsequently measured at amortised cost using the effective interest method.

  

v.Classification of financial liabilities for presentation purposes

 

Financial liabilities are classified by their nature into the following items in the Consolidated Interim Statement of Financial Position:

 

·Deposits and other on-demand liabilities: this includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations.

 

·Cash items in process of collection: this item includes balances from asset purchase operations that are not settled the same day, and sale of currencies not yet delivered.

 

·Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record as own portfolio instruments acquired under repurchase agreements.

 

·Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated.

 

·Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are for trading or for hedge accounting, as set forth in Note 6.

 

·Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 15 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

·Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

 

·Interbank borrowings: this includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, other than those reflected in certain other financial liability classifications listed above.

 

·Issued debt instruments: there are three types of instruments issued by the Bank: obligations under letters of credit, subordinated bonds and senior bonds placed in the local and foreign market.

 

·Other financial liabilities: this item includes credit obligations to persons other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business.

 

h)Valuation of financial instruments and recognition of fair value changes

 

Generally, financial assets and liabilities are initially recognized at fair value, which, in the absence of evidence against it, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured with the following criteria:

 

i.Valuation of financial instruments

 

Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for credit investments and held to maturity investments.

 

According to IFRS 13 Fair Value Measurement, “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

 

The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability. Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.

 

When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

Every derivative is recorded in the Consolidated Interim Statements of Financial Position at fair value as previously described. This value is compared to the valuation at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset, if the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Interim Statement of Income.

 

Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk. Counterparty Credit Risk (CVA) is a valuation adjustment to derivatives contracted in non-organized markets as a result of exposure to counterparty credit risk. The CVA is calculated considering the potential exposure to each counterparty in future periods. Own-credit risk (DVA) is a valuation adjustment similar to the CVA, but generated by the Bank's credit risk assumed by our counterparties. As of September 30, 2018, the CVA and DVA are Ch$ 7,515 million and Ch$ 16,135 million, respectively.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 16 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

  

“Loans and accounts receivable from customers” and Held-to-maturity instrument portfolio are measured at amortized cost using the effective interest method. Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility. For loans and accounts receivable designated as hedged items in fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded in “Net income (expense) from financial operations”.

 

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date. Where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates.

 

The amounts at which the financial assets are recorded represent the Bank’s maximum exposure to credit risk as at the reporting date. The Bank has also received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, equity instruments and personal securities, assets under leasing agreements, assets acquired under repurchase agreements, securities loans and derivatives.

 

ii.Valuation techniques

 

Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.

 

In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.

 

The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.

 

The main techniques used as of September 30, 2018 and 2017 and as of December 31, 2017 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

 

i.In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data.

 

ii.In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity.

 

iii.In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 17 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares and raw materials, volatility, prepayments and liquidity. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.

 

iii.Hedging transactions

 

The Bank uses financial derivatives for the following purposes:

 

i.to sell to customers who request these instruments in the management of their market and credit risks;
ii.to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and
iii.to obtain profits from changes in the price of these derivatives (trading derivatives).

 

All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.

 

A derivative qualifies for hedge accounting if all the following conditions are met:

 

1.The derivative hedges one of the following three types of exposure:

 

a.Changes in the value of assets and liabilities due to fluctuations, among others, in inflation (UF), the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

 

b.Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecasted transactions (“cash flow hedge”);

 

c.The net investment in a foreign operation (“hedge of a net investment in a foreign operation”).

 

2.It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

 

a.At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”).

 

b.There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”).

 

3.There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

 

The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:

 

a.For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Interim Statement of Income.

 

b.For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Interim Financial Statement of Income under “Net income (expense) from financial operations”.

 

c.For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”, until the hedged transaction occurs, thereafter being reclassified to the Consolidated Interim Statement of Income, unless the hedged transaction results in the recognition of non–financial assets or liabilities, in which case it is included in the cost of the non-financial asset or liability.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 18 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

d.The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Interim Statement of Income under “Net income (expense) from financial operations”.

 

If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, when applicable.

 

When cash flow hedges are interrupted, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Interim Statement of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Interim Statement of Income.

 

iv.Derivatives embedded in hybrid financial instruments

 

Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if 1) their risks and characteristics are not closely related to the host contracts, 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and 3) provided that the host contracts are not classified as “Trading investments” or as other financial assets (liabilities) at fair value through profit or loss.

 

v.Offsetting of financial instruments

 

Financial asset and liability balances are offset, i.e., reported in the Consolidated Interim Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. As of September 30, 2018 and 2017 and as of December 31, 2017, no offsetting exists for financial assets or liabilities.

 

vi.Derecognition of financial assets and liabilities

 

The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties:

 

i.If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized from the Consolidated Interim Statement of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded.

 

ii.If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized from the Consolidated Interim Financial Statement of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded:

 

-An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.
-Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability.

 

iii.If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases, the following distinction is made:

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 19 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

a.If the transferor does not retain control of the transferred financial asset: the asset is derecognized from the Consolidated Interim Statement of Financial Position and any rights or obligations retained or created in the transfer are recognized.

 

b.If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Interim Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

 

Accordingly, financial assets are only derecognized from the Consolidated Interim Statement of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Interim Financial Statement Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.

 

i)Recognizing income and expenses

 

The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:

 

i.Interest revenue, interest expense, and similar items

 

Interest revenue, expense and similar items are recorded on an accrual basis using the effective interest method.

 

However, when a given operation or transaction is past due by 90 days or more, when it originated from a refinancing or renegotiation, or when the Bank believes that the debtor poses a high risk of default, the interest and adjustments pertaining to these transactions are not recorded directly in the Consolidated Interim Statement of Income unless they have been actually received.

 

These interests and adjustments are generally referred to as “suspended” and are recorded in they are reported as part of the complementary information thereto and as memorandum accounts (Note 24). When collected, this interest is recognized as income.

 

The resumption of interest income recognition of previously impaired loans only occurs when such loans become current (i.e. payments were received such that the loans are contractually past-due for less than 90 days) or they are no longer classified under the C3, C4, C5, or C6 risk categories (for loans individually evaluated for impairment).

 

ii.Commissions, fees, and similar items

 

Fee and commission income and expenses are recognized in the Consolidated Interim Statement of Income using criteria stablished in IFRS 15 “Revenue from contracts with customers”, using retrospectively with the cumulative effect recognised at the date of initial application method and therefore has not restated the prior comparative information, which continues to be reporting under IAS 18 “Revenue recognition”.

  

Under IFRS 15, the Bank recognize revenue when (or as) satisfied a performance obligations by transferring a service (ie an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

  

The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, and/or the Bank satisfies the performance obligation at a point in time.

 

Under IAS 18 “Revenue recognition”, fees and commission income and expense are recognized in according to their nature. The main criteria are:

 

-Fee and commission income and expenses on financial assets and liabilities are recognized when they are earned.
-Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services.
-Those relating to services provided in a single transaction are recognized when the single transaction is performed.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 20 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The main income arising from commissions, fees and similar items correspond to:

 

-Fees and commissions for lines of credits and overdrafts:includes accrued fees related to granting lines of credit and overdrafts in checking accounts.
-Fees and commissions for guarantees and letters of credit:includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations.
-Fees and commissions for card services:includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards
-Fees and commissions for management of accounts:includes accrued commissions for the maintenance of checking, savings and other accounts
-Fees and commissions for collections and payments:includes income arising from collections and payments services provided by the Bank.
-Fees and commissions for intermediation and management of securities:includes income from brokerage, placements, administration and securitie's custody services.
-Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution.
-Other fees and commissions:includes income arising from currency changes,financial advisory, cashier check issuance, placement of financial products and onlilne banking services.

 

The main expense arising from commissions, fees and similar items correspond to:

 

-Compensation for card operation:includes commission expenses for credit and debit card operations related to income commissions card services.
-Fees and commissions for securities transactions:includes commissions expense for deposits, securities custody service and securitie's brokerage.
-Other fees and commissions:includes mainly expenses generayed from online services.

 

The Bank has incorporated disaggregated revenue disclosure and reportable segment relationship in Note 25.

 

Additionaly, the Bank maintains certain loyalty programs associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statement of financial position to comply with its related performance obligation, or has liquidated on a monthly basis as far they arise.

 

iii.Non-financial income and expenses

 

Non-financial income and expenses are recognized for accounting purposes on an accrual basis.

 

iv.Comissions on loan formalization

 

Financial commissions that arise from loan formalization, fundamentally the commissions from the opening or study and information, are periodized and registered in the Consolidated Statement of Income throughout the life of the loan.

 

j)Impairment

 

i.Financial assets:

 

A financial asset, other than that at fair value through profit and loss, is evaluated on each financial statement filing date to determine whether objective evidence of impairment exists.

 

A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets.

 

An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 21 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Individually significant financial assets are individually tested to determine their impairment. The remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics.

 

All impairment losses are recorded in income. Any impairment loss relating to a financial asset available for sale previously recorded in equity is transferred to profit or loss.

 

The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of available for sale equity financial assets, in which case it is recorded in other comprehensive income.

 

ii.Non-financial assets:

 

The Bank’s non-financial assets, excluding investment properties, are reviewed at the reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

 

In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Losses for goodwill impairment recognized through capital gains are not reversed.

 

k)Property, plant, and equipment

 

This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixed assets owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:

 

i.Property, plant and equipment for own use

 

Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses resulting from comparing the net value of each item to the respective recoverable amount.

 

Depreciation is calculated using the straight line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 22 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Bank applies the following useful lives for the tangible assets that comprise its assets:

 

ITEM 

Useful life

(in months)

 
     
Land   - 
Paintings and works of art   - 
Carpets and curtains   36 
Computers and hardware   36 
Vehicles   36 
IT systems and software   36 
ATMs   60 
Other machines and equipment   60 
Office furniture   60 
Telephone and communication systems   60 
Security systems   60 
Rights over telephone lines   60 
Air conditioning systems   84 
Other installations   120 
Buildings   1,200 

 

The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.

 

The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Interim Statement of Income in future years on the basis of the new useful lives.

 

Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.

 

ii.Assets leased out under operating leases

 

The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record their impairment losses, are the same as those for property, plant and equipment held for own use.

 

l)Leasing

 

i.Finance leases

 

Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.

 

When a consolidated entity is the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, which is equivalent to one additional lease payment and so is reasonably certain to be exercised, is recognized as lending to third parties and is therefore included under “Loans and accounts receivable from customers” in the Consolidated Interim Statement of Financial Position.

 

When a consolidated entity is a lessee, it reports the cost of leased assets in the Consolidated Interim Statement of Financial Position based on the nature of the leased asset, and simultaneously records a liability for the same amount (which is the lower of the fair value of the leased asset, and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise price of the purchase option). The depreciation policy for these assets is the same as that for property, plant and equipment for own use.

 

In both cases, the finance income and finance expenses arising from these contracts are credited and debited, respectively, to “Interest income” and “Interest expense” in the Consolidated Interim Statement of Income so as to achieve a constant rate of return over the lease term.

 

ii.Operating leases

 

In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 23 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

When a consolidated entity is the lessor, it reports the acquisition cost of the leased assets under "Property, plant and equipment”. The depreciation policy for these assets is the same as that for similar items of property, plant and equipment held for own use and revenues from operating leases is recorded on a straight line basis under “Other operating income” in the Consolidated Interim Statement of Income.

 

When a consolidated entity is the lessee, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Other operating expenses” in the Consolidated Interim Statement of Income.

 

iii.Sale and leaseback transactions

 

For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of sale. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.

 

m)Factored receivables

 

Factored receivables are valued at the amount disbursed by the Bank in exchange of invoices or other commercial instruments representing the credit which the transferor assigns to the Bank. The price difference between the amounts disbursed and the actual face value of the credits is recorded as interest income in the Consolidated Interim Statement of Income using the effective interest method over the financing period.

 

When the assignment of these instruments involves no liability on the part of the assignee, the Bank assumes the risks of insolvency of the parties responsible for payment.

 

n)Intangible assets

 

Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.

 

Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.

 

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated. The estimated useful life for software is 3 years.

 

Intangible assets are amortized on a straight-line basis over their estimated useful life; which has been defined as 36 months.

 

Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.

 

o)Cash and cash equivalents

 

The indirect method is used to prepare the cash flow statement, starting with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as investing or financing activities.

 

The cash flow statement was prepared considering the following definitions:

 

i.Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks.

 

ii.Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities.

 

iii.Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 24 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iv.Financing Activities: Activities that result in changes in the size and composition of equity and liabilities that are not operating or investing activities.

 

p)Allowances for loan losses

 

The Bank continuously evaluates the entire loan portfolio and contingent loans, as it is established by the SBIF, to timely provide the necessary and sufficient provisions to cover expected losses associated with the characteristics of the debtors and their loans, which determine payment behavior and recovery.

 

The Bank has established allowances to cover probable losses on loans and account receivables in accordance with instructions issued by Superintendency of Banks and Financial Institutions (SBIF) and models of credit risk rating and assessment approved by the Board’s Committee, including the amendments introduced by Circular No. 3,573 (and its further modifications) which establishes a standard method for residential mortgage loans and complements and specifies instructions on provisions and loans classified in the impaired portfolio, and subsequent amendments.

 

The Bank uses the following models established by the SBIF, to evaluate its loan portfolio and credit risk:

 

-Individual assessment - where the Bank assesses a debtor as individually significant when their loans are significant, or when the debtor cannot be classified within a group of financial assets with similar credit risk characteristics, due to its size, complexity or level of exposure.

 

-Group assessment - a group assessment is relevant for analyzing a large number of transactions with small individual balances due from individuals or small companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis. The Bank has implemented standard models for mortgage loans, established in Circular N°3,573 (modified by Circular N°3,584), and internal models for commercial and consumer loans.

 

I.Allowances for individual assessment

 

An individual assessment of commercial debtors is necessary according to the SBIF, in the case of companies which, due to their size, complexity or level of exposure, must be known and analyzed in detail.

 

The analysis of the debtor is primarily focused on their credit quality and their risk category classification of the debtor and of their respective contingent loans and loans These are assigned to one of the following portfolio categories: Normal, Substandard and Impaired. The risk factors considered are: industry or economic sector, owners or managers, financial situation and payment ability, and payment behavior.

 

The portfolio categories and their definitions are the following:

 

i.Normal Portfolio includes debtors with a payment ability that allows them to meet their obligations and commitments. Evaluations of the current economic and financial environment do not indicate that this will change. The classifications assigned to this portfolio are categories from A1 to A6.

 

ii.Substandard Portfolio includes debtors with financial difficulties or a significant deterioration of their payment ability. There is reasonable doubt concerning the future reimbursement of the capital and interest within the contractual terms, with limited ability to meet short-term financial obligations. The classifications assigned to this portfolio are categories from B1 to B4.

 

iii.Impaired Portfolio includes debtors and their loans where repayment is considered remote, with a reduced or no likelihood of repayment. This portfolio includes debtors who have stopped paying their loans or that indicate that they will stop paying, as well as those who require forced debt restructuration, reducing the obligation or delaying the term of the capital or interest, and any other debtor who is over 90 days overdue in his payment of interest or capital. The classifications assigned to this portfolio are categories from C1 to C6.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 25 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Normal and Substandard Compliance Portfolio

 

As part of individual assessment, the Bank classifies debtors into the following categories, assigning them a probability of non-performance (PNP) and severity (SEV), which result in the expected loss percentages.

 

Portfolio   Debtor’s
Category
  Probability of
 Non-Performance (%)
    Severity (%)     Expected Loss
 (%)
 
Normal Portfolio   A1     0.04       90.0       0.03600  
  A2     0.10       82.5       0.08250  
  A3     0.25       87.5       0.21875  
  A4     2.00       87.5       1.75000  
  A5     4.75       90.0       4.27500  
  A6     10.00       90.0       9.00000  
Substandard Portfolio   B1     15.00       92.5       13.87500  
  B2     22.00       92.5       20.35000  
  B3     33.00       97.5       32.17500  
  B4     45.00       97.5       43.87500  

 

The Bank first determines all credit exposures, which includes the accounting balances of loans and accounts receivable from customers plus contingent loans, less any amount recovered through executing the financial guarantees or collateral covering the operations. The percentages of expected loss are applied to this exposure. In the case of collateral, the Bank must demonstrate that the value assigned reasonably reflects the value obtainable on disposal of the assets or equity instruments. When the credit risk of the debtor is substituted for the credit quality of the collateral or guarantor, this methodology is applicable only when the guarantor or surety is an entity qualified in a assimilable investment grade by a local or international company rating agency recognized by the SBIF. Guaranteed securities cannot be deducted from the exposure amount, only financial guarantees and collateral can be considered.

 

Notwithstanding the foregoing, the Bank must maintain a minimum provision of 0.5% over loans and contingent loans in the normal portfolio.

 

Impaired Portfolio

 

The impaired portfolio includes all loans and the entire value of contingent loans of the debtors that are over 90 days overdue on the payment of interest or principal of any loan at the end of the month. It also includes debtors who have been granted a loan to refinance loans over 60 days overdue, as well as debtors who have undergone forced restructuration or partial debt condonation.

 

The impaired portfolio excludes: a) residential mortgage loans, with payments less than 90 days overdue; and, b) loans to finance higher education according to Law 20,027, provided the breach conditions outlined in Circular No. 3,454 of December 10, 2008 are not fulfilled.

 

The provision for an impaired portfolio is calculated by determining the expected loss rate for the exposure, adjusting for amounts recoverable through available financial guarantees and deducting the present value of recoveries made through collection services after the related expenses.

 

Once the expected loss range is determined, the related provision percentage is applied over the exposure amount, which includes loans and contingent loans related to the debtor.

 

The allowance rates applied over the calculated exposure are as follows:

 

Classification  Estimated range of loss  Allowance 
        
C1  Up to 3%   2%
C2  Greater than 3% and less than 20%   10%
C3  Greater than 20% and less than 30%   25%
C4  Greater than 30% and less than 50%   40%
C5  Greater than 50% and less than 80%   65%
C6  Greater than 80%   90%

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 26 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Loans are maintained in the impaired portfolio until their payment ability is normal, notwithstanding the write off of each particular credit that meets conditions of Title II of Chapter B-2. Once the circumstances that led to classification in the Impaired Portfolio have been overcome, the debtor can be removed from this portfolio once all the following conditions are met:

 

i.the debtor has no obligations of the debtor with the Bank more than 30 days overdue;
ii.the debtor has not been granted loans to pay its obligations;
iii.at least one of the payments include the amortization of capital;
iv.if the debtor has made partial loan payments in the last six months, two payments have already been made;
v.if the debtor must pay monthly installments for one or more loans, four consecutive installments have been made;
vi.the debtor does not appear to have bad debts in the information provided by the SBIF, except for insignificant amounts.

 

II.Allowances for group assessments

 

Group assessments are used to estimate allowances required for loans with low balances related to individuals or small companies.

 

Group assessments require the formation of groups of loans with similar characteristics by type of debtor and loan conditions, in order to establish both the group payment behavior and the recoveries of their defaulted loans, using technically substantiated estimates and prudential criteria. The model used is based on the characteristics of the debtor, payment history, outstanding loans and default among other relevant factors.

 

The Bank uses methodologies to establish credit risk, based on internal models to estimate the allowances for the group-evaluated portfolio. This portfolio includes commercial loans with debtors that are not assessed individually, mortgage and consumer loans (including installment loans, credit cards and overdraft lines). These methods allow the Bank to independently identify the portfolio behavior and establish the provision required to cover losses arising during the year.

 

The customers are classified according to their internal and external characteristics into profiles, using a customer-portfolio model to differentiate each portfolio’s risk in an appropriate manner. This is known as the profile allocation method.

 

The profile allocation method is based on a statistical construction model that establishes a relationship through logistic regression between variables (for example default, payment behavior outside the Bank, socio-demographic data) and a response variable which determines the client’s risk, which in this case is over 90 days overdue. Hence, common profiles are established and assigned a Probability of Non-Performance (PNP) and a recovery rate based on a historical analysis known as Severity (SEV).

 

Therefore, once the customers have been profiled, and the loan’s profile assigned a PNP and a SEV, the exposure at default (EXP) is calculated. This exposure includes the book value of the loans and accounts receivable from the customer, plus contingent loans, less any amount that can be recovered by executing guarantees (for credits other than consumer loans).

 

Notwithstanding the above, on establishing provisions associated with housing loans, the Bank must recognize minimum provisions according to standard methods established by the SBIF for this type of loan. While this is considered to be a prudent minimum base, it does not relieve the Bank of its responsibility to have its own methodologies of determining adequate provisions to protect the credit risk of the portfolio.

 

Standard method of residential mortgage loan provisions

 

As of January 1, 2016 and in accordance with Circular No. 3,573 issued by the SBIF, the Bank began applying the standard method of provisions for residential mortgage loans. According to this method, the expected loss factor applicable to residential mortgage loans will depend on the default of each loan and the relationship between the outstanding principal of each loan and the value of the associated mortgage guarantee (Loans to Value, LTV) at the end of each month.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 27 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The allowance rates applied according to default and LTV are the following:

 

LTV Range  Days overdue at month
end
  0   1-29   30-59   60-89   Impaired
portfolio
 
   PNP(%)   1.0916    21.3407    46.0536    75.1614    100 
LTV≤40%  Severity (%)   0.0225    0.0441    0.0482    0.0482    0.0537 
   Expected Loss (%)   0.0002    0.0094    0.0222    0.0362    0.0537 
   PNP(%)   1.9158    27.4332    52.0824    78.9511    100 
40%< LTV ≤80%  Severity (%)   2.1955    2.8233    2.9192    2.9192    3.0413 
   Expected Loss (%)   0.0421    0.7745    1.5204    2.3047    3.0413 
   PNP(%)   2.5150    27.9300    52.5800    79.6952    100 
80%< LTV ≤90%  Severity (%)   21.5527    21.6600    21.9200    22.1331    22.2310 
   Expected Loss (%)   0.5421    6.0496    11.5255    17.6390    22.2310 
   PNP(%)   2.7400    28.4300    53.0800    80.3677    100 
LTV >90%  Severity (%)   27.2000    29.0300    29.5900    30.1558    30.2436 
   Expected Loss (%)   0.7453    8.2532    15.7064    24.2355    30.2436 

 

LTV =Loan capital/Value of guarantee

 

If the same debtor has more than one residential mortgage loan with the Bank and one of them over 90 days overdue, all their loans shall be allocated to the impaired portfolio, calculating provisions for each them in accordance with their respective LTV.

 

For residential mortgage loans related to housing programs and grants from the Chilean government, the allowance rate may be weighted by a factor of loss mitigation (LM), which depends on the LTV percentage and the price of the property in the deed of sale (S), as long as the debtor has contracted auction insurance provided by the Chilean government.

