SEC Filing | Banco Santander Chile

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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Issuer

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

Commission File Number: 001-14554

Banco Santander Chile

Santander Chile Bank

(Translation of Registrant’s Name into English)

Bandera 140

Santiago, Chile

(Address of principal executive office)

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

Form 20-F

Form 40-F

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

Yes

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

Yes

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

Yes

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

IMPORTANT NOTICE

The unaudited financial statements included in this 6K have been prepared in accordance with the Compendium of Accounting Standards issued by the Superintendency of Banks and Financial Institutions (SBIF) of Chile. The accounting principles issued by the SBIF are substantially similar to IFRS, but there are some exceptions. The SBIF is the banking industry regulator that according to article 15 of the General Banking Law, establishes the accounting principles to be used by the banking industry. For those principles not covered by the Compendium of Accounting Standards, banks can use generally accepted accounting principles issued by the Chilean Accountant’s Association AG and which coincides with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the event that discrepancies exist between the accounting principles issued by the SBIF (Compendium of Accounting Standards) and IFRS, the Compendium of Accounting Standards will take precedence. The Notes to the unaudited consolidated financial statements contain additional information to that submitted in the Unaudited Consolidated Statement of Financial Position, Unaudited Consolidated Statement of Income, Unaudited Consolidated Statement of Comprehensive Income, Unaudited Consolidated Statement of Changes in Equity and Unaudited Consolidated Statement of Cash Flows. These notes provide a narrative description of such statements in a clear, reliable and comparable manner.

SIGNATURE

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

	BANCO SANTANDER-CHILE

	By:	/s/ Cristian Florence
	Name:	Cristian Florence
	Title:	General Counsel

Date: September 4, 2014

Exhibit 99.1

CONTENT

Consolidated Interim Financial Statements

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

Notes to the Unaudited Consolidated Interim Financial Statements

NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9
NOTE 02 SIGNIFICANT EVENTS	36
NOTE 03 OPERATING SEGMENTS	38
NOTE 04 CASH AND CASH EQUIVALENTS	44
NOTE 05 TRADING INVESTMENTS	45
NOTE 06 DERIVATIVE FINANCIAL INSTRUMENTS, AND HEDGE ACCOUNTING	46
NOTE 07 INTERBANK LOANS	54
NOTE 08 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS	55
NOTE 09 AVAILABLE FOR SALE INVESTMENTS	62
NOTE 10 INTANGIBLE ASSETS	63
NOTE 11 PROPERTY, PLANT AND EQUIPMENT	65
NOTE 12 CURRENT AND DEFERRED TAXES	68
NOTE 13 OTHER ASSETS	71
NOTE 14 TIME DEPOSITS AND OTHER TIME LIABILITIES	72
NOTE 15 ISSUED DEBT INSTRUMENTS, AND OTHER FINANCIAL LIABILITIES	73
NOTE 16 MATURITY OF ASSETS AND LIABILITIES	80
NOTE 17 OTHER LIABILITIES	82
NOTE 18 CONTINGENCIES AND COMMITMENTS	83
NOTE 19 EQUITY	85
NOTE 20 CAPITAL REQUIREMENTS (BASEL)	88
NOTE 21 NON-CONTROLLING INTEREST	90
NOTE 22 INTEREST INCOME AND INFLAXION-INDEXIN ADJUSTMENTS	95
NOTE 23 FEES AND COMMISSIONS	97
NOTE 24 OTHER INCOME FROM FINANCIAL OPERATIONS	98
NOTE 25 NET FOREIGN EXCHANGE INCOME	98
NOTE 26 PROVISION FOR LOAN LOSSES	99
NOTE 27 PERSONNEL SALARIES AND EXPENSES	101
NOTE 28 ADMINISTRATIVE EXPENSES	102
NOTE 29 DEPRECIATION, AMORTIZATION, AND IMPAIRMENT	103
NOTE 30 OTHER OPERATING INCOME AND EXPENSES	104
NOTE 31 TRANSACTIONS WITH RELATED PARTIES	105
NOTE 32 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES	110
NOTE 33 SUBSEQUENT EVENTS	114

