Since the use of these exchange rates does not create material differences, these criteria have been kept in the Consolidated Interim Financial Statements.

 

The amounts of net foreign exchange profits 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.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

g)	Definitions and classification of financial instruments

i.	Definitions

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

A “capital instrument” or “net equity instrument” is a legal transaction that evidences a residual interest in the assets of the entity which issues it after deduction of all its liabilities.

A “financial derivative” is a financial instrument whose value changes in response to the changes in an observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument 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.

ii.	Classification of financial assets for measurement purposes

The financial assets are initially classified into the various categories used for management and measurement purposes.

Financial assets are included for measurement purposes in one of the following categories:

-

Portfolio of trading investments (at fair value with the changes recorded in the Consolidated Statement of Income): this category includes the financial assets acquired for the purpose of generating a profit in the short term from fluctuations in their prices. This category includes the portfolio of trading investments and financial derivative contracts not designated as hedging instruments.

-

Available-for-sale investment instrument portfolio: debt instruments not classified as “held-to-maturity investments,” “Credit investments (loans and accounts receivable from customers or interbank loans)” or “Financial assets at fair value through profit or loss.” Available for sale investments are initially recorded at cost, which includes transactional costs. Available-for-sale instruments are subsequently valued at their fair value, or based on appraisals made with the use of internal models when appropriate. Unrealized profits or losses stemming from changes of fair value are recorded as a debit or credit to equity accounts (“Valuation accounts”). When these investments are divested or become impaired, the adjustments to accumulated fair value in equity are transferred to the Consolidated Statement of Income under “Net income from financial o perations.”

-

Held-to-maturity instrument portfolio: this category includes debt securities traded on an active market, with a fixed maturity, and with fixed or determinable payments, for which the Bank has both the intent and a proven ability to hold to maturity. Held to maturity investments are recorded at their cost plus interest earned, minus provisions for impairment established when their recorded value exceeds the estimated recoverable value.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

  

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

-

Credit investments (loans and accounts receivable from customers or interbank loans): this category includes financing granted to third parties, based on their nature, regardless of the type of borrower and the form of financing. Includes loans and accounts receivable from customers, interbank loans, and financial lease transactions in which the consolidated entities act as lessors.

iii.	Classification of financial assets for presentation purposes

Financial assets are classified by their nature into the following line items in the consolidated financial statements:

-

Cash and deposits in banks: Cash balances, checking accounts and on-demand deposits with the Chilean Central Bank and other domestic and foreign financial institutions. Amounts placed in overnight transactions will continue to be reported in this line item and in the lines or items to which they correspond. If there is no special item for these transactions, they will be included with the related account as indicated above.

-	Unsettled transactions: This item includes the values of swap instruments and balances of executed transactions which contractually defer the payment of purchase-sale transactions or the delivery of the foreign currency acquired.

-	Trading investments: This item includes financial instruments intended to be traded and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading.

-

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 hedging, as shown in Note 6 to the Consolidated Interim Financial Statements.

-	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 hedging instruments in hedge accounting, including the embedded derivatives separated from the hybrid financial instruments designated as hedging instruments in hedge accounting.

-	Interbank loans: This item includes the balances of transactions with domestic and foreign banks, including the Chilean Central Bank, other than those reflected in the preceding items.

-

Loans and accounts receivable 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 benefits incidental to the leased asset, the transaction is presented in loans..

-

Investment instruments: These are classified into two categories: held-to-maturity investments and available-for-sale instruments. The held-to-maturity investment category includes only those instruments for which the Bank has the ability and intent to hold them until their maturity. Other investment instruments are treated as available for sale.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

iv.	Classification of financial liabilities for measurement purposes

Financial liabilities are initially classified into the various categories used for management and measurement purposes.

Financial liabilities are classified for measurement purposes into one of the following categories:

-

Financial liabilities held for trading (at fair value through profit or loss): Financial liabilities issued to generate a short-term profit from fluctuations in their prices, financial derivatives not deemed to qualify for hedge accounting and financial liabilities arising from definitive sales of financial assets purchased under resale agreements or borrowed (“short positions”).

-	Financial liabilities at amortized cost: Financial liabilities, regardless of their type and maturity, not included in any of the aforementioned categories which arise from the borrowing activities of financial institutions, whatever their form of implementation and maturity.

v.	Classification of financial liabilities for presentation purposes

Financial liabilities are classified by their nature into the following line items in the consolidated financial statements:

 

-

Demand deposits and other demand obligations. This item 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; i.e., operations which become callable the day after the closing date are not treated as on-demand obligations.

-	Unsettled transactions: This item includes the balances of asset purchases that are not settled on the same day and for sales of foreign currencies not delivered.

-	Investments under repurchase agreements: This item includes the balances of sales of financial instruments under securities repurchase and loan agreements.

-	Time deposits and other liabilities: This item 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 item includes financial derivative contracts with negative fair values, whether they are for trading or for account hedging purposes, as set forth in Note 7.

-

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

-

Hedging derivatives: Includes the fair value of the derivatives designated as hedge accounting instruments, including embedded derivatives separated from hybrid financial instruments and designated as hedge accounting instruments.

-	Interbank borrowings: This item includes obligations due to other domestic banks, foreign banks, or the Chilean Central Bank, which were not classified in any of the previous categories.

-	Debt instruments issued: This encompasses three items. They are obligations under letters of credit, subordinated bonds, and senior bonds.

-	Other financial obligations: This item includes credit obligations to persons distinct from other domestic banks, foreign banks, or the Chilean Central Bank, for financing purposes or operations in the regular course of business.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

h)	Valuation and recording of financial asset and liability results

In general, financial assets and liabilities are initially recorded at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss are adjusted by actual transaction costs. They are subsequently measured at each period-end as follows:

i.	Valuation of financial assets

Financial assets are valued according to their fair value, gross of any transaction costs that may be incurred for their sale, except for loans and accounts receivable.

The “fair value” of a financial instrument on a given date is the amount for which it could be bought or sold on that date by two knowledgeable, willing parties in an arm’s length transaction, acting prudently. The most objective and common reference for the fair value of a financial instrument is the price that would be paid on an active, transparent, and deep market (“quoted price” or “market price”).

If there is no market price for a given financial instrument, its fair value is estimated based on the price established in recent transactions involving similar instruments and, in the absence thereof, of valuation techniques commonly used by the international financial community, considering the specific features of the instrument to be valued, and particularly, the various types of risk associated with it.

All derivatives are recorded in the Consolidated Interim Statements of Financial Position at the fair value from their trade date. If their fair value is positive, they are recorded as an asset, and if their fair value is negative, they are recorded as a liability. The fair value of 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 from financial operations” in the Consolidated Interim Statement of Income.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

 

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 and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar 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), option pricing models among other methods.

“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, by repayments of principal and the cumulative amortization (recorded in the income statement) of the difference between the initial cost and the maturity amount. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility. For loans and accounts receivable hedged by fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded.

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 coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, are a part of the financial return. For floating-rate financial instruments, the effective interest rate coincides with the rate of return prevailing until the next benchmark interest reset date.

Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying assets and are settled by delivery of those instruments are measured at acquisition cost, adjusted, where appropriate, by any related impairment loss.

The amounts at which the financial assets are recorded represent, in all material respects, the Bank’s maximum exposure to credit risk at each 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 leased out under leasing and rental agreements, assets acquired under repurchase agreements, securities loans and derivatives.

 

ii.	Valuation of financial liabilities

In general, financial liabilities are measured at amortized cost, as defined above, except for those included under financial liabilities designated as hedged items (or hedging instruments) in fair value hedges, which are measured at fair value.

iii.	Valuation techniques

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

In cases where quotations cannot be observed, Management makes its 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 and, in very specific cases, they use significant inputs not observable in market data. Various techniques are employed to make these estimates, including the extrapolation of observable market data and extrapolation techniques.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the value of the instrument can be obtained from other market transactions performed with the same or similar instruments or can be measured by using a valuation technique in which the variables used include only observable market date, mainly interest rates.

The main techniques used as of June 30, 2010 and December 31, 2009 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.

The fair value of the financial instruments arising from the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and shares, volatility and prepayments, among other things. The 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.

 

iv.	Recording results

 

As a general rule, changes in the carrying amount of financial assets and liabilities are recorded in the Consolidated Statement of Income, distinguishing between those arising from the accrual of interest, which are recorded under interest income or interest expense as appropriate, and those arising for other reasons. Finally they are recorded at their net amount under “Net income from financial operations”.

In the case of trading investments, the fair value adjustments, interest income, indexation adjustments, such as realized profits/losses from trading, are included in the Consolidated Interim Statement of Income under “Net income from financial operations.”

Adjustments due to changes in fair value from:

-         “Available-for-sale instruments” are recorded as part of the Bank’s consolidated net equity (Other comprehensive income) until they are removed from the Consolidated Interim Statements of Financial Position in which they originated, at which time they are recorded in the Consolidated Interim Statement of Income.

-         Items debited or credited to “Valuation adjustments” remain in the Bank’s consolidated net equity until the related assets are removed, whereupon they are charged to the Consolidated Interim Statement of Income.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

v.	Hedging transactions

The consolidated entities use 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 of assets and liabilities (“hedging derivatives”), and

iii)

to obtain profits from changes in the prices of these derivatives (“trading derivatives”).

All financial derivatives that do not qualify for hedge accounting 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 fair value of assets and liabilities due to fluctuations, among others, in 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.	In fair value hedges, the profits or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recorded directly in the Consolidated Interim Statement of Income.

In fair value hedges of interest rate risk on a portfolio of financial instruments, the profits or losses that arise in measuring the hedging instruments are recorded directly in the Consolidated Interim Statement of Income, whereas the profits or losses due to changes in the fair value of the hedged amount (attributable to the hedged risk) are recorded in the Consolidated Interim Statement of Income with an offset to “Adjustments to financial assets for macro-hedges” or “Adjustments to financial liabilities for macro-hedges,” as the case may be.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

b.

In cash flow hedges, the effective portion of the change in value of the hedging instrument is recorded temporarily in Other comprehensive income under “Valuation adjustments - Cash flow hedges” until the forecasted transaction occurs, when it is then recorded in the Consolidated Interim Statement of Income, unless the forecasted transaction results in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recorded directly in the Consolidated Interim Statement of Income.

c.	The ineffective portion of the profits and losses on the hedging instruments of cash flow hedges is recorded directly under “Net income from financial operations” in the Consolidated Interim Statement of Income.

If a derivative designated as a hedge no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a “trading derivative”. When “fair value hedge accounting” is discontinued, the adjustments previously recorded on the hedged item are transferred to profit or loss at the effective interest rate recalculated at the date of hedge discontinuation. The adjustments are fully amortized at maturity.

When “cash flow hedges” are discontinued, any cumulative profit or loss on the hedging instrument recorded in Other comprehensive income under “Valuation adjustments” (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 profit or loss is recorded immediately in the Consolidated Interim Statement of Income.

vi.	Derivatives embedded in hybrid financial instruments

Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if their risks and characteristics are not closely related to those of the host contracts, provided that the host contracts are not classified as “Other financial assets (liabilities) at fair value through profit or loss” or as “Portfolio of trading investments”.

vii.	Offsetting of financial instruments

Financial asset and liability balances are offset, i.e., reported in the Consolidated Interim Statement of Financial Position at their net amount, only if the subsidiaries currently have a legally enforceable right to offset the recorded amounts and intend either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

viii.

Removal of financial assets and liabilities from accounts

The accounting treatment of transfers of financial assets depends on the extent to 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 to third parties, as in the cases of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sale of financial assets with a purchase call option or written put option deeply out of the money, utilization of assets in which the assignor does not retain subordinated debt or grant any credit enhancement to the new holders, and other similar cases, the transferred financial asset is removed from the Consolidated Interim Statements of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

ii.

If the Bank retains substantially all the risks and rewards associated with the transferred financial asset, as in the case of sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not removed from the Consolidated Interim 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:

1.

An associated financial liability, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.

 

2.

Both the income from the transferred financial asset not removed and any expenses incurred on the new financial liability.

iii.

If the Bank neither transfers nor substantially retains all the risks and rewards associated with the transferred financial asset —as in the cases of sale 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:

1.

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

2.

If the transferor retains control of the financial asset transferred, it continues to be recorded 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 removed from the Consolidated Interim Statement of Financial Position when the rights over the cash flows they generate have been extinguished or when all the inherent risks and rewards have been substantially transferred to third parties. Similarly, financial liabilities are only removed from the Consolidated Interim Statement of Financial Position when the obligations they generate have been extinguished or when they are acquired, with the intent to either cancel or resell them.

i)	Recognizing revenue and expenses

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

i.	Interest revenue, interest expenses, and similar items

Interest revenue and expense are recorded on an accrual basis using the effective interest method. Dividends received from other companies are recorded as revenue when the consolidated entities’ right to receive them arises.

Notwithstanding, when a given operation or transaction is past due by 90 days or more, when it originated in a refinancing or renegotiation, or when the Bank considers 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.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

As interest are generally referred to as "suspended" and are recorded in memorandum accounts which are not part of the Consolidated Interim Statement of Financial Position but are reported as part of the information complementary thereto (Note 22). The dividends received from companies, classified as "Investments in other companies," are recorded in income when the right to receive them arises.

ii.	Commissions, fees, and similar items

Fee and commission income and expenses are recognized in the Consolidated Interim Statement of Income using criteria that vary according to their nature. The main criteria are:

-	Fees and commission income and expeses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognized when paid.

-	Those arising from transactions or services that are performed over a period of time are recorded over the life of these transactions or services.

-	Those relating to services provided in a single act are recorded when the single act is completed.

iii.	Non-finance income and expenses

These are recorded for accounting purposes on an accrual basis.

iv.	Loan arrangement fees

Loan arrangement fees, mainly loan origination and application fees, are accrued and recorded in the Consolidated Interim Statement of Income over the term of the loan. For loan origination fees, the portion relating to the associated direct costs incurred in the loan arrangement is recorded immediately in the Consolidated Interim Statement of Income.

j)	Impairment

i.	Financial assets:

A financial asset 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 that can be reliably estimated. It might not be possible to identify a single event that was the individual cause of the impairment.

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 cash flows, discounted at the effective interest rate.

 

An impairment loss relating to a financial asset available for sale is calculated based on its fair value.

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 cumulative loss relating to a financial asset available for sale previously recorded in equity is transferred to income.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

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. In the case of financial assets recorded at amortized cost and for the financial assets available for sale that are securities for sale, the reversal is recorded in income. In the case of financial assets that are variable-rate securities, the reversal is directly recorded in equity.

ii.	Non-financial assets:

The Bank’s non-financial assets, excluding investment properties, are reviewed at each closing date to determine whether they show signs of impairment. If this evidence exists, the asset recovery amount is then estimated.

In relation to other assets, impairment losses recorded in prior periods are assessed at each filing date in search of any indication that the loss has decreased or disappeared and should be reversed. An impairment loss is reversed to the extent that it is not in excess of the cumulative impairment loss that has been recorded.

k)	Property, plant and equipment

This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures 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 (including among other things 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) are presented at acquisition cost less the related accumulated depreciation and any impairment losses (net carrying amount is higher than recoverable amount).

For these purposes, the acquisition cost of awarded assets is equivalent to the net amount of financial assets surrendered in exchange for its award.

Depreciation is calculated using the straight line method over the acquisition cost of assets minus their residual value, meaning that the land on which buildings and other structures sit have an indefinite life and, therefore, are not subject to amortization.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

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

ITEM	Useful Life (Months)
Land	-
Paintings and works of art	-
Assets retired for disposal	-
Carpets and curtains	36
Computers and hardware	36
Vehicles	36
Computational systems and software	36
ATMs	60
Machines and equipment in general	60
Office furniture	60
Telephone and communication systems	60
Security systems	60
Rights over telephone lines	60
Air conditioning systems	84
Installations in general	120
Security systems (acquisitions since October 2002)	120
Buildings	1,200

The consolidated entities assess at the reporting date whether there is any indication that any of their tangible assets’ carrying amount exceeds its recoverable amount; if this is the case, the carrying amount of the asset is reduced to its recoverable amount and future amortization charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if the useful life needs to be re-estimated.

Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities record the reversal of the impairment loss recorded in prior periods and adjust the future amortization charges accordingly. In no circumstance may the reversal of an impairment loss on an asset increase its carrying value above the one it would have if no impairment losses had been recorded in prior years.

The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at least at the end of the reporting period to detect significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the amortization 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 (property, plant and equipment) held for own use are recorded as an expense in the period in which they are incurred.

ii.	Assets leased out under an operating lease

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 the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

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 the consolidated entities act as the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value, which is generally the exercise price of the lessee’s purchase option at the end of the lease term, is recorded as loans to third parties and is therefore included under “Loans and accounts receivable from customers” in the Consolidated Interim Statements of Financial Position.

When the consolidated entities act as lessees, they show the cost of the leased assets in the Consolidated Interim Statements of Financial Position based on the nature of the leased asset, and simultaneously record 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 of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for own use.

In both cases, the finance revenues and expenses arising from these contracts is 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.

When the consolidated entities act as the lessor, they present the acquisition cost of the leased assets under “Property, plant and equipment.” The depreciation policy for these assets is consistent with that for similar items of tangible assets (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 the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Administrative expenses” in the Consolidated Interim Statements 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 for 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 through the effective interest method over the financing period.

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

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued:

n)	Intangible assets

Intangible assets are identified as non-monetary assets (separately from other assets) without physical substance which arise as a result of a legal transaction or are developed internally by the consolidated entities. They are assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated.

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

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.

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

The estimate of useful life for software is 3 years.

o)	Cash and cash equivalents

For the preparation of the cash flow statement, the indirect method was used, beginning 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 investment or financing activities.

For the preparation of the cash flow statement, the following is considered:

i.

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

ii.

Operational activities: Normal activities performed by banks and other activities that cannot be classified as investing or financing activities.

iii.

Investing activities: The acquisition, sale, or disposal by other means of long-term assets and other investments not included in cash and cash equivalents.

iv.

Financing activities: Activities that result in changes in the size and composition of net assets and liabilities that are not part of operational activities or investments.

p)	Allowances for loan losses

The Bank records provisions for probable loan losses in accordance with its internal models. These models for rating and evaluating credit risk were approved by the Bank’s Board of Directors.

According to the methodology developed by the Bank, loans are divided into three categories:

i.

Consumer loans,

ii.

Mortgage loans, and

iii.

Commercial loans.

The specialization of the Santander Bank’s risk function is based on the type of customer and, accordingly, a distinction is

made between individualized customers that is individually evaluated and standardized customers, evaluated in groups in the risk management process

The internal risk models used to calculate the allowances are described as follows:

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

Allowances  for individual evaluations on commercial loans

For large commercial loans, leasing and factoring, the Bank assigns a risk category level to each borrower and his respective loans. The Bank considers the following risk factors within the analysis: industry or sector of the borrower, owners or managers of the borrower, their financial situation, their payment capacity and payment behavior. The Bank assigns one of the following risk categories to each loan and borrower:

 

i.