 

III.Additional provisions

 

According to SBIF regulation, banks are allowed to establish provisions over the limits already described, to protect themselves from the risk of non-predictable economical fluctuations that could affect the macro-economic environment or a specific economic sector.

 

According to No. 10 of Chapter B-1 from the SBIF Compendium of Accounting Standards, these provisions will be recorded in liabilities, similar to provisions for contingent loans.

 

During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

 

IV.Charge-offs

 

As a general rule, charge-offs should be done when the contract rights over cash flow expire. In the case of loans, even if the above does not happen, the Bank will charge-off these amounts in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards (SBIF).

 

These charge-offs refer to the derecognition from the Consolidated Interim Statements of Financial Position of the respective loan, including any not yet due future payments in the case of installment loans or leasing transactions (for which partial charge-offs do not exist).

 

Charge-offs are always recorded as a charge to loan risk allowances according to Chapter B-1 of the Compendium of Accounting Regulations, no matter the reason for the charge-off. Any payment received related to a loan previously charged-off will be recognized as recovery of loan previously charged-off at the Consolidated Interim Statement of Income.

 

Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments when they exceed the time periods described below since reaching overdue status:

 

Type of loan   Term
Consumer loans with or without collateral   6 months
Other transactions without collateral   24 months
Commercial loans with collateral   36 months
Mortgage loans   48 months
Consumer leasing   6 months
Other non-mortgage leasing transactions   12 months
Mortgage leasing (household and business)   36 months

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 28 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

V.Recovery of loans previously charged off and accounts receivable from customers

 

Any recovery on “Loans and accounts receivable from customers” previously charged-off will be recognized as a reduction in the credit risk provisons in the Consolidated Interim Statement of Income.

 

Any renegotiation of a loan previously charged-off will not give rise to income, as long as the operation continues being considered as impaired. The cash payments received must be treated as recoveries of charged-off loans.

 

The renegotiated loan can only be included again in assets if it is no longer considered as impaired, also recognizing the capitalization income as recovery of charged-off loans.

 

q)Provisions, contingent assets, and contingent liabilities

 

Provisions are liabilities of uncertain timing or amount. Provisions are recognized in the Consolidated Statements of Financial Position when the Bank:

 

i.has a present obligation (legal or constructive) as a result of past events, and

 

ii.it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured.

 

Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly within control of the Bank.

 

The Consolidated Financial Statements reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more than likely than not. Provisions are quantified using the best available information regarding the consequences of the event giving rise to them and are reviewed and adjusted at the end of accounting period. Provisions are used when the liabilities for which they were originally recognized are settled. Partial or total reversals are recognized when such liabilities cease to exist or are reduced.

 

Provisions are classified according to the obligation covered as follows:

 

-Provision for employee salaries and expenses
-Provision for mandatory dividends
-Provision for contingent loan risks
-Provisions for contingencies

 

r)Income taxes and deferred taxes

 

The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be recovered or settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes from the date on which the law is enacted or substantially enacted.

 

s)Use of estimates

 

The preparation of the financial statements requires the Bank’s management to make estimates and assumptions that affect the application of the accounting policies and the reported values of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

 

In certain cases, International Financial Reporting Standards (IFRS) require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between informed market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. When quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of internal modeling and other valuation techniques.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 29 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Bank has established allowances to cover cover probable losses, to estimate allowances. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated Interim Statement of Income.

 

Loans are charged-off when the contractual rights for the cash flows expire, however, for loans and accounts receivable from customers the bank will charge-off in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards issued by the SBIF. Charge-offs are recorded as a reduction of the allowance for loan losses.

 

The relevant estimates and assumptions made to calculate provisions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments.

 

Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period.

 

These estimates are based on the best available information and mainly refer to:

 

-Allowances for loan losses (Notes 8, 9, and 28)
-Impairment losses of certain assets (Notes 7, 8, 9, 10, and 31)
-The useful lives of tangible and intangible assets (Notes 11, 12 and 31)
-The fair value of assets and liabilities (Notes 6, 7, 10 and 34)
-Commitments and contingencies (Note 20)
-Current and deferred taxes (Note 13)

 

t)Non-current assets held for sale

 

Non-current assets (or a group of assets and liabilities) that expect to be recovered mainly through the sale of these items rather than through their continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are valued in accordance with the Bank’s policies. The assets (or disposal group) are subsequently valued at the lower of carrying amount and fair value less selling costs.

 

As of September 30, 2018 and 2017 and December 31, 2017, the bank has not qualified any non-current assets as held for sale.

 

Assets received or awarded in lieu of payment

 

Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value. A price is agreed upon by the parties through negotiation or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed.

 

Any excess of the outstanding loan balance over the fair value is recognized in the Consolidated Interim Statement of Income under “Provision for loan losses”.

 

These assets are subsequently valued at the lower of the amount initially recorded and the net realizable value, which corresponds to its fair value (liquidity value determined through an independent appraisal) less their respective costs of sale. The difference between both are recognized in the Consolidated Statement under “Other operating expenses”.

 

At the end of each year the Bank performs an analysis to review the “selling costs” of assets received or awarded in lieu of payments which will be applied at this date and during the following year. On December 31, 2017 the average selling cost has been estimated at 3.4% of the appraisal value (5.1% for December 31, 2016).

 

Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly.

 

In general, it is estimated that these assets will be disposed of within a term of one year from its date of award. As set forth in article 84 of the General Banking Act, those assets that are not sold within that term are charged-off in a single installment.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 30 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

u)Earnings per share

 

Basic earnings per share are calculated by dividing the net income attributable to the equity holders of the Bank by the weighted average number of shares outstanding during the reported period.

 

Diluted earnings per share are calculated in a similar manner to basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.

 

As of September 30, 2018 and December 31, 2017, the Bank did not have any instruments that generated dilution.

 

v)Temporary acquisition (assignment) of assets and liabilities

 

Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price (repos) are recorded in the Consolidated Statements of Financial Position as an financial assignment based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”).

 

Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.

 

w)Assets under management and investment funds managed by the Bank

 

Assets owned by third parties and managed by certain companies that are within the Bank’s scope of consolidation (Santander S.A. Sociedad Securitizadora), are not included in the Consolidated Interim Statement of Financial Position. Management fees are included in “Fee and commission income” in the Consolidated Interim Statement of Income.

 

x)Provision for mandatory dividends

 

As of September 30, 2018 and December 31, 2017, the Bank recorded a provision for minimum mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, which requires at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded as a deduction from “Retained earnings” – “Provision for mandatory dividends” in the Consolidated Statement of Changes in Equity with offset to Provisions.

 

y)Employee benefits

 

i.Post-employment benefits – Defined Benefit Plan:

 

According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan, whose purpose is to endow them with funds for a better supplementary pension upon their retirement.

 

Features of the Plan:

 

The main features of the Post-Employment Benefits Plan promoted by the Banco Santander-Chile are:

 

I.Aimed at the Bank’s management.
II.The general requirement is that the beneficiary must still be employed by the Bank when reaching 60 years old.
III.The Bank will mix collective life and savings insurance policy for each beneficiary in the plan. Regular voluntary installments will be paid into this fund by the beneficiary and matched by the Bank.
IV.The Bank will be responsible for granting the benefits directly.

 

The projected unit credit method is used to calculate the present value of the defined benefit obligation and the current service cost.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 31 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Components of defined benefit cost include:

 

-current service cost and any past service cost, which are recognized in profit or loss for the period;
-net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;
-new liability (asset) remeasurements for net defined benefit include:
(a)actuarial gains and losses;
(b)the performance of plan assets, and;
(c)changes in the effect of the asset ceiling which are recognized in other comprehensive income.

 

The liability (asset) for net defined benefit is the deficit or surplus, calculated as the difference between the present value of the defined benefit obligation less the fair value of plan assets.

 

Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.

 

The Bank recognizes the present service cost and the net interest of the Personnel wages and expenses on the Consolidated Statement of Income. Given the plan’s structure, it does not generate actuarial gains or losses. The plan’s performance is established and fices during the period; consequently, there are no changes in the asset’s cap. Accordingly, there are no amounts recognized in other comprehensive income.

 

The post-employment benefits liability, recognized in the Consolidated Statement of Financial Position, represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.

 

When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Bank are reduced.

 

ii.Severance provision:

 

Severance provision for years of employment are recorded only when they actually occur or upon the availability of a formal and detailed plan in which the fundamental modifications to be made are identified, provided that such plan has already started to be implemented or its principal features have been publicly announced, or objective facts about its execution are known.

 

iii.Cash-settled share based compensation

 

The Bank allocates cash-settled share based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value.

 

Until the obligation is settled, the Bank calculates the fair value at the end of each reporting period, as well as at the date of settlement, recognizing any change in fair value in the income statement for the period.

 

z)New accounting pronouncements

 

I.Adoption of new accounting standards and instructions issued both by the Superintendency of Banks and Financial Institutions and the International Accounting Standards Board

 

As of the issue date of these Consolidated Interim Financial Statements, the following new accounting pronouncements have been issued by the both the SBIF and the IASB, which have been fully incorporated by the Bank and are detailed as follows:

 

1.Accounting Standards Issued by the SBIF

 

Bulletin N°3634 – Risk weighted assets, credit risk and credit limits that apply to derivatives compensated and liquidated by a clearing house-On March 9, 2018, the SBIF published this bulletin with the main objective being that Banks could recognize their own risk mitigation effects for derivatives that are compensated and liquidated by a clearing house, introducing an intermediate category to classify the credit risk equivalent for these derivatives, the risk weight granted for these assets will be 2%.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 32 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

In order to determine the credit risk equivalent for these derivatives compensated and liquidated by a clearing house, the type of relatonship and residual time between the bank and clearing house will have to be taken in consideration, as well as the corresponding safeguards and guarantees.

 

Aditionally, the SBIF considers that the derivative operations negotiated by Banks constituted in Chile, including foreign bank branches, this limit is applicable to interbank loans, even when these operations are later compensated and liquidated in a clearing house.

 

These modifications are applicable from June 30, 2018 onwards. The administartion has carried out the necessary adjustments to comply with this requirement in time and form. No relevant sitautions exist that indicate the contrary.

 

2.Accounting Standards issued by the International Accounting Standards Board

 

IFRS 15, Income from contracts with clients - On May 28, 2014, the IASB published IFRS 15, which aims to establish principles for reporting useful information to users of financial information about the nature, amount, timing and uncertainty of The income and cash flows generated from an entity's contracts with its customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18 Income, IFRIC 13 Loyalty Programs with Customers, IFRIC 15 Real Estate Construction Agreements, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue - Exchange of Advertising Services.

 

On April 12, 2016, the IASB issued "Clarifications to IFRS 15 Revenue from contracts with customers", this amendments do not change the underlying principles of the standard, just clarify and offer some additional transition relief. The main topics addressed by this amendment comprise: Indentifying performance obligations, Principal versus agent cosniderations and licensing in addition to transition relief.

 

This standard was applicable from January 1, 2018, with early application permitted. Management performed a detailed review of items under the scope and its adaptation to the new five-step model of revenue recognition, and conclude that this standard did not have material impact on the Bank's financial statement.

 

Amendments to IFRS 2 Classification and measurement of share-based payment transactions – These amendments were published on June 20, 2016, to address issues with:

 

·The accounting of share- based payment transactions paid in cash that include a performance condition
·The classification of share-based transactions
·Accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

 

This standard was applicable from January 1, 2018, with early application permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

 

Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4:

 

-an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the "overlay approach");
-an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the "deferral approach").

 

An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

 

IFRIC 22 Foreign Currency Transactions and Advance Consideration – This interpretations issued on December 8, 2016, clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income. It does not apply when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair value of the consideration received or payed at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability. Also, the Interpretation need not be applied to income taxes, insurance contracts or reinsurance contracts.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 33 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

 

IFRIC 22 was effective for annual reporting periods beginning on or after 1 January 2018. Earlier application was permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

 

Annual Improvement 2014-2016

 

IFRS 1 First time adoption of IFRS - Deletion of short-term exemptions for first-time adopters.

 

IAS 28 Investments in Associates and Joint Ventures - Measuring an associate or joint venture at fair value.

 

The amendments to IFRS 1 and IAS 28 were effective for annual periods beginning on or after 1 January 2018. Management concluded that this amendment did not have a material impact on the Bank's financial statement.

 

New accounting standards and instructions issued by both the Superintendency of Banks and Financial Institutions and by the International Accounting Standards Board that have not come into effect as of September 30, 2018

 

As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them and SBIF rules, which were not mandatory as of September 30, 2018. Although in some cases the application is permitted by the IASB, the Bank has not made its application on that date.

 

1.Accounting Standards issued by the Superintendency of Banks and Financial Institutions

 

Bulletin N°3638- Establishes the standard provision method for commercial loans on a group portfolio- On July 6, 2018, the SBIF published this bulletin that establishes standard methods that must be utilized by banks for credit risk provisions directed for commercial loans on a group portfolio which are incorporated in Chapter B-1 of the Compendium of Accouting Standards.

 

·Method used for the Commericial Leasing Portfolio: considers as overdue the asset type the lease (real-estate or not) and the current value-to-value relation of the asset (LTV) of the operation.
·Method used for the Student Portfolio: considers the type of loan granted (whether it is CAE or not), the required payment and amount overdue, in case the loan has these characteristics.
·Method used for the Generic Commercial Portfolio: considers as overdue and the existence of real guarantees that warrant the loan. In case of mediated guarantees, the relation between the loan and real value of the collateral is considered.

 

The use of the standard method to generate the provisions credits in the group commercial portfolio, will be mandatory starting on July 1, 2019, while the accounting effects of first application must be considered as a change in an accounting response according to IAS 8 , and therefore accounted in profit or loss. The Administration is evaluating the potential impact for the adoption of this modification.

 

2.Accounting Standards issued by the International Accounting Standards Board

 

IFRS 9, Financial Instruments - On November 12, 2009, the International Accounting Standards Board (IASB) issued IFRS 9, Financial Instruments. This Standard introduces new requirements for the classification and measurement of financial assets. IFRS 9 specifies how an entity should classify and measure its financial assets. Requires that all financial assets are classified in their entirety on the basis of the entity's business model for the management of financial assets and the characteristics of the contractual cash flows of financial assets.

 

On October 28, 2010, the IASB published a revised version of IFRS 9, Financial Instruments. The revised Standard retains the requirements for the classification and measurement of financial assets that was published in November 2009, but adds guidelines on the classification and measurement of financial liabilities. Likewise, it has replicated the guidelines on the recognition of financial instruments and the implementation guides related from IAS 39 to IFRS 9. These new guidelines conclude the first phase of the IASB project to replace IAS 39. The other phases, impairment and hedge accounting, have not yet been finalized.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 34 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The guidance included in IFRS 9 on the classification and measurement of financial assets has not changed from those established in IAS 39. In other words, financial liabilities will continue to be measured either at amortized cost or at fair value with changes in results. The concept of bifurcation of derivatives incorporated in a contract for a financial asset has not changed Financial liabilities held for trading will continue to be measured at fair value with changes in results, and all other financial assets will be measured at amortized cost unless the value option is applied reasonable using the criteria currently in IAS 39.

 

Notwithstanding the foregoing, there are two differences with respect to IAS 39:

 

-The presentation of the effects of changes in fair value attributable to the credit risk of a liability; and
-The elimination of the cost exemption for liabilities derivatives to be settled through the delivery of non-traded equity instruments.

 

On December 16, 2011, the IASB issued Mandatory Application Date of IFRS 9 and Disclosures of the Transition, deferring the effective date of both the 2009 and 2010 versions to annual periods beginning on or after January 1, 2015 . Prior to the amendments, the application of IFRS 9 was mandatory for annual periods beginning on or after 2013. The amendments change the requirements for the transition from IAS 39 Financial Instruments: Recognition and Measurement to IFRS 9. In addition, they also modify IFRS 7 Financial Instruments: Disclosures to add certain requirements in the reporting period in which the date of application of IFRS 9 is included. Finally, on July 24, 2014, it is established that the date Effective application of this rule will be for annual periods beginning on January 1, 2018.

 

On November 19, 2013 ASB issued "Amendment to IFRS 9: hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39", which includes a new general hedge accounting model, which is more closely aligned with risk management, providing more useful information to the users of the financial statements. On the other hand, the requirements relating to the fair value option for financial liabilities were changed to address the credit risk itself, this improvement establishes that the effects of changes in the credit risk of a liability should not affect the result of the period a unless the liabilities remain to negotiate; the early adoption of this modification is permitted without the application of the other requirements of IFRS 9. In addition, it conditions the effective date of entry into force upon completion of the IFRS 9 project, allowing its adoption in the same way.

 

On July 24, 2014, the IASB published the final version of IFRS 9 - Financial Instruments, including the regulations already issued together with a new expected loss model and minor modifications to the classification and measurement requirements for financial assets, adding a new category of financial instruments: assets at fair value with changes in other comprehensive result for certain debt instruments. It also includes an additional guide on how to apply the business model and testing of contractual cash flow characteristics.

 

On October 12, 2017, "Amendment to IFRS 9: Characteristics of Anticipated Cancellation with Negative Compensation" was published, which clarifies that according to the current requirements of IFRS 9, the conditions established in Test SPPI are not met if the Bank should make a settlement payment when the client decides to terminate the credit. With the introduction of this modification, in relation to termination rights, it is allowed to measure at amortized cost (or FVOCI) in the case of negative compensation.

 

This regulation was effective as of January 1, 2018. Early application is allowed. The Administration in accordance with the Superintendency of Banks and Financial Institutions pronouncement, will not apply this standard meantime SBIF does not provide it as a mandatory standard for all Chilean banks.

 

Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) - Issued on September 11, 2014, the IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:

 

-requires full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations);
-requires the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors’ interests in that associate or joint venture.

 

On December 17, 2015 the IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded. The Administration will be waiting for the new validity to evaluate the potential effects of this modification.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 35 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

IFRS 16 Leases - On January 13, 2016, the IASB issued this new regulation which replaces IAS 17 Leases, IFRIC 4 Determination of whether an agreement contains a lease, SIC 15 Operating leases - incentives and SIC 27 Evacuation of the essence of Transactions that take the legal form of a lease. The main effects of this rule apply to tenant accounting, mainly because it eliminates the dual accounting model: operational or financial leasing, this means that tenants must recognize "a right to use an asset" and a liability for Lease (the present value of lease futures payments). In the case of the landlord the current practice is maintained - that is, lessors continue to classify leases as financial and operating leases. This regulation is applicable as of January 1, 2019, with early application permitted if IFRS 15 "Customer Contract Revenue" is applied. The Administration is evaluating the potential impact of the adoption of these regulations.

 

IFRS 17 Insurance contracts – This standard issued on May 18, 2017 replaces the current IFRS 4. IFRS 17 will mainly change accounting for all entities that issue insurance contracts and investment contracts with discretionary participation characteristics. The standard applies to annual periods beginning on or after January 1, 2021, with early application permitted provided IFRS 15, "Revenue from contracts with customers" and IFRS 9, "Financial instruments" is applied. This norm does not apply directly to the bank, but, the Bank participates in the insurance business and will make sure that this norm is correctly applied.

 

IFRIC 23 Uncertainty over Income Tax Treatments – This standard issued on June 7, 2017, clarifies how the recognition and measurement requirements of IAS 12 apply when there is uncertainty about tax treatments. The standard applies to annual periods beginning on or after January 1, 2019, with early application permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

 

Amendments to IAS 28 long-term interest in Associates and Joint Ventures - This standard was issued in October 12, 2017 to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted.

 

Annual Improvements to IFRS Standards 2015–2017 Cycle

 

This annual improvements issued in December 12, 2017, containing the following amendments:

 

IFRS 3 Business Combination and IFRS 11 Joint Arrangements – The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interest in that business.

 

IAS 12 Income taxes – The amendments clarify that all income tax consequences of dividends should be recognized in profit or loss, regardless of how the tax arises.

 

IAS 23 Borrowing cost – The amendments clarify that if any specific borrowing remain outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.

 

The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

 

Amendments to IAS 19: Plan amendment, curtailment or settlement - The amendment was issued on February 7, 2018 and include the following changes:

 

-If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.
-In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

 

The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted, but must be disclosed. The Bank’s management is evaluating if these amendments will have material impact on the Bank's consolidated financial statements.

 

Conceptual framework for financial reporting - Issued on March 29, 2018, the purpose of the Conceptual Framework is to:

 

(a) assist the International Accounting Standards Board to develop IFRS Standards that are based on consistent concepts;

(b) assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy; and

(c) assist all parties to understand and interpret the Standards

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 36 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Conceptual Framework is not a Standard and not overrides any Standard or any requirement in a Standard. The revised Conceptual framework introduces the following main improvements:

 

-Measurement: concepts on measurement, including factors to be considered when selecting a measurement basis
-Presentation and disclosure: concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income
-Derecognition: guidance on when assets and liabilities are removed from financial statements

 

This framework is effective for periods beginning on or after January 1, 2020. The The Bank’s management is evaluating if this conceptual framework will have material impact on the Bank's consolidated financial statements.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 37 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 02

ACCOUNTING CHANGES

 

Starting on January 1, 2018, IFRS 15; revenues from contracts with customers has become effective. In accordance with the Bank activities, income and expenses arising from fees and commission are under the scope of this new standard. Consequently a high deeply review of the fees and comission has been performed, to ensure the five step approach are fully met.

 

The Bank has ellected to apply retrospectively with the cumulative effect recognised at the date of initial application method, this method allow not to restate prior compare period.

 

The Bank concludes that there are no quantitative effects, however new disclosure requirements must be adopted. See Note 1 and Note 25.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 38 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 03

SIGNIFICANT EVENTS

 

As of September 30, 2018, the following significant events have occurred and affected the Bank’s operations and Consolidated Interim Financial Statements.

 

a)The Board

 

During Banco Santader Chile’s ordinary board session held on February 27, 2018, the board agreed on the following matters:

 

Due to Vittorio Corbo Lioi’s resignation from the board, who acted as the board’s President, Claudio Melandri Hinojosa has been appointed as Banco Santader Chile’s new board President. For the time being, Claudio Melandri Hinojosa will act as Chief Executive Officer until Februrary 28, 2018 inclusive, in accordance with article 49 N°8 of the General Law of Banks.
Miguel Mata Huerta has been named Chief Executive Officer, starting on March 1, 2018.

 

During Banco Santader Chile’s ordinary board session held on March 27, 2018, the board agreed on the following matters:

 

Due to Roberto Méndez Torres and Roberto Zahler Mayanz resignation from the board, Félix de Vicente Mingo and Alfonso Gómez Morales have been appointed as independent directors in the board.
Orlando Poblete Iturrate has been named First Vicepresident and Oscar Von Chrismar Carvajal has been named Second Vice President.
A shareholder’s meeting has been summoned for April 24, 2018.