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

			As of June 30,			As of December 31,
			2014			2013
	NOTE		MCh$			MCh$

ASSETS
Cash and deposits in banks		4		1,074,727			1,571,810
Cash items in process of collection		4		674,079			604,077
Trading investments		5		642,085			287,567
Investments under resale agreements				-			17,469
Financial derivative contracts		6		1,895,554			1,494,018
Interbank loans, net		7		97,764			125,395
Loans and accounts receivables from customers, net		8		21,141,651			20,327,021
Available for sale investments		9		1,327,202			1,700,993
Held to maturity investments				-			-
Investments in associates and other companies				16,631			9,681
Intangible assets		10		59,458			66,703
Property, plant, and equipment		11		179,616			180,215
Current taxes		12		22,943			1,643
Deferred taxes		12		195,746			230,215
Other assets		13		313,457			400,025
TOTAL ASSETS				27,640,913			27,016,832

LIABILITIES
Deposits and other demand liabilities		14		5,664,560			5,620,763
Cash items in process of being cleared		4		409,175			276,379
Obligations under repurchase agreements				136,557			208,972
Time deposits and other time liabilities		14		9,310,661			9,675,272
Financial derivative contracts				1,767,149			1,300,109
Interbank borrowing				1,725,218			1,682,377
Issued debt instruments		15		5,491,098			5,198,658
Other financial liabilities		15		189,932			189,781
Current taxes		12		-			50,242
Deferred taxes		12		20,044			25,088
Provisions				194,812			236,232
Other liabilities		17		286,301			198,777
TOTAL LIABILITIES				25,195,507			24,662,650

EQUITY

Attributable to the Bank`s shareholders:				2,416,870			2,325,678
Capital		19		891,303			891,303
Reserves		19		1,307,761			1,130,991
Valuation adjustments		19		6,785			(5,964	)
Retained earnings				211,021			309,348
Retained earnings from prior years				-			-
Income for the period				301.459			441,926
Minus: Provision for mandatory dividends				(90.438	)		(132,578	)
Non-controlling interest		21		28,536			28,504
TOTAL EQUITY				2,445,406			2,354,182

TOTAL LIABILITIES AND EQUITY				27,640,913			27,016,832

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 3

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD

For the periods ended

		For the three months ended June 30,						For the six months ended June 30,
		2014			2013			2014			2013
	NOTE	MCh$			MCh$			MCh$			MCh$

OPERATING INCOME

Interest income	22		591,190			413,671			1,132,097			839,468
Interest expense	22		(243,151	)		(165,004	)		(470,565	)		(344,320	)

Net interest income			348,039			248,667			661,532			495,148

Fee and commission income	23		88,756			85,996			179,437			173,536
Fee and commission expense	23		(32,941	)		(27,852	)		(67,858	)		(54,771	)

Net fee and commission income			55,815			58,144			111,579			118,765

Net profit (loss) from financial operations (net trading profit loss)	24		(103,583	)		15,039			(74,041	)		(1,834	)
Net foreign exchange gain	25		133,645			18,214			137,075			57,349
Other operating income	30		3,485			7,188			8,995			11,757

Net operating profit before provision for loan losses			437,401			347,252			845,140			681,185

Provision for loan losses	26		(84,036	)		(86,655	)		(165,270	)		(179,513	)

NET OPERATING PROFIT			353,365			260,597			679,870			501,672

Personnel salaries and expenses	27		(86,849	)		(79,794	)		(161,516	)		(151,327	)
Administrative expenses	28		(51,482	)		(46,762	)		(100,909	)		(92,622	)
Depreciation and amortization	29		(15,118	)		(15,261	)		(28,585	)		(30,914	)
Impairment of property, plant, and equipment	29		(16	)		(146	)		(29	)		(173	)
Other operating expenses	30		(16,067	)		(12,871	)		(36,946	)		(25,673	)

Total operating expenses			(169,532	)		(154,834	)		(327,985	)		(300,709	)

OPERATING INCOME			183,833			105,763			351,885			200,963

Income from investments in associates and other companies			552			667			839			1,149

Income before tax			184,385			106,430			352,724			202,112

Income tax expense	12		(25,079	)		(20,293	)		(51,231	)		(34,530	)