Classifications A1, A2 and A3, correspond to borrowers with no apparent credit risk.

ii.

Classifications B, correspond to borrowers with some credit risk but no apparent deterioration of payment capacity.

iii.

Classifications C1, C2, C3, C4, D1 and D2 correspond to borrowers whose loans have deteriorated.

 

For loans classified as A1, A2, A3 and B, the Bank assigns a specific level of risk to each borrower and, therefore, amount of loan loss allowance is determined on a case by case basis .  All commercial loans for Companies, including leasing and factoring, have since been rated using a model for evaluating and calculating provisions on an individual basis .  Since a debtor’s behavior varies over time, in order to determine the provisions, it is necessary to make a distinction between normal debtors and deteriorated debtors.

 
 For loans classified in Categories C1, C2, C3, C4, D1, and D2, the Bank must maintain the following levels of reserves:

Classification		Estimated range of loss		Allowance
C1		Up to 3%		2%
C2		More than 3% and up to 19%		10%
C3		More than 19% and up to 29%		25%
C4		More than 29% and up to 49%		40%
D1		More than 49% and up to 79%		65%
D2		More than 79%		90%

Borrowers with insufficient payment capacity in foreseeable circumstances are classified under these categories. The categories listed above relate to a classification based on the level of expected loss of commercial loans and leasing transactions of the customer’s business as a whole, quantified according to the methodology used by the Bank.

For purposes of determining provisions amount, the percentage associated with the estimated loss rate is applied to the total credit.

Allowances for group evaluations

Banco Santander Chile uses group analysis for determining the provisioning levels for certain types of loans. These models are intended to be used primarily to analyze loans to individuals (including consumer loans, lines of credit, mortgage loans and commercial loans to individuals) and commercial loans, primarily to small and some mid-sized companies. Provisions are determined using these models to determine a historical loss rate by segment and risk profile of each group of clients.

The provisioning models for consumer loans segments these loans in four groups, each with its own model:

·

New clients, not renegotiated

·

Old clients, not renegotiated

·

New clients, renegotiated

·

Old clients, renegotiated

Each consumer model is segmented by risk profile which is based on a scorecard statistical model that establishes a relation through regressions between various variables, such as payment behavior in the Bank, payment behavior outside the Bank,

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

various socio-demographic data, among others, and a response variable that determines a client’s risk level, which in this case is 90 days non-performance. Once the scorecards have been determined, risk profiles are established that are statistically significant with similar expected loss levels or charge-off vintage.

The expected loss rates for consumer loans are defined by the “Vintage of Net Charge-Offs” (charge-offs net of recoveries). This methodology establishes the period in which the expected loss is maximized. Once this period is obtained its is applied to each risk profile of each model to obtain the net charge-off level associated with this period.

For group evaluation of commercial loans the industry or sector of the borrower, owners or managers of the borrower, the borrower’s financial situation, its payment capacity and payment behavior are used as the main variables for determining the risk profile. For group evaluation of mortgage loans we consider the borrower’s credit history, including any defaults on obligations to other creditors, as well as the overdue periods on the loans borrowed from us. The expected loss rates are then determined using historical averages and other statistical estimates depending on the segment and loan product.

Additional provisions

Under the SBIF banking regulations, banks are permitted to establish provisions in excess of the limits described above, but only to cover specific risks that have been authorized by their Boards of Directors.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

Charge-offs

As a general rule, charge-offs must be made when the contractual rights over cash flows expire. For loans, even when the foregoing has not occurred, charge-offs must be made against the respective asset balances in accordance with Title II, Chapter B-2, of the SBIF’s Compendium of Accounting Standards.

The charge-offs in question take the form of the elimination of the asset at issue in the respective operation from the general Statements of Financial Position, accordingly including the portion that may not have become due in the case of an installment loan or a leasing operation (there are no partial charge-offs).

Charge-offs must always be recorded through a charge against the loan loss provisions created as prescribed in Chapter B-1 of the Compendium of Accounting Standards, whatever the cause of the charge-off may be.

Charge-offs of loans and accounts receivable are based on due, past-due and current installments, and the term must run from the commencement of the arrears, i.e., the charge-off must be recorded when the arrears on an installment or portion of a loan in a given operation reaches the time limit for charge-off stipulated below:

Type of loan		Term
Consumer credits, with or without real securities		6 months
Other transactions without real securities		24 months
Commercial credits with real securities		36 months
Housing mortgage credits		48 months
Leasing of consumer assets		6 months
Other non-real estate leasing transactions		12 months
Real estate leasing (commercial or housing)		36 months

The term is the time elapsed from the date on which the payment of all or a part of the obligation in arrears becomes enforceable.

Subsequent payments obtained in charged-off operations must be recorded in the Consolidated Interim Statement of Income as Recoveries of charged-off loans.

Any renegotiation of a previously charged-off loan will not give rise to income as long as the operation continues to be deemed impaired; the payments actually received must be treated as recoveries of charged-off loans.

A renegotiated loan can be returned to assets only if it ceases to be deemed deteriorated or impaired; the income from its reclassification as an asset must likewise be recorded as a recovery of charged-off loans.

Recoveries of previously charged-off loans and accounts receivable

Recoveries of previously charged-off loans and accounts receivable from customers are recorded directly to income and presented as a reduction of the provision for loan losses in the Consolidated Interim Statement of Income.

q)	Provisions, contingent assets and contingent liabilities

Provisions are liabilities that have uncertainty in terms of their amount or maturity. These provisions are recorded in the Consolidated Interim Statement of Financial Position when the following requirements are simultaneously met:

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

i.	It is a present obligation as a result of past events, and

ii.	As of the date of the financial statements it is likely that the Bank will have to expend resources to settle these obligations and the amount of these resources can be reliably measured.

Contingent assets or contingent liabilities are any possible rights or possible obligations arising from past events whose existence will be confirmed only if one or more uncertain future events that are not under the Bank’s control occur.

The following are classified as contingent in the complementary information:

i.	Guarantees and bonds: Guarantees, bonds, and standby letters of credit. In addition, guarantees of payment from buyers in factored receivables.

ii.	Confirmed foreign letters of credits: Letters of credit confirmed by the Bank.

iii.	Documentary letters of credit: Includes documentary letters of credit issued by the Bank, which have not yet been negotiated.

iv.	Documented guarantees: Guarantees with promissory notes.

v.	Interbank guarantees: Guarantees issued.

vi.	Unrestricted credit lines: The unused amount of credit lines that allow customers to draw without prior approval by the Bank (for example, using credit cards or overdrafts in checking accounts).

vii.	Other credit commitments: Amounts not yet lent under committed loans, which must be disbursed at an agreed future date when events contractually agreed upon with the customer occur, such as in the case of lines of credit linked to the progress of a construction or similar projects.

viii.

Other contingent credits: Includes any other kind of commitment by the Bank which may exist and give rise to lending when certain future events occur. In general, this includes unusual transactions such as pledges made to secure the payment of loans among third parties or derivative contracts made by third parties that may result in a payment obligation and are not covered by deposits.

The consolidated annual accounts reflect all significant provisions for which it is estimated that the need to meet the obligation is more likely than not.

Provisions (which are quantified using the best available information on the consequences of the event and are re-estimated at each accounting close) are used to address the specific obligations for which they were originally recorded. Partial or total reversals are recorded when those obligations cease to exist or decrease.

Provisions are classified according to the related obligations as follows:

-	Provisions for staff salaries and benefits.

-	Provision for mandatory dividends.

-	Provisions for contingent credit risks.

-	Provisions for contingencies.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

r)	Deferred income taxes and other 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, according to the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability is settled.  The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law approving such changes is published.

As of June 30, 2010 and December 31, 2009, the bank has recognized deferred tax assets; as management has determined that it is probable that taxable profits will be available against which the temporary differences of tax losses can be utilized at the end of each reporting period.

The effects of deferred taxes because of temporary differences between the tax basis and the carrying amount balances are recorded on an accrual basis, according to IAS 12.

s)	Use of estimates

The preparation of the financial statements requires Management to make estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may diverge from these estimates.

In certain cases generally accepted accounting principles require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the amount at which an asset could be bought or sold, or in the case of a liability could be incurred or settled, in a current transaction between willing parties instead of a forced settlement or sale. Where available, quoted market prices in active markets have been used as the basis for measurement. Where 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 modeling and other valuation techniques.

The Bank has established provisions to cover possible losses in accordance with regulations issued by the Superintendency of Banks and Financial Institutions. These regulations require that, to estimate the provisions, they must be regularly evaluated 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 Credit risk are reflected as “Allowances for loan losses” in the Consolidated Interim Statement of Income.  Loans are charged off when management determines that the loan or a portion thereof is uncollectible. Charge-offs are recorded as a reduction of the allowance for loan losses.

The relevant estimates and assumptions are regularly reviewed by the Bank’s Management to quantify any 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.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

These estimates, made on the basis of the best available information, chiefly refer to:

- Losses for impairment of certain assets (Notes 8, 9, and 10)

- The useful lives of tangible and intangible assets (Notes 11, 12, and 29)

- The fair value of assets and liabilities (Notes 6, 7, 10, and 32)

- Commitments and contingencies (Note 19)

- Current and deferred taxes (Note 13)

t)	Non-current assets held for sale

Non-current assets (or a group which includes assets and liabilities for disposal) expected to be recovered mainly through sales rather than through continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are re-measured in accordance with the Bank’s policies. The assets (or disposal group) are measured at the lower of book value or fair value minus cost of sale.

Any impairment loss on disposal is first allocated to goodwill and then to the remaining assets and liabilities on a pro rata basis, except when no losses have been recorded in financial assets, deferred assets, employee benefit plan assets, and investment property, which are still evaluated according to the Bank’s accounting policies. Impairment losses on the initial classification of held-for-sale assets and profits and losses from the revaluation are recorded in income. Profits are not recorded if they outweigh any cumulative loss.

As of June 30, 2010 and December 31, 2009 the Bank has not classified any non-current assets as held for sale.

Assets received or inawarded in lieu of payment

Assets received or awarded in lieu of payment of loans and accounts receivable from customers are recorded, in the case of assets received in lieu of payment, at the price agreed by the parties, or otherwise, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction.

These assets are subsequently valued at the lower of initially recorded value or net realizable value, which corresponds to their fair value (liquidity value determined through an independent appraisal) minus the cost of sales associated therewith.

At least once a year the Bank performs the analyses needed to update its determination of the cost of sale for this category of assets. As of December 31, 2009 an estimated average cost of sale (cost of holding and divestiture) of 5.9% of the appraised value was determined; as of June 30, 2009, the current average cost of sale is 6.5%.

 

u)	Earnings per share

Basic earnings per share are determined by dividing the net income attributable to the Bank in a period by the weighted average number of shares outstanding during the period.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

Diluted earnings per share are determined in the same way as Basic Earnings, but the weighted average number of outstanding shares is adjusted to take into account the potential diluting effect of stock options, warrants, and convertible debt.

As of June 30, 2010 and 2009, the Bank has no instruments which generate diluting effects on shareholders' equity.

 

v)	Temporary acquisition (assignment) of assets

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

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

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

The assets managed by the different companies that are within the Bank’s perimeter of consolidation (Santander Asset Management S.A., Administradora General de Fondos and Santander S.A. Sociedad Securitizadora), which are the property of third parties are not included in the Consolidated Interim Statement of Financial Position. The relevant management fees are included in the balance of the “Fee and commission income” item in the Consolidated Interim Statement of Income.

x)	Provision for mandatory dividends

As of June 30, 2010 and December 31, 2009 the Bank recorded a provision for mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, pursuant to which 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 deducting item, under the “Retained earnings – Provisions for mandatory dividends” line of the Consolidated Interim Statement of Financial Position.

y)	Personnel Benefits

i.     Defined benefit plans:

The Bank records under the “Provisions” line in the Consolidated Interim Statements of Financial Position (or in assets under “Other assets,” depending on the sign of the difference) the present value of its post-employment defined benefit obligations, net of the fair value of the “plan assets” and of the unrecorded accumulated net actuarial profits and/or losses, revealed in the valuation of these commitments which are deferred by virtue of the treatment of the so-called “fluctuation band,” and of the “Cost for past services”, the recognition of which is deferred in time as explained below.

“Plan assets” are deemed to be those with which the obligations will be settled and which meet the following requirements:

-	They are not the property of the consolidated entities, but that of legally separate third parties that are not related to the Bank.

-

They are available only to pay or fund post-employment benefits and cannot return to the consolidated entities except when the assets remaining in the plan are sufficient to fulfill all the obligations of the plan or the entity in relation to the benefits due current or past employees or to reimburse employee benefits previously paid by the Bank.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

If the Bank can demand that the insurance companies pay a part or all of the disbursement required to settle a defined benefit obligation, it being practically certain that said insurer will reimburse any or all of the disbursements required to pay off that obligation, but the insurance policy does not fulfill the requirements to be a plan asset, the Bank records its right to reimbursement in assets of the Consolidated Interim Statements of Financial Position under “Other assets,” which is treated as a plan asset in all other respects.

These benefits plans, which are registered according to IAS 19 “Employee benefits”, are not significant for the financial statements.

Actuarial profits and losses are deemed to be those arising from the differences between previous actuarial assumptions and changes in actual fact, and changes in the actuarial assumptions used. For the plans, the Bank applies the “fluctuation band” criterion, whereby it records the amount determined by dividing by five the higher of the net value of the accumulated actuarial profits and/or losses not recorded at the beginning of each period and exceeding 10% of the current value of the obligations or 10% of the fair value of the assets at the beginning of the period in the Consolidated Interim Statement of Income.

“Cost of past services” — which is originated by changes made to existing post-retirement benefits or the introduction of new benefits — is recorded in the Consolidated Statement of Income on a straight line basis over the period beginning on the date on which the new commitments arose to the date on which the employee has an irrevocable right to receive the new benefits.

Post-employment benefits are recorded in the Consolidated Interim Statement of Income as follows:

-	The cost of services for the current period (understood as the increase in the current value of the obligations arising as a consequence of the services provided by the employees during the period) under the “Personnel salaries and expenses” item.

-

The interest expense (understood as the increase in current value of the obligations as a consequence of the passage of time which occurs during the period). When the obligations are shown in liabilities in the Consolidated Interim Statements of Financial Position net of the plan assets, the cost of the liabilities which are recorded in the Consolidated Interim Statement of Income reflects exclusively the obligations recorded in liabilities.

-	The expected return on assets allocated to hedge the commitments and the profits and losses in their value, minus any cost arising from their management and the taxes to which they are subject.

-

Amortization of the actuarial profits and losses in the application of the “fluctuation band” treatment and in the unrecorded past cost of services. The actuarial gains and losses calculated using the corridor approach and the unrecognized past service cost, are registered under “Personnel salaries and expenses” in the Consolidated Interim Statement of Income.

ii.     Seniority compensation:

Seniority compensation for years of employment are recorded only when they actually occur or when it is prescribed in a formal and detailed plan in which the basic changes to be made are identified, provided that plan has already begun to be implemented or its principal features have been publicly announced, or objective facts about its execution are known.

ii.     Share-based compensation:

The allocation of equity instruments to executives of the Bank and its affiliates as a form of compensation for their services, when those instruments are provided at the end of a specific period of employment, is recorded as an expense in the Consolidated Interim Statement of Income under the “Personnel salaries and expenses” item, as the relevant executives provide their services over the course of the period.

These benefits do not generate diluting effects, since they are based on shares of Banco Santander S.A. (the parent company of Banco Santander Chile, headquartered in Spain).

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:

z)	Consolidated Interim Statement of Changes in Equity

The Consolidated Statement of Changes in Equity presents all the changes occurring in net equity, including those produced by changes in accounting criteria and the correction of errors. Accordingly, this statement provides a reconciliation of book value at the beginning and end of the period for all items in consolidated net equity, grouping the changes into the following items on the basis of their nature:

 

i.

Adjustments for changes in accounting criteria and the correction of errors: Including the changes in consolidated net equity arising as a consequence of the retroactive restatement of the financial statement balances as a consequence of changes in the accounting criteria or in the correction of errors.

ii.	Revenues and expenses recorded in the period: Reflecting in aggregate form all the items recorded in the Consolidated Interim Statement of Income indicated above.

aa)	Consolidated Interim Statement of Comprehensive Income

This represents the income and expenses generated by the Bank as a result of its business activity in the year, separately disclosing the income and expenses recorded in the Consolidated Interim Statement of Income for the period and the other income and expenses recorded directly in consolidated equity.

Accordingly, this statement presents:

i.	Consolidated income for the period.

 

ii.	The net amount of the income and expenses temporarily recorded in consolidated equity under valuation adjustments.

 

iii.	The net amount of income and expenses permanently recorded in consolidated equity.

 

iv.	The income tax incurred from the items indicated in ii) and iii), above, except for the valuation adjustments arising from investments in associated or multi-group companies accounted by using the equity method, which are presented net.

 

v.	Total recorded consolidated income and expenses, calculated as the sum of the above items, presenting separately the amount attributable to the Bank shareholders and the amounts relating to non controlling interests.

 

 

ab)	New accounting pronouncements

i.	SBIF Circulars:

In 2010, the SBIF published new guidelines (Circular #3,476 and #3,489) for classifying and provisioning of the loan portfolio that will be mandatory as of January 1, 2011. The impact that these changes will have on our financial results are still being calculated. Such changes will impact our income starting on January 1, 2011. Additionally, as part of the SBIF new guidelines (Circular#3,502) banks must apply a minimum provision of 0.5% for Normal Loans  as of July 2010. This modification will have an impact of Ch$14,000 million and will be recognized in monthly installments in the second half of 2010.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

ii.	IASB Pronouncements

IASB Pronouncements	Application
Amendment of IAS 32 Classification of Rights Issues	Annual periods beginning on or after February 1, 2011
Revision of IAS 24, Related Party Disclosures	Annual periods beginning on or after January 1, 2011
CINIIF 19, Cancellation of financial liabilities with Equity Instruments	Annual periods beginning on or after July 1, 2010
NIIF 9, Classification and Measurement	Annual periods beginning on or after January 1, 2013
Improvements to IFRS – May 2010	Annual periods beginning on or after January 1, 2011
Amendments to IFRIC 14, Prepayments of a Minimum Funding Requirement	Annual periods beginning on or after January 1, 2011

The importance of each of these pronouncements to be applied is explained below:

1.

Amendment of IAS 32 classification of rights issues.