 

During Banco Santander-Chile’s ordinary board session held on April 24, 2018, Claudio Melandri Hinojosa has definitely been established as Board President. Alfonso Gómez Morales and José Félix de Vicente Mingo have also definitely been appointed as independent directors of the board.

 

During Banco Santander-Chile’s ordinary board session held on July 12, 2018, the board agreed on the following matters:

 

Due to the resignation of the substitute director Mr. Raimundo Monge Zegers, the board of directors has appointed Mr. Oscar Von Chrismar Carvajal, who previously held the position of director.
Mr. Rodrigo Vergara Montes has been appointed as independent director.
Mr. Rodrigo Vergara Montes has been appointed as First Vice President and Mr. Orlando Poblete Iturrate has been appointed as Second Vice President.

 

b)Use profit and Distribution of Dividends

 

During a ordinary board session held on April 24, 2018, together with approving the financial statements corresponding to the year 2017, it was agreed to distribute 75% of the Net Income generated during the period (which in the financial statements is reffered to as “Net Income Attributable to Equity holders of the Bank”), which amounted to Ch$564,815 million. This dividend is equivalent to Ch$2.24791611 per share. Likewise, it was approved that the remaining 25% of the net income be destined to increase the Bank's reserves.

 

c)External Auditor Appointment

 

During the board session mentioned previously, it was agreed to name PricewaterhouseCoopers LLC, as the Bank’s and Subsidiaries external auditor for the 2018 period.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 39 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 03

SIGNIFICANT EVENTS, continued

 

d)Issuance and repurchase of bank bonds – As of September 30, 2018

 

d.1)Senior bonds

 

As of September 30, 2018, the bank has placed senior bonds for 66,000,000 EUR, 115,000,000 CHF, and 4,000,000 JPY. The detail for this bond placement is included in Note 16.

 

Series  Currency  Original
Term
  Anual Rate
Yearly
  

Placement

Date

  Amount   Expiration
Date
                     
EUR  EUR  7.0 years   1.00%  05-04-2018   26,000,000   05-28-2025
EUR  EUR  12.0 years   1.78%  06-08-2018   40,000,000   06-15-2030
                       
Total  EUR              66,000,000    
CHF  CHF  5 years & 3 months   0.441%  09-21-2018   115,000,000   12-21-2023
                       
Total  CHF              115,000,000    
                       
JPY  JPY  10 years & 6 months   0.65%  07-13-2018   4,000,000,000   01-13-2029
                       
Total  JPY              4,000,000,000    

 

d.2)Subordinated bonds

 

As of September 30, 2018, the Bank has not issued subordinated bonds.

 

d.3)Mortgage bonds

 

As of September 30, 2018, the Bank has not issued mortgage bonds.

 

d.4)Repurchased bonds

 

During 2018 the Bank has repurchased the following bonds:

 

Date  Type  Currency  Amount 
01-04-2018  Senior  CLP   12,890,000,000 
01-05-2018  Senior  CLP   4,600,000,000 
01-22-2018  Senior  UF   24,000 
04-05-2018  Senior  UF   484,000 
04-06-2018  Senior  UF   184,000 
04-23-2018  Senior  UF   216,000 
04-24-2018  Senior  UF   4,000 
04-25-2018  Senior  UF   262,000 
05-10-2018  Senior  UF   800,000 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 40 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 04

REPORTING SEGMENTS

 

The Bank manages and measures the performance of its operations by business segments. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management’s internal information system by segment.

 

Inter-segment transactions a re conducted under normal arm’s length commercial terms and conditions. Each segment’s assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis.

 

In order to achieve compliance with the strategic objectives established by senior management and adapt to changing market conditions, from time to time, the Bank makes adjustments in its organization, modifications that in turn impact to a greater or lesser extent, in the way in which it is managed or managed. Thus, the present disclosure provides information on how the Bank is managed as of September 30, 2018. Regarding the information corresponding to the year 2017, it has been prepared with the current criteria at the closing of these financial statements in order to achieve the duecomparability of the figures.

 

The Bank has the reportable segments noted below:

 

Retail Banking

 

Consists of individuals and small to middle-sized entities (SMEs) with annual income less than Ch$1,200 million. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally the SME clients are offered government-guaranteed loans, leasing and factoring.

 

Middle-market

 

This segment is made up of companies and large corporations with annual sales exceeding Ch$1,200 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also companies in the real estate industry are offered specialized services to finance residential projects, with the aim of expanding sales of mortgage loans.

 

Global Corporate Banking

 

This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.

 

This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market and Global Corporate Banking segments. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products. The Treasury area may act as brokers to transactions and also manages the Bank’s investment portfolio.

 

Corporate Activities (“Other”)

 

This segment mainly includes the results of our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank’s available for sale portfolio. This segment also manages capital allocation by unit. These activities usually result in a negative contribution to income.

 

In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 41 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 04

REPORTING SEGMENTS, continued

 

The segments’ accounting policies are those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.

 

Below are the tables showing the Bank’s results by business segment, for the periods ending as of September 30, 2018 and 2017:

 

   September 30, 2018 
   (Unaudited) 
   Loans and                         
   accounts                         
   receivable           Financial             
   from       Net fee and   transactions,   Provision   Support   Segment’s 
   customers   Net interest   commission   net   for loan   expenses   net 
   (1)   income   income   (2)   losses   (3)   contribution 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Segment                                   
Retail Banking   20,187,324    708,616    165,375    14,826    (208,663)   (410,417)   269,737 
Middle-market   7,613,641    201,095    27,448    11,350    (17,998)   (68,331)   153,564 
Commercial Banking   27,800,965    909,711    192,823    26,176    (226,661)   (478,748)   423,301 
                                    
Global Corporate Banking   2,028,092    72,732    27,693    35,649    226    (48,493)   87,807 
Other   143,462    74,324    2,931    7,487    (25,367)   (11,269)   48,106 
Total   29,972,519    1,056,767    223,447    69,312    (251,802)   (538,510)   559,214 
Other operating income                                 28,757 
Other operating expenses                                 (32,305)
Income from investments in associates and other companies                                 5,223 
Income tax expense                                 (123,761)
Net income for the period                                 437,128 

 

(1)Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.
(2)The sum of net income (expense) from financial operations and foreign exchange gains or losses.
(3)The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

   September 30, 2017 
   (Unaudited) 
   Loans and                         
   accounts           Financial             
   receivable from       Net fee and   transactions,       Support   Segment`s 
   customers   Net interest   commission   net   Provision for   expenses   net 
   (1)   income   income   (2)   loan losses   (3)   contribution 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Segment                                   
Retail Banking   18,888,640    731,791    155,186    14,743    (212,175)   (398,444)   291,101 
Middle-market   6,616,905    196,889    27,263    10,537    (13,803)   (68,642)   152,244 
Commercial Banking   25,505,545    928,680    182,449    25,280    (225,978)   (467,086)   443,345 
                                    
Global Corporate Banking   2,068,780    74,519    22,103    42,664    2,352    (44,671)   96,967 
Other   187,260    (23,009)   8,211    43,634    1,226    (10,492)   19,570 
Total   27,761,585    980,190    212,763    111,578    (222,400)   (522,249)   559,882 
Other operating income                                 67,939 
Other operating expenses                                 (78,315)
Income from investments in associates and other companies                                 2,954 
Income tax expense                                 (105,622)
Net income for the period                                 446,838 

 

(1)Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.
(2)The sum of net income (expense) from financial operations and foreign exchange gains or losses.
(3)The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 42 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 05

CASH AND CASH EQUIVALENTS

 

a)The detail of the balances included under cash and cash equivalents is as follows:

 

   As of   As of 
   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Cash and deposits in banks          
Cash   691,614    613,361 
Deposits in the Central Bank of Chile   728,390    441,683 
Deposits in domestic banks   142    393 
Deposits in foreign banks   359,933    397,485 
Subtotal   1,780,079    1,452,922 
           
Cash in process of collection, net   108,877    181,419 
           
Cash and cash equivalents   1,888,956    1,634,341 

 

The balance of funds held in cash and at the Central Bank of Chile reflects the reserves that the Bank must maintain on average each month.

 

b)Operations in process of settlement:

 

Operations in process of settlement are transactions with only settlement pending, which will increase or decrease the funds of the Central Bank of Chile or of banks abread, usually within the next 24 or 48 working hours to each end of period. These operations are as follows:

 

   As of   As of 
   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Assets          
Documents held by other banks (document to be cleared)   180,004    199,619 
Funds receivable   384,241    468,526 
Subtotal   564,245    668.145 
Liabilities          
Funds payable   455,368    486,726 
Subtotal   455,368    486,726 
           
Cash in process of collection, net   108,877    181.419 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 43 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 06

TRADING INVESTMENTS

 

The detail of instruments deemed as financial trading investments is as follows:

 

   As of   As of 
  

September 30,

2018

  

December 31,

2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Chilean Central Bank and Government securities          
Chilean Central Bank Bonds   94,117    272.272 
Chilean Central Bank Notes   -    - 
Other Chilean Central Bank and Government securities   150,261    209.370 
Subtotal   244,378    481,642 
Other Chilean securities          
Time deposits in Chilean financial institutions   -    - 
Mortgage finance bonds of Chilean financial institutions   -    - 
Chilean financial institutions bonds   -    - 
Chilean corporate bonds   6,535    - 
Other Chilean securities   18,741    - 
Subtotal   25,276    - 
Foreign financial securities          
Foreign Central Banks and Government securities   93,075    - 
Other foreign financial instruments   22,917    - 
Subtotal   155,992    - 
Investments in mutual funds          
Funds managed by related entities   6,367    4,094 
Funds managed by third parties   -    - 
Subtotal   6,367    4,094 
           
Total   392,013    485,736 

 

As of September 30, 2018 and December 31, 2017, there were no trading investments sold under contracts to resell to clients and financial institutions.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 44 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

 

a)As of September 30, 2018 and December 31, 2017, the Bank holds the following portfolio of derivative instruments:

 

   As of September 30, 2018 
   (Unaudited) 
   Notional amount   Fair value 
       More than 3                 
   Up to 3   months to   More than             
   Months   1 year   1 year   Total   Assets   Liabilities 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Fair value hedge derivatives                              
Currency forwards   -    -    -    -    -    - 
Interest rate swaps   30,000    504,000    1,170,641    1,704,641    14,785    1,993 
Cross currency swaps   16,187    995,451    5,892,961    6,904,599    38,838    69,743 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   46,187    1,499,451    7,063,602    8,609,240    53,623    71,736 
                               
Cash flow hedge derivatives                              
Currency forwards   446,525    366,874    -    813,399    3,109    3,411 
Interest rate swaps   -    -    -    -    -    - 
Cross currency swaps   1,295,968    2,764,142    8,803,400    12,863,510    21,708    96,635 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   1,742,493    3,131,016    8,803,400    13,676,909    24,817    100,046 
                               
Trading derivatives                              
Currency forwards   14,883,107    13,339,535    5,393,087    33,615,729    416,806    297,196 
Interest rate swaps   6,380,009    19,027,598    62,132,142    87,539,749    701,834    546,263 
Cross currency swaps   3,608,293    5,555,915    60,781,883    69,946,091    1,030,304    1,067,055 
Call currency options   52,101    51,593    53,479    157,173    2,831    1,830 
Call interest rate options   -    -    -    -    -    - 
Put currency options   87,502    49,213    53,479    190,194    233    2,406 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   25,011,012    38,023,854    128,414,070    191,448,936    2,152,008    1,914,750 
                               
Total   26,799,692    42,654,321    144,281,072    213,735,085    2,230,448    2,086,532 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 45 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

   As of December 31, 2017 
   Notional amount   Fair value 
       More than 3                 
   Up to 3   months to   More than             
   months   1 year   1 year   Total   Assets   Liabilities 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Fair value hedge derivatives                              
Currency forwards   -    -    -    -    -    - 
Interest rate swaps   -    162,985    1,554,171    1,717,156    23,003    1,424 
Cross currency swaps   -    715,701    5,362,772    6,078,473    15,085    65,724 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   -    878,686    6,916,943    7,795,629    38,088    67,148 
                               
Cash flow hedge derivatives                              
Currency forwards   801,093    218,982    -    1,020,075    39,233    59 
Interest rate swaps   -    -    -    -    -    - 
Cross currency swaps   421,428    1,637,604    6,672,566    8,731,598    36,403    128,355 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   1,222,521    1,856,586    6,672,566    9,751,673    75,636    128,414 
                               
Trading derivatives                              
Currency forwards   17,976,683    10,679,327    3,091,393    31,747,403    412,994    502,555 
Interest rate swaps   9,069,964    14,389,389    46,342,779    69,802,132    467,188    392,366 
Cross currency swaps   2,963,641    7,503,144    47,111,371    57,578,156    1,241,632    1,042,120 
Call currency options   190,386    37,099    49,853    277,338    1,322    1,950 
Call interest rate options   -    -    -    -    -    - 
Put currency options   192,722    28,616    50,470    271,808    1,787    4,935 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   30,393,396    32,637,575    96,645,866    159,676,837    2,124,923    1,943,926 
                               
Total   31,615,917    35,372,847    110,235,375    177,224,139    2,238,647    2,139,488 

 

b)Hedge accounting

 

Fair value hedge

 

The Bank uses cross-currency swaps, interest rate swaps and call money swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. The aforementioned hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 46 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

The hedged items and hedge instruments under fair value hedges as of September 30, 2018 and December 31, 2017, classified by term to maturity are as follows:

 

       Between 1 and 3   Between 3 and 6         
As of September 30, 2018  Within 1 year   years   years   Over 6 years   Total 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Credits and accounts receivable from customers                         
Mortgage loan   431,730    1,020,056    165,732    -    1,617,518 
Available for sale investments                         
Yankee bond   -    -    -    161,956    161,956 
Mortgage finance bonds   -    -    4,026    -    4,026 
American treasury bonds   -    -    -    164,185    164,185 
Chilean General treasury bonds   -    439,492    -    339,040    778,532 
Central bank bonds (BCP)   16,187    448,000    -    -    464,187 
Time deposits and other demand liabilities                         
Time deposits   447,788    -    -    -    447,788 
Issued debt instruments                         
Senior bonds   649,933    1,085,934    1,140,126    2,095,055    4,971,048 
Subordinated bonds   -    -    -    -    - 
Obligations with Banks:                         
Interbank loans   -    -    -    -    - 
Total   1,545,638    2,993,482    1,309,884    2,760,236    8,609,240 
Hedging instrument                         
Cross currency swaps   1,011,638    2,668,482    934,884    2,289,595    6,904,599 
Interest rate swaps   534,000    325,000    375,000    470,641    1,704,641 
Total   1,545,638    2,993,482    1,309,884    2,760,236    8,609,240 

 

       Between 1 and 3   Between 3 and 6         
   Within 1 year   years   years   Over 6 years   Total 
As of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Credits and accounts receivable from customers                         
Mortgage loan   587,412    801,230    106,910    -    1,495,552 
Available for sale investments                         
Yankee bonds   -    -    6,169    64,769    70,938 
Mortgage financing bonds   -    -    4,738    -    4,738 
American treasury bonds   -    -    -    129,539    129,539 
Chilean General treasury bonds   -    21,377    762,727    -    784,104 
Central bank bonds (BCP)   128,289    218,640    443,357    -    790,286 
Time deposits and other demand liabilities                         
Time deposits   137,985    -    -    -    137,985 
Issued debt instruments                         
Senior bonds   25,000    1,399,686    670,488    2,287,313    4,382,487 
Subordinated bonds   -    -    -    -    - 
Obligations with Banks:                         
Interbank loans   -    -    -    -    - 
Total   878,686    2,440,933    1,994,389    2,481,621    7,795,629 
Hedging instrument                         
Cross currency swaps   715,701    1,512,238    1,813,221    2,037,313    6,078,473 
Interest rate swaps   162,985    928,695    181,168    444,308    1,717,156 
Total   878,686    2,440,933    1,994,389    2,481,621    7,795,629 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 47 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

Cash flow hedges

 

The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates of mortgages, bonds and interbank loans at a variable rate. To cover the inflation risk in some items, both forwards as well as currency swaps are used.

 

The notional values of the hedged items as of September 30, 2018 and December 31, 2017, and the periods when the cash flows will be generated are as follows:

 

       Between 1 and 3   Between 3 and 6         
As of September 30, 2018  Within 1 year   years   years   Over 6 years   Total 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Loans and accounts receivables from customers                         
Mortgage loan   2,718,198    2,657,949    1,800,858    2,233,783    9,410,788 
Commercial loans   304,135    -    -    -    304,135 
Available for sale investments                         
Time deposits (ASI)   -    -    -    -    - 
Yankee bond   -    -    245,359    -    245,359 
Chilean Central Bank bonds   -    -    165,992    -    165,992 
Time deposits and other time liabilities                         
Time deposits   -    -    -    -    - 
Issued debt instruments                         
Senior bonds (variable rate)   344,875    370,621    273,923    -    989,419 
Senior bonds (fixed rate)   834,472    94,151    535,275    425,489    1,889,387 
Interbank borrowings                         
Interbank loans   671,829    -    -    -    671,829 
Total   4,873,509    3,122,721    3,021,407    2,659,272    13,676,909 
Hedging instrument                         
Cross currency swaps   4,060,110    3,122,721    3,021,407    2,659,272    12,863,510 
Currency forwards   813,399    -    -    -    813,399 
Total   4,873,509    3,122,721    3,021,407    2,659,272    13,676,909 

 

       Between 1 and 3   Between 3 and 6         
   Within 1 year   years   years   Over 6 years   Total 
As of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Loans and accounts receivables from customers                         
Mortgage loan   1,153,348    583,061    1,335,141    2,353,871    5,425,421 
Commercial loans   644,608    -    -    -    644,608 
Available for sale investments                         
Time deposits (ASI)   -    -    25,290    132,572    157,862 
Yankee bond   -    -    242,819    -    242,819 
Chilean Central Bank bonds   -    -    -    -    - 
Time deposits and other time liabilities                         
Time deposits   -    -    -    -    - 
Issued debt instruments                         
Senior bonds (variable rate)   120,520    647,550    302,454    -    1,070,524 
Senior bonds (fixed rate)   241,183    121,619    224,401    300,874    888,077 
Interbank borrowings                         
Interbank loans   919,448    402,914    -    -    1,322,362 
Total   3,079,107    1,755,144    2,130,105    2,787,317    9,751,673 
Hedging instrument                         
Cross currency swaps   2,059,032    1,755,144    2,130,105    2,787,317    8,731,598 
Currency forwards   1,020,075    -    -    -    1,020,075 
Total   3,079,107    1,755,144    2,130,105    2,787,317    9,751,673 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 48 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

An estimate of the periods in which flows are expected to be produced is as follows:

 

b.1)Forecasted cash flows for interest rate risk:

 

   Within 1   Between 1 and 3   Between 3 and 6         
As of September 30, 2018  year   years   years   Over 6 years   Total 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Inflows   155,936    68,725    12,886    3,125    240,672 
Outflows   (90,500)   (44,524)   (2,633)   (2,030)   (139,687)
Net flows   65,436    24,201    10,253    1,095    100,985 
                          
Hedging instrument                         
Inflows   90,500    44,524    2,633    2,030    139,687 
Outflows (*)   (155,936)   (68,725)   (12,886)   (3,125)   (240,672)
Net flows   (65,436)   (24,201)   (10,253)   (1,095)   (100,985)

 

(*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.

 

   Within 1   Between 1 and 3   Between 3 and 6       
  year   years   years   Over 6 years   Total 
As of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Inflows   308,737    60,515    13,780    2,594    385,626 
Outflows   (60,733)   (43,507)   (7,757)   (878)   (112,875)
Net flows   248,004    17,008    6,023    1,716    272,751 
                          
Hedging instrument                         
Inflows   60,733    43,507    7,757    878    112,875 
Outflows (*)   (308,737)   (60,515)   (13,780)   (2,594)   (385,626)
Net flows   (248,004)   (17,008)   (6,023)   (1,716)   (272,751)

 

(*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.

 

b.2)Forecasted cash flows for inflation risk:

 

   Within 1   Between 1 and 3   Between 3 and 6         
As of September 30, 2018  year   years   years   Over 6 years   Total 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Inflows   69,820    91,807    166,291    318,474    646,392 
Outflows   (239,263)   -    -    -    (239,263)
Net flows   (169,443)   91,807    166,291    318,474    407,129 
                          
Hedging instrument                         
Inflows   239,263    -    -    -    239,263 
Outflows   (69,820)   (91,807)   (166,291)   (318,474)   (646,392)
Net flows   169,443    (91,807)   (166,291)   (318,474)   (407,129)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 49 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

   Within 1   Between 1 and 3   Between 3 and 6       
  year   years   years   Over 6 years   Total 
As of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                         
Inflows   20,300    29,008    103,544    286,471    439,323 
Outflows   (1,645)   -    -    -    (1,645)
Net flows   18,655    29,008    103,544    286,471    437,678 
                          
Hedging instrument                         
Inflows   1,645    -    -    -    1,645 
Outflows   (20,300)   (29,008)   (103,544)   (286,471)   (439,323)
Net flows   (18,655)   (29,008)   (103,544)   (286,471)   (437,678)

 

b.3)Forecasted cash flows for exchange rate risk:

 

As of September 30, 2018 and December 31, 2017, the Bank did not have cash flow hedges for exchange rate risk.

 

c)The accumulated effect of the mark to market adjustment of cash flow hedges produced by hedge instruments used in hedged cash flow was recorded in the Consolidated Statement of Changes in Equity, specifically within Other comprehensive income as of September 30, 2018 and December 31, 2017, and is as follows:

 

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
Hedged item  MCh$   MCh$ 
         
Interbank loans   (3,344)   (4,824)
Time deposits and other time liabilities   -    - 
Issued debt instruments   (9,908)   (9,565)
Available for sale investments   (4,152)   1,035 
Loans and accounts receivable from customers   (29,844)   6,349 
Net flows   (47,248)   (7,005)

 

Since the inflows and outflows for both the hedged element and the hedging instrument mirror each other, the hedges are nearly 100% effective, which means that the fluctuations of fair value attributable to risk components are almost completely offset.

 

As of September 30, 2018 and 2017 due to inneficiencies Ch$481 million and Ch$2,579 million were transferred to profit/loss respectively.

 

During the period, the bank did not have any cash flow hedges of forecast transactions.