NET INCOME FOR THE PERIOD			159,306			86,137			301,493			167,582

Attributable to:
Equity holders of the Bank			159,616			85,892			301,459			166,771
Non-controlling interest	21		(310	)		245			34			811
Earnings per share attributable to Equity holders of the Bank:
(expressed in Chilean pesos)
Basic earnings	19		0.847			0.456			1.600			0.885
Diluted earnings	19		0.847			0.456			1.600			0.885

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 4

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF OTHER COMPREHENSIVE INCOME

For the periods ended

		For the three months ended June 30						For the six months ended June 30
		2014			2013			2014			2013
	NOTE	MCh$			MCh$			MCh$			MCh$

NET INCOME FOR THE PERIOD			159,306			86,137			301,493			167,582

OTHER COMPREHENSIVE INCOME - ITEMS WICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

Available for sale investments	9		5,103			6,816			13,484			9,606
Cash flow hedge	19		10,964			(8,094	)		2,436			(7,586	)

Other comprehensive income which may be reclassified subsequently to profit or loss, before tax			16,067			(1,278	)		15,920			2,020

Income tax related to items which may be reclassified subsequently to profit or loss	12		(3,213	)		256			(3,184	)		(403	)

Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax			12,854			(1,022	)		12,736			1,617

OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS			-			-			-			-

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD			172,160			85,115			314,229			169,199

Attributable to:
Equity holders of the Bank			172,470			84,874			314,208			168,382
Non-controlling interest	21		(310	)		241			21			817

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 5

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended June 30, 2014 and 2013

			RESERVES					VALUATION ADJUSTMENTS									RETAINED EARNINGS
	Capital		Reserves and other retained earnings		Effects of merger of companies under common control			Available for sale investments			Cash flow hedge			Income tax effects			Retained earnings of prior years			Income for the period			Provision for mandatory dividends			Total attributable to shareholders			Non- controlling interest			Total Equity
	MCh$		MCh$		MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Equity as of December 31, 2012		891,303		977,684		(2,224	)		(10,041	)		5,315			945			-			388,282			(116,486	)		2,134,778			34,265			2,169,043
Distribution of income from previous period		-		-		-			-			-			-			388,282			(388,282	)		-			-			-			-
Equity as of January 1, 2013		891,303		977,684		(2,224	)		(10,041	)		5,315			945			388,282			-			(116,486	)		2,134,778			34,265			2,169,043
Increase or decrease of capital and reserves		-		-		-			-			-			-			-			-			-			-			-			-
Dividends distributions/ withdrawals made		-		-		-			-			-			-			(232,780	)		-			116,486			(116,294	)		(7,599	)		(123,893	)
Transfer of retained earnings to reserves		-		155,502		-			-			-			-			(155,502	)		-			-			-			(14	)		(14	)
Provision for mandatory dividends		-		-		-			-			-			-			-			-			(50,031	)		(50,031	)		-			(50,031	)
Subtotals		-		155,502		-			-			-			-			(388,282	)		-			66,455			(166,325	)		(7,613	)		(173,938	)
Other comprehensive income		-		-		-			9,599			(7,586	)		(402	)		-			-			-			1,611			6			1,617
Income for the year		-		-		-			-			-			-			-			166,771			-			166,771			811			167,582
Subtotals		-		-		-			9,599			(7,586	)		(402	)		-			166,771			-			168,382			817			169,199
Equity as of June 30, 2013		891,303		1,133,186		(2,224	)		(442	)		(2,271	)		543			-			166,671			(50,031	)		2,136,835			27,469			2,164,304