This amendment relates to the classification of issued rights to acquire shares (rights, options, or warrants) denominated in foreign currency. According to this amendment, when these rights are for the acquisition of a fixed number of shares for a fixed amount, they are equity instruments, regardless of the currency in which that fixed amount is denominated, provided other requirements stipulated by the standard are fulfilled.

Management has no issued instruments with these characteristics, so this amendment will have no impact whatsoever.

2.

IAS 24 Related party disclosures.

This review of IAS 24 addresses the details of related parties to be made in the financial statements. There are two basic changes: One of them introduces a partial exemption for certain details when the list of related parties is produced because they are entities dependent on or related to the State (or an equivalent government agency), and the definition of related party is revised to clarify certain relationships that had previously not been explicit in the standard.

Management has analyzed the impact of this amendment and considers that it will not lead to any change in the related parties currently defined by Management.

3.

CINIIF 19 Cancellation of debt with equity instruments.

This interpretation addresses the accounting treatment from the point of view of the debtor of the total or partial cancellation of a financial liability through the issuance of equity instruments to the lender. The interpretation does not apply to this kind of operation when the counterparts in question are shareholders or related parties and act as such, or when the debt-equity swap was already provided for in the provisions of the original contract. In this case the issuance of equity instruments will be measured at its fair value on the date of cancellation of the liability, and any difference between that value and the carrying value of the liability will be recorded in the Consolidated Interim Statement of Income.

Management estimates that this interpretation will not result in any change of accounting policies.

4.

NIIF 9 Classification and measurement

This standard will eventually replace the current IAS 39 in its entirety. Among other changes is the elimination of the "financial instruments available for sale" and "held to maturity" categories.

The Management is currently examining the impact of this new standard's application. However, the SBIF has not yet authorized the use of this standard.

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

5.

Improvements to IFRS

On 6 May 2010, the International Accounting Standards Board (IASB) issued Improvements to IFRSs 2010 – incorporating amendments to seven International Financial Reporting Standards (IFRSs). This is the third collection of amendments issued under the annual improvements process, which is designed to make necessary, but non-urgent, amendments to IFRSs.

6.

Prepayments of a Minimum Funding Requirement

IFRIC 14 IAS 19 –The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction has been amended to remedy an unintended consequence of IFRIC 14 where entities are in some circumstances not permitted to recognize prepayments of minimum funding contributions, as an asset.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 2 - ACCOUNTING CHANGES:

Circular #3,489, issued on December 29, 2009, makes revisions in several chapters of the SBIF Compendium of Accounting Standards.

Commencing in January 2010, the Bank must complement the basis on which it currently determines the insolvency provisions for contingent operations, now including the freely available lines of credit, other contingent credits, and other credit commitments. The Bank must also apply the changes in risk exposure applicable to the contingent credits, which appear in Chapter B-3 of the SBIF’s Compendium of Accounting Standards. The cumulative effect of these changes must be recorded in equity (retained earnings) in the Consolidated Interim Statement of Financial Position. The impact of this change amounted to Ch$ 63,448 million (Approximately Ch$ 52,662 million, net of deferred taxes) attributed to equity.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 3 - SIGNIFICANT EVENTS:

As of June 30, 2010, the following significant events have occurred and had an impact on the Bank’s operations or the financial statements:

a)  The Board:

The following persons met at a Regular Shareholders Meeting held on April 27, 2010, under the Chairmanship of Mr. Mauricio Larraín Garcés (Chairman): Jesús María Zabalza Lotina (First Vice Chairman), Oscar von Chrismar Carvajal (Second Vice Chairman), Víctor Arbulú Crousillat, Claudia Bobadilla Ferrer, Marco Colodro Hadjes, Vittorio Corbo Lioi, Carlos Olivos Marchant, Roberto Méndez Torres, Lucía Santa Cruz Sutil, Roberto Zahler Mayanz, Raimundo Monge Zegers (Alternate Director) and Juan Manuel Hoyos Martínez de Irujo (Alternate Director). Also present were the General Manager, Mr. Claudio Melandri Hinojosa, and the Accounting Manager, Mr. Felipe Contreras Fajardo.

As of June 30, 2010 there have been no changes in the Board.

Allocation of the income of the period and dividens distribution

As expressed at this meeting, the liquid profits for the 2009 period (referred to in the financial statements as "Income attributable to Bank shareholders" pursuant to the new Compendium of Accounting Standards issued by the Superintendency of Banks), came to Ch$ 431,253,139,805. The Meeting approved the distribution of 60% of those profits, which upon being divided by the number of issued shares yields a dividend of Ch$ 1.37308147 per share, which began to be paid commencing April 28, 2010. The Meeting also approved allocating the remaining 40% of the profits to increasing the Bank's reserves.

b) Bank bonds issued in 2010

In 2010 the Bank issued Bank Bonds totaling UF 9,000,000 and USD 500 million, the detail of which is provided below.

b.1) Senior bonds issued in 2010

Series	Amount	Term	Issue Rate	Date of Issue	Maturity Date
F7	UF 3,000,000 (i)	4.5 years	3.3% per annum simple	11/01/2009	05/01/2014
F8	UF 3,000,000 (ii)	4.5 years	3.6% per annum simple	01/01/2010	07/01/2014
F9	UF 3,000,000 (iii)	5 years	3.7% per annum simple	01/01/2010	01/01/2015
Total	UF 9,000,000
Floating Bond	USD 500,000,000 (iv)	2 years	Libor (3 months) + 125 bp	04/15/2010	04/12/ 2012
Total	USD 500,000,000

(i) On November 1, 2009 a line of corresponding bank bonds titled Series F7, totaling UF 3,000,000, was registered in the securities registry of the Superintendency of Banks and Financial Institutions. Placements of these Bonds in the current period have reached UF 3,000,000, accounting for the entire issue.

(ii) At the end of June 2010, UF 3,000,000 of placements have been made, accounting for the entire Series F8 issue.

(iii) At the end of June 2010, UF 102,000 of placements in the current period have been made, with a face value of UF 2,898,000 of the Series F9 issue remaining to be placed.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 3 - SIGNIFICANT EVENTS, continued:

(iv) Senior Bond for USD 500,000,000, at a floating rate and maturing on April 12, 2012; the Bond was issued in a private placement among institutional buyers qualified in accordance with Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"). This issue received an Aa3 (stable) /A + (stable) rating, and is the first one from this kind of emerging market to be issued since the beginning of the financial crisis.

b.2) Subordinated bonds issued in 2010

In 2010 the Bank has not placed Subordinated bonds on the Market.

c) Sale of branches

In April Banco Santander Chile sold 5 Branches. At the time of the sale the carrying value of all these assets was Ch$ 4,926 million and their sale price totaled Ch$ 11,546 million, generating a profit of Ch$ 6,620 million, which is included in the other operating revenue item.

In June Banco Santander Chile sold 11 Branches. At the time of the sale the carrying value of all these assets was Ch$ 8,139 million and their sale price totaled Ch$ 14,494 million, generating a profit of Ch$ 6,355 million, which is included in the other operating revenue item.

d) Changes of subsidiaries’ names:

In 2010 the following subsidiary changed its Corporate Name:

On March 31, 2010 it was unanimously resolved at a Special Shareholders Meeting to transform Santander S.A. Agente de Valores sociedad anónima from a corporation into a limited liability company, whose name is Santander Agente de Valores Limitada.

e) Cession of previously charged-off loans:

On March 10 Banco Santander signed a charged-off loan cession agreement with Inversiones Santa Alicia S.A. As of June 30 the following portfolio sales have been made, the detail of which follows;

On April 29 a contract was signed for the sale of Flow Portfolio for March, payment for which was made in the act. The face value of the placement portfolio that was charged off was Ch$ 29,376 million and the sale value was Ch$ 1,909 million. For the payments received, up to the date on which this portfolio is disabled (the first business day of the month) the Bank recorded a Ch$ 225 million allowance based on the estimates of its expected recovery.

On May 24 a contract was signed for the sale of Flow Portfolio for April, payment for which was made in the act. The face value of the placement portfolio that was charged off was Ch$ 9,372 million and the sale value was Ch$ 609 million. For the payments received, up to the date on which this portfolio is disabled (the first business day of the month) the Bank recorded a Ch$ 26 million allowance based on the estimates of its expected recovery.

On June 22 a contract was signed for the sale of Flow Portfolio for April, payment for which was made in the act. The face value of the placement portfolio that was charged off was Ch$ 8,245 million and the sale value was Ch$ 536 million. For the payments received, up to the date on which this portfolio is disabled (the first business day of the month) the Bank recorded a Ch$ 105 million allowance based on the estimates of its expected recovery.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 4 - BUSINESS SEGMENTS:

The Bank manages and measures the performance of its operations by business segment. The information included in this note is not necessarily comparable to that of other financial institutions, since it is based on the internal information system for management by segment which has been adopted by the Bank. However, the valuation and classification of each segment’s assets, liabilities, and income is consistent with the accounting criteria indicated in Note 01 d) of the consolidated financial statements.

Inter-segment transactions are 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.

The Bank is comprised of the following business segments:

Individuals

a.	Santander Banefe

Serves individuals with monthly incomes of Ch$ 150,000 to Ch$ 400,000, who receive services through Santander Banefe. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, mortgage loans, debit cards, savings products, mutual funds, and insurance.

b.	Commercial Banking

Serves individuals with monthly incomes exceeding Ch$ 400,000. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign trade, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stock brokerage, and insurance.

Small and mid-sized companies (PYMEs)

Serves small companies with annual sales of less than Ch$ 1,200 million. This segment gives customers a variety of products, including commercial loans, government-guaranteed loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, savings products, mutual funds, and insurance.

Institutional

Serves institutions such as universities, government agencies, and municipal and regional governments. This segment provides a variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, savings products, mutual funds, and insurance.

Companies

The Companies segment is composed of Commercial Banking and Company Banking, where sub-segments of medium-sized companies, real estate companies (Real Estate), and large corporations are found:

a.

Companies

Serves companies with annual sales exceeding Ch$ 1,200 million and up to Ch$ 10,000 million. This segment provides a wide variety of 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.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 4 - BUSINESS SEGMENTS, continued:

b.	Real estate

This segment also includes all the companies engaged in the real estate industry. These clients are offered not only the traditional banking services but also specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.

It brings together all the real estate companies that carry out projects to sell properties to third parties and all the builders with annual sales exceeding Ch$ 800 million, with no ceiling.

c.	Large corporations

The sub-segment of companies whose annual sales exceed Ch$ 10,000 million. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investment banking, saving products, mutual funds, and insurance.

 

 

Global Banking and Markets

 

The Global Banking and Markets segment is comprised of:

 

a.

Corporate

Foreign multinational corporations or Chilean corporations whose sales exceed Ch$ 10,000 million. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investment banking, saving products, mutual funds, and insurance.

 

b.

Treasury

 

The Treasury Division provides sophisticated financial products, chiefly to companies in the Wholesale Banking area and the Companies segment. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products. The Treasury area also handles intermediation of positions and manages the owned investment portfolio.

 

 

Corporate Activities (“Other”)

 

This segment includes Financial Management, which performs global foreign exchange structural position management functions, those involving the parent company’s structural interest risk, and those having to do with liquidity risk. The latter are provided through issues and utilizations. Treasury also manages the Bank’s own funds, provision of capital to each unit, and the financing cost of the investments that are made. All this normally results 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.

 

The segments’ accounting policies are the same as those described in the summary of accounting policies, and are customized to meet the needs of the Bank’s management. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. The highest decision-making authority in each segment is based chiefly on interest income, fee and commission income and provision for expenses to assess the segments’ performance and thereby be able to make decisions regarding the resources to be allocated to each one.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 4 - BUSINESS SEGMENTS, continued:

To achieve the strategic objectives adopted by the top management and adapt to changing market conditions, the Bank makes changes in its organization from time to time, which in turn have a greater or lesser impact on how it is managed or administered.

Hence, this disclosure furnishes information on how the Bank is managed as of June 30, 2010. The information for the previous year (2009) has been prepared on the basis of the criteria in force at the closing date for these financial statements, to achieve a proper comparability of figures.

 

Specifically, commencing January 1, 2010 the Individuals, PYME, Institutional and Companies segments now comprise Commercial Banking, which reports directly to the General Manager. The Global Banking and Markets segment continues to report to the organization's Executive Vice President.

 

The tables shown below illustrate the Bank's income by business segment for the periods ending in June 2010 and June 2009, as well as the balances of loans and accounts receivable from customers on June 30, 2010 and December 31, 2009:

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 4 - BUSINESS SEGMENTS, continued:

		For the quarter ending on June 30, 2010
		Net interest income				Net fee and commission income				ROF (2)				Provisions for loan losses				Support expenses (3)				Segment’s net contribution
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Segments
Individuals			130,891				46,355				615				(40,090	)			(73,746	)			64,025
Santander Banefe			25,373				7,724				3				(17,097	)			(16,512	)			(509	)
Commercial Banking			105,518				38,631				612				(22,993	)			(57,234	)			64,534
Small and mid-sized companiess (PYMEs)			49,213				8,629				1,820				(12,353	)			(17,316	)			29,993
Institutional			5,115				669				573				(185	)			(2,624	)			3,548
Companies			31,117				5,967				4,380				(3,572	)			(9,058	)			28,834
Companies			14,305				2,866				1,934				(4,533	)			(4,271	)			10,301
Large corporations			12,605				2,381				2,179				185				(3,650	)			13,700
Real estate			4,207				720				267				776				(1,137	)			4,833
Commercial Banking			216,336				61,620				7,388				(56,200	)			(102,744	)			126,400
Global banking and markets			11,991				6,168				15,384				(472	)			(7,673	)			25,398
Corporate			11,313				5,970				-				(472	)			(2,917	)			13,894
Treasury			678				198				15,384				-				(4,756	)			11,504
Other			14,455				(2,630	)			2,269				720				(7,570	)			7,244
Totals			242,782				65,158				25,041				(55,952	)			(117,987	)			159,042

Other operating income	19,951
Other operating expenses	(17,648)
Income from investments in other companies	223
Income tax expense	(24,163)
Consolidated income for the period	137,405

 

(2) Corresponds to the sum of the net income from financial operations and foreign exchange profit (loss), net.

(3) Corresponds to the sum of administrative expenses plus personnel salaries and expenses plus depreciation and amortization and impairment.

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 4 - BUSINESS SEGMENTS, continued:

		For the quarter ending on June 30, 2009
		Net interest income				Net fee and commission income				ROF (2)				Provisions for loan losses				Support expenses (3)				Segment’s net contribution
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Segments
Individuals			135,497				41,362				410				(70,840	)			(68,965	)			37,464
Santander Banefe			29,799				7,360				6				(23,802	)			(17,432	)			(4,069	)
Commercial Banking			105,698				34,002				404				(47,038	)			(51,533	)			41,533
Small and mid-sized firms (PYMEs)			52,174				9,591				2,575				(17,366	)			(15,202	)			31,772
Institutional			4,730				502				51				(121	)			(1,718	)			3,444
Companies			36,510				5,954				2,917				(5,608	)			(8,054	)			31,719
Companies			16,849				2,725				1,004				(2,533	)			(3,587	)			14,458
Large corporations			15,023				2,584				1,822				(3,719	)			(3,216	)			12,494
Real estate			4,638				645				91				644				(1,251	)			4,767
Commercial Banking			228,911				57,409				5,953				(93,935	)			(93,939	)			104,399
Global banking and markets			(4,784	)			5,837				7,191				(1,025	)			(6,841	)			378
Corporate			13,754				5,969				-				(1,025	)			(3,300	)			15,398
Treasury			(18,538	)			(132	)			7,191				-				(3,541	)			(15,020	)
Other			2,484				(101	)			16,512				(1,077	)			(3,319	)			14,499
Totals			226,611				63,145				29,656				(96,037	)			(104,099	)			119,276

 

Other operating income			2,928
Other operating expenses			7,821
Income from investments in other companies			440
Income tax expense			(21,816	)
Consolidated income for the period			108,649

 

(2) Corresponds to the sum of the net income from financial operations and foreign exchange profit (loss), net.

(3) Corresponds to the sum of administrative expenses plus personnel salaries and expenses plus depreciation and amortization and impairment.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 4 - BUSINESS SEGMENTS, continued:

		For the 6-month period ending on June 30, 2010
		Loans and Accounts Receivable from Customers(1)				Net interest income				Net income from fees and commissions				ROF (2)				Provisions for loan losses				Support expenses (3)				Net contribution of the segment
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Segments
Individuals			7,715,031				260,833				89,909				1,083				(82,964	)			(140,766	)			128,095
Santander Banefe			629,494				51,009				15,587				5				(31,813	)			(31,024	)			3,764
Commercial Banking			7,085,537				209,824				74,322				1,078				(51,151	)			(109,742	)			124,331
Small and mid-sized companies (PYMEs)			2,210,170				97,017				17,541				3,184				(28,292	)			(33,053	)			56,397
Institutional			330,980				9,795				1,256				1,212				(253	)			(4,923	)			7,087
Companies			2,983,741				63,139				12,404				7,266				(14,259	)			(16,417	)			52,133
Companies			1,213,826				28,456				5,641				3,074				(6,395	)			(7,870	)			22,906
Large corporations			1,293,173				26,360				5,257				3,761				(9,278	)			(6,494	)			19,606
Real estate			476,742				8,323				1,506				431				1,414				(2,053	)			9,621
Commercial Banking			13,239,922				430,784				121,110				12,745				(125,768	)			(195,159	)			243,712
Global banking and markets			1,347,855				21,949				11,556				35,800				(643	)			(15,715	)			52,947
Corporate			1,340,847				23,120				12,042				-				(643	)			(5,743	)			28,776
Treasury			7,008				(1,171	)			(486	)			35,800				-				(9,972	)			24,171
Other			36,233				19,447				(5,157	)			6,069				272				(11,112	)			9,519
Totals			14,624,010				472,180				127,509				54,614				(126,139	)			(221,986	)			306,178

 

Other operating income			26,016
Other operating expenses			(30,204	)
Income from investments in other companies			343
Income tax expense			(45,923	)
Consolidated income for period			256,410

(1) Corresponds to loans and accounts receivable from customers plus interbank loans, without deduction of their respective allowances for loan losses.

(2) Corresponds to the sum of the net income from financial operations and foreign exchange profit (loss), net.

(3) Corresponds to the sum of administrative expenses plus personnel salaries and expenses plus depreciation and amortization and impairment.