 

d)Below is a presentation of income generated by cash flow hedges amount that were reclassified from other comprehensive income to income for the year:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Bond hedging derivatives   -    111 
Interbank loans hedging derivatives   (356)   - 
           
Cash flow hedge net income   (356)   111 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 50 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

e)Net investment hedges in foreign operations:

 

As of September 30, 2018 and December 31, 2017, the Bank does not have any net foreign investment hedges in its hedge accounting portfolio.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 51 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 08

INTERBANK LOANS

 

a)As of September 30, 2018 and December 31, 2017, the balances for “Interbank loans” are as follows:

 

   As of   As of 
   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Domestic banks          
Loans and advances to banks   -    - 
Deposits in the Central Bank of Chile - not available   -    - 
Non-transferable Chilean Central Bank Bonds   -    - 
Other Central Bank of Chile loans   -    - 
Interbank loans   -    - 
Overdrafts in checking accounts   -    - 
Non-transferable domestic bank loans   -    - 
Other domestic bank loans   -    - 
Allowances and impairment for domestic bank loans   -    - 
Foreign interbank loans          
Interbank loans – Foreign   14,335    162,685 
Overdrafts in checking accounts   -    - 
Non-transferable foreign bank deposits   -    - 
Other foreign bank loans   -    - 
Provisions and impairment for foreign bank loans   (28)   (86)
           
Total   14,307    162,599 

 

b)The amount of provisions and impairment of interbank loans is detailed below:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)             
   Domestic   Foreign       Domestic   Foreign     
   banks   banks   Total   banks   banks   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balance as of January 1      -    86    86    -    172    172 
Charge-offs   -    -    -    -    -    - 
Provisions established   -    43    43    251    56    307 
Provisions released   -    (101)   (101)   (251)   (142)   (393)
                               
Total   -    28    28    -    86    86 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 52 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

 

a)Loans and accounts receivable from customers

 

As of September 30, 2018 and December 31, 2017, the composition of the loan portfolio is as follows:

 

   Assets before allowances   Established Allowances     
           Non-                   Assets 
   Normal   Substandard   compliance       Individual   Group       Net 
As of September 30, 2018  portfolio   portfolio   portfolio   Total   allowances   allowances   Total   Balances 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans                                        
Commercial loans   10,091,216    494,283    657,206    11,242,705    159,225    175,242    334,467    10,908,238 
Foreign trade loans   1,715,786    36,751    47,544    1,800,081    46,738    1,568    48,306    1,751,775 
Checking accounts debtors   202,297    10,058    16,025    228,380    4,101    12,798    16,899    211,481 
Factoring transactions   453,842    4,893    5,118    463,853    5,710    901    6,611    457,242 
Student Loans   72,472    -    11,202    83,674    -    6,111    6,111    77,563 
Leasing transactions   1,256,617    127,310    92,327    1,476,254    18,511    11,063    29,574    1,446,680 
Other loans and account receivable   120,518    2,246    38,539    161,303    12,891    18,677    31,568    129,735 
Subtotal   13,912,748    675,541    867,961    15,456,250    247,176    226,360    473,536    14,982,714 
                                         
Mortgage loans                                        
Loans with mortgage finance bonds   17,681    -    1,305    18,986    -    119    119    18,867 
Mortgage mutual loans   106,036    -    4,370    110,406    -    548    548    109,858 
Other mortgage mutual loans   9,217,898    -    470,301    9,688,199    -    65,637    65,637    9,622,562 
Subtotal   9,341,615    -    475,976    9,817,591    -    66,304    66,304    9,751,287 
                                         
Consumer loans                                        
Installment consumer loans   2,825,020    -    257,609    3,082,629    -    228,704    228,704    2,853,925 
Credit card balances   1,313,250    -    18,916    1,332,166    -    27,533    27,533    1,304,633 
Leasing transactions   4,106    -    47    4,153    -    51    51    4,102 
Other consumer loans   260,853    -    4,542    265,395    -    8,729    8,729    256,666 
Subtotal   4,403,229    -    281,114    4,684,343    -    265,017    265,017    4,419,326 
                                         
Total   27,657,592    675,541    1,625,051    29,958,184    247,176    557,681    804,857    29,153,327 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 53 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

   Assets before allowances   Established Allowances 
           Non-                   Assets 
   Normal   Substandar   compliance       Individual   Group       Net 
   portfolio   portfolio   portfolio   Total   allowances   allowances   Total   Balances 
As of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans                                        
Commercial loans   8,998,957    369,830    621,869    9,990,656    148,482    168,736    317,218    9,673,438 
Foreign trade loans   1,464,754    44,830    64,929    1,574,513    54,628    1,444    56,072    1,518,441 
Checking accounts debtors   174,162    6,189    15,345    195,696    3,037    11,740    14,777    180,919 
Factoring transactions   441,437    3,279    5,174    449,890    5,335    1,207    6,542    443,348 
Student Loans   77,226    -    11,064    88,290    -    5,922    5,922    82,368 
Leasing transactions   1,242,713    113,629    100,662    1,457,004    19,532    12,793    32,325    1,424,679 
Other loans and account  receivable   113,672    1,318    37,603    152,593    12,778    17,231    30,009    122,584 
Subtotal   12,512,921    539,075    856,646    13,908,642    243,792    219,073    462,865    13,445,777 
                                         
Mortgage loans                                        
Loans with mortgage finance bonds   22,620    -    1,440    24,060    -    123    123    23,937 
Mortgage mutual loans   110,659    -    4,419    115,078    -    594    594    114,484 
Other mortgage mutual loans   8,501,072    -    456,685    8,957,757    -    68,349    68,349    8,889,408 
Subtotal   8,634,351    -    462,544    9,096,895    -    69,066    69,066    9,027,829 
                                         
Consumer loans                                        
Installment consumer loans   2,613,041    -    297,701    2,910,742    -    240,962    240,962    2,669,780 
Credit card balances   1,341,098    -    23,882    1,364,980    -    33,401    33,401    1,331,579 
Leasing transactions   4,638    -    77    4,715    -    62    62    4,653 
Other consumer loans   271,790    -    5,465    277,255    -    9,331    9,331    267,924 
Subtotal   4,230,567    -    327,125    4,557,692    -    283,756    283,756    4,273,936 
                                         
Total   25,377,839    539,075    1,646,315    27,563,229    243,792    571,895    815,687    26,747,542 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 54 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

b)Portfolio characteristics

 

As of September 30, 2018 and December 31, 2017, the portfolio before allowances is as follows, by customer’s economic activity:

 

   Domestic loans   Foreign interbank loans (*)   Total loans   Distribution percentage 
   As of   As of   As of   As of   As of   As of   As of   As of 
   September   December   September 30   December   September   December   September   December 
   30   31       31   30   31   30   31 
   2018   2017   2018   2017   2018   2017   2018   2017 
   (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)     
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   %   % 
Commercial loans                                        
Manufacturing   1,109,959    1,218,232    -    -    1,109,959    1,218,232    3.70    4.39 
Mining   206,728    302,037    -    -    206,728    302,037    0.69    1.09 
Electricity, gas,   540,425    336,048    -    -    540,425    336,048    1.80    1.21 
and water                                        
                                         
Agriculture and   1,188,934    1,114,597    -    -    1,188,934    1,114,597    3.97    4.02 
livestock                                        
                                         
Forest   122,454    98,941    -    -    122,454    98,941    0.41    0.36 
Fishing   273,269    215,994    -    -    273,269    215,994    0.91    0.78 
Transport   904,955    697,948    -    -    904,955    697,948    3.02    2.52 
Communications   230,401    168,744    -    -    230,401    168,744    0.77    0.61 
Construction   876,018    1,977,417    -    -    876,018    1,977,417    2.92    7.13 
Commerce   3,303,271    3,131,870    14,335    162,685    3,317,606    3,294,555    11.07    11.88 
Services   1,815,118    467,747    -    -    1,815,118    467,747    6.06    1.69 
Other   4,884,718    4,179,067    -    -    4,884,718    4,179,067    16.30    15.07 
                                         
Subtotal   15,456,250    13,908,642    14,335    162,685    15,470,585    14,071,327    51.62    50.75 
                                         
Mortgage loans   9,817,591    9,096,895    -    -    9,817,591    9,096,895    32.76    32.81 
                                         
Consumer loans   4,684,343    4,557,692    -    -    4,684,343    4,557,692    15.62    16.43 
                                         
Total   29,958,184    27,563,229    14,335    162,685    29,972,519    27,725,914    100.0    100.00 

 

(*)Includes foreign interbank loans for Ch$14,335 million as of September 30, 2018 (Ch$162,685 million as of December 31, 2017), see Note 8.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 55 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Interim Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

c)Impaired portfolio (*)

 

i)As of September 30, 2018 and December 31, 2017, the impaired portfolio is the following:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)                 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Individually impaired portfolio   424,062    -    -    424,062    427,890    -    -    427,890 
                                         
Non-performing loans (collectively evaluated)   404,349    165,547    91,469    661,365    368,522    161,768    103,171    633,461 
                                         
Other impaired portfolio   210,504    310,429    189,645    710,578    217,091    300,776    223,954    741,821 
Total   1,038,915    475,976    281,114    1,796,005    1,013,503    462,544    327,125    1,803,172 

 

(*)The impaired portfolio corresponds to the sum of loans classified as substandard B3 and B4 category as well as the non-compliance portfolio.

 

ii)The impaired portfolio with or without warranty as of September 30, 2018 and December 31, 2017 is the following:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)                 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$
Secured debt   599,431    430,696    31,586    1,061,713    582,557    413,716    34,260    1,030,533 
Unsecured debt   439,484    45,280    249,528    734,292    430,946    48,828    292,865    772,639 
Total   1,038,915    475,976    281,114    1,796,005    1,013,503    462,544    327,125    1,803,172 

 

iii) The portfolio of non-performing loans (due for 90 days or longer) as of September 30, 2018 and December 31, 2017 is the following:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)                 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Secured debt   189,382    149,582    8,761    347,725    167,909    141,413    8,896    318,218 
Unsecured debt   214,967    15,965    82,708    313,640    200,613    20,355    94,275    315,243 
Total   404,349    165,547    91,469    661,365    368,522    161,768    103,171    633,461 

 

iv)Reconciliation of loans (with arrears equal to or greater than 90 days), with past due loans as of September 30, 2018 and December 31, 2017, is the following:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)                 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
With defaults equal to or greater than 90 days   402,688    162,376    88,752    653,816    362,968    159,265    92,541    614,774 
With defaults up to 89 days, classified in past due portfolio   1,661    3,171    2,717    7,549    5,554    2,503    10,630    18,687 
Total   404,349    165,547    91,469    661,365    368,522    161,768    103,171    633,461 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 56 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

d)Allowances

 

The changes in allowances balances during 2018 and 2017 is the following:

 

   Commercial   Mortgage   Consumer     
   loans   loans   loans     
Activity as of September 30, 2018  Individual   Group   Group   Group   Total 
(Unaudited)  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of January 01, 2018   243,792    219,073    69,066    283,756    815,687 
                          
Allowances established   49,882    64,624    11,969    145,175    271,650 
Allowances released   (23,147)   (6,556)   (5,471)   (31,521)   (66,695)
Allowances released due to charge-off   (23,351)   (50,781)   (9,260)   (132,393)   (215,785)
Balance as of September 30, 2018   247,176    226,360    66,304    265,017    804,857 

 

   Commercial   Mortgage   Consumer     
   loans   loans   loans     
   Individual   Group   Group   Group   Total 
Activity as of December 31, 2017  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of January 01, 2017   275,973    183,106    61,041    300,019    820,139 
                          
Allowances established   60,023    99,407    22,163    157,595    339,188 
Allowances released   (55,925)   (20,491)   (11,426)   (46,089)   (133,932)
Allowances released due to charge-off   (36,279)   (42,949)   (2,712)   (127,769)   (209,708)
Balance as of December 31, 2017   243,792    219,073    69,066    283,756    815,687 

 

In addition to credit risk allowances, there are allowances held for:

 

i)Country risk to cover the risk taken when holding or committing resources with any foreign country, these allowances are established according to country risk classifications as set forth in Chapter 7-13 of the Updated Compilation of Rules, issued by the SBIF, the balances of allowances as of September 30, 2018 and December 31, 2017 are Ch$680 million and Ch$599 million respectively. These are presented as “Allowances” in the liabilities section of the “Consolidated Interim Statement of Financial Position”.

 

ii)According to SBIF’s regulations (compendium of Accounting Standards), the Bank has established allowances related to the undrawn available credit lines and contingent loans. The balances of allowances as of September 30, 2018 and December 31, 2017 are Ch$15,511 million and Ch$15,103 million, respectively, and are presented as “Allowances” in the liabilities section of the “Consolidated Interim Statement of Financial Position”.

 

Allowances established

 

The following chart shows the balance of provisions established, associated with credits granted to customers and banks:

 

   As of   As of 
   September 30, 2018   December 31, 2017 
   (Unaudited)     
   MCh$   MCh$ 
         
Customers loans   271,650    339,188 
Interbank loans   43    307 
           
Total   271,693    339,495 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 57 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

e)Portfolio by its impaired and non-impaired condition

 

   As of September 30, 2018 
   (Unaudited) 
   Non-impaired   Impaired   Total portfolio 
               Total non-               Total               Total 
   Commercial   Mortgage   Consumer   impaired   Commercial   Mortgage   Consumer   impaired   Commercial   Mortgage   Consumer   portfolio 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                 
Current portfolio   14,192,984    9,023,294    4,162,202    27,378,480    436,198    149,937    92,658    678,793    14,629,182    9,173,231    4,254,860    28,057,273 
Overdue for 1-29 days   156,077    215,591    149,459    521,127    97,745    85,514    37,950    221,209    253,822    301,105    187,409    742,336 
Overdue for 30-89 days   68,274    102,730    91,568    262,572    102,284    78,149    61,754    242,187    170,558    180,879    153,322    504,759 
Overdue for 90 days or more   -    -    -    -    402,688    162,376    88,752    653,816    402,688    162,376    88,752    653,816 
                                                             
Total portfolio before allowances   14,417,335    9,3\41,615    4,403,229    28,162,179    1,038,915    475,976    281,114    1,796,005    15,456,250    9,817,591    4,684,343    29,958,184 
                                                             
Overdue loans (less than 90 days) presented as portfolio percentage   1.56%   3.41%   5.47%   2.78%   19.25%   34.38%   35.47%   25.80%   2.75%   4.91%   7.27%   4.16%
                                                             
Overdue loans (90 days or more) presented as portfolio percentage   0.00%   0.00%   0.00%   0.00%   38.76%   34.11%   31.57%   36.40%   2.61%   1.65%   1.89%   2.18%

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 58 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

e)Portfolio by its impaired and non-impaired condition, continued

 

   As of December 31, 2017 
   Non-impaired   Impaired   Total portfolio 
               Total non-               Total               Total 
   Commercial   Mortgage   Consumer   impaired   Commercial   Mortgage   Consumer   impaired   Commercial   Mortgage   Consumer   portfolio 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Current portfolio   12,737,508    8,357,733    4,012,489    25,107,730    449,895    158,770    110,184    718,849    13,187,403    8,516,503    4,122,673    25,826,579 
Overdue for 1-29 days   103,908    180,294    132,136    416,338    110,834    74,072    46,283    231,189    214,742    254,366    178,419    647,527 
Overdue for 30-89 days   53,723    96,324    85,941    235,988    89,806    70,437    78,118    238,361    143,529    166,761    164,059    474,349 
Overdue for 90 days or more   -    -    -    -    362,968    159,265    92,541    614,774    362,968    159,265    92,541    614,774 
                                                             
Total portfolio before allowances   12,895,139    8,634,351    4,230,566    25,760,056    1,013,503    462,544    327,126    1,803,173    13,908,642    9,096,895    4,557,692    27,563,229 
                                                             
Overdue loans (less than 90 days) presented as portfolio percentage   1.22%   3.20%   5.15%   2.53%   19.80%   31.24%   38.03%   26.04%   2.58%   4.63%   7.51%   4.07%
                                                             
Overdue loans (90 days or more) presented as portfolio percentage   -    -    -    -    35.81%   34.43%   28.29%   34.09%   2.61%   1.75%   2.03%   2.23%

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 59 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 10

AVAILABLE FOR SALE INVESTMENTS

 

As of September 30, 2018 and December 31, 2017, details of instruments defined as available for sale investments are as follows:

 

   As of   As of 
   September 30,
2018
  

December 31,

2017

 
   (Unaudited)     
   MCh$   MCh$ 
Chilean Central Bank and Government securities          
Chilean Central Bank Bonds   558,443    816,331 
Chilean Central Bank Notes   274,394    330,952 
Other Chilean Central Bank and Government securities   1,346,753    1,115,518 
Subtotal   2,179,590    2,262,801 
Other Chilean securities          
Time deposits in Chilean financial institutions   1,376    2,361 
Mortgage finance bonds of Chilean financial institutions   19,980    22,312 
Chilean financial institution bonds   -    - 
Chilean corporate bonds   -    - 
Other Chilean securities   3,000    3,000 
Subtotal   24,356    27,673 
Foreign financial securities          
Foreign Central Banks and Government securities   135,381    132,822 
Other foreign financial securities   156,296    151,250 
Subtotal   291,677    284,072 
           
Total   2,495,623    2,574,546 

 

As of September 30, 2018 and December 31, 2017, the item Chilean Central Bank and Government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$117,314 million and Ch$241,995 million, respectively. Under the same item, there are instruments that guarantee margins for operations of derivatives through Comder Contraparte Central S.A. for an amount of $68,232 million and $42,910 million as of September 30, 2018 and December 31 of 2017.

 

As of September 30, 2018 and December 31, 2017, the item Other Chilean Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$0 and Ch$1,156 million, respectively.

 

The instruments of Foreign Institutions include instruments sold under repurchase agreements with customers and financial institutions for a total of $62,687 and $24.910 million as of September 30, 2018 and December 31, 2017. Under the same item, there are instruments that guarantee margins for derivative transactions through the London Clearing House (LCH) for an amount of $ 36,121 million and $48,106 million as of September 30, 2018 and December 31, 2017. In order to comply with the initial margin specified in the European EMIR standard, instruments in guarantee with Euroclear are maintained for an amount of $ 129,649 million and $33,711 million as of September 30, 2018 and December 31, 2017.

 

As of September 30, 2018 available for sale investments included a net unrealized profit of Ch$3,084 million, recorded as a “Valuation adjustment” in equity, distributed between a profit of Ch$1,726 million attributable to equity holders of the Bank and a profit of Ch$1,358 million attributable to non-controlling interest.

 

As of December 31, 2017 available for sale investments included a net unrealized loss of Ch$1,855 million, recorded as a “Valuation adjustment” in equity, distributed between a profit of Ch$459 million attributable to equity holders of the Bank and a profit of Ch$1,396 million attributable to non-controlling interest.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 60 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 11

INTANGIBLE ASSETS

 

a)As of September 30, 2018 and December 31, 2017 the composition of intangible assets is as follows:

 

             As of September 30, 2018 
             (Unaudited) 
         Net opening             
   Years of  Average  balance as of       Accumulated     
   useful  remaining  January 1, 2018   Gross balance   amortization   Net balance 
   life  useful life  MCh$   MCh$   MCh$   MCh$ 
                       
Licenses  3  1   1,200    10,932    (9,899)   1,033 
Software development  3  2   62,019    328,450    (269,735)   58,715 
                           
Subtotal         63,219    339,382    (279,634)   59,748 
Fully amortized assets         -    (200,774)   200,774    - 
Total         63,219    138,608    (78,860)   59,748 

 

             As of December 31, 2017 
         Net opening             
   Years of  Average  balance as of       Accumulated     
   useful  remaining  January 1, 2017   Gross balance   amortization   Net balance 
   life  useful life  MCh$   MCh$   MCh$   MCh$ 
                       
Licenses  3  2   1,656    10,932    (9,732)   1,200 
Software development  3  2   56,429    314,115    (252,096)   62,019 
                           
Subtotal         58,085    325,047    (261,828)   63,219 
Fully amortized assets         -    (200,774)   200,774    - 
Total         58,085    124,273    (61,054)   63,219 

 

b)The changes in the value of intangible assets during the periods of September 30, 2018 and December 31, 2017 is as follows:

 

b.1)Gross balance

 

           Fully     
       Software   amortized     
Gross balances  Licenses   development   assets   Total 
  MCh$   MCh$   MCh$   MCh$ 
                 
Balances as of January 1, 2018   10,932    314,115    (200,774)   124,273 
Acquisitions   -    15,138    -    15,138 
Disposals and impairment (*)   -    (651)   -    (651)
Other   -    (152)   -    (152)
Balances as of September 30, 2018 (Unaudited)   10,932    328,450    (200,774)   138,608 
                     
Balances as of January 1, 2017   10,932    286,781    (200,774)   96,939 
Acquisitions   -    32,624    -    32,624 
Disposals and impairment   -    (5,290)   -    (5,290)
Other   -    -    -    - 
Balances as of December 31, 2017   10,932    314,115    (200,774)   124,273 

 

(*)See Note 31 a).