Equity as of December 31, 2013		891,303		1,133,215		(2,224	)		802			(8,257	)		1,491			-			441,926			(132,578	)		2,325,678			28,504			2,354,182
Distribution of income from previous period		-		-		-			-			-			-			441,926			(441,926	)		-			-			-			-
Equity as of January 1, 2014		891,303		1,133,215		(2,224	)		802			(8,257	)		1,491			441,926			-			(132,578	)		2,325,678			28,504			2,354,182
Increase or decrease of capital and reserves		-		-		-			-			-			-			-			-			-			-			-			-
Treasury share transactions		-		-		-			-			-			-			-			-			-			-			-			-
Dividends distributions/ withdrawals made		-		-		-			-			-			-			(265,156	)					132,578			(132,578	)		11			(132,567	)
Transfer of retained earnings to reserves		-		176,770		-			-			-			-			(176,770	)		-			-			-			-			-
Provision for mandatory dividends		-		-		-			-			-			-			-			-			(90,438	)		(90,438	)		-			(90,438	)
Subtotals		-		176,770		-			-			-			-			(441,926	)		-			42,140			(223,016	)		11			(223,005	)
Other comprehensive income		-		-		-			13,500			2,436			(3,187	)		-			-			-			12,749			(13	)		12,736
Income for the year		-		-		-			-			-			-			-			301,459			-			301,459			34			301,493
Subtotals		-		-		-			13,500			2,436			(3,187	)		-			301,459			-			314,208			21			314,229
Equity as of June 30, 2014		891,303		1,309,985		(2,224	)		14,302			(5,821	)		(1,696	)		-			301,459			(90,438	)		2,416,870			28,536			2,445,406

Period	Total attributable to Bank shareholders		Allocated to reserves		Allocated to dividends		Percentage distributed		Number of Shares		Dividend per share (in pesos)
	MCh$		MCh$		MCh$		%

Year 2013 (Shareholders Meeting April 2014)		441,926		176,770		265,156		60		188,446,126,794		1.407

Year 2012 (Shareholders Meeting April 2013)		387,967		155,187		232,780		60		188,446,126,794		1.235

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 6

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

		For the six months ended June 30,
		2014			2013
	NOTE	MCh$			MCh$

A – CASH FLOWS FROM OPERATING ACTIVITIES:
CONSOLIDATED INCOME BEFORE TAX			352,724			202,112
Debits (credits) to income that do not represent cash flows			(554,155	)		(416,242	)
Depreciation and amortization	29		28,585			30,914
Impairments of property, plant, and equipment	11		29			173
Provision for loan losses	26		194,099			204,421
Mark to market of trading investments			(8,153	)		(7,411	)
Income from investments in associates and other companies			(839	)		(1,149	)
Net gain on sale of assets received in lieu of payment	30		(7,521	)		(10,428	)
Provision on assets received in lieu of payment			2,590			1,300
Net gain on sale of property, plant, and equipment	30		(121	)		(174	)
Charge off of assets received in lieu of payment	30		1,803			4,033
Net interest income	22		(661,532	)		(495,148	)
Net fee and commission income	23		(111,579	)		(118,765	)
Debits (credits) to income that do not represent cash flows			(17,757	)		(29,895	)
Changes in deferred taxes	12		26,241			5,887
Increase/decrease in operating assets and liabilities			(78,513	)		479,978
Decrease (increase) of loans and accounts receivables from customers, net			(662,805	)		(959,718	)
Decrease (increase) of financial investments			19,274			398,337
Decrease (increase) due to resale agreements (assets)			(17,469	)		(3,882	)
Decrease (increase) of interbank loans			27,631			32,444
Decrease (increase) of assets received or awarded in lieu of payments			(1,878	)		(5,236	)
Increase of debits in customers checking accounts			159,775			88,452
Increase (decrease) of time deposits and other time liabilities			(364,612	)		319,871
Increase (decrease) of obligations with domestic banks			89,500			-
Increase (decrease) of other demand liabilities or time obligations			(115,977	)		130,238
Increase (decrease) of obligations with foreign banks			(46,597	)		(20,161	)
Increase (decrease) of obligations with Central Bank of Chile			(62	)		(95	)
Increase (decrease) of obligations under repurchase agreements			(72,415	)		8,531
Increase (decrease) in other financial liabilities			152			(6,639	)
Net increase of other assets and liabilities			(486,062	)		(207,159	)
Redemption of letters of credit			(14,753	)		(19,554	)
Senior bond issuances			888,963			358,884
Redemption of senior bonds and payments of interest			(380,937	)		(199,786	)
Interest received			1,297,130			763,623
Interest paid			(460,461	)		(284,278	)
Dividends received from investments in other companies			2,742			1,871
Fees and commissions received	23		179,437			173,536
Fees and commissions paid	23		(67,858	)		(54,771	)
Income tax paid	12		(51,231	)		(34,530	)
Total cash flow provided by (used in) operating activities			(279,944	)		265,848