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 4 - BUSINESS SEGMENTS, continued:

		For the 6-month period ending on June 30, 2009																								December 31, 2009
		Net interest income				Net fee and commissions income				ROF (2)				Provisions for loan losses				Support expenses (3)				Segment’s net contribution				Loans and Accounts Receivable from Customers(1)
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Segments
Individuals			272,166				81,481				1,100				(137,133	)			(133,860	)			83,754				7,287,296
Santander Banefe			60,409				13,993				11				(45,619	)			(30,596	)			(1,802	)			609,808
Commercial Banking			211,757				67,488				1,089				(91,514	)			(103,264	)			85,556				6,677,488
Small and mid-sized companies (PYMEs)			106,332				20,120				5,042				(38,681	)			(29,275	)			63,538				2,097,592
Institutional			9,738				979				378				(34	)			(3,382	)			7,679				291,867
Companies			74,279				11,719				8,710				(9,179	)			(15,354	)			70,175				2,779,165
Companies			33,108				5,751				4,281				(2,990	)			(6,981	)			33,169				1,092,162
Large corporations			31,464				4,780				4,297				(6,917	)			(6,038	)			27,586				1,239,888
Real estate			9,707				1,188				132				728				(2,335	)			9,420				447,115
Commercial Banking			462,515				114,299				15,230				(185,027	)			(181,871	)			225,146				12,455,920
Global banking and markets			(45,331	)			10,403				43,829				(1,071	)			(14,143	)			(6,313	)			1,266,310
Corporate			33,660				10,814				-				(1,071	)			(6,311	)			37,092				1,266,310
Treasury			(78,991	)			(411	)			43,829				-				(7,832	)			(43,405	)			-
Other			(3,300	)			74				39,412				(873	)			(6,373	)			28,940				29,045
Totals			413,884				124,776				98,471				(186,971	)			(202,387	)			247,773				13,751,275

Other operating income			5,426
Other operating expenses			(27,710)
Income from investments in other companies			766
Income tax expense			(38,075)
Consolidated income for period			188,180

 

(1) Corresponds to loans and accounts receivable from customers plus interbank loans, without deduction of their respective allowances for loan losses.

(2) Corresponds to the sum of the net income from financial operations and foreign exchange profit (loss), net.

(3) Corresponds to the sum of administrative expenses plus personnel salaries and expenses plus depreciation and amortization and impairment.

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 5 - CASH AND CASH EQUIVALENTS:

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

 

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Cash and bank deposits
Cash			358,801				418,987
Deposits in the Chilean Central Bank			390,579				988,978
Deposits in domestic banks			241				255
Foreign deposits			649,260				635,238
Subtotals - Cash and bank deposits			1,398,881				2,043,458
Unsettled transactions, net			183,707				192,660
Total cash and cash equivalents			1,582,588				2,236,118

 

The level of funds in cash and at the Chilean Central Bank reflects regulations governing the reserves that the Bank must maintain on the average in monthly periods.

b)	Unsettled transactions

Unsettled transactions are transactions in which only the settlement remains, which will increase or decrease funds in the Chilean Central Bank or in foreign banks, normally within the next 24 to 48 business hours from the close of each period. These transactions are presented according to the following detail:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Assets
Notes held by other banks (swap)			183,105				206,454
Funds receivable			303,809				261,680
Subtotals			486,914				468,134
Liabilities
Funds payable			303,207				275,474
Subtotals			303,207				275,474
Unsettled transactions, net			183,707				192,660

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 6 - TRADING INVESTMENTS:

The detail of the instruments designated as financial trading investments is as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
State and Chilean Central Bank Instruments
Chilean Central Bank Bonds			698,942				667,703
Chilean Central Bank Notes			15,942				63,868
Other Chilean Central Bank and Government securities			46,206				29,806
Subtotals			761,090				761,377
Instruments of other domestic institutions:
Time deposits in Chilean financial institutions			-				-
Mortgage finance bonds of Chilean financial institutions			11				11
Chilean financial institutions bonds			26,190				-
Chilean corporate bonds			25,115				-
Other Chilean securities			-				-
Subtotals			51,316				11
Instruments of foreign institutions:
Foreign Central Bank and Government securities			-				-
Other foreign financial instruments			-				-
Subtotals			-				-
Investments in mutual funds:
Funds managed by related entities			48				37,151
Funds managed by others			-				-
Subtotals			48				37,151
Totals			812,454				798,539

As of December 31, 2009 there are instruments sold under repurchase agreements to customers and financial institutions totaling Ch$ 506,127 million.

As of June 30, 2010 and December 31, 2009 there are no instruments under Other Chilean securities and Foreign financial securities that were sold under repurchase agreements to customers and financial institutions.

The repurchase agreements mature in 40 days as of December 31, 2009.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING:

a)	As of June 30, 2010 and December 31, 2009 the Bank has the following portfolio of derivative instruments:

		As of June 30, 2010
		Notional amount												Fair value
		Up to 3 months				More than 3 months to one year				More than one year				Assets				Liabilities
		MCh$				MCh$				MCh$				MCh$				MCh$
Hedging derivatives at fair value
Currency forwards			-				-				-				-				-
Interest rate swaps			-				92,467				440,806				6,808				1,173
Cross currency swaps			-				229,356				295,358				46,340				195
Call currency options			-				-				-				-				-
Call interest rate options			-				-				-				-				-
Put currency options			-				-				-				-				-
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			-				-				-				-				-
Subtotals			-				321,823				736,164				53,148				1,368
Cash flow hedging derivatives
Currency forwards			-				-				-				-				-
Interest rate swaps			-				-				-				-				-
Cross currency swaps			212,413				925,295				344,012				59,507				8,168
Call currency options			-				-				-				-				-
Call interest rate options			-				-				-				-				-
Put currency options			-				-				-				-				-
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			-				-				-				-				-
Subtotals			212,413				925,295				344,012				59,507				8,168
Trading derivatives
Currency forwards			8,917,988				8,096,436				779,916				241,776				199,575
Interest rate swaps			2,638,947				5,421,996				10,755,992				281,491				365,257
Cross currency swaps			659,884				2,566,311				9,825,464				892,746				672,819
Call currency options			40,542				50,510				-				1,949				678
Call interest rate options			155				47,203				76,630				216				1,458
Put currency options			33,198				16,655				-				56				544
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			133,574				-				-				335				680
Subtotals			12,424,288				16,199,111				21,438,002				1,418,569				1,241,011
Totals			12,636,701				17,446,229				22,518,178				1,531,224				1,250,547

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING, continued:

		As of December 31, 2009
		Notional amount												Fair value
		Up to 3 months				More than 3 months to one year				More than one year				Assets				Liabilities
		MCh$				MCh$				MCh$				MCh$				MCh$
Hedging derivatives at fair value
Currency forwards			-				-				-				-				-
Interest rate swaps			-				86,963				580,132				2,446				3,794
Cross currency swaps			-				26,079				583,035				16,972				805
Call currency options			-				-				-				-				-
Call interest rate options			-				-				-				-				-
Put currency options			-				-				-				-				-
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			-				-				-				-				-
Subtotals			-				113,042				1,163,167				19,418				4,599
Cash flow hedging derivatives
Currency forwards			-				-				-				-				-
Interest rate swaps			-				-				-				-				-
Cross currency swaps			51,993				582,830				73,551				4,741				52,301
Call currency options			-				-				-				-				-
Call interest rate options			-				-				-				-				-
Put currency options			-				-				-				-				-
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			-				-				-				-				-
Subtotals			51,993				582,830				73,551				4,741				52,301
Trading derivatives
Currency forwards			6,533,147				4,195,874				587,541				199,665				184,112
Interest rate swaps			2,418,161				4,240,574				9,618,573				243,965				330,975
Cross currency swaps			887,942				1,594,972				9,880,693				922,498				772,959
Call currency options			34,341				22,107				-				203				43
Call interest rate options			122				5,189				39,900				281				595
Put currency options			33,198				15,487				-				3,083				3,232
Put interest rate options			-				-				-				-				-
Interest rate futures			-				-				-				-				-
Other derivatives			29,320				-				-				24				90
Subtotals			9,936,231				10,074,203				20,126,707				1,369,719				1,292,006
Totals			9,988,224				10,770,075				21,363,425				1,393,878				1,348,906

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING, continued:

b)	Hedge Accounting

Fair value hedges :

The Bank uses cross-currency swaps, interest rate swaps, and call money swaps to hedge its exposure to changes in the fair value of the hedged elements attributable to interest rates. The hedge securities mentioned above change the effective cost of long-term issues from a fixed interest rate to a variable interest rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of June 30, 2010 and December 31, 2009, classified by maturity term:

 

		As of June 30, 2010
		Within 1 year				Between 1 and 3 years				Between 3 and 6 years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Chilean Central Bank Bonds in Pesos (BCP)			-				-				-				-
Corporate bonds			-				11,740				-				-
Current or senior bonds			-				436,840				-				-
Subordinated bonds			-				-				163,815				-
Short-term loans			-				-				25,000				17,191
Interbank loans			174,751				-				-				-
Time deposits			147,072				4,640				-				-
Mortgage bonds			-				-				-				76,938
Totals			321,823				453,220				188,815				94,129
Hedge instrument
Interest rate swap			77,467				393,975				-				-
Call money swap			15,000				4,640				25,000				17,191
Cross currency swap			229,356				54,605				163,815				76,938
Totals			321,823				453,220				188,815				94,129

		As of December 31, 2009
		Within 1 year				Between 1 and 3 years				Between 3 and 6years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Chilean Central Bank Bonds in Pesos (BCP)			-				-				10,320				37,173
Chilean Central Bank Bonds in UF (BCU)			-				83,113				57,911				31,588
Corporate bonds			-				-				10,906				-
Current or senior bonds			-				405,800				-				-
Subordinated bonds			-				111,595				152,175				-
Short-term loans			-				-				25,000				22,191
Interbank loans			-				131,885				-				-
Time deposits			113,042				4,640				-				-
Mortgage bonds			-				-				-				78,870
Totals			113,042				737,033				256,312				169,822
Hedge instrument
Cross currency swap			26,079				214,998				220,406				147,631
Interest rate swap			71,963				517,395				10,906				-
Call money swap			15,000				4,640				25,000				22,191
Totals			113,042				737,033				256,312				169,822

 

 

 

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NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING, continued:

Cash flow hedges:

The Bank uses cross currency swaps to hedge the risk of variability of cash flows attributable to changes in the interest rates of bonds and interbank loans at a variable rate. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate.

Below are the nominal amounts of the hedge item for June 30, 2010 and December 31, 2009, and the periods in which the flows were produced:

		As of June 30, 2010
		Within 1 year				Between 1 and 3 years				Between 3 and 6years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Bonds			-				273,025				-				-
Interbank loans			1,137,709				70,987				-				-
Totals			1,137,709				344,012				-				-
Hedge instrument
Cross currency swap			1,137,709				344,012				-				-
Totals			1,137,709				344,012				-				-

		As of December 31, 2009
		Within 1 year				Between 1 and 3 years				Between 3 and 6years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Bonds			-				-				-				-
Interbank loans			634,823				73,551				-				-
Totals			634,823				73,551				-				-
Hedge instrument
Cross currency swap			634,823				73,551				-				-
Totals			634,823				73,551				-				-

 

 

 

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NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING, continued:

Below is the estimate for the periods in which the flows are to be produced:

		As of June 30, 2010
		Within 1 year				Between 1 and 3 years				Between 3 and 6years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Inflows			-				-				-				-
Outflows			(16,334	)			(7,660	)			-				-
Net flows			(16,334	)			(7,660	)			-				-
Hedge instrument
Inflows			16,334				7,660				-				-
Outflows			(16,284	)			(12,280	)			-				-
Net flows			50				(4,620	)			-				-

		As of December 31, 2009
		Within 1 year				Between 1 and 3 years				Between 3 and 6years				Over 6 years
		MCh$				MCh$				MCh$				MCh$
Hedged element
Inflows			-				-				-				-
Outflows			(7,570	)			(1,487	)			-				-
Net flows			(7,570	)			(1,487	)			-				-
Hedge instrument
Inflows			7,570				1,487				-				-
Outflows			(2,570	)			(938	)			-				-
Net flows			5,000				549				-				-

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING, continued:

c)	The income generated by those cash flow derivatives whose effect was recorded in the Consolidated Interim Statement of Changes in Equity as of June 30, 2010 and June 30, 2009 is shown below:

		As of June 30,
		2010				2009
		MCh$				MCh$
Interbank loans			(1,171	)			(2,556	)
Senior bond			882				(3,988	)
Net flows			(289	)			(6,544	)

In the 2010 and 2009 period the Bank did not record expected future transactions in its cash flow hedge accounting portfolio.

d)	Below is a presentation of the income generated by the cash flow derivatives whose effect was transferred from other comprehensive income to income for the current year:

Since the variable flows for both the hedged element and the hedging element mirror each other, the hedges are 100% efficient, which means that the variations of value attributable to rate components are almost entirely netted out. As of June 30, 2010 a loss of Ch$ 2 million was carried to income due to inefficiency.

		As of June 30,
		2010				2009
		MCh$				MCh$
Senior bond			-				-
Loan			(2,019	)			-
Net income from cash flow hedges			(2,019	)			-

e)	Net investment hedges for foreign business:

As of June 30, 2010 and December 31, 2009 the Bank does not show net investment hedges for foreign business in its hedging portfolio.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 8 - INTERBANK LOANS:

a)	As of June 30, 2010 and December 31, 2009 the balances shown in the "Interbank loans" item are as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Domestic banks
Loans and advances to banks			7,008				3
Deposits in the Chilean Central Bank			-				-
Nontransferable Chilean Central Bank bonds			-				-
Other Chilean Central Bank loans			-				-
Interbank loans			-				-
Overdrafts in checking accounts			-				-
Nontransferable domestic bank loans			-				-
Other domestic bank loans			-				-
Provisions and impairment for domestic bank loans			(7	)			-
Foreign banks
Loans to foreign banks			34,536				23,409
Overdrafts in checking accounts			-				-
Nontransferable foreign bank deposits			-				-
Other foreign bank loans			-				-
Provisions and impairment for foreign bank loans			(100	)			(42	)
Totals			41,437				23,370

b)	The amount in each period for provisions and impairment of interbank loans is shown below:

		As of June 30, 2010												As of December 31, 2009
		Domestic banks				Foreign banks				Total				Domestic banks				Foreign banks				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
As of January 1,			-				42				42				-				35				35
Charge-offs			-				-				-				-				-				-
Provisions established			7				58				65				-				7				7
Provisions released			-				-				-				-				-				-
Totals			7				100				107				-				42				42

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 9 - LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS:

a)	Loans and accounts receivable from customers

As of June 31, 2010 and December 31, 2009 the composition of the placements portfolio is as follows:

		Assets before allowances												Allowances established
		Normal portfolio				Impaired portfolio				Total				Individual allowances				Group allowances				Total				Net assets
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Commercial loans
Commercial loans			5,005,336				663,054				5,668,390				56,830				80,017				136,847				5,531,543
Foreign trade loans			704,596				93,958				798,554				21,154				1,198				22,352				776,202
General-purpose mortgage loans			53,138				24,876				78,014				629				3,334				3,963				74,051
Factoring transactions			218,587				7,746				226,333				1,746				669				2,415				223,918
Leasing transactions			948,556				81,646				1,030,202				9,545				1,695				11,240				1,018,962
Other loans and accounts receivable from customers			887				15,448				16,335				3,844				2,682				6,526				9,809
Subtotals			6,931,100				886,728				7,817,828				93,748				89,595				183,343				7,634,485
Mortgage loans
Loans with mortgage finance			150,656				5,020				155,676				-				514				514				155,162
Mortgage mutual loans			129,899				64,901				194,800				-				10,891				10,891				183,909
Other mortgage mutual loans			3,927,118				82,916				4,010,034				-				6,444				6,444				4,003,590
Leasing transactions			-				-				-				-				-				-				-
Subtotals			4,207,673				152,837				4,360,510				-				17,849				17,849				4,342,661
Consumer loans
Installment consumer loans			1,051,656				427,851				1,479,507				-				150,452				150,452				1,329,055
Credit card balances			627,056				16,241				643,297				-				24,818				24,818				618,479
Consumer leasing contracts			3,187				457				3,644				-				-				-				3,644
Other consumer loans			261,576				16,104				277,680				-				11,162				11,162				266,518
Subtotals			1,943,475				460,653				2,404,128				-				186,432				186,432				2,217,696
Totals			13,082,248				1,500,218				14,582,466				93,748				293,876				387,624				14,194,842

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 9 - LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued:

		Assets before allowances												Allowances established
		Normal portfolio				Impaired portfolio				Total				Individual allowances				Group allowances				Total				Net assets
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Commercial loans
Commercial loans			4,832,638				656,957				5,489,595				45,857				78,418				124,275				5,365,320
Foreign trade loans			531,487				104,841				636,328				21,732				1,295				23,027				613,301
General-purpose mortgage loans			69,060				23,851				92,911				623				2,947				3,570				89,341
Factoring transactions			126,106				4,166				130,272				1,642				744				2,386				127,886
Leasing transactions			890,107				74,591				964,698				6,531				1,308				7,839				956,859
Other loans and accounts receivable			1,026				9,932				10,958				1,912				3,430				5,342				5,616
Subtotals			6,450,424				874,338				7,324,762				78,297				88,142				166,439				7,158,323
Mortgage loans
Loans with mortgage finance			169,827				5,765				175,592				-				576				576				175,016
Mortgage mutual loans			139,890				59,249				199,139				-				9,040				9,040				190,099
Other mortgage mutual loans			3,717,188				67,134				3,784,322				-				6,918				6,918				3,777,404
Leasing transactions			-				-				-				-				-				-				-
Subtotals			4,026,905				132,148				4,159,053				-				16,534				16,534				4,142,519
Consumer loans
Installment consumer loans			945,924				432,120				1,378,044				-				130,532				130,532				1,247,512
Credit card balances			564,685				22,252				586,937				-				24,433				24,433				562,504
Consumer leasing contracts			3,447				388				3,835				-				9				9				3,826
Other consumer loans			250,742				24,491				275,233				-				11,538				11,538				263,695
Subtotals			1,764,798				479,251				2,244,049				-				166,512				166,512				2,077,537
Totals			12,242,127				1,485,737				13,727,864				78,297				271,188				349,485				13,378,379

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 9 - LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued:

b)	Portfolio characteristics:

As of June 30, 2010 and December 31, 2009 the portfolio before provisions has the following detail according to the customers' economic activity:

		Domestic loans								Foreign loans								Total loans								Rate
		As of June 30,				As of December 31,				As of June 30,				As of December 31,				As of June 30,				As of December 31,				As of June 30,				As of December 31,
		2010				2009				2010				2009				2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				%				%
Commercial loans
Manufacturing			768,343				640,395				-				-				768,343				640,395				5.25				4.66
Mining			65,353				67,057				-				-				65,353				67,057				0.45				0.49
Electricity, gas and water			179,312				144,386				-				-				179,312				144,386				1.23				1.05
Agriculture and livestock			676,573				610,909				-				-				676,573				610,909				4.63				4.44
Forestry			79,788				71,085				-				-				79,788				71,085				0.55				0.52
Fishing			140,869				127,025				-				-				140,869				127,025				0.96				0.92
Transport			396,388				362,508				-				-				396,388				362,508				2.71				2.64
Communications			110,888				164,077				-				-				110,888				164,077				0.76				1.19
Construction			872,662				817,293				-				-				872,662				817,293				5.96				5.94
Commerce (*)			1,811,310				1,650,903				34,536				23,409				1,845,846				1,674,312				12.62				12.18
Services			293,776				288,256				-				-				293,776				288,256				2.01				2.10
Other			2,429,574				2,380,871				-				-				2,429,574				2,380,871				16.61				17.31
Subtotals			7,824,836				7,324,765				34,536				23,409				7,859,372				7,348,174				53.74				53.44
Mortgage loans			4,360,510				4,159,053				-				-				4,360,510				4,159,053				29.82				30.24
Consumer loans			2,404,128				2,244,049				-				-				2,404,128				2,244,049				16.44				16.32
Totals			14,589,474				13,727,867				34,536				23,409				14,624,010				13,751,276				100.00				100.00

(*) Includes loans to domestic financial institutions totaling Ch$ 7,008 million and foreign financial institutions totaling Ch$ 34,536 million as of June 30, 2010. (Note 8)

NOTE 9 - LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued:

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

c)	Allowances

The changes in provisions during the periods ending on June 30, 2010 and December 31, 2009 can be summarized as follows:

		As of June 30,												As of December 31,
		2010												2009
		Individual allowances				Group allowances				Total				Individual allowances				Group allowances				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Balances as of January 1,			78,297				271,188				349,485				54,091				220,114				274,205
Portfolio charge-offs:
Commercial loans			(6,355	)			(25,580	)			(31,935	)			(4,898	)			(43,220	)			(48,118	)
Mortgage loans			-				(6,418	)			(6,418	)			-				(8,708	)			(8,708	)
Consumer loans			-				(63,311	)			(63,311	)			-				(239,005	)			(239,005	)
Total charge-offs			(6,355	)			(95,309	)			(101,664	)			(4,898	)			(290,933	)			(295,831	)
Provisions established			29,713				121.999				151,712				34,739				363,670				398,409
Provisions released			(7,907	)			(4,002	)			(11,909	)			(5,635	)			(21,663	)			(27,298	)
Totals			93,748				293,876				387,624				78,297				271,188				349,485

In addition to these loan loss allowances, there are country risk allowances to cover foreign operations, which are presented in liabilities under the “Provisions” item.