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 61 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 11

INTANGIBLE ASSETS, continued

 

b.2)Accumulated amortization

 

           Fully     
       Software   amortized     
Accumulated amortization  Licenses   development   assets   Total 
  MCh$   MCh$   MCh$   MCh$ 
                 
Balances as of January 1, 2018   (9,732)   (252,096)   200,774    (61,054)
Amortization for the period   (112)   (11,919)   -    (12,031)
Other changes   -    -    -    - 
Balances as of September 30, 2018 (Unaudited)   (9,844)   (264,015)   200,774    (73,085)
                     
Balances as of January 1, 2017   (9.276)   (230.352)   200.774    (38.854)
Amortization for the period   (456)   (21.744)   -    (22.200)
Other changes   -    -    -    - 
Balances as of December 31, 2017   (9.732)   (252.096)   200.774    (61.054)

 

c)The Bank has no restriction on intangible assets as of September 30, 2018 and December 31, 2017. Additionally, the intangible assets have not been pledged as guarantee to secure compliance with financial liabilities. Also, the Bank has no debt related to Intangible assets as of those dates.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 62 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 12

PROPERTY, PLANT AND EQUIPMENT

 

a)As of September 30, 2018 and December 31, 2017 the property, plant and equipment balances is as follows:

 

       As of September 30, 2018 
       (Unaudited) 
   Net opening             
   balance as of   Gross   Accumulated   Net 
   January 1, 2018   balance   depreciation   balance 
   MCh$   MCh$   MCh$   MCh$ 
                 
Land and building   159,352    296,860    (128,120)   168,740 
Equipment   63,516    205,403    (151,139)   54,264 
Ceded under operating leases   4,221    4,888    (667)   4,221 
Other   15,458    63,684    (50,907)   12,777 
Subtotal   242,547    570,835    (330,833)   240,002 
Fully depreciated assets   -    (65,159)   65,159    - 
Total   242,547    505,676    (265,674)   240,002 

 

       As of December 31, 2017 
   Net opening             
   balance as of   Gross   Accumulated   Net 
   January 1, 2017   balance   depreciation   balance 
   MCh$   MCh$   MCh$   MCh$ 
                 
Land and building   169,809    274,079    (114,727)   159,352 
Equipment   66,506    193,689    (130,173)   63,516 
Ceded under operating leases   4,230    4,888    (667)   4,221 
Other   16,834    60,822    (45,364)   15,458 
Subtotal   257,379    533,478    (290,931)   242,547 
Fully depreciated assets   -    (59,045)   59,045    - 
Total   257,379    474,433    (231,886)   242,547 

 

b)The changes in the value of property, plant and equipment as of September 30, 2018 and December 31, 2017 is the following:

 

b.1)Gross balance

 

                   Fully     
           Operating       depreciated     
   Land and buildings   Equipment   leases   Other   assets   Total 
2018  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2018   274,079    193,689    4,888    60,822    (59,045)   474,433 
Additions   22,781    11,876    -    2,896    -    37,553 
Disposals   -    (123)   -    (34)   -    (157)
Impairment due to damage (*)   -    (39)   -    -    -    (39)
Other   -    -    -    -    (6,114)   (6,114)
Balances as of September 30, 2018 (Unaudited)   296,860    205,403    4,888    63,684    (65,159)   505,676 

 

(*)Banco Santander-Chile has recognized for September 30, 2017 impairment for Ch$39 million due to looting in ATM’s.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 63 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 12

PROPERTY, PLANT AND EQUIPMENT, continued

 

                   Fully     
   Land and       Operating       depreciated     
   buildings   Equipment   leases   Other   assets   Total 
2017  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2017   264,016    168,124    4,888    55,973    (39,958)   453,043 
Additions   27,592    26,278    -    4,901    -    58,771 
Disposals   (17,529)   (359)   -    (52)   -    (17,940)
Impairment due to damage (*)   -    (354)   -    -    -    (354)
Other   -    -    -    -    (19,087)   (19,087)
Balances as of December 31, 2017   274,079    193,689    4,888    60,822    (59,045)   474,433 

 

(*)Banco Santander-Chile has had to recognize in its financial statements as of December 31, 2017 impairment by 354 million, corresponding to looting in ATM’s. Compensation charged for insurance concepts involved, amounted to Ch$1,238 million, which are presented in “Other income and operational expenses”.

 

b,2)Accumulated depreciation

 

                   Fully     
   Land and       Operating       depreciated     
   buildings   Equipment   leases   Other   assets   Total 
2018  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2018   (114,727)   (130,173)   (667)   (45,364)   59,045    (231,886)
Depreciation in the period   (13,396)   (20,971)   -    (5,565)   -    (39,932)
Sales and disposals in the period   3    5    -    22    -    30 
Transfers   -    -    -    -    -    - 
Others   -    -    -    -    6,114    6,114 
Balances as of September 30, 2018 (Unaudited)   (128,120)   (151,139)   (667)   (50,907)   65,159    (265,674)

 

                   Fully     
   Land and       Operating       depreciated     
   buildings   Equipment   leases   Other   assets   Total 
2017  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2017   (94,207)   (101,618)   (658)   (39,139)   39,958    (195,664)
Depreciation in the period   (20,744)   (28,592)   (9)   (6,276)   -    (55,622)
Sales and disposals in the period   224    38    -    51    -    313 
Transfers   -    -    -    -    -    - 
Others   -    -    -    -    19,087    19,087 
Balances as of December 31, 2017   (114,727)   (130,173)   (667)   (45,364)   59,045    (231,886)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 64 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 12

PROPERTY, PLANT AND EQUIPMENT, continued

 

c)Operational leases - Lessor

 

As of September 30, 2018 and December 31, 2017, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

 

   As of   As of 
   September 30,   December 31,  
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Due within 1 year   1,539    567 
Due after 1 year but within 2 years   722    749 
Due after 2 years but within 3 years   481    480 
Due after 3 years but within 4 years   390    348 
Due after 4 years but within 5 years   314    308 
Due after 5 years   1,909    1,792 
           
Total   5,355    4,244 

 

d)Operational leases - Lessee

 

Some of the Bank’s premises and equipment are under operating leases. Future minimum rental payments under non-cancellable leases are as follows:

 

   As of   As of 
   September 30,   December 31,  
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Due within 1 year   22,437    26,059 
Due after 1 year but within 2 years   19,218    21,343 
Due after 2 years but within 3 years   17,169    18,091 
Due after 3 years but within 4 years   14,741    15,736 
Due after 4 years but within 5 years   12,290    12,734 
Due after 5 years   48,194    51,502 
Total   134,049    145,465 

 

e)As of September 30, 2018 and December 31, 2017 the Bank has no finance leases which cannot be unilaterally cancelled.

 

f)The Bank has no restriction on property, plant and equipment as of September 30, 2018 and December 31, 2017. Additionally, the property, plant, and equipment have not been provided as guarantees to secure compliance with financial liabilities. The Bank has no debt in connection with property, plant and equipment.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 65 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 13

CURRENT AND DEFERRED TAXES

 

a)Current taxes

 

As of December 31, 2017 and 2016, the Bank recognizes taxes payable (recoverable), which is determined based on the currently applicable tax legislation. This amount is recorded net of recoverable taxes, and is shown as follows:

 

   As of   As of 
   September 30,
2018
  

December 31,

2017

 
   (Unaudited)     
   MCh$   MCh$ 
Summary of current tax liabilities (assets)          
Current tax (assets)   (18,149)   - 
Current tax liabilities   -    6,435 
           
Total tax payable (recoverable)   (18,149)   6,435 
(Assets) liabilities current taxes detail (net)          
Income tax (*)   95,465    145,112 
Less:          
Provisional monthly payments   (113,112)   (136,562)
Credit for training expenses   (790)   (1,768)
Grant credits   -    (968)
Other   (556)   621 
    844      
Total tax payable (recoverable)   (18,149)   6,435 

 

(*)For 2018 the tax rate was 27% and 25.5% for 2017

 

b)Income tax

 

The effect tax expense has on income for the period ended September 30, 2018 and 2017 is comprised of the following items:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
Income tax expense          
Current tax   95,464    110,991 
Credits (debits) for deferred taxes          
Origination and reversal of temporary differences   28,433    6,919 
Provision due to valuation   -    - 
Subtotal   123,897    104,072 
           
Tax for rejected expenses (Article N°21)   1,045    396 
Other   (1,181)   1,154 
Net income tax expense   123,761    105,622 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 66 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 13

CURRENT AND DEFERRED TAXES, continued

 

c)Effective tax rate reconciliation

 

The reconciliation between the income tax rate and the effective rate in tax expense as of September 30, 2018 and 2017 is as follows:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   Tax rate   Amount   Tax rate   Amount 
   %   MCh$   %   MCh$ 
Tax calculated over profit before tax   27.00    151,440    25.50    140,878 
Permanent differences (1)   (5.28)   (29,604)   (2.66)   (14,708)
Penalty tax (rejected expenses)   0.19    1,045    0.07    396 
Rate change effect (2)   -    -    (3.76)   (20,750)
Other   0.16    880    (0.04)   (194)
Effective rates and expenses for income tax   22.07    123,761    19.11    105,622 

 

(1)Mainly corresponds to the permanent differences originated from the Own Tax Monetary Correction.

 

(2)On September 29, 2014, the established law 20.780 increased the tax rate from 25.5% in 2017 to 27% permanently from 2018.

 

d)Effect of deferred taxes on other comprehensive income

 

A summary of the separate effect of deferred tax on other comprehensive income, showing the asset and liability balances, for the periods ended September 30, 2018 and December 31, 2017 is the following:

 

   As of   As of 
   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
Deferred tax assets          
Available for sale investments   922    368 
Cash flow hedges   12,757    908 
Total deferred tax assets recognized through other comprehensive income   13,679    1,276 
Deferred tax liabilities          
Available for sale investments   (1,755)   (841)
Cash flow hedges   -    - 
Total deferred tax liabilities recognized through other comprehensive income   (1,755)   (841)
           
Net deferred tax balances in equity   11,924    435 
Deferred taxes in equity attributable to equity holders of the bank   12,291    791 
Deferred tax in equity attributable to non-controlling interests   (367)   (356)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 67 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 13

CURRENT AND DEFERRED TAXES, continued

 

e)Effect of deferred taxes on income

 

During 2018 and 2017, the Bank has registered in its finiancial statements the effects from deffered taxes.

 

Below are effects of deferred taxes on assets, liabilities and income allocated for temporary differences:

 

   As of   As of 
   September 30,
2018
  

December 31,

2017

 
   (Unaudited)     
   MCh$   MCh$ 
Deferred tax assets          
Interests and adjustments   9,064    8,645 
Non-recurring charge-offs   13,361    11,651 
Assets received in lieu of payment   2,640    4,073 
Exchange rate adjustment   -    882 
Property, plant and equipment   5,455    4,410 
Provision for loan losses   169,106    172,386 
Provision for expenses   63,380    73,518 
Derivatives   -    5,243 
Leased assets   105,708    98,090 
Subsidiaries tax losses   5,896    5,277 
Anticipated expenses   -    151 
Investment valuation   -    - 
Others (*)   -    5,249 
Total deferred tax assets   374,610    384,332 
Deferred tax liabilities          
Valuation of investments   (13,340)   (1,911)
Depreciation   -    (532)
Anticipated expenses   (33)   (5,955)
Valuation allowances   (6,613)     
Derivatives   (7,922)     
Exchange rate adjustment   (3,354)     
Others   (20)   (424)
Total deferred tax liabilities   (31,282)   (8,822)

 

(*)Includes the asset from deffered income due to temporary differences in derivative contracts.

 

f)Summary of deferred tax assets and liabilities

 

A summary of the effect of deferred taxes on equity and income follows:

 

   As of   As of 
   September 30,   December 31, 2017 
   (Unaudited)     
   MCh$   MCh$ 
Deferred tax assets          
Recognized through other comprehensive income   13,679    1,276 
Recognized through profit or loss   374,610    384,332 
Total deferred tax assets   388,289    385,608 
Deferred tax liabilities          
Recognized through other comprehensive income   (1,755)   (841)
Recognized through profit or loss   (31,282)   (8,822)
Total deferred tax liabilities   (33,037)   (9,663)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 68 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 14

OTHER ASSETS

 

The composition of other assets is the following:

 

   As of   As of 
   September 30,  

December 31,

2017

 
   (Unaudited)     
   MCh$   MCh$ 
Assets for leasing (1)   32,320    48,099 
           
Assets received or awarded in lieu of payment (2)          
Assets received in lieu of payment   8,855    11,677 
           
Assets awarded at judicial sale   26,195    24,800 
Provision on assets received in lieu of payment or awarded   (1,059)   (1,440)
           
Subtotal   33,991    35,037 
Other assets          
Guarantee deposits (margin accounts) (3)   237,380    323,767 
           
Investments in gold   455    478 
           
VAT credit tax   10,207    9,570 
           
Income tax recoverable   1,757    1,381 
           
Prepaid expenses   80,655    116,512 
           
Plant, Property and Equipment held for sale   663    663 
           
Assets recovered from leasing held for sale   6,541    4,235 
           
Macro-hedging valuation adjustment   6,492    160 
           
Pension plan assets   877    921 
           
Accounts and notes receivable   72,847    59,574 
           
Notes receivable through brokerage and simultaneous transactions   94,923    68,272 
           
Other receivable accounts   38,448    53,500 
           
Other assets   39,372    33,837 
           
Subtotal   590,617    672,047 
           
Total   656,928    755,183 

 

(1)Corresponds to the assets available to be delivered under the financial lease modality.

 

(2)The goods received in payment correspond to the goods received as payment of debts due from customers. The set of goods that remain acquired in this way must not exceed 20% of the Bank's effective equity at any time. These assets currently represent 0.22% (0.30% as of December 31, 2017) of the Bank's effective equity.

 

The assets awarded in judicial auction, correspond to assets that have been acquired at judicial auction in payment of debts previously contracted with the Bank. The assets acquired at judicial auction are not subject to the above mentioned margin. These properties are assets available for sale. For most assets, the sale can be completed within one year from the date the asset is received or acquired, In case the good is not sold within a year, it must be punished.

 

Additionally, a provision is recorded for the difference between the initial award value plus the additions and their estimated realizable value, when the former is higher.

 

(3)Correspond to deposits left in guarantee from determined derivative contracts. These guarantees become operative when the valuation from these derivatives surpases the defined thresholds for the contracts, these can be in favor or against the Bank.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 69 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 15

TIME DEPOSITS AND OTHER TIME LIABILITIES

 

As of September 30, 2018 and December 31, 2017, the composition of the item time deposits and other liabilities is as follows:

 

   As of   As of 
  

September 30,

2018

  

December 31, 

2017

 
   (Unaudited)     
   MCh$   MCh$ 
Deposits and other demand liabilities          
Checking accounts   6,203,866    6,272,656 
Other deposits and demand accounts   614,492    590,221 
Other demand liabilities   1,165,885    905,289 
           
Total   7,984,243    7,768,166 
           
Time deposits and other time liabilities          
Time deposits   12,653,952    11,792,466 
Time savings account   118,806    116,179 
Other time liabilities   4,607    5,300 
           
Total   12,777,365    11,913,945 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 70 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

 

As of September 30, 2018 and December 31, 2017, the composition for this item is as follows:

 

  

As of

September 30,

 

 

 

As of

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Other financial liabilities          
Obligations to public sector   59,307    59,470 
Other domestic obligations   167,800    175,389 
Foreign obligations   13,795    7,171 
Subtotal   240,902    242,030 
Issued debt instruments          
Mortgage finance bonds   27,604    34,479 
Senior bonds   7,275,116    6,186,760 
Mortgage Bonds   95,011    99,222 
Subordinated bonds   788,987    773,192 
Subtotal   8,186,718    7,093,653 
           
Total   8,427,620    7,335,683 

 

Debts classified as current are either demand obligations or will mature in one year or less. All other debts are classified as non-current. The Bank’s debts, both current and non-current, are summarized below:

 

  

As of September 30, 2018

 
   (Unaudited) 
   Current   Non-current   Total 
   MCh$   MCh$   MCh$ 
Mortgage finance bonds   7,281    20,323    27,604 
Senior bonds   1,154,770    6,120,346    7,275,116 
Mortgage Bonds   6,283    88,728    95,011 
Subordinated bonds   2    788,985    788,987 
Issued debt instruments   1,168,336    7,018,382    8,186,718 
                
Other financial liabilities   207,181    33,721    240,902 
                
Total   1,375,517    7,052,103    8,427,620 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 71 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

  

As of December 31, 2017

 
   Current   Non-current   Total 
   MCh$   MCh$   MCh$ 
Mortgage finance bonds   8,691    25,788    34,479 
Senior bonds   337,166    5,849,594    6,186,760 
Mortgage Bonds   4,541    94,681    99,222 
Subordinated bonds   3    773,189    773,192 
Issued debt instruments   350,401    6,743,252    7,093,653 
                
Other financial liabilities   212,825    29,205    242,030 
                
Total   563,226    6,772,457    7,335,683 

 

a)Mortgage finance bonds

 

These bonds are used to finance mortgage loans. Their principal amounts are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. Loans are indexed to UF and create a yearly interest rate of 5.30% as of September 30, 2018 (5.39% as of December 31, 2017).

 

   As of   As of 
   September 30, 2018  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Due within 1 year   7,281    8,691 
Due after 1 year but within 2 years   6,097    6,744 
Due after 2 years but within 3 years   5,334    6,096 
Due after 3 years but within 4 years   4,288    5,155 
Due after 4 years but within 5 years   2,900    4,101 
Due after 5 years   1,704    3,692 
Total mortgage finance bonds   27,604    34,479 

 

b)Senior bonds

 

The following table shows senior bonds by currency:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Santander bonds in UF   4,020,850    3,542,006 
Santander bonds in USD   1,405,706    1,045,465 
Santander bonds in CHF   368,744    268,281 
Santander bonds in Ch$   1,199,032    1,135,527 
Santander bonds in AUD   14,465    14,534 
Santander bonds in JPY   157,947    126,059 
Santander bonds in EUR   108,372    54,888 
Total senior bonds   7,275,116    6,186,760 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 72 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

i.Placement of senior bonds:

 

As of September 30, 2018 the Bank has placed bonds for 21,000,000 UF, 150,000,000,000 CLP, 66,000,000 EUR, 115,000,000 CHF and 4,000,000,000 JPY detailed as follows:

 

             Issuance rate           
Series  Currency  Amount placed   Term  (Annual)   Issue date  Amount   Maturity date
T1  UF   4,000,000   2 years   2.20%   02-01-2016   7,000,000   02-01-2020
T4  UF   2,000,000   3 years   2.35%   02-01-2016   8,000,000   08-01-2021
T11  UF   5,000,000   7 years   2.65%   02-01-2016   5,000,000   02-01-2025
T12  UF   5,000,000   7 years   2.70%   02-01-2016   5,000,000   08-01-2025
T15  UF   5,000,000   11 years   3.00%   02-01-2016   5,000,000   08-01-2028
Total  UF   21,000,000               30,000,000    
P5  CLP   75.000.000.000   4 years   5.30%   03-05-2015   150.000.000.000   03-01-2022
U4  CLP   75.000.000.000   3 years & 4 months   ICP + 1.00%   01-10-2017   75.000.000.000   01-10-2022
Total  CLP   150,000,000,000               225,000,000,000    
EUR  EUR   26,000,000   7 years   1.00%   05-04-2018   26,000,000   05-28-2025
EUR  EUR   40,000,000   12 years   1.78%   06-08-2018   40,000,000   06-15-2030
Total  UF   66,000,000               66,000,000    
CHF  CHF   115,000,000   5 years & 3 months   0.441%   09-21-2018   115,000,000   12-21-2023
Total  CHF   115,000,000               115,000,000    
JPY  JPY   4,000,000,000   10 years & 6 months   0.65%   07-13-2018   4,000,000,000   01-13-2029
Total  JPY   4,000,000,000               4,000,000,000    

 

During 2018, the Bank partially repurchased the following bonds:

 

Date  Type  Currency  Amount 
01-04-2018  Senior  CLP   12,890,000,000 
01-05-2018  Senior  CLP   4,600,000,000 
01-22-2018  Senior  UF   24,000 
04-05-2018  Senior  UF   484,000 
04-06-2018  Senior  UF   184,000 
04-23-2018  Senior  UF   216,000 
04-24-2018  Senior  UF   4,000 
04-25-2018  Senior  UF   262,000 
05-10-2018  Senior  UF   800,000 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 73 

 

 

Banco Santander-Chile and Subsidiaries 

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

During 2017 the Bank placed bonds for 10,000,000 UF, 160,000,000,000 CLP, 770,000,000 USD, and 30,000,000 AUD, detailed as follows:

 

              Term   Issuance rate          Maturity 
Series  Currency  Amount Placed       (Years)   (Annual)   Issue date  Amount   date 
T9  UF   5,000,000    7    2.60%   02-01-2016   5,000,000   02-01-2024 
T13  UF   5,000,000    9    2.75%   02-01-2016   5,000,000   02-01-2026 
Total  UF   10,000,000                 10,000,000     
SD  CLP   60,000,000,000    5    5.50%   06-01-2014   200,000,000,000   06-01-2019 
T16  CLP   100,000,000,000    6    5.20%   02-01-2016   100,000,000,000   08-01-2021 
Total  CLP   160,000,000,000                 300,000,000,000     
DN  USD   100,000,000    3    

Libor-USD

3M+0.80%

   07-20-2017   100,000,000   07-27-2020 
DN  USD   50,000,000    3    

Libor-USD

3M+0.80%

   07-20-2017   50,000,000   07-27-2020 
DN  USD   50,000,000    3    

Libor-USD

3M+0.80%

   07-24-2017   50,000,000   07-27-2020 
DN  USD   10,000,000    4    

Libor-USD

3M+0.80%

   08-23-2017   10,000,000   11-23-2021 
DN  USD   10,000,000    4    

Libor-USD

3M+0.80%

   08-23-2017   11-23-2021   10,000,000 
DN  USD   50,000,000    3    

Libor-USD

3M+0.80%

   09-14-2017   09-15-2020   50,000,000 
DN  USD   500,000,000    3    2.50%   12-12-2017   500,000,000   12-15-2020 
Total  USD   770,000,000                 770,000,000     
AUD  AUD   30,000,000    10    3.96%   12-05-2017   30,000,000   12-12-2027 
Total  AUD   30,000,000                 30,000,000     

 

During 2017, the Bank partially repurchased the following bonds:

 

Date  Type  Currency  Amount 
03-06-2017  Senior  USD   6,900,000 
05-12-2017  Senior  UF   1,000,000 
05-16-2017  Senior  UF   690,000 
05-17-2017  Senior  UF   15,000 
05-26-2017  Senior  UF   340,000 
06-01-2017  Senior  UF   590,000 
06-02-2017  Senior  UF   300,000 
06-05-2017  Senior  UF   130,000 
06-19-2017  Senior  UF   265,000 
07-10-2017  Senior  UF   770,000 
07-21-2017  Senior  UF   10,000 
08-28-2017  Senior  UF   200,000 
08-28-2017  Senior  UF   200,000 
08-29-2017  Senior  UF   2,000 
08-29-2017  Senior  UF   270,000 
11-03-2017  Senior  UF   14,000 
11-29-2017  Senior  UF   400,000 
12-06-2017  Senior  UF   20,000 
12-12-2017  Senior  CLP   10,990,000,000 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 74 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

ii.Maturities for senior bonds are the following:

 

   As of   As of 
  

September 30,

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Due within 1 year   1,154,770    337,166 
Due between 1 and 2 years   1,008,604    866,936 
Due between 2 and 3 years   1,132,100    832,978 
Due between 3 and 4 years   800,211    1,177,081 
Due between 4 and 5 years   828,670    902,647 
Due after 5 years   2,350,761    2,069,952 
Total senior bonds   7,275,116    6,186,760 

  

c)Mortgage bonds

  

The detail of mortgage bonds per currency is the following:

 

   As of   As of 
   September 30, 2018  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Mortgage bonds in UF   95,011    99,222 
Total mortgage bonds   95,011    99,222 

 

i.Placement of Mortgage bonds

 

As of September 30, 2018 and during 2017 the Bank has not placed any mortgage bonds.

 

ii.Maturities of mortgage bonds are the following:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Due within 1 year   6,283    4,541 
Due between 1 and 2 years\   7,519    7,291 
Due between 2 and 3 years   7,761    7,526 
Due between 3 and 4 years   8,012    7,769 
Due between 4 and 5 years   8,270    8,019 
Due after 5 years   57,166    64,076 
Total mortgage bonds   95,011    99,222 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 75 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

d)Subordinated bonds

 

Detail of subordinated bonds per currency is as follows:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Subordinated bonds denominated in Ch$   2    3 
Subordinated bonds denominated in USD   -    - 
Subordinated bonds denominated in UF   788,985    773,189 
Total subordinated bonds   788,987    773,192 

 

i.Placement of subordinated bonds

 

As of September 30, 2018 and during 2017, the Bank has not placed any subordinated bonds.