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 7

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

		For the six months ended June 30,
		2014			2013
	NOTE	MCh$			MCh$

B – CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property, plant, and equipment	11		(12,689	)		(10,013	)
Sales of property, plant, and equipment			90			202
Purchases of investments in associates and other companies			(6,313	)		-
Purchases of intangible assets	10		(8,154	)		(3,542	)
Total cash flow provided by (used in) investment activities			(27,066	)		(13,353	)

C – CASH FLOW FROM FINANCING ACTIVITIES:
From shareholder´s financing activities			(265,156	)		(271,711	)
Redemption of subordinated bonds and payments of interest			-			(38,931	)
Dividends paid			(265,156	)		(232,780	)
From non-controlling interest financing activities			(11	)		(7,603	)
Dividends and/or withdrawals paid			(11	)		(7,603	)
Total cash flow used in financing activities			(265,167	)		(279,314	)

D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD			(527,177	)		(26,819	)

E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS			12,300			(5,135	)

F – INICIAL BALANCE OF CASH AND CASH EQUIVALENTS			1,899,508			1,485,730

FINAL BALANCE OF CASH AND CASH EQUIVALENTS	4		1,339,631			1,453,776

		For the six months ended June 30,
Reconciliation of provisions for the Consolidated Interim Statements		2014			2013
of Cash Flows for the periods ended		MCh$			MCh$

Provision for loan losses for cash flow purposes			194,099			204,421
Recovery of loans previously charged off			(28,829	)		(24,908	)
Provision for loan losses - net	26		165,270			179,513

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 8

Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF JUNE 30, 2014 AND DECEMBER 31, 2013 AND FOR THE THREE-MONTH AND SIX-MONTH
PERIODS ENDED JUNE 30, 2014 AND 2013

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE INFORMATION

Banco Santander Chile (formerly Banco Santiago) is a corporation (limited company bank) organized under the laws of the Republic of Chile, headquartered at Bandera #140, Santiago, which provides a broad range of general banking services to its customers, from individuals to major corporations. Banco Santander Chile and its subsidiaries (collectively referred to herein as the “Bank” or “Banco Santander Chile”) offers commercial and consumer banking services, as well as other services, including factoring, collection, leasing, securities and insurance brokerage, mutual and investment fund management, and investment banking.

Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander-Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of June 30, 2014 Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander-Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This gives Banco Santander Spain control over 67.18% of the Bank’s shares.

a) Basis of preparation

These Unaudited Consolidated Interim Financial Statements have been prepared in accordance with the Compendium of Accounting Standards issued by the Superintendency of Banks and Financial Institutions (SBIF), the Chilean regulatory agency. The General Banking Law set out in its article 15 indicates that, the banks must apply accounting standards established by SBIF. In any other matter, the Bank must apply general accepted standards issued by the Colegio de Contadores de Chile A.G (Association of Chilean Accountants), which coincide with International Financial Reporting Standards (IFRS). In the event of discrepancies between the accounting principles and accounting standards issued by the SBIF (Compendium of Accounting Standards), the latter shall prevail.

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

The Notes to the Consolidated Interim Financial Statements contain additional information to that submitted in the Consolidated Interim Statement of Financial Position, Consolidated Interim Statement of Income, Consolidated Interim Statement of Comprehensive Income, Consolidated Interim Statement of Changes in Equity and Consolidated Interim Statement of Cash Flows for the Period. The notes provide narrative descriptions and other information regarding those statements in a clear, relevant, reliable and comparable manner.

b) Basis of preparation for the Unaudited Consolidated Interim Financial Statements

The Unaudited Consolidated Interim Financial Statements as of June 30, 2014 and 2013 and December 31, 2013 and for the three-month and six-month periods ended June 30, 2014 and 2013, respectively, incorporate the financial statements of the Bank entities over which the bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS issued by IASB. Control is achieved when the Bank:

has power over the investee;

II.

is exposed, or has rights, to variable returns from its involvement with the investee; and

III.

has the ability to use its power to affect its returns.

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

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

the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

potential voting rights held by the Bank, other vote holders or other parties;

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rights arising from other agreements; and

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

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Interim Statements of Income and in the Consolidated Interim Statements of Other Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.

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

When necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with the Bank accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.