 

 

 

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NOTE 10 - AVAILABLE FOR SALE INVESTMENTS:

As of June 30, 2010 and December 31, 2009 the detail of available for sale investments is as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Chilean Central Bank and Government securities
Chilean Central Bank Bonds			808,221				1,063,879
Chilean Central Bank Notes			92,160				264,011
Other Chilean Central Bank and Government securities			194,705				212,362
Subtotals			1,095,086				1,540,252
Other Chilean securities
Time deposits in other Chilean financial institutions			-				41,407
Mortgage finance bonds of Chilean financial institutions			233,001				236,847
Chilean financial institutions bonds			-				-
Chilean corporate bonds			12,484				11,584
Other Chilean securities			725				-
Subtotals			246,210				289,838
Foreign financial securities
Foreign Central Bank and government securities			-				-
Other foreign financial securities			-				-
Subtotals			-				-
Totals			1,341,296				1,830,090

Chilean Central Bank and Government securities include instruments sold under repurchase agreements with customers and financial institutions totaling Ch$ 39,254 million and Ch$ 936,809 million as of June 30, 2010 and December 31, 2009, respectively.

As of June 30, 2010 available for sale investments included unrealized net losses of Ch$ 21,583 million, recorded as a “Valuation adjustment in equity,” distributed between Ch$ 21,630 million attributable to Bank shareholders and Ch$ 47 million attributable to non controlling interest.

As of December 31, 2009 available for sale investments included unrealized net losses of Ch$ 29,304 million, recorded as a “Valuation adjustment in equity,” distributed between Ch$ 29,132 million attributable to Bank shareholders and Ch$ (172 million) attributable to non controlling interest.

 

 

 

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NOTE 11 - INTANGIBLE ASSETS:

a)	The item's composition as of June 30, 2010 and December 31, 2009 is as follows:

														As of June 30, 2010
		Years of useful life				Remaining years of amortization				Opening balance January 1, 2010				Gross balance				Accumulated amortization				Net balance
										MCh$				MCh$				MCh$				MCh$
Licenses			3				2.1				1,544				5,310				(3,539	)			1,771
Software (acquired)			3				2.0				75,716				131,084				(61,781	)			69,303
Totals											77,260				136,394				(65,320	)			71,074

														As of December 31, 2009
		Years of useful life				Remaining years of amortization				Opening balance January 1, 2009				Gross balance				Accumulated amortization				Net balance
										MCh$				MCh$				MCh$				MCh$
Licenses			3				1.8				1,732				4,422				(2,878	)			1,544
Software (acquired)			3				2				66,500				123,939				(48,223	)			75,716
Totals											68,232				128,361				(51,101	)			77,260

b)	The variation in the intangible assets item as of June 30, 2010 and December 31, 2009 is as follows:

b.1)          Gross balance

		Licenses				Software development (acquired)				Total
		MCh$				MCh$				MCh$
Gross balances 2010
Opening balances as of January 1, 2010			4,422				123,939				128,361
Acquisitions			888				7,145				8,033
Other			-				-				-
Balances as of June 30, 2010			5,310				131,084				136,394
Gross balances 2009
Opening balances as of January 1, 2009			3,194				91,207				94,401
Acquisitions			1,228				32,732				33,960
Other			-				-				-
Balance as of December 31, 2009			4,422				123,939				128,361

 

 

 

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NOTE 11 - INTANGIBLE ASSETS, continued:

b.2)          Accumulated amortization

		Licenses				Software development (acquired)				Total
		MCh$				MCh$				MCh$
Opening balances as of January 1, 2010			(2,878	)			(48,223	)			(51,101	)
Amortization for the period			(661	)			(13,558	)			(14,219	)
Other changes in book value in the period			-				-				-
Balances as of June 30, 2010			(3,539	)			(61,781	)			(65,320	)
Opening balances as of January 1, 2009			(1,462	)			(24,707	)			(26,169	)
Amortization for the period			(1,416	)			(23,516	)			(24,932	)
Other changes in book value for the period			-				-				-
Balances as of December 31, 2009			(2,878	)			(48,223	)			(51,101	)

 

 

 

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NOTE #12 - PROPERTY, PLANT AND EQUIPMENT:

a)	Property, plant and equipment as of June 30, 2010 and December 31, 2009 is as follows:

						As of June 30, 2010
		Opening balance January 1, 2010				Gross balance				Accumulated depreciation				Net balance
		MCh$				MCh$				MCh$				MCh$
Land and buildings			161,922				168,156				(24,283	)			143,873
Equipment			13,391				29,304				(17,950	)			11,354
Ceded under operating leases			689				1,602				(85	)			1,517
Other			8,120				17,815				(11,375	)			6,440
Totals			184,122				216,877				(53,693	)			163,184

						As of December 31, 2009
		Opening balance January 1, 2009				Gross balance				Accumulated depreciation				Net balance
		MCh$				MCh$				MCh$				MCh$
Land and buildings			170,197				180,868				(18,946	)			161,922
Equipment			15,597				27,993				(14,602	)			13,391
Ceded under operating leases			4,092				727				(38	)			689
Other			10,503				17,513				(9,393	)			8,120
Totals			200,389				227,101				(42,979	)			184,122

 

 

 

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NOTE 12 - PROPERTY, PLANT AND EQUIPMENT, continued:

b)	The activity in the property, plant and equipment as of June 30, 2010 and December 31, 2009 is as follows:

b.1)          Gross balance

		Land and buildings				Equipment				Ceded under operating leases				Other				Total
		MCh$				MCh$				MCh$				MCh$				MCh$
Opening balances as of January 1, 2010			180,868				27,993				727				17,513				227,101
Additions			2,037				1,715				-				370				4,122
Disposals (ii)			(13,911	)			(218	)			-				(68	)			(14,197	)
Impairment due to damage (i)			(3,516	)			(186	)			-				-				(3,702	)
Transfers			-				-				875				-				875
Other			2,678				-				-				-				2,678
Balances as of June 30, 2010			168,156				29,304				1,602				17,815				216,877

		Land and buildings				Equipment				Ceded under operating leases				Other				Total
		MCh$				MCh$				MCh$				MCh$				MCh$
Opening balances as of January 1, 2009			178,502				22,990				4,161				16,150				221,803
Additions			5,730				5,085				-				941				11,756
Disposals			(2,637	)			(7	)			(4,161	)			(19	)			(6,824	)
Impairment due to damages			-				(75	)			-				-				(75	)
Transfers			(727	)			-				727				441				441
Other			-				-				-				-				-
Balances as of December 31, 2009			180,868				27,993				727				17,513				227,101

 

(i)

As a consequence of the earthquake of February 27, 2010, Banco Santander Chile was obliged to record impairment in some of the branches located in the affected area in its Financial Statements as of June 30, amounting to Ch$ 3,516 million and Ch$ 186 million per ATM, which has been offset by the indemnities paid by the Insurance Company in the amount of Ch$ 2,663 million, which is included in the "other operating revenue" item. The net charge to income for this purpose comes to Ch$ 1,039 million. The management is currently examining the potential minor effects on these assets which may still present themselves.

(ii)	As is indicated in Note 03 “Significant Events”, letter c), in April Banco Santander Chile sold 5 branches. The cost of retiring these assets at the time of the sale was Ch$ 4,927 million, and it sold 11 branches in June, generating a cost of Ch$ 8,138 million at that date.

 

 

 

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NOTE #12 - PROPERTY, PLANT AND EQUIPMENT, continued:

b.2)          Accumulated depreciation

		Land and buildings				Equipment				Ceded under operating leases				Other				Total
		MCh$				MCh$				MCh$				MCh$				MCh$
Opening balances as of January 1, 2010			(18,946	)			(14,602	)			(38	)			(9,393	)			(42,979	)
Depreciation charges in the period			(5,337	)			(3,348	)			(47	)			(1,982	)			(10,714	)
Discontinued operations			-				-				-				-				-
Balances as of June 30, 2010			(24,283	)			(17,950	)			(85	)			(11,375	)			(53,693	)

		Land and buildings				Equipment				Ceded under operating leases				Other				Total
		MCh$				MCh$				MCh$				MCh$				MCh$
Opening balances as of January 1, 2009			(8,305	)			(7,393	)			(69	)			(5,647	)			(21,414	)
Depreciation charges in the period			(10,705	)			(7,209	)			(31	)			(3,746	)			(21,691	)
Sales and disposals in the period			64				-				62				-				126
Discontinued operations			-				-				-				-				-
Balances as of June 30, 2009			(18,946	)			(14,602	)			(38	)			(9,393	)			(42,979	)

 

 

 

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NOTE #13 - CURRENT TAXES AND DEFERRED TAXES:

a)	Current Taxes

As of June 30, 2010 and December 30, 2009, the Bank recognizes a Provision for Income Tax, which was determined on the basis of the tax legislation then in force, and the liability of Ch$ 16,192 million as of June 30, 2010 and Ch$ 59,290 million as of December 31, 2009 has been reflected. This provision is presented net of taxes payable, as is shown below:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Summary of current tax liabilities (assets)
Current taxes (assets)			(5,464	)			(4,541	)
Current taxes (liabilities)			21,656				63,831
Total tax payable (recoverable)			16,192				59,290
Detail of current tax liabilities (assets) (net)
Income tax, tax rate 17%			21,656				106,882
Minus:
Provisional monthly payments			(3,470	)			(41,061	)
PPM for accrued losses, Article #31, part 3			-				-
Credit for training expenses			(96	)			(1,148	)
Other			(1,898	)			(5,383	)
Total tax payable (recoverable)			16,192				59,290

b)	Effect on income

The tax expense effect on income during the periods from January 1, 2010 to June 30, 2010 and January 1, 2009 to June 30, 2009 is comprised of the following components:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Income tax expenses
Current  tax			29,042				10,316				56,387				52,163
Credits (debits) for deferred taxes
Origination and reversal of temporary differences			(4,994	)			11,364				(10,594	)			(14,242	)
Prior year tax benefit			-				-				-				-
Subtotals			24,048				21,680				45,793				37,921
Tax for rejected expenses Article #21			115				136				130				154
Other			-				-				-				-
Net charges to income for income tax			24,163				21,816				45,923				38,075

 

 

 

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NOTE 13 - CURRENT TAXES AND DEFERRED TAXES, continued:

c)	Effective tax rate reconciliation

Below is the reconciliation between the income tax rate and the effective rate applied in the determination of the tax expense as of June 30, 2010 and June 30, 2009:

		As of June 30,
		2010								2009
		Tax Rate				Amount				Tax Rate				Amount
		%				MCh$				%				MCh$
Income before tax			17.00				51,397				17.00				38,464
Permanent differences			(1.76	)			(5,326	)			(0.24	)			(542	)
Additions or deductions			-				-				-				-
Unique tax (rejected expenses)			0.04				129				0.07				153
Other			(0.09	)			(277	)			-				-
Effective rates and expenses for income tax			15.19				45,923				16.83				38,075

The effective income tax rate for June 2010 and 2009 is 15.19% and 16.83%, respectively.

d)	Effect of deferred taxes on equity

Below is a summary of the deferred tax effect on equity, individually showing the asset and liability balances during the periods from January 1, 2010 to June 30, 2010 and from January 1, 2009 to December 31, 2009, which consists of the following components:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Deferred tax assets
Investments available for sale			3,669				4,982
Cash flow hedge			49				537
Total deferred tax assets affecting equity			3,718				5,519
Deferred tax liabilities
Cash flow hedge			-				-
Total deferred tax liabilities affecting equity			-				-
Net deferred tax balances in equity			3,718				5,519
Deferred tax in equity attributable to Bank shareholders			3,726				5,490
Deferred tax in equity attributable to non controlling interest			(8	)			29

 

 

 

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NOTE 13 - CURRENT TAXES AND DEFERRED TAXES, continued:

e)	Effect of deferred taxes on income

As of June 30, 2010 and December 31, 2009, the Bank has recorded the deferred tax effects in its financial statements.

Below are the effects of deferred taxes on assets, liabilities, and income assigned as a result of timing differences:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Deferred tax assets
Interest			1,965				2,012
Extraordinary charge-off			6,622				8,804
Assets received in lieu of payment			1,022				595
Exchange rate adjustments			9,607				35
Valuation of property, plant and equipment			7,168				7,472
Allowance for loan losses			49,477				43,420
Provision for expenses			4,357				6,556
Derivatives			52				17
Leased assets			22,328				19,241
Affiliates’ tax losses			4,671				51
Other			951				1,507
Total deferred tax assets			108,220				89,710
Deferred tax liabilities
Valuation of investments			(1,785	)			(2,512	)
Depreciation			(277	)			(78	)
Prepaid expenses			(365	)			(519	)
Other			(245	)			(271	)
Total deferred tax liabilities			(2,672	)			(3,380	)

f)	Summary of deferred tax assets and liabilities

Below is a summary of the deferred tax assets and liabilities, indicating their effect on both equity and income:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Deferred tax assets
Affecting equity			3,718				5,519
Affecting income			108,220				89,710
Total deferred tax assets			111,938				95,229
Deferred tax liabilities
Affecting equity			-				-
Affecting income			(2,672	)			(3,380	)
Total deferred tax liabilities			(2,672	)			(3,380	)

 

 

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NOTE #14 - OTHER ASSETS:

The Other assets item’s composition is as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Assets for leasing (*)			35,614				52,070
Assets received in lieu of payment (**)
Assets received in lieu of payment			18,459				10,405
Assets awarded at judicial sale			6,679				2,179
Provisions for assets received in lieu of payment			(1,531	)			(431	)
Subtotals			23,607				12,153
Other assets
Guarantee deposits			204,769				229,083
VAT credit			5,522				7,180
Income tax recoverable			11,527				15,261
Prepaid expenses			20,602				8,960
Assets recovered from leasing for sale			2,973				985
Pension plan assets			5,175				4,893
Accounts and notes receivable			106,410				53,196
Notes receivable through brokerage and simultaneous transactions			112.500				60,622
Overpayment in purchases of issued mortgage finance bonds			494				561
Other assets			66,053				7,595
Subtotals			536,025				388,336
Totals			595,246				452,559

(*)	Assets available to be surrendered under the financial leasing agreement.

(**)

The assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets so acquired may at no time exceed, in the aggregate, 20% of the Bank’s effective equity. These assets currently represent (0.81% as of June 30, 2010 and 0.47% as of December 31, 2009 of the Bank's effective equity).

The assets awarded at judicial auction are assets that have been acquired at judicial auction in lieu of payment of debts previously assumed toward the Bank. The assets acquired at judicial auction are not subject to the aforementioned margin. These properties are assets available for sale. For most assets, the sale is expected to be completed within a term of one year from the date on which the asset was received or acquired. If the good in question is not sold within the year, it must be written off.

Furthermore, a provision is recorded for the difference between the initial award value plus its additions, and its estimated realization value (appraisal) when the former is higher.

 

 

 

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NOTE #15 - DEPOSITS AND OTHER LIABILITIES:

As of June 30, 2010 and December 31, 2009 the composition of the Deposits and other liabilities item is as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Deposits and other demand liabilities
Checking accounts			3,285,422				2,776,607
Other deposits and demand accounts			308,704				303,495
Other demand liabilities			574,758				453,432
Totals			4,168,884				3,533,534
Time deposits and other funds obtained
Time deposits			7,082,291				4,219,392
Time savings accounts			104,944				98,985
Other time deposits			6,141				2,856,880
Totals			7,193,376				7,175,257

 

 

 

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 NOTE 16 - ISSUED DEBT INSTRUMENTS AND OTHER OBLIGATIONS:

As of June 30, 2010 and December 31, 2009, the item's composition is as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Other financial obligations
Obligations to the public sector			99,986				90,144
Other domestic obligations			56,274				55,015
Foreign obligations			1,829				1,752
Subtotals			158,089				146,911
Issued debt instruments
Mortgage finance bonds			222,668				263,864
Senior bonds			2,376,604				2,068,786
Subordinated bonds			645,890				592,026
Subtotals			3,245,162				2,924,676
Totals			3,403,251				3,071,587

The debts classified as short term are those which are demand obligations or will mature in one year or less. All other debts are classified as long term. The Bank’s debts, both short and long-term, are summarized below:

		As of June 30, 2010
		Long term				Short term				Total
		MCh$				MCh$				MCh$
Mortgage finance bonds			182,172				40,496				222,668
Senior bonds			2,268,901				107,703				2,376,604
Subordinated bonds			635,843				10,047				645,890
Issued debt instruments			3,086,916				158,246				3,245,162
Other financial obligations			120,335				37,754				158,089
Totals			3,207,251				196,000				3,403,251

 

 

 

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NOTE #- ISSUED DEBT INSTRUMENTS AND OTHER OBLIGATIONS, continued:

		As of December 31, 2009
		Long term				Short term				Total
		MCh$				MCh$				MCh$
Mortgage finance bonds			213,853				50,011				263,864
Senior bonds			1,901,972				166,814				2,068,786
Subordinated bonds			592,026				-				592,026
Issued debt instruments			2,707,851				216,825				2,924,676
Other financial obligations			109,013				37,898				146,911
Totals			2,816,864				254,723				3,071,587

a)	Mortgage bonds

 

These bonds are used to finance mortgage loans. The outstanding principal of the bonds are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. The bonds are indexed to the UF and earn a 5.34% per annum interest rate as of June 2010 and a 4.7% per annum interest rate as of December 2009.