 

ii.Maturity of subordinated bonds are the following:

 

The maturity of subordinated bonds considered long-term are the following:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Due within 1 year   2    3 
Due between 1 and 2 years   -    - 
Due between 2 and 3 years   -    - 
Due between 3 and 4 years   -    - 
Due between 4 and 5 years   -    - 
Due after 5 years   788,985    773,189 
Total subordinated bonds   788,987    773,192 

 

e)Other financial liabilities

 

The composition of other financial liabilities, by maturity, is detailed below:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
Non-current portion:          
Due between 1 and 2 years   32,030    23,401 
Due between 2 and 3 years   209    4,181 
Due between 3 and 4 years   228    194 
Due between 4 and 5 years   250    210 
Due after 5 years   1,004    1,219 
Non-current portion subtotal   33,721    29,205 
           
Current portion:          
Amounts due to credit card operators   164,214    173,271 
Acceptance of letters of credit   8,445    2,780 
Other long-term financial obligations (short-term portion)   34,522    36,774 
Current portion subtotal   207,181    212,825 
           
Total other financial liabilities   240,902    242,030 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 76 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

 

As of September 30, 2018 and December 31, 2017, the detail of the maturities of assets and liabilities is as follows: 

 

           Between 1   Between 3       Between 1   Between 3       More than 1     
As of September 30, 2018      Up to   and   and   Up to 1 year   and   and   More than   year     

(Unaudited)

  Demand   1 month   3 months   12 months   Subtotal   3 years   5 years   5 years   Subtotal   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Assets                                                  
Cash and deposits in banks   1,780,079    -    -    -    1,780,079    -    -    -    -    1,780,079 
Cash items in process of collection   564,245    -    -    -    564,245    -    -    -    -    564,245 
Trading investments   -    6,820    -    1,550    8,370    266,617    38,827    78,199    383,643    392,013 
Investments under resale agreements   -    -    -    -    -    -    -    -    -    - 
Financial derivatives contracts   -    123,034    135,082    295,585    553,701    413,122    454,937    808,688    1,676,747    2,230,448 
Interbank loans (1)   -    7,162    3,956    3,217    14,335    -    -    -    -    14,335 
Loans and accounts receivables from customers(2)   251,950    3,258,077    2,748,556    4,591,291    10,849,874    5,436,005    3,153,108    10,519,197    19,108,310    29,958,184 
Available for sale investments   -    10,459    116,911    156,838    284,208    859,023    434,341    918,051    2,211,415    2,495,623 
Held to maturity investments   -    -    -    -    -    -    -    -    -    - 
Guarantee deposits (margin accounts)   237,380    -    -    -    237,380    -    -    -    -    237,380 
Total financial assets   2,833,654    3,405,552    3,004,505    5,048,481    14,292,192    6,974,767    4,081,213    12,324,135    23,380,115    37,672,307 
                                                   
Liabilities                                                  
Deposits and other demand liabilities   7,984,243    -    -    -    7,984,243    -    -    -    -    7,984,243 
Cash items in process of collection   455,368    -    -    -    455,368    -    -    -    -    455,368 
Obligations under repurchase agreements   -    180,001    -    -    180,001    -    -    -    -    180,001 
Time deposits and other time liabilities   123,413    5,475,168    3,543,358    3,407,226    12,549,165    159,411    5,954    62,835    228,200    12,777,365 
Financial derivatives contracts   -    110,190    105,481    247,635    463,306    427,728    402,622    792,876    1,623,226    2,086,532 
Interbank borrowings   1    24,294    390,868    1,203,983    1,619,146    174,042    -    -    174,042    1,793,188 
Issued debts instruments   -    158,128    212,687    797,521    1,168,336    2,167,415    1,652,351    3,198,616    7,018,382    8,186,718 
Other financial liabilities   171,107    19,058    16,092    924    207,181    32,239    478    1,004    33,721    240,902 
Guarantees received (margin accounts)   371,516    -    -    -    371,516    -    -    -    -    371,516 
Total financial liabilities   9,105,648    5,966,839    4,268,486    5,657,289    24,998,262    2,960,835    2,061,405    4,055,331    9,077,571    34,075,833 

(1)Interbank loans are presented on a gross basis. The amount of allowances is Ch$28 million.
(2)Loans and accounts receivables from customers are presented on a gross basis. Provisions on loans amounts according to customer type are the following: Commercial loans Ch$473,536 million, Mortgage loans Ch$66,304 million and Consumer loans Ch$265,017 million.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 77 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES, continued

 

           Between 1   Between 3       Between 1   Between 3       More than 1     
       Up to   and   and   Up to 1 year   and   and   More than   year     
As of December 31, 2017  Demand   1 month   3 months   12 months   Subtotal   3 years   5 years   5 years   Subtotal   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                   
Financial Assets                                                  
Cash and deposits in banks   1,452,922    -    -    -    1,452,922    -    -    -    -    1,452,922 
Cash items in process of collection   668,145    -    -    -    668,145    -    -    -    -    668,145 
Trading investments   -    72,983    4,024    68,277    145,284    110,824    90,507    139,121    340,452    485,736 
Investments under resale agreements   -    -    -    -    -    -    -    -    -    - 
Financial derivatives contracts   -    135,780    198,876    410,415    745,071    385,428    371,090    737,058    1,493,576    2,238,647 
Interbank loans (1)   -    6,064    152,911    3,710    162,685    -    -    -    -    162,685 
Loans and accounts receivables from customers(2)   769,823    2,206,734    2,288,372    4,348,975    9,613,904    5,187,501    2,938,326    9,823,498    17,949,325    27,563,229 
Available for sale investments   -    58,850    11,788    102,600    173,238    556,289    975,372    869,647    2,401,308    2,574,546 
Held to maturity investments   -    -    -    -    -    -    -    -    -    - 
Guarantee deposits (margin accounts)   323,767    -    -    -    323,767    -    -    -    -    323,767 
Total financial assets   3,214,657    2,480,411    2,655,971    4,933,977    13,285,016    6,240,042    4,375,295    11,569,324    22,184,661    35,469,677 
                                                   
Financial Liabilities                                                  
Deposits and other demand liabilities   7,768,166    -    -    -    7,768,166    -    -    -    -    7,768,166 
Cash items in process of collection   486,726    -    -    -    486,726    -    -    -    -    486,726 
Obligations under repurchase agreements   -    268,061    -    -    268,061    -    -    -    -    268,061 
Time deposits and other time liabilities   121,479    5,120,171    4,201,271    2,299,018    11,741,939    106,833    2,811    62,362    172,006    11,913,945 
Financial derivatives contracts   -    144,410    196,444    356,288    697,142    378,582    358,358    705,406    1,442,346    2,139,488 
Interbank borrowings   4,130    46,013    397,419    1,030,241    1,477,803    220,554    -    -    220,554    1,698,357 
Issued debts instruments   -    21,043    55,119    274,239    350,401    1,727,571    2,104,771    2,910,910    6,743,252    7,093,653 
Other financial liabilities   177,663    701    2,583    31,879    212,826    27,581    404    1,219    29,204    242,030 
Guarantees received (margin accounts)   408,313    -    -    -    408,313    -    -    -    -    408,313 
Total financial liabilities   8,966,477    5,600,399    4,852,836    3,991,665    23,411,377    2,461,121    2,466,344    3,679,897    8,607,362    32,018,739 

(1)Interbank loans are presented on a gross basis. The amount of allowances is Ch$86 million.

(2)Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to customer type of loan are the following: Commercial loans for Ch$462,865 million, Mortgage loans for Ch$69,066 million and Consumer loans for Ch$283,756 million.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 78 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 18

PROVISIONS

 

a)As of September 30, 2018 and December 31, 2017, the detail for the provisions is as follows:

 

  

As of

September 30,

 

 

 

As of

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Provision for employee salaries and expenses   86,114    97,576 
Provision for mandatory dividends   130,577    169,444 
Provision for contingent loan risks:          
Provision for lines of credit of immediate disponibility   14,967    15,103 
Other provisions for contingent loans   14,355    14,304 
Provision for contingencies   9,057    27,303 
Additonal provisions   20,000    - 
Provision for foreign bank loans   680    599 
Total   275,750    324,329 
(*)During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 79 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 19

OTHER LIABILITIES

 

Other liabilities consist of:

 

   As of   As of 
  

September 30,

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Accounts and notes payable   168,120    196,965 
Income received in advance   612    601 
Adjustment due to macro-hedging valuation   3,998    - 
Guarantees received (margin accounts) (1)   371,516    408,313 
Notes payable through brokerage and simultaneous transactions   13,251    17,799 
Other payable obligations   248,290    58,921 
Withheld VAT   2,299    1,887 
Accounts payable by insurance companies   7,729    13,873 
Other liabilities   67,256    47,004 
Total   883,071    745,363 

(1)Guarantee deposits (margin accounts) correspond to collaterals associated with derivative financial contracts to mitigate the counterparty credit risk and are mainly established in cash. These guarantees operate when the mark to market from derivative financial instruments exceed the levels of threshold agreed in the contracts, which could result in a delivery or reception of collateral for the Bank.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 80 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 20

CONTINGENCIES AND COMMITMENTS

 

a)Lawsuits and legal procedures

 

At the date these financial statements were issued, the Bank and its affiliates were subject to certain legal actions in the normal course of their business. As of September 30, 2018, the Bank and its subsidiaries have provisions for this item for Ch$923 million and Ch$0 million, respectively (Ch$1,214 million and Ch$0 million as of December 31, 2017) which is included in “Provisions” in the Consolidated Statement of Financial Position as provisions for contingencies.

 

As of September 30, 2018, the following legal situations are pending:

 

Santander Corredores de Bolsa Limitada

 

The case "Echeverría with Santander Corredora" (currently Santander Corredores de Bolsa Ltda.), followed before the 21st Civil Court of Santiago, Case C-21,366-2014, on compensation for damages for faults in the purchase of shares. With regard to its actual situation as of December 31, 2017, Santander Corredores de Bolsa Limitada requested the Court to declare the proceeding abandoned due to the pending actions of the plaintiff, a situation that is pending for the Court to resolve.

 

Santander Corredora de Seguros Limitada

 

There are lawsuits amounting to 9,475 UF corresponding to processes mainly for goods delivered in leasing. Our lawyers have not estimated additional material losses for these trials.

 

b)Contingent loans

 

To meet customer needs, the Bank acquired several irrevocable commitments and contingent liabilities, although these obligations should not be recognized in the Consolidated Statement of Financial Position, these contain credit risks and are therefore part of the Bank's overall risk.

 

The following table shows the Bank’s contractual obligations to issue loans:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Letters of credit issued   203,228    201,699 
Foreign letters of credit confirmed   77,428    75,499 
Performance guarantees   1,915,970    1,823,793 
Personal guarantees   123,749    81,577 
Subtotal   2,320,375    2,182,568 
On demand credit lines   8,807,046    8,135,489 
Other irrevocable credit commitments   325,175    260,691 
Total   11,452,596    10,578,748 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 81 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 20

CONTINGENCIES AND COMMITMENTS, continued

 

c)Held securities

 

The Bank holds securities in the normal course of its business as follows: 

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   MCh$   MCh$ 
         
Third party operations          
Collections   171,259    175,200 
Transferred financial assets managed by the Bank   27,111    33,278 
Assets from third parties managed by the Bank and its affiliates (1)   1,661,793    1,660,804 
Subtotal   1,860,163    1,869,282 
Custody of securities          
Securities held in custody   9,072,479    383,002 
Securities held in custody deposited in other entity   835,296    760,083 
Issued securities held in custody   12,049,209    22,046,700 
Subtotal   21,956,984    23,189,785 
Total   23,817,147    25,059,067 

 

(1) The Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates”, as of September 30, 2018, the balance for this was Ch$1,661,758 million (Ch$1,660,768 million at December 31, 2017).

 

d)Guarantees

 

Banco Santander-Chile has an integral bank policy of coverage of Official Loyalty N°4668409 in force with the company Compañía de Seguros Chilena Consolidada SA, Coverage for 50,000,000 USD per claim with an annual limit of 100,000,000 USD, which covers both the Bank and its subsidiaries, with an expiration date of June 30, 2019.

 

Santander Agente de Valores Limitada

 

In order to ensure the correct and full compliance of all its obligations as securities agent in accordance with the provisions of articles N° 30 and following of Law N° 18,045, on Stock Market, the company constituted a guarantee for 4,000 UF with insurance policy N° 217112981 taken with the Insurance Company of Crédito Continental S.A. and whose maturity is December 19, 2018.

 

Santander Corredores de Bolsa Limitada

 

i) As of September 30, 2018, the Company has comprehensive guarantees in the Santiago Stock Exchange to cover simultaneous operations carried out through its own portfolio for a total of Ch$ 33,266,104 (Ch$ 25,218,779 as of December 31, 2017).

 

ii) Additionally, as of September 30, 2018, the Company holds a guarantee in CCLV Contraparte Central S.A., in cash, for an amount of Ch$ 5,000,000 (Ch$ 5,000,000 as of December 31, 2017).

 

iii) In order to ensure the correct and full compliance of all its obligations as Brokerage Broker, in accordance with the provisions of articles 30 and following of Law N°18,045 on Securities Market, the Company has delivered fixed-income securities to the Santiago Stock Exchange for a present value of Ch$ 1,017,360 as of September 30, 2018 (Ch$ 1,014,400 as of December 31, 2017).

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 82 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 20

CONTINGENCIES AND COMMITMENTS, continued

 

Santander Corredora de Seguros Limitada

 

i) In accordance with those established in Circular N° 1,160 of the Superintendency of Securities and Insurance, the company has contracted an insurance policy to respond to the correct and full compliance with all obligations arising from its operations as an intermediary in the hiring insurance.

 

ii) The insurance policy for insurance brokers N° 4461903, which covers 500 UF, and the professional liability policy for insurance brokers N°4462082 for an amount equivalent to UF 60,000, were contracted with the Compañía de Seguros Generales Chilena Consolidada S.A. both are valid from April 15, 2018 to April 14, 2019.

 

iii) The Company maintains a guarantee slip with Banco Santander-Chile to guarantee the faithful fulfillment of the public bidding rules of the tax and deductibility insurance plus ITP 2/3 of the mortgage portfolio for the housing of Banco Santander-Chile. This amounts to 10,000 UF for each portfolio respectively, both with an expiration date of July 31, 2019. For the same reason, the Company maintains a guarantee voucher in compliance with the public tender for fire and earthquake insurance, which amounts to 200 UF and 3,000 UF with the same financial institution, both with an expiration date as of December 31, 2018.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 83 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 21

EQUITY

 

a)Capital

 

As of September 30, 2018 and December 31, 2017 the Bank had 188,446,126,794 shares outstanding amounting to Ch$ 891,303 million. All of which are subscribed for and paid in full. All shares have the same rights, and have no preferences or restrictions.

 

The movement in shares for the period of September 30, 2018 and December 31, 2017 is the following:

 

   Shares 
   As of September 30,   As of December 31, 
   2018   2017 
         
Issued as of January 1   188,446,126,794    188,446,126,794 
Issuance of paid shares   -    - 
Issuance of outstanding shares   -    - 
Stock options exercised   -    - 
Issued as period end   188,446,126,794    188,446,126,794 

 

As of September 30, 2018 and December 31, 2017 the Bank does not own any of its shares in treasury, nor do any of the consolidated companies.

 

As of September 30, 2018 the shareholder composition is the following:

 

               % of equity 
Corporate Name or Shareholder`s Name  Shares   ADRs (*)   Total   holding 
                 
Santander Chile Holding S.A.   66,822,519,695    -    66,822,519,695    35.46 
Teatinos Siglo XXI Inversiones Limitada   59,770,481,573    -    59,770,481,573    31.72 
The Bank of New York Mellon   -    26,833,969,671    26,833,969,671    14.24 
Banks on behalf of third parties   15,455,514,414    -    15,455,514,414    8.20 
Pension funds (AFP) on behalf of third parties   8,806,628,787    -    8,806,628,787    4.67 
Stock brokers on behalf of third parties   4,466,968,277    -    4,466,968,277    2.37 
Other minority holders   6,290,044,377    -    6,290,044,377    3.34 
Total   161,612,157,123    26,833,969,671    188,446,126,794    100.00 

(*)American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 84 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 21

EQUITY, continued

 

As of December 31, 2017 the shareholder composition is the following:

 

              % of equity 
Corporate Name or Shareholder`s Name  Shares   ADRs (*)   Total   holding 
                 
Santander Chile Holding S,A,   66,822,519,695    -    66,822,519,695    35.46 
Teatinos Siglo XXI Inversiones Limitada   59,770,481,573    -    59,770,481,573    31.72 
The Bank of New York Mellon   -    31,238,866,071    31,238,866,071    16.58 
Banks on behalf of third parties   13,892,691,988    -    13,892,691,988    7.37 
Pension fund (AFP) on behalf of third parties   6,896,552,755    -    6,896,552,755    3.66 
Stock brokers on behalf of third parties   3,762,310,365    -    3,762,310,365    2.00 
Other minority holders   6,062,704,347    -    6,062,704,347    3.21 
Total   157,207,260,723    31,238,866,071    188,446,126,794    100.00 

(*)American Depository Receipts (ADR) are certificates issued by a U,S, commercial bank to be traded on the U,S, securities markets.

 

b)Dividends

 

The distribution of dividends has been disclosed in the Consolidated Statements of Changes in Equity.

 

c)Diluted earnings per share and basic earnings per share

 

As of September 30, 2018 and December 31, 2017, the composition of diluted earnings per share and basic earnings per share are as follows:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
a) Basic earnings per share          
Total attributable to equity holders of the Bank   435,258    430,137 
Weighted average number of outstanding shares   188,446,126,794    188,446,126,794 
Basic earnings per share (in Ch$)   2.310    2.283 
           
b) Diluted earnings per share          
           
Total attributable to equity holders of the Bank   435,258    430,137 
Weighted average number of outstanding shares   188,446,126,794    188,446,126,794 
Assumed conversion of convertible debt   -    - 
Adjusted number of shares   188,446,126,794    188,446,126,794 
Diluted earnings per share (in Ch$)   2.310    2.283 

 

As of September 30, 2018 and 2017, the Bank does not own instruments with dilutive effects.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 85 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 21

EQUITY, continued

 

d)Other comprehensive income of available for sale investments and cash flow hedges:

 

   As of   As of 
   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
   MCh$   MCh$ 
         
Available for sale investments          
As of January 1,   1,855    7,375 
Gain (losses) on the re-valuation of available for sale investments, before tax   2,271    (10,384)
Reclassification from other comprehensive income to net income for the year   -    - 
Net income realized   (1,042)   4,864 
Subtotal  1,229   (5,520)
Total   3,084    1,855 
           
Cash flow hedges          
As of January 1,   (3,562)   2,288 
Gains (losses) on the re-valuation of cash flow hedges, before tax   (43,330)   (5,850)
Reclassification and adjustments on cash flow hedges, before tax   (356)   - 
Amounts removed from equity and included in carrying amount of non-financial asset (liability) whose   -    - 
acquisition or assignment was hedged as a highly probable transaction          
Subtotal   (43,686)   (5,850)
Total   (47,248)   (3,562)
           
Other comprehensive income, before tax   (44,164)   (1,707)
           
Income tax related to other comprehensive income components          
Income tax relating to available for sale investments   (833)   (473)
Income tax relating to cash flow hedges   12,757    908 
Total   11,924    435 
           
Other comprehensive income, net of tax   (32,240)   (1,272)
Attributable to:          
Equity holders of the Bank   (33,231)   (2,312)
Non-controlling interest   991    1,040 

 

The Bank expects that the results included in "Other comprehensive income" will be reclassified to profit or loss when the specific conditions have been met.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 86 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 22

CAPITAL REQUIREMENTS (BASEL)

 

In accordance with Chilean General Banking Law, the Bank must maintain a minimum ratio of effective equity to risk-weighted consolidated assets of 8% net of required allowances, and a minimum ratio of basic equity to consolidated total assets of 3%, net of required allowances. However, as a result of the Bank’s merger in 2002, the SBIF has determined that the Bank’s combined effective equity cannot be lower than 11% of its risk-weighted assets. Effective net equity is defined for these purposes as basic equity (capital and reserves) plus subordinated bonds, up to a maximum of 50% of basic equity.

 

Assets are allocated to different risk categories, each of which is assigned a weighting percentage according to the amount of capital required to be held for each type of asset. For example, cash, deposits in banks and financial instruments issued by the Central Bank of Chile have a 0% risk weighting, meaning that it is not necessary to hold equity to back these assets according to current regulations. Property, plant and equipment have a 100% risk weighting, meaning that a minimum capital equivalent to 11% of these assets must be held. All derivatives traded off the exchanges are also assigned a risk weighting, using a conversion factor applied to their notional values, to determine the amount of their exposure to credit risk. Derivative contracts (asset) that are included in the Consolidated Statement of Financial Position are also considered to have a “risk equivalence” in their risk weight.

 

According to Chapter 12-1 of the SBIF’s Recopilación Actualizada de Normas [Updated Compilation of Rules] effective January 2010, the SBIF changed existing regulation with the enforcement of Chapter B-3 from the Compendium of Accounting Standards, which changed the risk exposure of contingent allocations from 100% exposure to the following:

 

Type of contingent loan  Exposure 
     
a) Pledges and other commercial commitments   100%
b) Foreign letters of credit confirmed   20%
c) Letters of credit issued   20%
d) Guarantees   50%
e) Interbank guarantee letters   100%
f) Available lines of credit   35%
g) Other loan commitments:     
- Higher education loans Law No, 20,027   15%
- Other   100%
h) Other contingent loans   100%

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 87 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 22

CAPITAL REQUIREMENTS (BASEL), continued

 

The levels of basic capital and effective net equity as of September 30, 2018 and December 31, 2017, are the following:

 

   Consolidated assets   Risk-weighted assets 
   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31, 
   2018   2017   2018   2017 
   (Unaudited)       (Unaudited)     
   MCh$   MCh$   MCh$   MCh$ 
                 
Balance-sheet assets (net of allowances)                    
Cash and deposits in banks   1,780,079    1,452,922    -    - 
Cash in process of collection   564,245    668,145    178,455    300,302 
Trading investments   392,013    485,736    63,900    25,031 
Investments under resale agreements   -    -    -    - 
Financial derivative contracts (*)   1,385,650    1,014,070    954,910    718,426 
Interbank loans, net   14,307    162,599    14,307    162,598 
Loans and accounts receivables from customers, net   29,153,327    26,747,542    25,218,760    23,102,177 
Available for sale investment   2,495,623    2,574,546    230,195    147,894 
Investments in associates and other companies   32,498    27,585    32,498    27,585 
Intangible assets   59,748    63,219    59,748    63,219 
Property, plant, and equipment   240,002    242,547    240,002    242,547 
Current taxes   18,149    -    1,815    - 
Deferred taxes   388,289    385,608    38,829    38,561 
Other assets   656,928    755,184    651,293    722,617 
Off-balance-sheet assets                    
Contingent loans   4,525,598    4,133,897    2,589,945    2,360,877 
Total   41,706,456    38,713,600    30,274,657    27,911,834 
(*)“Financial derivative contracts” are presented at their “Credit Equivalent Risk” value as established in Chapter 12-1 of the Updated Compilation of Rules issued by the SBIF.