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

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

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

Entities controlled by the Bank through participation in equity

			Percent ownership share
			As of June 30,						As of December 31,						As of June 30,
		Place of	2014						2013						2013
		Incorporation	Direct		Indirect		Total		Direct		Indirect		Total		Direct		Indirect		Total
Name of the Subsidiary	Main Activity	and operation	%		%		%		%		%		%		%		%		%

Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile		99.75		0.01		99.76		99.75		0.01		99.76		99.75		0.01		99.76
Santander S.A. Corredores de Bolsa	Financial instruments brokerage	Santiago, Chile		50.59		0.41		51.00		50.59		0.41		51.00		50.59		0.41		51.00
Santander Asset Management S.A. Administradora General de Fondos (*)	Third-party funds administration	Santiago, Chile		-		-		-		-		-		-		99.96		0.02		99.98
Santander Agente de Valores Limitada	Securities brokerage	Santiago, Chile		99.03		-		99.03		99.03		-		99.03		99.03		-		99.03
Santander S.A. Sociedad Securitizadora	Purchase of credits and issuance of debt instruments	Santiago, Chile		99.64		-		99.64		99.64		-		99.64		99.64		-		99.64
Santander Servicios de Recaudación y Pagos Limitada (**)	Support society, making and receiving payments	Santiago, Chile		-		-		-		99.90		0.10		100.00		99.90		0.10		100.00

(*) Santander Asset Management S.A. Administradora General de Fondos was sold in December 2013.

(**) From May 1st, this entity was absorbed by the Bank, with authorization for this transaction obtained from the SBIF on March 26, 2014.

The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 21 – Non-controlling interest.

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ii.

Entities controlled by the Bank through other considerations

The following companies have been consolidated based on the determination that the Bank has control as previously defined above and in accordance with IFRS 10, Consolidated Financial Statements:

Santander Gestión de Recaudación y Cobranza Limitada (collection services)

Multinegocios S.A. (management of sales force)

Servicios Administrativos y Financieros Limitada (management of sales force)

Fiscalex Limitada (collection services)

Multiservicios de Negocios Limitada (call center)

Bansa Santander S.A. (management of repossessed assets and leasing of properties)

iii.

Associates

An associate is an entity over which the Bank has significant influence. Significant influence, in this case, is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.

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

			Percent ownership share
		Place of Incorporation	As of June 30,		As of December 31,		As of June 30,
		and	2014		2013		2013
Associates	Main activity	Operation	%		%		%
Redbanc S.A.	ATM service	Santiago, Chile		33.43		33.43		33.43
Transbank S.A. (*)	Debit and credit card services	Santiago, Chile		25.00		25.00		25.00
Centro de Compensación Automatizado	Electronic fund transfer and compensation services	Santiago, Chile		33.33		33.33		33.33
Sociedad Interbancaria de Depósito de Valores S.A.	Delivery of securities on public offer	Santiago, Chile		29.28		29.28		29.28
Cámara Compensación de Alto Valor S.A.	Payments clearing	Santiago, Chile		14.14		14.14		14.14
Administrador Financiero del Transantiago S.A.	Administration of boarding passes to public transportation	Santiago, Chile		20.00		20.00		20.00
Sociedad Nexus S.A.	Credit card processor	Santiago, Chile		12.90		12.90		12.90
Servicios de Infraestructura de Mercado OTC S.A.	Administration of the infrastructure for the financial market of derivative instruments	Santiago, Chile		11.11		11.11		-

(*) Transbank increased its capital and Santander made a contribution of MCh$ 6,300 in proportion with its ownership share (25%).

In the case of Nexus S.A. and Cámara Compensación de Alto Valor S.A., Banco Santander Chile has a representative on the Board of Directors. According to this fact and definitions previously mentioned, the Bank has concluded that it exerts significant influence over those entities.

In July, 2013 national banks jointly created the company Servicios de Infraestructura de Mercado OTC S.A., and its objective is to offer certain services to the financial market, granting services of registration, confirmation, storage, consolidation and reconciliation of operations with derivative financial instruments. Banco Santander possesses 11.11% equity participation. This investee is considered an associate since, through its executives; the Bank has been actively involved in managing the company, in the process of organization and in the implementation of the functional structure of this company, resulting in significant influence over this company.

iv.

Share or rights in other companies

Such entities represent those over which the Bank has no control or significant influences are presented in this category. These holdings are shown at purchase value.