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Due within 1 year			40,496				50,011
Due after 1 year but within 2 years			27,721				31,804
Due after 2 years but within 3 years			26,367				28,574
Due after 3 years but within 4 years			25,104				23,277
Due after 4 years but within 5 years			22,389				27,350
Due after 5 years			80,591				102,848
Totals, mortgage bonds			222.668				263,864

 

 

 

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NOTE 16 - ISSUED DEBT INSTRUMENTS AND OTHER OBLIGATIONS, continued:

b)	Senior bonds

The following table shows, at the indicated dates, our senior bonds issued.

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Santander Bonds denominated in UF			1,664,063				1,660,877
Santander Bonds denominated in US $			712,541				407,909
Totals, senior bonds			2,376,604				2,068,786

In 2010 the Bank placed bonds for UF 6,102,000 and USD 500 million.

Series	Amount	Term	Issue Rate	Date of Issue	Maturity Date
F7	UF 3,000,000	4.5 years	3.3% per annum simple	01/11/2009	01/05/2014
F8	UF 3,000,000	4.5 years	3.6% per annum simple	01/01/2010	01/07/2014
F9	UF 102,000 (*)	5 years	3.7% per annum simple	01/01/2010	01/01/2015
Total	UF 6,102,000
Floating Bond	USD 500,000,000	2 years	Libor (3 months) + 125 bp	15/04/2010	12/04/2012
Total	USD 500,000,000

(*) As of the end of June 2010, placements of UF 102,000 have been made in the current period, leaving an unplaced face value of UF 2,898,000 of the Series F9 issue.

 

 

 

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NOTE 16 - ISSUED DEBT INSTRUMENTS AND OTHER OBLIGATIONS, continued:

These bonds mature as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Due within 1 year			107,703				166,814
Due after 1 year but within 2 years			385,329				218,339
Due after 2 years but within 3 years			574,723				438,446
Due after 3 years but within 4 years			451,977				378,064
Due after 4 years but within 5 years			256,560				171,647
Due after 5 years			600,312				695,476
Totals bonds			2,376,604				2,068,786

c)	Subordinated bonds

The following table shows, at the indicated dates, the balances of our subordinated bonds.

 

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Subordinated bonds denominated in US $			316,262				278,087
Subordinated bonds denominated in UF			329,628				313,939
Total subordinated bonds			645,890				592,026

In 2010 the Bank has not placed subordinated bonds on the local market.

In 2009 the Bank placed subordinated bonds on the local market for UF 300,000, which is broken down as follows:

Subordinated bonds
Series		Amount		Term		Issue rate		Issue date		Maturity date
G2 (*)		UF 300,000		30 years		4.8% per annum simple		9/1/2008		3/1/2038
Total		UF 300,000

(*) As of June 30, 2010 there are unplaced Series G2 bonds with a face value of UF 1,950,000.

The maturities of these bonds, considered long term, are as follows:

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Due within 1 year			10,047				-
Due after 1 year but within 2 years			-				12,899
Due after 2 years but within 3 years			135,884				119,211
Due after 3 years but within 4 years			-				-
Due after 4 years but within 5 years			180,378				158,876
Due after 5 years			319,581				301,040
Total subordinated bonds			645,890				592,026

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 16 - ISSUED DEBT INSTRUMENTS AND OTHER OBLIGATIONS, continued:

d)	Other financial obligations

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

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Long-term obligations:
Due after 1 year but within 2 years			4,954				4,583
Due after 2 year but within 3 years			3,931				3,515
Due after 3 year but within 4 years			29,285				3,556
Due after 4 year but within 5 years			3,463				27,868
Due after 5 years			78,701				69,491
Subtotals long-term financial obligations			120,334				109,013
Short-term obligations:
Amounts due to credit card operators			32,317				31,045
Acceptance of letters of credit			1,457				-
Other long-term financial obligations, short-term portion			3,981				6,853
Subtotals short-term financial obligations			37,755				37,898
Totals other financial obligations			158,089				146,911

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 17 – MATURITIES OF ASSETS AND LIABILITIES:

As of June 30, 2010 and December 31, 2009 the detail of the assets and liabilities by maturity is as follows:

As of June 30, 2010		Up to 30 days				Between 31 and 60 days				Between 61 and 90 days				Between 91 and 180 days				Between 181 and 365 days				Between 1 and 3 years				More than 3 years				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Assets
Cash and deposits in banks			1,398,881				-				-				-				-				-				-				1,398,881
Unsettled transactions			486,914				-				-				-				-				-				-				486,914
Trading investments			2,409				338,239				221,860				16,692				24,105				105,364				103,785				812,454
Investments under resale agreements			5,000				-				-				-				-				-				-				5,000
Financial derivative contracts			75,304				23,077				30,869				108,612				201,219				345,902				746,241				1,531,224
Interbank loans			41,544				-				-				-				-				-				-				41,544
Commercial loans (*)			1,214,767				499,857				443,228				739,063				819,466				1,739,195				2,362,252				7,817,828
Mortgage loans (*)			82,816				16,564				16,725				51,491				103,925				425,098				3,663,891				4,360,510
Consumer loans  (*)			882,791				38,893				41,152				120,833				256,238				652,390				411,831				2,404,128
Available for sale investments			29,253				93,470				12,345				75,207				26,468				380,979				723,574				1,341,296
Total assets			4,219,679				1,010,100				766,179				1,111,898				1,431,421				3,648,928				8,011,574				20,199,779

Liabilities
Deposits and other demand liabilities			4,168,884				-				-				-				-				-				-				4,168,884
Unsettled transactions			303,207				-				-				-				-				-				-				303,207
Investments under repurchase agreements			14,895				8,167				6,389				29,382				69,651				12,580				5,034				146,098
Time deposits and other time liabilities			2,484,193				1,006,593				703,634				1,182,024				853,820				942,935				20,177				7,193,376
Financial derivative contracts			56,725				26,133				31,892				77,730				168,599				330,825				558,643				1,250,547
Interbank borrowings			7,956				243,544				314,086				635,208				789,669				109,771				-				2,100,234
Issued debt instruments			16,089				1,018				851				8,015				129,735				1,150,315				1,939,139				3,245,162
Other financial obligations			32,995				991				325				909				2,534				8,885				111,450				158,089
Total liabilities			7,084,944				1,286,446				1,057,177				1,933,268				2,014,008				2,555,311				2,634,443				18,565,597

(*)      Loans are shown in a gross basis. The amounts of allowance by type of loans are as follows: Commercial loans Ch$ 183,343 million, Mortgage loans Ch$ 17,849 million, Consumer loans Ch$ 186,432 million and Interbank loans Ch$ 107 million.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 17 - MATURITIES OF ASSETS AND LIABILITIES, continued:

As of December 31, 2009		Up to 30 days				Between 31 and 60 days				Between 61 and 90 days				Between 91 and 180 days				Between 181 and 365 days				Between 1 and 3 years				More than 3 years				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Assets
Cash and deposits in banks			2,043,458				-				-				-				-				-				-				2,043,458
Unsettled transactions			468,134				-				-				-				-				-				-				468,134
Trading investments			37,672				505				2,036				89,503				573,855				52,757				42,211				798,539
Investments under resale agreements			14,020				-				-				-				-				-				-				14,020
Financial derivative contracts			54,139				48,351				25,432				50,156				116,048				349,644				750,108				1,393,878
Interbank loans			23,412				-				-				-				-				-				-				23,412
Commercial loans			1,005,151				376,918				395,649				791,896				757,175				1,688,107				2,309,866				7,324,762
Mortgage loans			107,294				15,720				16,871				48,454				99,288				404,839				3,466,587				4,159,053
Consumer loans			834,145				41,634				50,630				120,641				215,946				626,226				354,827				2,244,049
Available for sale investments			98,993				85,009				35,049				97,213				245,212				350,606				918,008				1,830,090
Total assets			4,686,418				568,137				525,667				1,197,863				2,007,524				3,472,179				7,841,607				20,299,935

Liabilities
Deposits and other demand liabilities			3,533,534				-				-				-				-				-				-				3,533,534
Unsettled transactions			275,474				-				-				-				-				-				-				275,474
Investments under repurchase agreements			191,118				104,677				212,510				606,091				209				-				-				1,114,605
Time deposits and other time liabilities			2,438,249				915,675				834,731				840,175				1,105,446				1,036,470				4,511				7,175,257
Financial derivative contracts			81,601				48,627				28,799				98,297				117,773				370,428				603,381				1,348,906
Interbank borrowings			72,786				144,838				205,808				607,865				809,150				206,343				-				2,046,790
Issued debt instruments			21,758				1,169				167,843				8,632				17,423				843,196				1,864,655				2,924,676
Other financial obligations			33,606				390				214				1,379				2,309				8,098				100,915				146,911
Total liabilities			6,648,126				1,215,376				1,449,905				2,162,439				2,052,310				2,464,535				2,573,462				18,566,153

(*)     Loans are shown in a gross basis. The amounts of allowance by type of loans are as follows: Commercial loans Ch$ 166,439 million, Mortage loans Ch$ 16,534 million, Consumer loans Ch$ 166,512 million and Interbank loans Ch$ 42 million.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 18 - OTHER LIABILITIES:

This item’s composition is as follows:

		As of June 30,			As of December 31,
		2010				2009
		MCh$				MCh$
Accounts and notes payable			80,055				79,491
Unearned income			1,479				2,081
Guarantees received (threshold)			143,707				148,308
Notes payable through brokerage and simultaneous transactions			33,835				14,802
Other liabilities			31,668				18,714
Totals			290,744				263,396

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE #19 - CONTINGENCIES AND COMMITMENTS:

a)	Trials and legal procedures

On the issue date of these financial statements, the Bank and its affiliates were subject to a number of legal actions in the normal course of their business. As of June 30, 2010 the Bank and its affiliates have provisions for this purpose which total Ch$ 793 million (Ch$ 830 million as of December 31, 2009), which are part of the "Contingency provisions" item.

b)	Contingent loans

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

 

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Letters of credit			261,879				155,956
Foreign letters of credit			30,068				35,818
Guarantees			823,162				655,780
Pledges and other commercial commitments			166,473				169,931
Subtotals			1,281,582				1,017,485
Available credit lines			4,775,128				4,615,787
Totals			6,056,710				5,633,272

c)	Held securities:

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

		As of June 30,				As of December 31,
		2010				2009
		MCh$				MCh$
Securities held in custody by the Bank and its affiliates			372,679				238,490
Collections			187,908				179,547
Assets from third parties managed by the Bank and its affiliates			66				66
Issued securities held in custody			5,056,745				7,371,486
Totals			5,617,398				7,789,589

d)	Guarantees

Banco Santander Chile has policy #2340815, Comprehensive Banking Fidelity coverage policy, with the Chilena Consolidada Insurance Company in the amount of US$ 5,000,000, which jointly covers both the Bank and its affiliates, in force from 7/1/09 to 6/30/10.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 19 - CONTINGENCIES AND COMMITMENTS, continued:

Santander Asset Management S.A. Administradora General de Fondos

In conformity with General Standard #125, the company designated Banco Santander Chile as the representative of the beneficiaries of the guarantees established by each of the managed funds, in compliance with Articles 226 and following of Law #18,045.

In addition to these guarantees for the creation of mutual funds, there are other guarantees for guaranteed return on certain mutual funds, which total Ch$ 67,703 million.

Santander Agente de Valores Limitada

To ensure correct and full performance of all its obligations as a Securities Agent, in conformity with the provisions of Articles #30 and following of Law #18,045 on the Securities Market, the Company provided a guarantee in the amount of UF 4,000 through Insurance Policy #209106829, taken out from the Compañía de Seguros de Crédito Continental S.A. insurance company, which expires on December 19, 2010.

Santander Corredora de Seguros Limitada

i.	Insurance policies

In accordance with Circular #1,160 of the Superintendency of Securities and Insurance, the Company has an insurance policy in order to fulfill all obligations in connection with its operations as intermediary in the insurance contracts.

Guaranty policy for insurance brokers #4323257, which covers UF 500, and Professional liability policy #4323253, which covers UF 60,000, were taken out from the Compañía de Seguros Chilena Consolidada S.A. company. Both are in force from April 15, 2010 to April 14, 2011.

ii.	Deferred customs duties

In conformity with legal procedures, the obligation to pay deferred customs duties on imports of leased assets is transferred to the lessees, which undertake to make that payment both directly to the appropriate customs office and indirectly in the leases into which they enter with the Company. Accordingly, if a lessee fails to make a payment, the Chilean government would have the right to be paid from the proceeds of the imported good’s sale at auction, but that auction can be avoided if the Company pays the customs duties and then charges the lessee for them, as is stipulated in the contract.

Santander S.A. Corredores de Bolsa

To ensure correct and full performance of all its obligations as a Stock Broker, in conformity with the provisions of Articles 30 and following of Law 18,045 on the Securities Market, the Company has given fixed-income securities to the Bolsa de Comercio de Santiago for a current value of Ch$3,163 million as of June 30, 2010 (Ch$2,369 million as of December 31, 2009).

e)	Contingent credits and liabilities

To meet its customers' needs, the Bank acquired a number of irrevocable commitments and continent obligations, and though these obligations could not be recorded in the Consolidated Interim Statements of Financial Position, they imply credit risks and are therefore part of the Bank's overall risk.

 

 

 

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NOTE 20 - CAPITAL REQUIREMENTS (BASEL):

Pursuant to the General Law of Banks, the Bank must maintain a minimum ratio of effective equity to risk-weighted assets of 8% net of required provisions, 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 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 asset. For example, cash, deposits with Banks and financial instruments issued by the Chilean Central Bank 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 considered in the determination of the risk assets, using a conversion factor applied to their notional values, thereby determining the amount of their exposure to credit risk. Off-balance-sheet contingent credits are also included for weighting purposes, as “Credit equivalents”.

As instructed in Chapter 12-1 of the RAN of the Superintendency of Banks, a normative change was implemented in January 2010 implying the entry into force of Chapter B3 of the Compendium of Accounting Standards, with the risk exposures of the contingent liabilities changing from 100% exposure to a percentage as indicated in the following table:

Type of contingent credit		Exposure
a) Guarantees and bonds		100%
b) Confirmed foreign letters of credit		20%
c) Issued documentary letters of credit		20%
d) Guarantees		50%
e) Interbank letters of guarantee		100%
f) Freely disposable lines of credit		50%
g) Other credit commitments:
- Credits for higher education under Law #20,027		15%
- Other		100%
h) Other contingent credits		100%

In addition, the products indicated in letters e) to h) were transferred to the "Contingent placements" item, resulting in a Ch$ 4,695,798 million increase in "Freely disposable lines of credit." This change in the exposures and introduction of new credit products resulted in a 1.07 point net reduction in the Bis Ratio.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE #20 – CAPITAL REQUIREMENTS (BASEL), continued:

The levels of Basic capital and Effective equity at the close of each period are as follows:

		Consolidated assets								Risk-weighted assets
		As of June 30,				As of December 31,				As of June 30,				As of December 31,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Balance-sheet assets (net of allowances)
Cash and deposits in banks			1,398,881				2,043,458				-				-
Unsettled transactions			486,914				468,134				123,241				191,287
Trading investments			812,454				798,539				55,882				41,918
Investments under resale agreements			5,000				14,020				5,000				14,020
Financial derivative contracts (*)			1,529,849				1,391,886				886,385				837,692
Interbank loans			41,437				23,370				8,287				4,674
Loans and accounts receivable from customers			14,194,842				13,378,379				12,445,921				11,717,337
Available for sale investments			1,341,296				1,830,090				157,017				154,089
Investments in other companies			6,502				7,417				6,502				7,417
Intangible assets			71,074				77,260				71,074				77,260
Property, plant and equipment			163,184				184,122				163,184				184,122
Current taxes			5,464				4,541				546				454
Deferred taxes			111,938				95,229				11,194				9,523
Other assets			595,246				452,559				431,453				269,313
Off-balance-sheet assets
Contingent loans			3,076,749				1,160,118				1,844,573				693,009
Totals			23,840,830				21,929,122				16,210,259				14,202,115

(*) “Financial derivative contracts” are presented at their “Credit Equivalent Risk” value as established in Chapter 12-1 of the Superintendency of Banks and Financial Institutions.