 

The ratios of basic capital and effective net equity at the close of each period are as follows:

 

   Ratio 
   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31, 
   2018   2017   2018   2017 
   (Unaudited)       (Unaudited)     
   MCh$   MCh$   %   % 
                 
Basic capital   3,085,775    3,066,180    7.40    7.92 
Effective net equity   3,938,465    3,881,252    13.01    13.91 

 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 88 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 23

NON-CONTROLLING INTEREST

 

a)It reflects the net amount of equity of dependent entities attributable to capital instruments which do not belong, directly or indirectly, to the Bank, including the portion of the income for the period that has been attributed to them.

 

The non-controlling interest included in the equity and the income from the subsidiaries is summarized as follows:

 

               Other comprehensive income 
As of September 30, 2018  Non           Available for       Total other     
(Unaudited)  controlling           sale   Deferred   comprehensive   Comprehensive 
   interest   Equity   Income   investments   tax   income   income 
   %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                             
Subsidiaries:                                   
Santander Corredora de Seguros Limitada   0.25    171    3    (2)   -    (2)   1 
Santander Corredores de Bolsa Limitada   49.41    21,594    643    (36)   (11)   (47)   596 
Santander Agente de Valores Limitada   0.97    486    97    -    -    -    97 
Santander S.A. Sociedad Securitizadora   0.36    1    -    -    -    -    - 
Subtotal        22,252    743    (38)   (11)   (49)   694 
                                    
Entities controlled through other considerations:                                   
Santander Gestión de Recaudación y                                   
Cobranzas Limitada   100.00    3,626    701    -    -    -    701 
Bansa Santander S.A.   100.00    17,828    426    -    -    -    426 
Subtotal        21,454    1,127    -    -    -    1,127 
                                    
Total        43,706    1,870    (38)   (11)   (49)   1,821 

 

               Other comprehensive income 
   Non-           Available for       Total other     
  controlling           sale   Deferred   comprehensive   Comprehensive 
As of September 30, 2017  Interest   Equity   Income   investments   tax   income   income 
   %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                             
Subsidiaries:                                   
Santander Corredora de Seguros Limitada   0.25    167    3    -    -    -    3 
Santander Corredores de Bolsa Limitada   49.41    20,865    497    542    (141)   401    898 
Santander Agente de Valores Limitada   0.97    587    95    -    -    -    95 
Santander S.A. Sociedad Securitizadora   0.36    1    -    -    -    -    - 
Subtotal        21,620    595    542    (141)   401    996 
                                    
Entities controlled through other considerations:                                   
Santander Gestión de Recaudación y   100.00    2,597    413    -    -    -    413 
Cobranzas Limitada                                   
Bansa Santander S.A. (1)   100.00    22,226    15,693    -    -    -    15,693 
Subtotal        24,823    16,106    -    -    -    16,106 
                                    
Total        46,443    16,701    542    (141)   401    17,102 
(1)In September 2017, Bansa Santander S.A., held a legal assignment of rights by leasing contract, which resulted in a result of $ 20,663 million before taxes ($15,197 million net of taxes).

According to what is indicated in note 1 ii) Bansa Santander S.A. is an entity controlled by the Bank for reasons other than its participation in equity, therefore the income from this company is assigned entirely to non-controlling interest.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 89 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 23

NON-CONTROLLING INTEREST, continued

 

b)A summary of the financial information of subsidiaries included in the consolidation with non-controlling interests (before consolidation or conforming adjustments) is as follows:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)                 
               Net               Net 
   Assets   Liabilities   Capital   Income   Assets   Liabilities   Capital   Income 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Santander Corredora de Seguros Limitada   77,473    9,817    66,374    1,282    76,177    9,803    64,937    1,437 
Santander Corredores de Bolsa Limitada   124,367    80,296    42,761    1,310    88,711    45,855    41,424    1,432 
Santander Agente de Valores Limitada   53,738    3,518    40,177    10,043    44,910    4,732    26,569    13,609 
Santander S.A. Sociedad Securitizadora   367    76    350    (59)   400    50    432    (82)
Santander Gestión de Recaudación y Cobranzas Ltda.   6,505    2,879    2,925    701    10,826    7,901    2,184    741 
Bansa Santander S.A.   25,508    7,680    17,401    427    25,535    8,134    6,533    10,868 
Total   287,958    104,266    169,988    13,704    246,559    76,475    142,079    28,005 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 90 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 24

INTEREST INCOME

 

This item refers to interest earned in the period from the financial assets whose return, whether implicitly or explicitly, is determined by applying the effective interest rate method, regardless of the value at fair value, as well as the effect of hedge accounting.

 

a)As of September 30, 2018 and 2017, the income from interest income, not including income from hedge accounting, is attributable to the following items:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
       Inflation   Prepaid           Inflation   Prepaid     
   Interest   adjustments   fees   Total   Interest   adjustments   fees   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Resale agreements   712    -    -    712    744    -    -    744 
Interbank loans   812    -    -    812    466    -    -    466 
Commercial loans   570,396    110,433    8,330    689,159    563,998    57,795    7,791    629,584 
Mortgage loans   244,992    192,089    334    437,415    239,724    102,149    311    342,184 
Consumer loans   435,048    325    4,474    439,847    463,178    269    3,559    467,006 
Investment instruments   55,116    19,601    -    74,717    58,863    1,105    -    59,968 
Other interest income   11,065    2,983    -    14,048    9,257    821    -    10,078 
                                         
Interest income without income from hedge accounting   1,318,141    325,431    13,138    1,656,710    1,336,230    162,139    11,661    1,510,030 

 

b)As indicated in section i) of Note 1, suspended interest relates to loans with payments over 90 days overdue, which are recorded in off-balance sheet accounts until they are effectively received.

 

As of September 30, 2018 and December 31, 2017, the suspended interest and adjustments income consists of the following:

 

   As of September 30, 2018   As of December 31, 2017 
   (Unaudited)     
       Inflation           Inflation     
   Interest   adjustments   Total   Interest   adjustments   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans   13,468    7,900    21,368    12,709    7,703    20,412 
Mortgage loans   3,006    5,909    8,915    2,871    4,999    7,870 
Consumer loans   4,317    342    4,659    5,084    377    5,461 
                               
Total   20,791    14,151    34,942    20,664    13,079    33,743 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 91 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 24

INTEREST INCOME, continued

 

c)As of September 30, 2018 and 2017, the expenses from interest expense, excluding expense from hedge accounting, are as follows:

 

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
       Inflation           Inflation     
   Interest   adjustments   Total   Interest   adjustments   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Demand deposits   (9,573)   (889)   (10,462)   (9,178)   (476)   (9,654)
Repurchase agreements   (3,459)   -    (3,459)   (5,187)   -    (5,187)
Time deposits and liabilities   (232,528)   (26,214)   (258,742)   (262,196)   (14,079)   (276,275)
Interbank borrowings   (26,991)   -    (26,991)   (19,216)   -    (19,216)
Issued debt instruments   (178,376)   (96,948)   (275,324)   (165,996)   (53,133)   (219,129)
Other financial liabilities   (2,174)   (81)   (2,255)   (2,205)   (274)   (2,479)
Other interest expense   (4,953)   (7,375)   (12,328)   (4,289)   (3,192)   (7,481)
Interest expense without expenses from hedge accounting   (458,054)   (131,507)   (589,561)   (468,267)   (71,154)   (539,421)

 

d)As of September 30, 2018 and 2017, the income and expense from interest is as follows:

  

   As of September 30, 
   (Unaudited) 
   2018   2017 
Items  MCh$   MCh$ 
         
Interest income less income from hedge accounting   1,656,710    1,510,030 
Interest expense less expense from hedge accounting   (589,561)   (539,421)
           
Net Interest income (expense) from hedge accounting   1,067,149    970,609 
           
Hedge accounting (net)   (10,382)   9,581 
           
Total net interest income   1,056,767    980,190 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 92 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 25

FEES AND COMMISSIONS

 

a)Fees and commissions includes the value of fees earned and paid during the year, except those which are an integral part of the financial instrument’s effective interest rate:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Fee and commission income          
Fees and commissions for lines of credits and overdrafts   4,851    4,397 
Fees and commissions for guarantees and letters of credit   25,017    26,964 
Fees and commissions for card services   163,574    150,580 
Fees and commissions for management of accounts   25,156    23,695 
Fees and commissions for collections and payments   32,355    34,568 
Fees and commissions for intermediation and management of securities   7,631    7,415 
Fees and commissions for insurance marketing   28,646    27,796 
Office banking   12,264    11,610 
Fees for other services rendered   34,289    32,066 
Other fees earned   31,371    24,159 
Total   365,154    343,250 

  

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Fee and commission expense          
Compensation for card operations   (121,371)   (110,957)
Fees and commissions for securities transactions   (698)   (624)
Office banking   (4,096)   (11,556)
Other fees   (15,542)   (7,350)
Total   (141,707)   (130,487)
           
Net fees and commissions income   223,447    212,763 

 

The fees earned in transactions with letters of credit are presented in the Consolidated Interim Statement of Income in the item “Interest income”.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 93 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 25

FEES AND COMMISSIONS, continued

 

b)Income and expenses from commissions that are generated through the different segments of the business are presented in the following chart as well as the calendar which recognizes ordinary activity income.

 

                       Calendar recognizing ordinary activity 
   Segments   Income 
           Global           Transfered   Transfered     
As of September 30, 2018     Middle   Corporate           through   in an exact   Accrual 
(Unaudited)  Retail Banking   Market   Banking   Others   Total   time   moment   model 
   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
                                 
Fee and commission income                                        
Fees and commissions for lines of credits and overdrafts   4,388    186    278    (1)   4,851    4,851    -    - 
Fees and commissions for guarantees and letters of credit   8,282    11,929    4,775    31    25,017    25,017    -    - 
Fees and commissions for card services   157,897    4,810    820    47    163,574    25,539    138,035    - 
Fees and commissions for management of accounts   22,544    2,010    600    2    25,156    25,156    -    - 
Fees and commissions for collections and payments   48,467    1,190    348    (17,650)   32,355    -    12,300    20,055 
Fees and commissions for intermediation and management of securities   3,135    27    5,202    (733)   7,631    -    7,631    - 
Fees and commissions for insurance marketing   -    -    -    28,646    28,646    -    -    28,646 
Office banking   8,954    2,868    439    3    12,264    -    12,264    - 
Fees for other services rendered   30,751    2,881    617    40    34,289    -    34,289    - 
Other fees earned   4,525    7,456    19,115    275    31,371    -    31,371    - 
Totals   288,943    33,357    32,194    10,660    365,154    80,563    235,890    48,701 
                                         
Fee and commission expense                                        
Compensation for card operations   (118,466)   (2,428)   (231)   (246)   (121,371)   -    (121,371)   - 
Fees and commissions for securities transactions   (169)   (3)   (388)   (138)   (698)   -    (698)   - 
Office banking   (2,535)   (892)   (655)   (14)   (4,096)   -    (4,096)   - 
Other fees   (2,398)   (2,586)   (3,227)   (7,331)   (15,542)   -    (15,542)   - 
Totals   (123,568)   (5,909)   (4,501)   (7,729)   (141,707)   -    (141,707)   - 
Net fees and commissions income   165,375    27,448    27,693    2,931    223,447    80,563    94,183    48,701 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 94 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 26

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

 

Includes the amount of the adjustments from the financial instruments variation, except those attributable to the interest accrued by the application of the effective interest rate method of the value adjustments of the assets, as well as the results obtained in their sale.

 

As of September 30, 2018 and 2017, the detail of income from financial operations is as follows:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Profit and loss from financial operations          
Trading derivatives   3,354    37,525 
Trading investments   9,265    5,689 
Sale of loans and accounts receivables from customers          
Current portfolio   70    2,680 
Charged-off portfolio   722    1,587 
Available for sale investments   3,341    7,879 
Repurchase of issued bonds (1)   (334)   (323)
Other profit and loss from financial operations   (1,048)   (2,104)
Total   15,370    52,933 

(1)During 2018 the Bank hasn’t repurchased any bonds, see Note 3.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 95 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 27

NET FOREIGN EXCHANGE INCOME

 

Net foreign exchange income includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in a foreign currency at the time of their sale.

 

As of September 30, 2018 and 2017, net foreign exchange income is as follows:

 

  

As of September 30,

(Unaudited)

 
   2018   2017 
   MCh$   MCh$ 
Net foreign exchange gain (loss)          
Net gain (loss) from currency exchange differences   (85,994)   (15,718)
Hedging derivatives   133,035    79,869 
Income from assets indexed to foreign currency   6,959    (5,582)
Income from liabilities indexed to foreign currency   (58)   76 
Total   53,942    58,645 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 96 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 28

PROVISIONS FOR LOAN LOSSES

 

a)The movement in provisions for loan losses registered for September 30, 2018 and 2017 is the following:

 

       Loans and accounts receivable from customers                 
   Interbank   Commercial   Mortgage   Consumer           Additional     
As of September 30, 2018  loans  

loans

   loans   loans   Contingent loans   Provisions     
(Unaudited)  Individual   Individual   Group   Group   Group   Individual   Group   (*)   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charge-off of loans net of provisions   -    (9,613)   (15,834)   (8,158)   (61,331)   -    -    -    (94,936)
Provisions established (*)   (43)   (49,882)   (64,624)   (11,969)   (145,175)   (3,492)   (1,509)   (20,000)   (296,694)
Total provisions and charge-offs   (43)   (59,495)   (80,458)   (20,127)   (206,506)   (3,492)   (1,509)   (20,000)   (391,630)
Provisions released   101    23,147    6,556    5,471    31,521    3,155    1,930    -    71,881 
Recovery of loans previously charged-off   -    8,598    14,539    14,415    30,395    -    -    -    67,947 
Net charge to income   58    (27,750)   (59,363)   (241)   (144,590)   (337)   421    (20,000)   (251,802)

(*)During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

 

       Loans and accounts receivable from customers                 
   Interbank   Commercial   Mortgage   Consumer           Additional     
As of September 30, 2017  loans   loans   loans   loans   Contingent loans   Provisions     
(Unaudited)  Individual   Individual   Group   Group   Group   Individual   Group   (*)   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$       MCh$ 
Charge-off of loans net of provisions   -    (11,115)   (39,980)   (13,839)   (75,385)   -    -    -    (140,319)
Provisions established   (297)   (48,319)   (79,556)   (20,765)   (115,367)   (6,481)   (3,676)   -    (274,461)
Total provisions and charge-offs   (297)   (59,434)   (119,536)   (34,604)   (190,752)   (6,481)   (3,676)   -    (414,780)
Provisions released (*)   300    48,593    17,963    11,139    40,471    9,941    1,354    -    129,761 
Recovery of loans previously charged-off   -    8,920    14,584    8,420    30,695    -    -    -    652,619 
Net charge to income   3    (1,921)   (86,989)   (15,045)   (119,586)   3,460    (2,322)   -    (222,400)

 

b)The detail for Charge-off to individually significant loans, is the following:

 

   Loans and accounts receivable from customers     
  Commercial   Mortgage   Consumer     
As of September 30, 2018  loans   loans   loans     
(Unaudited)  Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charge-off of loans   32,964    66,615    17,418    193,724    310,721 
Provision applied   (23,351)   (50,781)   (9,260)   (132,393)   (215,785)
Net charge offs of individually significant loans   9,613    15,834    8,158    61,331    94,936 

  

   Loans and accounts receivables from customers     
  Commercial   Mortgage   Consumer     
As of September 30, 2017  loans   loans   loans     
(Unaudited)  Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
Loan charge-off   41,290    71,078    16,127    168,951    297,446 
Provision applied   (30,175)   (31,098)   (2,288)   (93,566)   (157,127)
Net charge offs of individually significant loans   11,115    39,980    13,839    75,385    140,319 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 97 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 29

PERSONNEL SALARIES AND EXPENSES

 

a)Composition of personnel salaries and expenses:

 

As of September 30, 2018 and 2017, the composition for personnel salaries and expenses is the following:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
Personnel compensation   192,275    185,106 
Bonuses or gratuities   57,443    56,546 
Stock-based benefits   146    1,822 
Seniority compensation   11,796    18,766 
Pension plans   872    512 
Training expenses   2,969    2,293 
Day care and kindergarden   2,372    2,035 
Health and welfare funds   4,500    4,210 
Other personnel expenses   25,319    23,591 
Total   297,692    294,881 

 

Share-based compensation (settled in cash)

 

In accordance with IFRS 2, equity instruments settled in cash are allocated to executives of the Bank and its Subsidiaries as a form of compensation for their services. The Bank measures the services received and the cash obligation at fair value at the end of each reporting period and on the settlement date, recognizing any change in fair value in the income statement for the period.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 98 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 30

ADMINISTRATIVE EXPENSES

 

As of September 30, 2018 and 2017, the composition for administrative expenses is the following:

 

  

As of September 30,

(Unaudited)

 
   2018   2017 
   MCh$   MCh$ 
         
General administrative expenses   109,048    105,925 
Maintenance and repair of property, plant and equipment   16,059    15,733 
Office lease   21,934    19,867 
Equipment lease   101    137 
Insurance premiums   2,399    2,547 
Office supplies   4,676    5,801 
IT and communication expenses   31,689    28,626 
Lighting, heating, and other utilities   3,761    4,011 
Security and valuables transport services   9,573    9,505 
Representation and personnel travel expenses   3,035    3,703 
Judicial and notarial expenses   734    783 
Fees for technical reports and auditing   7,024    7,626 
Other general administrative expenses   8,063    7,586 
Outsourced services   49,286    41,045 
Data processing   25,145    26,616 
Archive service   2,235    2,895 
Valuation service   2,188    1,749 
Outsourced staff   7,652    4,497 
Other   12,066    5,288 
Board expenses   959    972 
Marketing expenses   13,482    13,884 
Taxes, payroll taxes, and contributions   10,305    10,074 
Real estate taxes   1,299    1,245 
Patents   1,345    1,330 
Other taxes   10    22 
Contributions to SBIF   7,651    7,477 
Total   183,080    171,900 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 99 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 31

DEPRECIATION, AMORTIZATION AND IMPAIRMENT

 

a)The values of depreciation and amortization during September 30, 2018 and 2017 are detailed below:

 

   As September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Depreciation and amortization          
Property, plant, and equipment depreciation   (39,932)   (39,217)
Intangible assets amortization   (17,806)   (16,251)
Total depreciation and amortization   (57,738)   (55,468)
Property, plant and equipment impairment   (39)   (354)
Intangible impairment   -    (5,290)
Totales   (57,777)   (61,112)

 

As of September 30, 2018, the impairment amount of fixed assets amounts to Ch$39 million (Ch$354 million as of September 30, 2017), mainly due to ATM looting. The imparment for intangibles amounts to Ch$5,290 as of September 30, 2017 due to project obsolescence.

 

b)The changes in book value due to depreciation and amortization for September 30, 2018 and 2017 are the following:

 

   Depreciation and amortization 
   Property, plant,   Intangible     
   and equipment   assets   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2018   (290,931)   (261,828)   (552,759)
Depreciation and amortization for the period   (39,932)   (17,806)   (57,738)
Sales and disposals in the period   30    -    30 
Other   -    -    - 
Balance as of September 30, 2018 (Unaudited)   (330,833)   (279,634)   (610,467)

  

   Depreciation and amortization 
   Property, plant,   Intangible     
   and equipment   assets   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2017   (235,622)   (239,628)   (475,250)
Depreciation and amortization for the period   (39,217)   (16,251)   (55,468)
Sales and disposals in the period   270    -    270 
Other   -    -    - 
Balance as of September 30, 2017 (Unaudited)   (274,569)   (255,879)   (530,448)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 100 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 32

OTHER OPERATING INCOME AND EXPENSES

 

a)Other operating income is conformed by the following concepts:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Income from assets received in lieu of payment          
Income from sale of assets received in lieu of payment   4,540    2,633 
Recovery of charge-offs and income from assets received in lieu of payment   11,798    13,279 
Other income from assets received in lieu of payment   1,183    6,821 
Subtotal   17,521    22,733 
Provisions released due to contingencies (1)          
Subtotal   10,349    17,799 
Other income          
Leases   170    199 
Income from sale of property, plant and equipment   318    21,953 
Recovery of provisions for contingencies   -    - 
Compensation from insurance companies due to damages   144    1,212 
Other   255    4,043 
Subtotal   887    27,047 
           
Total   28,757    67,939 

(1)The bank maintained provisions due to contingencies according to IAS 37, which resulted in favor of the bank.

 

b)Other operating expenses is conformed by the following concepts:

 

  

As of September 30,

(Unaudited)

 
   2018   2017 
   MCh$   MCh$ 
Allowances and expenses for assets received in lieu of payment          
Charge-offs of assets received in lieu of payment   11,795    23,464 
Provisions on assets received in lieu of payment   939    4,066 
Expenses for maintenance of assets received in lieu of payment   1,062    1,516 
Subtotal   13,796    29,046 
           
Credit card expenses   2,620    2,159 
Customer services   2,593    2,329 
Other expenses          
Operating charge-offs   365    1,513 
Life insurance and general product insurance policies   5,531    18,026 
Additional tax on expenses paid overseas   -    - 
Gain (Loss) for sale of PP&E   21    - 
Provisions for contingencies   82    - 
Retail association expense   669    620 
Other   6,589    18,978 
Subtotal   13,257    39,137 
           
Total   32,266    72,671 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 101 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE N°33

TRANSACTIONS WITH RELATED PARTIES

 

Associated and dependent entities are the Bank’s “related parties”. However, this also includes its “key personnel” from the executive staff (members of the Bank’s Board of Directors and Managers of Banco Santander-Chile and its affiliates, together with their close relatives), as well as the entities over which the key personnel could exercise significant influence or control.

 

The Bank also includes those companies that are part of the Santander Group worldwide as related parties, given that all of them have a common parent, i.e. Banco Santander S.A. (located in Spain).