 

										Percentage
		As of June 30,				As of December 31,				As of June 30,				As of December 31,
		2010				2009				2010				2009
		MCh$				MCh$				%				%
Basic capital			1,665,326				1,658,316				6.99				7.56
Effective net equity			2,292,934				2,214,092				14.14				15.59

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 NOTE 21 - NON CONTROLLING INTEREST:

This item reflects the net amount of the dependent entities’ net equity attributable to capital instruments which do not belong to the Bank either directly or indirectly, including the part that has been attributed to them in the income for the period.

a) The non controlling interest's share in the equity and income of the affiliates and special-purpose entities is summarized below:

														Other comprehensive income
For the 6-month period ending on June 30, 2010		Third-party share				Equity				Income				Available for sale investments				Deferred tax				Total other comprehensive income				Comprehensive income
		%				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Affiliates:
Santander Agente de Valores Limitada (ex-Santander S.A. Agente de Valores)			0.97				469				1				37				(6	)			43				44
Santander S.A. Sociedad Securitizadora			0.36				3				-				-				-				-				-
Santander Investment S.A. Corredores de Bolsa			49.00				24,243				1,479				181				(31	)			212				1,691
Santander Asset Management S.A. Adm. Gral. de Fondos			0.02				11				3				-				-				-				3
Santander Corredora de Seguros Limitada			0.24				132				5				-				-				-				5
Subtotals							24,858				1,488				218				(37	)			255				1,743
Special-purpose entities:
Bansa Santander S.A.			100.00				1,922				(459	)			-				-				-				(459	)
Santander Gestión de Recaudación y Cobranzas Limitada			100.00				492				(2,875	)			-				-				-				(2,876	)
Multinegocios S.A.			100.00				106				10				-				-				-				10
Servicios de Administración y Financieros Limitada			100.00				481				145				-				-				-				145
Servicios de Cobranzas Fiscalex Limitada			100.00				77				25				-				-				-				25
Multiservicios de Negocios Limitada			100.00				524				149				-				-				-				149
Subtotals							3,602				(3,005	)			-				-				-				(3,006	)
Totals							28,460				(1,517	)			218				(37	)			255				(1,263	)

 

 

 

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NOTE 21 – NON CONTROLLING INTEREST, continued:

														Other comprehensive income
For the 6-month period ending on June 30, 2009		Third-party share				Equity				Income				Available for sale investments				Deferred tax				Total other comprehensive income				Comprehensive income
		%				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Affiliates:
Santander S.A. Agente de Valores			0.97				1,468				20				49				(8	)			41				61
Santander S.A. Sociedad Securitizadora			0.36				4				-				-				-				-				-
Santander Investment S.A. Corredores de Bolsa			49.00				21,492				1,239				779				(132	)			647				1,886
Santander Asset Management S.A. Adm. Gral. de Fondos			0.02				11				2				-				-				-				2
Santander Corredora de Seguros Limitada			0.24				121				8				-				-				-				8
Subtotals							23,096				1,269				828				(140	)			688				1,957
Special-purpose entities:
Bansa Santander S.A.			100.00				2,741				58				-				-				-				58
Santander Gestión de Recaudación y Cobranzas Limitada			100.00				4,410				2,586				-				-				-				2,586
Multinegocios S.A.			100.00				95				9				-				-				-				9
Servicios de Administración y Financieros Limitada			100.00				182				144				-				-				-				144
Servicios de Cobranzas Fiscalex Limitada			100.00				95				19				-				-				-				19
Multiservicios de Negocios Limitada			100.00				301				52				-				-				-				52
Subtotals							7,824				2,868				-				-				-				2,868
Totals							30,920				4,137				828				(140	)			688				4,825

 

 

 

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NOTE 21 – NON CONTROLLING INTEREST, continued:

b) The non controlling interest's share in the income of the affiliates and special-purpose entities for the quarters ending on June 30, 2010 and 2009 is summarized as follows:

										Other comprehensive income
For the quarter ending on June 30, 2010		Third-party share				Income				Available for sale investments				Deferred tax				Total other comprehensive income				Comprehensive income
		%				MCh$				MCh$				MCh$				MCh$				MCh$
Affiliates:
Santander Agente de Valores Limitada (ex-Santander S.A. Agente de Valores)			0.97				(16	)			91				(16	)			75				59
Santander S.A. Sociedad Securitizadora			0.36				-				-				-				-				-
Santander Investment S.A. Corredores de Bolsa			49.00				527				188				(32	)			156				683
Santander Asset Management S.A. Adm. Gral. de Fondos			0.02				1				-				-				-				1
Santander Corredora de Seguros Limitada			0.24				3				-				-				-				3
Subtotals							515				279				(48	)			231				746
Special-purpose entities:
Bansa Santander S.A.			100.00				(94	)			-				-				-				(94	)
Santander Gestión de Recaudación y Cobranzas Limitada			100.00				(2,010	)			-				-				-				(2,010	)
Multinegocios S.A.			100.00				3				-				-				-				3
Servicios de Administración y Financieros Limitada			100.00				72				-				-				-				71
Servicios de Cobranzas Fiscalex Limitada			100.00				14				-				-				-				14
Multiservicios de Negocios Limitada			100.00				82				-				-				-				81
Subtotals							(1,933	)			-				-				-				(1,935	)
Totals							(1,418	)			279				(48	)			231				(1,189	)

										Other comprehensive income
For the quarter ending on June 30, 2009		Third-party share				Income				Available for sale investments				Deferred tax				Total other comprehensive income				Comprehensive income
		%				MCh$				MCh$				MCh$				MCh$				MCh$
Affiliates:
Santander S.A. Agente de Valores			0.97				17				49				(8	)			41				58
Santander S.A. Sociedad Securitizadora			0.36				-				-				-				-				-
Santander Investment S.A. Corredores de Bolsa			49.00				675				145				(24	)			121				796
Santander Asset Management S.A. Adm. Gral. de Fondos			0.02				1				-				-				-				1
Santander Corredora de Seguros Limitada			0.24				4				-				-				-				4
Subtotals							697				194				(32	)			162				859
Special-purpose entities:
Bansa Santander S.A.			100.00				(396	)			-				-				-				(396	)
Santander Gestión de Recaudación y Cobranzas Limitada			100.00				979				-				-				-				979
Multinegocios S.A.			100.00				4				-				-				-				4
Servicios de Administración y Financieros Limitada			100.00				(52	)			-				-				-				(52	)
Servicios de Cobranzas Fiscalex Limitada			100.00				10				-				-				-				10
Multiservicios de Negocios Limitada			100.00				16				-				-				-				16
Subtotals							561				-				-				-				561
Totals							1,258				194				(32	)			162				1,420

 

 

 

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NOTE 22 - INTEREST INCOME AND EXPENSE:

This item refers to interest earned in the period by all the financial assets whose return, whether implicit or explicit, is determined by applying the effective interest rate method, regardless of their being valued at fair value, as well as the rectifications of products as a consequence of hedge accounting.

a)	As of June 30, 2010 and 2009 the composition of revenue from interest and adjustments, not including income from accounting hedges, is as follows:

		For the quarter ending on June 30,
		2010																2009
		Interest				Adjustments				Prepaid fees				Total				Interest				Adjustments				Prepaid fees				Total
Items		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Repurchase agreements			304				118				-				422				3,260				-				-				3,260
Interbank loans			24				-				-				24				19				-				-				19
Commercial loans			113,145				25,462				755				139,362				149,410				(3,088	)			785				147,107
Mortgage loans			47,134				39,589				1,008				87,731				46,176				(4,841	)			1,007				42,342
Consumer loans			117,116				600				754				118,470				130,601				(177	)			1,028				131,452
Investment instruments			10,071				6,085				-				16,156				12,779				(1,601	)			-				11,178
Other interest income			804				(79	)			-				725				(2	)			(788	)			-				(790	)
Interest income			288,598				71,775				2,517				362,890				342,243				(10,495	)			2,820				334,568

		For the 6-month period ending on June 30,
		2010																2009
		Interest				Adjustments				Prepaid fees				Total				Interest				Adjustments				Prepaid fees				Total
Items		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Repurchase agreements			323				240				-				563				10,563				-				-				10,563
Interbank loans			74				-				-				74				165				-				-				165
Commercial loans			227,536				32,433				1,474				261,443				328,386				(66,933	)			1,501				262,954
Mortgage loans			93,632				50,158				2,021				145,811				92,457				(90,829	)			1,802				3,430
Consumer loans			232,389				704				1,334				234,427				267,078				(1,724	)			1,687				267,041
Investment instruments			22,444				7,731				-				30,175				23,845				(20,636	)			-				3,209
Other interest income			1,317				324				-				1,641				9,568				4,868				-				14,436
Interest income			577,715				91,590				4,829				674,134				732,062				(175,254	)			4,990				561,798

b)	As indicated in section i) of Note 01, suspended interest and adjustments are recorded in memorandum accounts (off-balance-sheet accounts) until they are effectively received.

As of June 30, 2010 and 2009, the detail of revenue from interest and adjustments is as follows:

		For the quarter ending on June 30,
		2010																2009
Off Statements of Financial		Interest				Adjustments				Prepaid fees				Total				Interest				Adjustments				Prepaid fees				Total
Position		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Commercial loans			63				1,166				-				1,229				1,672				(907	)			-				765
Mortgage loans			(1,125	)			1,206				-				81				456				(510	)			-				(54	)
Consumer loans			(3,134	)			553				-				(2,581	)			6,882				(260	)			-				6,622
Totals			(4,196	)			2,925				-				(1,271	)			9,010				(1,677	)			-				7,333

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 22 - INTEREST INCOME AND EXPENSE, continued:

	For the 6-month period ending on June 30,
	2010					2009
Off Statements of Financial	Interest	Adjustments	Prepaid fees	Total		Interest	Adjustments	Prepaid fees	Total
Position	MCh$	MCh$	MCh$	MCh$		MCh$	MCh$	MCh$	MCh$
Commercial loans	23,386	5,146	-	28,532		17,306	4,705	-	22,011
Mortgage loans	4,538	4,148	-	8,686		5,423	3,405	-	8,828
Consumer loans	32,474	205	-	32,679		45,354	(905)	-	44,449
Totals	60,398	9,499	-	69,897		68,083	7,205	-	75,288

c)	As of June 30, 2010 and 2009 the detail of interest and adjustment expenses, not counting income from accounting hedges, is as follows:

 

		For the quarter ending on June 30,
		2010																2009
		Interest				Adjustments				Prepaid fees				Total				Interest				Adjustments				Prepaid fees				Total
Items		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Demand deposits			(94	)			(153	)			-				(247	)			(178	)			22				-				(156	)
Repurchase agreements			(174	)			(13	)			-				(187	)			(4,358	)			39				-				(4,319	)
Time deposits and liabilities			(34,718	)			(21,509	)			-				(56,227	)			(77,740	)			3,360				-				(74,380	)
Interbank borrowings			(7,476	)			(14	)			-				(7,490	)			(6,313	)			(53	)			-				(6,366	)
Issued debt instruments			(30,390	)			(20,802	)			-				(51,192	)			(27,705	)			2,649				-				(25,056	)
Other financial obligations			(1,249	)			(394	)			-				(1,643	)			(1,698	)			40				-				(1,658	)
Other interest expenses			-				(2,295	)			-				(2,295	)			1,096				(6	)			-				1,090
Interest expense totals			(74,101	)			(45,180	)			-				(119,281	)			(116,896	)			6,051				-				(110,845	)

		For the 6-month period ending on June 30,
		2010																2009
		Interest				Adjustments				Prepaid fees				Total				Interest				Adjustments				Prepaid fees				Total
Items		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Demand deposits			(187	)			(200	)			-				(387	)			(531	)			(168	)			-				(699	)
Repurchase agreements			(622	)			(210	)			-				(832	)			(15,283	)			359				-				(14,924	)
Time deposits and liabilities			(70,033	)			(26,962	)			-				(96,995	)			(195,597	)			67,681				-				(127,916	)
Interbank borrowings			(15,340	)			(17	)			-				(15,357	)			(15,687	)			65				-				(15,622	)
Issued debt instruments			(60,245	)			(26,442	)			-				(86,687	)			(56,056	)			50,777				-				(5,279	)
Other financial obligations			(2,431	)			(512	)			-				(2,943	)			(4,833	)			899				-				(3,934	)
Other interest expenses			-				(3,119	)			-				(3,119	)			(1,982	)			(7	)			-				(1,989	)
Interest expense totals			(148,858	)			(57,462	)			-				(206,320	)			(289,969	)			119,606				-				(170,363	)

d)	As of June 30, 2010 and 2009 the summary of interest and adjustments is as follows:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
Items		MCh$				MCh$				MCh$				MCh$
Interest income			362,890				334,568				674,134				561,798
Interest expense			(119,281	)			(110,845	)			(206,320	)			(170,363	)
Income from interest and adjustments			243,609				223,723				467,814				391,435
Income from hedge accounting (net)			(827	)			2,888				4,366				22,449
Total net interest income			242,782				226,611				472,180				413,884

 

 

 

89

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NOTE 23 – FEES AND COMMISSIONS:

This item includes the amount of fees earned and paid in the period, except for those which are an integral part of the financial instrument’s effective interest rate:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Fees and commissions income
Fees and commissions for lines of credit and overdrafts (*)			3,958				5,868				8,525				14,788
Fees and commissions for guarantees and letters of credit			5,954				5,922				11,783				12,138
Fees and commissions for card services			25,481				23,115				51,283				46,697
Fees and commissions for management of accounts			6,513				7,246				13,210				14,322
Fees and commissions for collections and payments			14,236				16,658				28,047				32,023
Fees and commissions for intermediation and management of securities			2,564				2,204				4,872				3,690
Fees and commissions for investments in mutual funds or others			9,657				7,495				19,048				13,639
Compensation for marketing of securities			8,962				4,719				14,068				8,047
Office banking			2,325				1,907				4,428				3,689
Other fees earned			3,158				3,543				6,703				6,807
Totals			82,808				78,677				161,967				155,840

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Fees and commissions expenses
Compensation for card operation			(12,128	)			(11,164	)			(23,579	)			(22,732	)
Fees and commissions for securities transactions			(466	)			(437	)			(868	)			(660	)
Office banking			(1,769	)			(1,755	)			(3,643	)			(3,164	)
Other fees			(3,287	)			(2,176	)			(6,368	)			(4,508	)
Totals			(17,650	)			(15,532	)			(34,458	)			(31,064	)
Net fees and commissions income			65,158				63,145				127,509				124,776

The fees earned through transactions with letters of credit are recorded in the Consolidated Interim Statement of Income in the “Interest income” item.

(*)	According to SBIF Circular 3,452, of November 25, 2008, amended by SBIF Circular 3,466 of February 4, 2009, fee charges on overdrafts for which there is no contractual provision were eliminated.

 

 

90

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 24 - INCOME FROM FINANCIAL OPERATIONS:

This item includes the adjustments for variation of financial instruments, except for those attributable to interest earned by application of the effective interest rate method to corrections of assets’ value, as well as the income earned in their purchases and sales.

As of June 30, 2010 and 2009, the detail of income from financial operations is as follows:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Net income from financial operations
Derivatives classified as trading			46,910				(28,079	)			72,736				(73,785	)
Financial trading investments			(7,376	)			1,455				20,177				38,500
Sale of loans and accounts receivable from customers
Current portfolio			(563	)			268				(581	)			183
Written-off portfolio			2,977				(46	)			2,954				68
Available for sale investments			2,336				7,927				1,854				36,521
Other income from financial operations			638				(388	)			(126	)			(921	)
Totals			44,922				(18,863	)			97,014				566

NOTE 25 - FOREIGN EXCHANGE INCOME PROFIT (LOSS), NET:

This item includes the income earned from foreign currency trading, the differences arise from converting monetary items in foreign currency to the functional currency and those generated by non-monetary assets in foreign currency at the time of their divestiture.

As of June 30, 2010 and 2009, the detail of foreign exchange income is as follows:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Foreign exchange differences
Net profit (loss) from foreign exchange differences			(95,797	)			127,082				(161,022	)			256,710
Hedging derivatives			75,782				(91,042	)			117,162				(185,071	)
Income from adjustable assets in foreign currency			1,229				(4,064	)			2,666				(7,225	)
Income from adjustable liabilities in foreign currency			(1,095	)			16,543				(1,206	)			33,491
Totals			(19,881	)			48,519				(42,400	)			97,905

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 26 – PROVISION FOR LOAN LOSSES:

The change in income from provisions and impairments, recorded as of June 30, 2010 and 2009, is as follows:

 

						Loans and accounts receivable from customers
For the quarter ending on June 30, 2010		Interbank loans				Commercial loans				Mortgage loans				Consumer loans				Contingent credits				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Provisions and charge-offs
- Individual evaluations			(77	)			(12,263	)			-				-				(417	)			(12,757	)
- Group evaluations			-				(14,714	)			(3,297	)			(38,090	)			-				(56,101	)
Total provisions and charge-offs			(77	)			(26,977	)			(3,297	)			(38,090	)			(417	)			(68,858	)
Provisions released
- Individual evaluations			-				3,814				-				-				-				3,814
- Group evaluations			-				1,373				59				82				12				1,526
Total released provisions			-				5,187				59				82				12				5,340
Recovery of loans previously charged off			-				1,328				355				5,883				-				7,566
Net charge to income			(77	)			(20,462	)			(2,883	)			(32,125	)			(405	)			(55,952	)

 

						Loans and accounts receivable from customers
For the 6-month period ending on June 30, 2010		Interbank loans				Commercial loans				Mortgage loans				Consumer loans				Contingent credits				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Provisions and charge-offs
- Individual evaluations			(82	)			(29,713	)			-				-				(1,324	)			(31,119	)
- Group evaluations			-				(32,334	)			(8,021	)			(82,195	)			-				(122,550	)
Total provisions and charge-offs			(82	)			(62,047	)			(8,021	)			(82,195	)			(1,324	)			(153,669	)
Provisions released
- Individual evaluations			17				7,907				-				-				-				7,924
- Group evaluations			-				2,525				177				1,309				56				4,067
Total released provisions			17				10,432				177				1,309				56				11,991
Recovery of loans previously charged off			-				3,233				928				11,378				-				15,539
Net charge to income			(65	)			(48,382	)			(6,916	)			(69,508	)			(1,268	)			(126,139	)

 

 

 

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NOTE 26 – PROVISION FOR LOAN LOSSES, continued:

 

						Loans and accounts receivable from customers
For the quarter ending on June 30, 2009		Interbank loans				Commercial loans				Mortgage loans				Consumer loans				Contingent credits				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Provisions and charge-offs
- Individual evaluations			(17	)			(10,083	)			-				-				(811	)			(10,911	)
- Group evaluations			-				(14,827	)			(3,409	)			(85,486	)			-				(103,722	)
Total provisions and charge-offs			(17	)			(24,910	)			(3,409	)			(85,486	)			(811	)			(114,633	)
Provisions released
- Individual evaluations			-				1,480				-				-				-				1,480
- Group evaluations			-				371				703				5,252				31				6,357
Total released provisions			-				1,851				703				5,252				31				7,837
Recovery of loans previously charged off			-				2,296				629				7,834				-				10,759
Net charge to income			(17	)			(20,763	)			(2,077	)			(72,400	)			(780	)			(96,037	)

 

						Loans and accounts receivable from customers
For the 6-month period ending on June 30, 2009		Interbank loans				Commercial loans				Mortgage loans				Consumer loans				Contingent credits				Total
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Provisions and charge-offs
- Individual evaluations			(17	)			(15,185	)			-				-				(814	)			(16,016	)
- Group evaluations			-				(36,194	)			(8,057	)			(167,777	)			-				(212,028	)
Total provisions and charge-offs			(17	)			(51,379	)			(8,057	)			(167,777	)			(814	)			(228,044	)
Provisions released
- Individual evaluations			16				4,309				-				-				614				4,939
- Group evaluations			-				839				977				14,563				100				16,479
Total released provisions			16				5,148				977				14,563				714				21,418
Recovery of loans previously charged off			-				4,776				1,803				13,076				-				19,655
Net charge to income			(1	)			(41,455	)			(5,277	)			(140,138	)			(100	)			(186,971	)

 

 

 