 

Article 89 of the Ley de Sociedades Anónimas (Public Companies Act), which is also applicable to banks, states that any transaction with a related party must be made under equitable conditions similar to those that customarily prevail in the market.

 

Article 84 of the Ley General de Bancos (General Banking Act) establishes limits for loans that can be granted to related parties and prohibits lending to the Bank’s directors, General Manager, or representatives.

 

Transactions between the Bank and its related parties are specified below and have been divided into four categories:

 

Companies with relation to the Santander Group

 

This category includes all the companies that are controlled by the Santander Group around the world, and hence, it also includes the companies over which the Bank exercises any degree of control (Affiliates and special-purpose entities).

 

Associated companies

 

This category includes the entities over which the Bank exercises a significant degree of influence, in accordance with section b) of Note 1, and which generally belong to the group of entities known as “business support companies”.

 

Key personnel

 

This category includes members of the Bank’s Board of Directors and managers of Banco Santander-Chile and its affiliates, together with their close relatives.

 

Other

 

This category encompasses the related parties that are not included in the groups identified above and which are, in general, entities over which the key personnel could exercise significant influence or control.

 

The terms for transactions with related parties are equivalent to those which prevail in transactions made under market conditions or to which the corresponding considerations in kind have been attributed.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 102 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE N°33

TRANSACTIONS WITH RELATED PARTIES, continued

 

a)Loans to related parties

 

Loans and receivables as well as contingent loans are as follows:

 

  

As of September 30, 2018

  

As of December 31, 2017

 
   (Unaudited)     
   Companies               Companies             
   with               with             
   relation to               relation to             
   the               the             
   Santander   Associated   Key       Santander   Associated   Key     
   Group   companies   personnel   Other   Group   companies   personnel   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Loans and accounts receivable                                        
Commercial loans   141,592    434    2,990    7,831    80,076    771    3,947    7,793 
Mortgage loans   -    -    20,086    -    -    -    18,796    - 
Consumer loans   -    -    5,076    -    -    -    4,310    - 
Loans and account receivable   141,592    434    28,152    7,831    80,076    771    27,053    7,793 
                                         
Provision for loan losses   (329)   -    (87)   (29)   (209)   (9)   (177)   (18)
Net loans   141,263    434    28,065    7,802    79,867    762    26,876    7,775 
                                         
Guarantees   441,312    -    23,296    6,064    361,452    -    23,868    7,164 
                                         
Contingent loans                                        
Personal guarantees   -    -    -    -    -    -    -    - 
Letters of credit   7,240    -    -    125    19,251    -    -    33 
Performance guarantees   444,689    -    -    -    377,578    -    -    - 
Contingent loans   451,929    -    -    125    396,829    -    -    33 
                                         
Provision for contingent loans   (2)   -    -    -    (4)   -    -    1 
                                         
Net contingent loans   451,927    -    -    125    396,825    -    -    34 

 

Loans regarding activity with related parties during the periods of 2018 and is the following:

 

  

As of September 30, 2018

  

As of December 31, 2017

 
   (Unaudited)     
   Santander               Santander             
   Group   Associated   Key       Group   Associated   Key     
   companies   companies   personnel   Other   companies   companies   personnel   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Opening balances as of January 1,   476,906    771    27,051    7,826    546,058    532    26,423    7,100 
Loans granted   179,828    13    8,623    742    78,214    318    7,777    1,050 
Loan payments   (60,214)   (350)   (7,523)   (611)   (147,366)   (79)   (7,149)   (324)
                                         
Total   593,520    434    28,151    7,957    476,906    771    27,051    7,826 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 103 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

 

b)Assets and liabilities with related parties

 

  

As of September 30, 2018

  

As of December 31, 2017

 
   (Unaudited)     
   Companies               Companies             
   with               with             
   relation to               relation to             
   the               the             
   Santander   Associated   Key       Santander   Associated   Key     
   Group   companies   personnel   Other   Group   companies   personnel   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Assets                                        
Cash and deposits in banks   10,367    -    -    -    74,949    -    -    - 
Trading investments   -    -    -    -    -    -    -    - 
Investments under resale agreements   -    -    -    -    -    -    -    - 
Financial derivative contracts   379,965    105,623    -    -    545,028    86,011    -    14 
Available for sale investments   -    -    -    -    -    -    -    - 
Other assets   53,270    64,836    -    -    8,480    118,136    -    - 
                                         
Liabilities                                        
Deposits and other demand liabilities   36,040    14,131    2,571    423    24,776    25,805    2,470    221 
Obligations under repurchase   25,775    -    352    110    50,945    -    -    - 
agreements                                        
Time deposits and other time liabilities   2,139,953    -    3,734    811    785,988    27,968    3,703    3,504 
Financial derivative contracts   392,733    70,996    -    -    418,647    142,750    -    7,190 
Bank obligation   -    -    -    -    -    -    -    - 
Issued debts instruments   505,133    -    -    -    482,626    -    -    - 
Other financial liabilities   6,474    -    -    -    4,919    -    -    - 
Other liabilities   113,105    99,076    -    -    164,303    58,168    -    - 

 

c)Recognized income (expense) with related parties

  

  

As of September 30,

(Unaudited)

 
   2018   2017 
   Companies               Companies             
   with               with             
   relation to               relation to             
   the               the             
   Santander   Associated   Key       Santander   Associated   Key     
   Group   companies   personnel   Other   Group   companies   personnel   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Income (expense) recorded                                        
Income and expenses from interest and   (40,528)   (158)   922    374    (5,711)   (9)   109    77 
inflation                                        
Fee and commission income and expenses   100,420    5,901    196    17    11,347    12    47    7 
Net income (expense) from financial operations and foreign exchange   (251,347)   50,465    15    (2)   160,394    (22,079)   (1)   3 
Other operating income and expenses   934    (1,580)   -    -    256    10    -    - 
Key personnel compensation and expenses   -    -    (9,962)   -    -    -    (10,688)   - 
Administrative and other expenses   (40,528)   (38,578)   -    -    (7,956)   (11,257)   -    - 
                                         
Total   (231,049)   16,050    (8,829)   389    158,330    (33,323)   (10,533)   87 

(*)Relates primarily to derivative contracts used to economically hedge the exchange risk of assets and liabilities that hedge positions of the Bank and its subsidiaries.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 104 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

 

d)Board members and key management personnel payments

 

The compensation received by key management personnel, including Board members and all the executives holding manager positions is shown in the “Personnel salaries and expenses” and/or “Administrative expenses” of the Consolidated Interim Statement of Income and detailed as follows:

 

   As of September 30, 
   (Unaudited) 
   2018   2017 
   MCh$   MCh$ 
         
Personnel compensation   12,878    12,753 
Board member`s salaries and expenses   913    900 
Bonuses or gratuity   11,920    9,319 
Compensation in stock   146    1,822 
Training expenses   163    60 
Seniority compensation   1,133    2,589 
Health funds   215    208 
Other personnel expenses   681    602 
Pension Plans   872    512 
Total   28,921    28,765 

 

e)Key personnel composition

 

As of September 30, 2018 and December 31, 2017, the composition of the Bank’s key personnel is as follows:

 

   N° of executives 
Position 

As of September 30, 2018

  

As of December 31, 2017

 
   (Unaudited)     
Directors   11    11 
Division managers   12    13 
Managers   117    109 
Total key personnel   140    133 

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 105 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction on the main market (or the most advantageous) at the measurement date in the current market conditions (in other words, an exit price) regardless of whether that price is directly observable or estimated by using a different valuation technique. The measurement of fair value assumes the sale transaction of an asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.

 

For financial instruments with no available market prices, fair values have been estimated by using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community, In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.

 

These techniques are significantly influenced by the assumptions used, including the discount rate, the estimates of future cash flows and prepayment expectations. Hence, the fair value estimated for an asset or liability may not coincide exactly with the price at which that asset or liability could be delivered or settled on the date of its valuation, and may not be justified in comparison with independent markets.

 

Determination of fair value of financial instruments

 

Below is a comparison between the value at which the Bank’s financial assets and liabilities are recorded and their fair value as of September 30, 2018 and December 31, 2017:

 

   As of   As of 
  

September 30, 2018

  

December 31, 2017

 
   (Unaudited)     
   Book value   Fair value   Book value   Fair value 
   MCh$   MCh$   MCh$   MCh$ 
                 
Assets                    
Trading investments   273,568    273,568    485,736    485,736 
Financial derivative contracts   2,233,818    2,233,818    2,238,647    2,238,647 
Loans and accounts receivable from customers and interbank loans, (net)   28,428,857    31,445,639    26,910,141    28,518,929 
Investments available for sale   2,909,127    2,909,127    2,574,546    2,574,546 
Guarantee deposits (margin accounts)   389,847    389,847    323,767    323,767 
                     
Liabilities                    
Deposits and interbank borrowings   22,362,564    22,429,792    21,380,468    20,887,959 
Financial derivative contracts   2,072,108    2,072,108    2,139,488    2,139,488 
Issued debt instruments and other financial liabilities   8,269,942    8,861,008    7,335,683    7,487,591 
Guarantees received (margin accounts)   397,630    397,630    408,313    408,313 

 

Fair value is approximated to book value in the following accounts, due to their short-term nature in the following cases: cash and bank deposits, operations with liquidation in progress and buyback contracts as well as security loans.

 

In addition, the fair value estimates presented above do not attempt to estimate the value of the Bank’s profits generated by its business activity, nor its future activities, and accordingly, they do not represent the Bank’s value as a going concern.

 

Below is a detail of the methods used to estimate the financial instruments’ fair value.

 

a)Operations pending settlement, trading investments, available for sale investment instruments, repurchase agreements and securities loans

 

The estimated fair value of these financial instruments was established using market values or estimates from an available dealer, or quoted market prices of similar financial instruments. Investments with maturities of less than 1 year are evaluated at recorded value since they are considered as having a fair value not significantly different from their recorded value, due to their short maturity term. To estimate the fair value of debt investments or representative values in these lines of businesses, we take into consideration additional variables and elements, as long as they apply, including the estimate of prepayment rates and credit risk of issuers.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 106 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

b)Loans and accounts receivable from customers and interbank loans

 

Fair value of commercial, mortgage and consumer loans and credit cards is measured through a discounted cash flow (DCF) analysis. To do so, we use current market interest rates considering product, term, amount and similar loan quality. Fair value of loans with 90 days or more of delinquency are measured by means of the market value of the associated guarantee, minus the rate and term of expected payment. For variable rate loans whose interest rates change frequently (monthly or quarterly) and that are not subjected to any significant credit risk change, the estimated fair value is based on their book value.

 

c)Deposits

 

Disclosed fair value of deposits that do not bear interest and saving accounts is the amount payable at the reporting date and, therefore, equals the recorded amount. Fair value of time deposits is calculated through a discounted cash flow calculation that applies current interest rates from a monthly calendar of scheduled maturities in the market.

 

d)Short and long term issued debt instruments

 

The fair value of these financial instruments is calculated by using a discounted cash flow analysis based on the current incremental lending rates for similar types of loans having similar maturities.

 

e)Financial derivative contracts

 

The estimated fair value of financial derivative contracts is calculated using the prices quoted on the market for financial instruments having similar characteristics.

 

The fair value of interest rate swaps represents the estimated amount that the Bank expects to receive to cancel the contracts or agreements, considering the term structures of the interest curve, volatility of the underlying asset and credit risk of counterparties.

 

If there are no quoted prices from the market (either direct or indirect) for any derivative instrument, the respective fair value estimates have been calculated by using models and valuation techniques such as Black-Scholes, Hull, and Monte Carlo simulations, taking into consideration the relevant inputs/outputs such as volatility of options, observable correlations between underlying assets, counterparty credit risk, implicit price volatility, the velocity with which the volatility reverts to its average value, and the straight-line relationship (correlation) between the value of a market variable and its volatility, among others.

 

Fair value and hierarchy measurement

 

IFRS 13 - Fair Value Measurement, provides a hierarchy of reasonable values which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. The three levels of the hierarchy of fair values are the following:

 

· Level 1: the inputs are quoted prices (unadjusted) on active markets for identical assets and liabilities that the Bank can access on the measurement date.

 

· Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

· Level 3: inputs are unobservable inputs for the asset or liability.

 

The hierarchy level within which the fair value measurement is categorized in its entirety is determined based on the lowest level of input that is significant to the fair value measurement in its entirety.

 

The best evidence of a financial instrument’s fair value at the initial time is the transaction price (Level 1).

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 107 

 

 

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

In cases where quoted market prices cannot be observed, Management makes its best estimate of the price that the market would set using its own internal models which in most cases use data based on observable market parameters as a significant input (Level 2) and, in very specific cases, significant inputs not observable in market data (Level 3). Various techniques are employed to make these estimates, including the extrapolation of observable market data.

 

Financial instruments at fair value and determined by quotations published in active markets (Level 1) include:

 

-Chilean Government and Department of Treasury bonds

 

Instruments which cannot be 100% observable in the market are valued according to other inputs observable in the market (Level 2).

 

The following financial instruments are classified under Level 2:

 

Type of
financial instrument
  Model
used in valuation
  Description
       

Internal Rates of Return (“IRRs”) are provided by RiskAmerica, according to the following criterion:

If, at the valuation day, there are one or more valid transactions at the Santiago Stock

· Mortgage and private bonds   Present Value of Cash Flows Model  

Exchange for a given mnemonic, the reported rate is the weighted average amount of the observed rates.

In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on historical spread for the same item or similar ones.

IRRs are provided by RiskAmerica, according to the following criterion:

If, at the valuation day, there are one or more valid transactions at the Santiago Stock

· Time deposits   Present Value of Cash Flows Model  

Exchange for a given mnemonic, the reported rate is the weighted average amount of the observed rates.

In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves.

· Constant Maturity Swaps (CMS), FX and Inflation Forward (Fwd) , Cross Currency Swaps (CCS), Interest Rate Swap (IRS)   Present Value of Cash Flows Model   IRRs are provided by ICAP, GFI, Tradition, and Bloomberg according to this criterion: With published market prices, a valuation curve is created by the bootstrapping method and is then used to value different derivative instruments.
· FX Options   Black-Scholes  

Formula adjusted by the volatility smile (implicit volatility), Prices (volatility) are provided by BGC Partners, according to this criterion:

With published market prices, a volatility surface is created by interpolation and then these volatilities are used to value options.

 

In limited occasions significant inputs not observable in market data are used (Level 3). To carry out this estimate, several techniques are used, including extrapolation of observable market data or a mix of observable data.

 

The following financial instruments are classified under Level 3:

 

Type of

financial instrument

 

Model

used in valuation

  Description
· Caps/ Floors/ Swaptions   Black Normal Model for Cap/Floors and Swaptions   There is no observable input of implicit volatility.
· UF options   Black Scholes   There is no observable input of implicit volatility.
· Cross currency swap with window   Hull-White   Hybrid HW model for rates and Brownian motion for FX, There is no observable input of implicit volatility.
· CCS (special contracts)   Implicit Forward Rate Agreement (FRA)   Start Fwd unsupported by MUREX (platform) due to the UF forward estimate.
· Cross currency swap, Interest rate swap, Call money swap in Tasa Activa Bancaria (Active Bank Rate) TAB   Present Value of Cash Flows Model   Validation obtained by using the interest curve and interpolating at flow maturities, but TAB is not a directly observable variable and is not correlated to any market input.
· Bonds (in our case, low liquidity bonds)   Present Value of Cash Flows Model   Valued by using similar instrument prices plus a charge-off rate by liquidity.

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 108 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

The Bank does not believe that any change in unobservable inputs with respect to level 3 instruments would result in a significantly different fair value measurement.

 

The following table presents the assets and liabilities that are measured at fair value on a recurring basis, as of September 30, 2018 and December 31, 2017.

 

   Fair value measurement 
As of September 30,                
(Unaudited)  2018   Level 1   Level 2   Level 3 
   MCh$   MCh$   MCh$   MCh$ 
                 
Assets                    
Trading investments   392,013    337,454    54,559    - 
Available for sale investments   2,495,623    2,470,596    24,356    671 
Derivatives   2,230,448    -    2,217,441    13,007 
Guarantee deposits (margin accounts)   237,380    -    237,380    - 
Total   5,355,464    2,808,050    2,533,736    13,678 
                     
Liabilities                    
Derivatives   2,086,532    -    2,086,532    - 
Guarantees received (margin accounts)   371,516    -    371,516    - 
Total   2,458,048    -    2,458,048    - 

 

 

   Fair value measurement 
As of December 31,  2017   Level 1   Level 2   Level 3 
   MCh$   MCh$   MCh$   MCh$ 
                 
Assets                    
Trading investments   485,736    481,642    4,094    - 
Available for sale investments   2,574,546    2,549,226    24,674    646 
Derivatives   2,238,647    -    2,216,306    22,341 
Guarantee deposits (margin accounts)   323,767    323,767    -    - 
Total   5,622,696    3,354,635    2,245,074    22,987 
                     
Liabilities                    
Derivatives   2,139,488    -    2,139,481    7 
Guarantees received (margin accounts)   408,313    408,313    -    - 
Total   2,547,801    408,313    2,139,481    7 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 109 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

The following table presents the Bank’s activity for assets and liabilities that aren’t measured at fair value in the consolidated financial statements. Their fair value is shown as of September 30, 2018 and December 31, 2017:

 

   Fair value measurement 
As of September 30,                
(Unaudited)  2018   Level 1   Level 2   Level 3 
   MCh$   MCh$   MCh$   MCh$ 
                 
Assets                    
Loans and accounts receivable and Interbank Loans   29.862.574    -    -    29.862.574 
Total   29.862.574    -    -    29.862.574 
                     
Liabilities                    
Deposits and Interbank borrowing   22.641.126    -    22.641.126    - 
Issued debt instruments and other liabilities   9.077.110    -    9.077.110    - 
Total   31.718.236    -    31.718.236    - 

  

   Fair value measurement 
As of December 31,  2017   Level 1   Level 2   Level 3 
   MCh$   MCh$   MCh$   MCh$ 
                 
Assets                    
Loans and accounts receivable and Interbank Loans   28,518,929    -    -    28,518,929 
Total   28,518,929    -    -    28,518,929 
                     
Liabilities                    
Deposits and Interbank borrowing   20,887,959    -    20,887,959    - 
Issued debt instruments and other liabilities   7,487,591    -    7,487,591    - 
Total   28,518,929    -    28,518,929    - 

 

There weren’t any transfers made between level 1 and 2 for the periods ended as of September 30, 2018 and December 31, 2017.

 

The following table presents the Bank’s activity for assets and liabilities measured at fair value on a recurrent basis using unobserved significant entries (Level 3) as of September 30, 2018 and 2017:

 

   Assets   Liabilities 
   MCh$   MCh$ 
         
As of January 1, 2018   22,987    7 
Total realized and unrealized profits (losses)          
Included in statement of income   (9,334)   (7)
Included in other comprehensive income   25    - 
Purchases, issuances, and loans (net)   -    - 
           
As of September 30, 2018 (Unaudited)   13,678    - 
           
Total profits or losses included in comprehensive income as of September 30, 2018 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2017   (9,309)   (7)

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 110 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

   Assets   Liabilities 
   MCh$   MCh$ 
         
As of January 1, 2017   40,034    43 
           
Total realized and unrealized profits (losses)          
Included in statement of income   (3,143)   (28)
Included in other comprehensive income   12    - 
Purchases, issuances, and loans (net)   -    - 
           
As of September 30, 2017 (Unaudited)   36,879    15 
           
Total profits or losses included in comprehensive income at September 30, 2017 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2016   (3,155)   (28)

 

The realized and unrealized profits (losses) included in comprehensive income for 2018 and 2017, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the Interim Statement of Comprehensive Income in the associate line item.

 

The potential effect as of September 30, 2018 and 2017 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant entries (level 3), generated by changes in the principal assumptions if other reasonably possible assumptions that are less or more favorable were used, is not considered by the Bank to be significant.

 

The following tables show the financial instruments subject to compensation in accordance with IAS 32, for 2018 and 2017:

 

  

As of September 30, 2018

 
   (Unaudited) 
   Linked financial instruments, compensated in
balance
         
                     
               Remains of     
               unrelated and /     
               or   Amount in 
           Net amount   unencumbered   Statements of 
       Compensated   presented in   financial   Financial 
   Gross amounts   in balance   balance   instruments   Position 
   Ch$ Million   Ch$ Million   Ch$ Million   Ch$ Million     
Assets                         
Financial derivative contracts   1,938,037    -    1,938,037    292,411    2,230,448 
Investments under resale agreements   -    -    -    -    - 
Loans and accounts receivable from customers, and Interbank loans, net   -    -    -    29,167,634    29,167,634 
Total   1,938,037    -    1,938,037    29,460,045    31,398,082 
                          
Liabilities                         
Financial derivative contracts   1,762,128    -    1,762,128    324,404    2,086,532 
Investments under resale agreements   180,001    -    180,001    -    180,001 
Déposits and interbank borrowings   -    -    -    22,554,796    22,554,796 
Total   1,942,129    -    1,942,129    22,879,200    24,821,329 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 111 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

  

As of December 31, 2017

 
   Linked financial instruments, compensated in
balance
         
               Remains of     
               unrelated and /     
               or   Amount in 
           Net amount   unencumbered   Statements of 
       Compensated   presented in   financial   Financial 
   Gross amounts   in balance   balance   instruments   Position 
   Ch$ Million   Ch$ Million   Ch$ Million   Ch$ Million     
Assets                         
Financial derivative contracts   2,029,657    -    2,029,657    208,990    2,238,647 
Investments under resale agreements   -    -    -    -    - 
Loans and accounts receivable from customers, and Interbank loans, net   -    -    -    26,910,141    26,910,141 
Total   2,029,657    -    2,029,657    27,119,131    29,148,788 
Liabilities                         
Financial derivative contracts   1,927,654    -    1,927,654    211,834    2,139,488 
Investments under resale agreements   268,061    -    268,061    -    268,061 
Déposits and interbank borrowings   -    -    -    21,380,467    21,380,467 
Total   2,195,715    -    2,195,715    21,592,301    23,788,016 

 

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 112 

 

  

Banco Santander-Chile and Subsidiaries

 

Notes to the Consolidated Financial Statements

 

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

 

NOTE 35

SUBSEQUENT EVENTS

 

There are no other subsequent events to be disclosed that occurred between October 1, 2018 and the date of issuance of these Interim Consolidated Financial Statements (October 22, 2018).

 

FELIPE CONTRERAS FAJARDO MIGUEL MATA HUERTA
Chief Accounting Officer Chief Executive Officer

  

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 113 

 

 

 

 

 

 

SIGNATURE

 

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

 

  BANCO SANTANDER-CHILE  
     
  By: /s/ Cristian Florence  
  Name: Cristian Florence  
  Title: General Counsel  

 

Date: November 20, 2018