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NOTE 27 - PERSONNEL SALARIES AND EXPENSES:

a)	Composition of personnel salaries and expenses:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Personnel salaries			43,676				40,664				76,875				73,763
Bonuses or gratifications			15,050				10,601				30,667				26,739
Stock-based benefits			489				959				1,015				1,196
Seniority compensation			1,846				805				3,633				2,009
Pension plans			241				-				585				-
Training expenses			385				450				513				518
Day care and kindergarten			56				132				313				298
Health funds			646				938				1,203				1,364
Welfare fund			114				110				226				218
Other personnel expenses			3,499				3,042				6,561				5,990
Totals			66,002				57,701				121,591				112,095

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 28 - ADMINISTRATIVE EXPENSES:

As of June 30, 2010 and 1009, the item's composition is as follows:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
General administrative expenses
Maintenance and repair of property, plant and equipment			5,324				4,995				11,046				10,642
Office lease			4,219				3,398				5,567				5,008
Equipment lease			1,370				1,206				2,683				2,396
Insurance payments			301				294				592				584
Office supplies			1,261				1,183				2,405				2,599
Information technology and communication expenses			1,695				1,848				3,729				3,873
Lighting, heating, and other utilities			2,334				3,065				4,751				5,815
Security and valuables transport service			2,317				2,307				4,671				4,750
Representation and personnel travel expenses			744				675				1,588				1,582
Judicial and notarial expenses			133				235				306				373
Fees for technical reports			590				696				1,228				1,244
Professional service fees			269				245				532				475
Other general administrative expenses			185				655				246				734
Outsourced services
Outsourced services			8,801				7,579				19,957				16,755
Board expenses
Compensation to Board members			224				161				399				323
Other Board expenses			-				-				-				-
Marketing Expenses
Publicity and advertising			3,813				3,402				7,637				5,988
Taxes, payroll taxes and contributions
Real estate contributions			352				491				861				951
Patents			421				417				852				852
Other taxes			2				49				5				55
Contribution to SBIF			1,352				1,357				2,705				2,707
Totals			35,707				34,258				71,760				67,706

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

NOTE 29 - DEPRECIATION AND AMORTIZATION:

a)	The values of depreciation and amortization charges during the 2010 and 2009 periods are broken down below:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Depreciation and amortization
Depreciation of property, plant and equipment			5,323				6,351				10,714				11,292
Amortization of intangible assets			7,269				5,789				14,219				11,294
Totals			12,592				12,140				24,933				22,586

b)	The reconciliation between the book values as of December 31, 2009 and January 1, 2009 and 2010, and the balances as of June 30, 2010, is as follows:

		Accumulated depreciation and amortization 2009
		Property, plant and equipment				Intangible assets				Total
		MCh$				MCh$				MCh$
Opening balances as of January 1, 2009			(21,414	)			(26,169	)			(47,583	)
Depreciation and amortization charges for the period			(21,691	)			(24,932	)			(46,623	)
Sales and disposals in the period			126				-				126
Balances as of December 31, 2009			(42,979	)			(51,101	)			(94,080	)

		Accumulated depreciation and amortization 2010
		Property, plant and equipment				Intangible assets				Total
		MCh$				MCh$				MCh$
Opening balances as of January 1, 2010			(42,979	)			(51,101	)			(94,080	)
Depreciation and amortization charges for the period			(10,714	)			(14,219	)			(24,933	)
Sales and disposals in the period			224				-				224
Balances as of June 30, 2010			(53,469	)			(65,320	)			(118,789	)

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 30 - OTHER OPERATING INCOME AND EXPENSES:

a)	Other operating income is comprised of the following components:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Revenue from assets received in lieu of payment
Income from sale of assets received in lieu of payment			629				369				893				626
Recovery of charge-off and income from assets received in lieu of payment			205				766				805				1,616
Subtotals			834				1,135				1,698				2,242
Income from sale of investments in other companies (*)
Gain on sale of investments in other companies			-				1,370				-				1,847
Subtotals			-				1,370				-				1,847
Other income
Leases			237				443				343				704
Gain on sale of property, plant and equipment  (**)			13,047				93				13,195				208
Recovery of contingency provisions			2,656				(222	)			7,028				306
Indemnities from insurance companies for earthquake			2,663				-				2,663				-
Other			514				109				1,089				119
Subtotals			19,117				423				24,318				1,337
Totals			19,951				2,928				26,016				5,426

(*) On March 10, 2009 Visa Inc. sold a total of 34,093 LAC Class shares to Banco Santander Chile. On March 20, 2009 the Bank sold 51% of these shares, corresponding to 17,387 shares, at a price of Ch$ 27,442 per share, generating an income of Ch$ 477 million, which is included in Other operating income in the Consolidated Interim Statement of Income.

On June 26, 2009 the Bank sold 16,049 MasterCard shares. On the date of the sale their book value was Ch$ 83 million and their selling price was Ch$ 1,453 million, generating an income of Ch$ 1,370 million, which is included in Other operating income in the Consolidated Interim Statement of Income.

(**) As is indicated in letter c) of Note 3, on April 30 and June 30, 2010 Banco Santander Chile made the following branch sales: 5 branches in April, generating an income of Ch$ 6,620 million, and 11 branches in June, generating an income of Ch$ 6,355 million.

 

 

 

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NOTE 30- OTHER OPERATING INCOME AND EXPENSES, continued:

b)	Other operating expenses are comprised of the following components:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Provisions and expenses for assets received in lieu of payment
Charge-off of assets received in lieu of payment			401				2,064				1,548				3,033
Provisions for assets received in lieu of payment			883				1,492				2,300				1,822
Expenses for maintenance of assets received in lieu of payment			474				841				1,192				1,335
Subtotals			1,758				4,397				5,040				6,190
Credit card expenses
Credit card expenses			625				625				1,536				1,612
Credit card memberships			865				709				1,598				1,357
Subtotals			1,490				1,334				3,134				2,969
Customer services			2,387				2,047				4,738				4,319

Other expenses
Operating charge-offs			630				628				979				1,256
Life insurance and general product insurance policies			1,487				1,148				2,804				2,289
Additional tax on expenses paid foreign			598				395				995				877
Expenses for mortgage credits			302				179				595				330
Expenses for foreign trade operations			26				69				91				106
Income from leasing operations			33				561				73				1,127
Contingency provisions			8,853				(18,871	)			10,648				7,556
Other			84				292				1,107				691
Subtotals			12,013				(15,599	)			17,292				14,232
Totals			17,648				(7,821	)			30,204				27,710

 

 

 

98

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 31 - TRANSACTIONS WITH RELATED PARTIES:

In addition to Affiliates and associated entities, the Bank’s “related parties” include the “key personnel” of the Bank’s executive staff (members of the Bank’s Board and the 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 considers the companies that are part of the Santander Group worldwide as related parties, with the understanding 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, provides that any transaction with a related party must be made under equitable conditions similar to the arm’s length conditions that customarily prevail in the market.

Moreover, Article 84 of the Ley General de Bancos (General Banking Act) imposes limits on loans that can be granted to related parties and prohibits lending to the Bank’s directors, managers, or representatives.

Below is an indication of the transactions the Bank performs with related parties. To facilitate comprehension, we have divided the information into four categories:

Santander Group Companies

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, in accordance with section b) of Note 01 of these Financial Statements, exercises a significant degree of influence and which generally belong to the group of entities known as “business support companies”.

Key personnel

This category includes the members of the Bank’s Board and the 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.

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 31 - TRANSACTIONS WITH RELATED PARTIES, continued:

a)    Loans to related parties:

Below are the loans and accounts receivable, in addition to the contingent credits, corresponding to related entities:

 

The change in loans to related parties as of June 30, 2010 and December 31, 2009 has been as follows:

		As of June 30, 2010																As of December 31, 2009
		Group Companies				Associated companies				Key personnel				Other				Group Companies				Associated companies				Key personnel				Other
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Loans and accounts receivable
Commercial loans			36,394				677				2,368				8,193				11,331				914				2,840				108,372
Mortgage loans			-				-				12,428				-				-				-				12,754				-
Consumer loans			-				-				1,517				-				-				-				1,744				-
Loans and accounts receivable			36,394				677				16,313				8,193				11,331				914				17,338				108,372
Credit risk provision			(274	)			(1	)			(34	)			(11	)			(13	)			(1	)			(11	)			(298	)
Net loans			36,120				676				16,279				8,182				11,318				913				17,327				108,074
Guarantees			2,532				-				15,385				929				4,552				-				45,550				596
Contingent loans
Personal guaratees			-				-				-				-				-				-				-				-
Letters of credit			3,412				-				-				-				1,868				-				-				-
Guarantees			25,841				-				-				125				134,644				-				-				259
Contingent credits			29,253				-				-				125				136,512				-				-				259
Contingent loan provisions			(7	)			-				-				-				(21	)			-				-				-
Net contingent loans			29,246				-				-				125				136,491				-				-				259

 

		As of June 30, 2010																As of December 31, 2009
		Group Companies				Associated companies				Key Personnel				Other				Group Companies				Associated companies				Key Personnel				Other
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
As of January 1			147,843				914				17,338				108,631				107,815				51				14,845				110,099
New loans			5,515				253				2,284				5,136				176,516				2,268				8,279				30,220
Payments			(87,711	)			(490	)			(3,309	)			(105,449	)			(136,488	)			(1,405	)			(5,785	)			(31,688	)
Totals			65,647				677				16,313				8,318				147,843				914				17,339				108,631

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 31 - TRANSACTIONS WITH RELATED PARTIES, continued:

c)	Assets and liabilities with related parties

		As of June 30, 2010																As of December 31, 2009
		Group Companies				Associated companies				Key personnel				Other				Group Companies				Associated companies				Key personnel				Other
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Assets
Cash and deposits in banks			339,823				-				-				-				336,492				-				-				-
Trading investments			-				-				-				-				-				-				-				-
Investments under resale agreements			-				-				-				-				-				-				-				-
Financial derivatives contracts			363,598				-				-				-				405,411				-				-				-
Available for sale investments			-				-				-				-				-				-				-				-
Other assets			86,558				-				-				-				117,060				-				-				-
Liabilities
Demand deposits and other demand liabilities			15,056				3,186				2,160				2,778				1,503				6,238				502				925
Investments under repurchase agreements			31,163				-				-				-				-				-				-				-
Time deposits and other time liabilities			971,970				-				1,769				26,580				411,295				-				1,126				21,652
Financial derivative contracts			292,838				-				-				-				245,574				-				-				-
Issued debt instruments			7,186				-				-				-				89,258				-				-				-
Other financial liabilities			22,523				-				-				-				55,156				-				-				-
Other liabilities			727				-				-				-				310				-				-				-

d)	Income (expenses) recorded with related parties

 
 

		For the quarter ending on June 30, 2010																For the quarter ending on June 30, 2009
		Group Companies				Associated companies				Key personnel				Other				Group Companies				Associated companies				Key personnel				Other
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Income (expense) recorded
Income and expenses from interest			(2,460	)			18				307				36				(6,713	)			11				237				209
Income and expenses from fees and services			18,990				10				29				(15	)			15,746				1				24				27
Net income from financial and foreign exchange operations (*)			(31,373	)			-				(14	)			(3,078	)			70,902				-				-				4,199
Other operating income and expenses			(1,057	)			-				-				-				(1,079	)			-				-				-
Key personnel compensation and expenses			-				-				(7,650	)			-				-				-				(6,983	)			-
Administrative and other expenses			(5,426	)			(6,170	)			-				-				(2,721	)			(2,794	)			-				-
Totals			(21,326	)			(6,142	)			(7,328	)			(3,057	)			76,135				(2,782	)			(6,722	)			4,435

 

 

 

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NOTE 31 - TRANSACTIONS WITH RELATED PARTIES, continued:

		For the 6-month period ending on June 30, 2010																For the 6-month period ending on June 30, 2009
		Group Companies				Associated companies				Key personnel				Other				Group Companies				Associated companies				Key personnel				Other
		MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$				MCh$
Income (expense) recorded
Income and expenses from interest and adjustments			(4,998	)			30				481				545				(14,930	)			24				88				(790	)
Income and expenses from fees and services			32,179				28				58				52				24,036				2				49				66
Net income from financial and foreign exchange transactions (*)			(53,823	)			-				(11	)			(4,998	)			164,754				-				-				2,304
Other operating income and expenses			(2,265	)			-				-				-				(2,207	)			-				-				-
Key personnel compensation and expenses			-				-				(13,747	)			-				-				-				(13,951	)			-
Administrative and other expenses			(10,627	)			(10,447	)			-				-				(6,660	)			(8,472	)			-				-
Totals			(39,534	)			(10,389	)			(13,219	)			(4,401	)			164,993				(8,446	)			(13,814	)			1,580

(*) Reflects derivative contracts that hedge Group positions in Chile.

e)	Payments to the Board members and key management personnel

The compensation received by the key management personnel, including Board members and all the executives holding Manager positions, shown in the “Personnel salaries and expenses” and/or “Administrative expenses” items of the Consolidated Interim Income Statement, corresponds to the following categories:

		For the quarter ending on June 30,								For the 6-month period ending on June 30,
		2010				2009				2010				2009
		MCh$				MCh$				MCh$				MCh$
Personnel compensation			3,601				3,387				7,117				6,595
Board members’ compensation			224				161				399				323
Bonuses or gratifications			2,203				2,583				4,488				5,187
Compensation in stock			324				838				840				838
Training expenses			14				24				14				24
Seniority compensation			3				727				3				727
Health funds			59				59				117				126
Other personnel expenses			105				75				185				131
Pension plan			246				-				584				-
Totals			6,779				7,854				13,747				13,951

 

 

 

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NOTE 31 - TRANSACTIONS WITH RELATED PARTIES, continued:

f)	Composition of key personnel

As of June 30, 2010 and December 31, 2009, the composition of the Bank's key personnel is as shown below.

		#of executives
Positions		June 30, 2010				December 31, 2009
Directors			13				13
Division managers			12				13
Department managers			81				83
Managers			56				58
Total key personnel			162				167

 

NOTE 32 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES:

Fair value is defined as the amount at which a financial instrument (asset or liability) could be delivered or settled, respectively, on that date between two independent expert parties who act freely and prudently; i.e., not in a forced or liquidation sale. The most objective and customary reference for the fair value of an asset or liability is the quoted price that would be paid for it on a transparent organized market (“estimated fair value”).

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 inherently subjective and 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.

Financial derivative contracts

The estimated fair value of currency forward contracts was 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 or pay to rescind contracts or agreements, bearing in mind the term structures of the interest rate curve, the underlying asset’s volatility and the counterparts’ credit risk.

 

 

 

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NOTE 32 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued:

If there are no quoted prices on 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, with consideration for the relevant inputs/outputs such as volatility of options, observable correlations among underlying assets, counterparts’ 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.

Measurement of fair value and hierarchy

IAS 39 provides a hierarchy of reasonable value which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy attributes the highest priority to unadjusted quoted prices on active markets, to identical (level 1) assets or liabilities, and a lower priority to measures which involve significant unobservable inputs or outputs (level 3 measurements). The three levels of the hierarchy of fair values are:

Level 1: Inputs/outputs with (unadjusted) quoted prices on active markets for identical assets and liabilities which the Bank can access on the date of measurement.

Level 2: Inputs/outputs other than the quoted prices included in level 1 which are observable for assets or liabilities, either directly or indirectly.

Level 3: Inputs/outputs which are not observable for the asset or the liability.

The level of hierarchy at which a measurement is classified is based on the lowest level of input/output which is significant for the measurement as such of the fair value in its entirety.

The Bank has currently determined certain financial instruments as pertaining to level 3, because the calculation made at market value is based on information from internal modeling and not observable on the market.

The following financial instruments are classified as 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.
Cross currency swap with Metro de Santiago S.A.	Implicit Forward Rate Agreement (FRA)	Start Fwd unsupported by MUREX (platform) due to the UF fwd estimate.
Cross currency swap, Interest rate swap, Call money swap in Tasa Activa Bancaria (Active Banks Rate) TAB	Sundry	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.

 

 

 

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NOTE 32 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued:

The following table presents the assets and liabilities which are measured at fair value on a recurrent basis, as of June 30, 2010 and December 31, 2009:

		Measures of fair value
June 30,		2010				Level 1				Level 2				Level 3
		MCh$				MCh$				MCh$				MCh$
Assets
Trading investments			812,454				812,454				-				-
Available for sale investments			1,341,296				1,341,296				-				-
Derivatives			1,531,224				-				1,421,127				110,097
Totals			3,684,974				2,153,750				1,421,127				110,097
Liabilities
Derivatives			1,250,547				-				1,241,842				8,705
Totals			1,250,547				-				1,241,842				8,705

		Measures of fair value
December 31,		2009				Level 1				Level 2				Level 3
		MCh$				MCh$				MCh$				MCh$
Assets
Trading investments			798,539				798,539				-				-
Available for sale investments			1,830,090				1,830,090				-				-
Derivatives			1,393,878				-				1,181,660				212,218
Totals			4,022,507				2,628,629				1,181,660				212,218
Liabilities
Derivatives			1,348,906				-				880,058				468,848
Totals			1,348,906				-				880,058				468,848

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 June 30, 2010 and 2009:

		Assets				Liabilities
		MCh$				MCh$
As of December 31, 2008			81,304				(51,401	)
From January 1 to June 30, 2009 total unrealized profit (loss):
Included in profit			47,767				(12,704	)
Included in comprehensive income
Purchases, issuances, and placements (net)
Accumulated income as of June 30, 2009			129,071				(64,105	)
Total profits or losses included in income that are attributable to change in unrealized profits (losses) related to assets or liabilities as of June 30, 2009.			47,767				(12,704	)

 

 

 

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BANCO SANTANDER CHILE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

NOTE 32 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued:

		Assets				Liabilities
		MCh$				MCh$
As of December 31, 2009			212,218				(468,848	)
Total unrealized profit (loss):
Included in profit			39,734				(9,789	)
Included in comprehensive income
Purchases, issuances, and placements (net)
Accumulated income as of June 30, 2010			251,952				(478,637	)
Total profits or losses included in income for 2010 that are attributable to change in unrealized profits (losses) related to assets or liabilities as of June 30, 2010.			39,734				(9,789	)

The unrealized profits (losses) included in income for June 2010 and 2009, in the assets and liabilities valued at fair value on a recurrent basis through unobservable significant entries (Level 3) are recorded in the Statement of Income under the “Net income from financial operations” item.

The potential effect as of June 30, 2010 and 2009 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.

NOTE 33 - SUBSEQUENT EVENTS:

Between July 1, 2010 and the date of issue of these financial statements (July 26, 2010), no events have occurred which might materially alter the interpretation thereof.

 

FELIPE CONTRERAS FAJARDO Chief Accounting Officer

CLAUDIO MELANDRI HINOJOSA Chief Operating Officer

 

 

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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
Date:	September 13, 2009		By:	/s/ Juan Pedro Santa María P.
				Name:	Juan Pedro Santa María P.
				Title:	General Counsel

 
 

 

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