Non-controlling interest

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

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

Operating segments

The Bank discloses separate information for each operating segment that:

has been identified, and

ii.

exceeds the quantitative thresholds stipulated for a segment.

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

the nature of the products and services;

ii.

the nature of the production processes;

iii.

the type or class of customers that use their products and services;

iv.

the methods used to distribute their products or services; and

if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

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

Its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments.

ii.

The absolute amount of its reported profit or loss is 10% or more of the greater in absolute amount of: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss.

iii.

Its assets represent 10% or more of the combined assets of all the operating segments.

Operating segments that do not meet any of the quantitative thresholds may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.

Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.

According to the information presented, the Bank’s segments were determined under the following definitions: An operating segment is a component of an entity:

that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity);

ii.

whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and

iii.

for which discrete financial information is available.

Functional and presentation currency

According to International Accounting Standard No.21 “The Effects of Changes in Foreign Exchange Rates” (IAS 21), the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency which influences its costs and revenues structure, has been defined as the Bank’s functional and presentation currency.

Accordingly, all balances and transactions denominated in currencies other than the Chilean Peso are treated as “foreign currency.”

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Foreign currency transactions

The Bank grants loans and accepts deposits in amounts denominated in foreign currencies, mainly the U.S. dollar. Assets and liabilities denominated in foreign currencies, held by the Bank are translated to Chilean pesos based on the market rate published by Reuters at 1:30 p.m. on the last business day of every month; the rate used was Ch$552.97 per US$1 as of June 30, 2014 (Ch$508.15 per US$1 as of June 30, 2013).

The amounts of net foreign exchange gains and losses includes 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.

Definitions and classification of financial instruments

Definitions

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

An “equity instrument” is a legal transaction that evidences a residual interest in the assets of an entity deducting all of 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’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative.

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:

Trading investments portfolio (at fair value through profit and loss): this category includes the financial assets acquired for the purpose of generating profits 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 investments portfolio, is comprised of 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 (AFS) investments are initially recorded at cost, which includes transaction costs that are directly attributable to the acquisition. AFS instruments are subsequently measured at fair value, or based on appraisals made with the use of internal models when appropriate. Unrealized gains or losses stemming from changes in fair value are recorded as a debit or credit under the heading “Other comprehensive income” within equity. When these investments are disposed or become impaired, the cumulative amount of the adjustments at fair value recognized in “Other comprehensive income” are transferred to the Consolidated Interim Statement of Income under “Net income from financial operations.”

Held to maturity instruments 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 amortized cost plus interest earned, minus any impairment losses established when their carrying amount exceeds the present value of estimated future cash flows.

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 class of borrower and the form of financing. It includes loans and accounts receivable from customers, interbank loans, and financial lease transactions in which the consolidated entities acts as lessor. Loans and receivables shall be measured at amortized cost using the effective interest method.

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iii.

Classification of financial assets for presentation purposes

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

Cash and deposits in banks: This line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested or received as overnight deposits are included in this item.

Cash items in process of collection: This item represents domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to time differences, etc.

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

Investments under resale agreements: includes balances of financial instruments purchased under resale agreement.

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

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

Hedging derivatives: Includes the fair value in favor of the Bank 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 Central Bank of Chile, other than those reflected in the preceding items.

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

Investment instruments: Are classified into two categories: held-to-maturity investments, and available-for-sale investments. 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. The remaining investments are treated as available for sale.

iv.

Classification of financial liabilities for measurement purposes

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

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

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

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Classification of financial liabilities for presentation purposes

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

Deposits and other demand liabilities: 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. Operations which become callable the day after the closing date are not treated as on-demand obligations.

Cash items in process of being cleared: this item represents domestic transactions in the process of transfer through a central domestic clearing house or international transactions wich may be delayed in settlement due to time differences, etc..

Obligations under repurchase agreements: this item includes the balances of sales of financial instruments under securities repurchase and loan agreements. According to actual applicable regulation, the Bank does not record instruments acquired under repurchase agreements in its own portfolio.

Time deposits and other time 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 (i.e. against the Bank), whether they are for trading or for hedge accounting, as set forth in Note 6.

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

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

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

Issued debt instruments: This encompasses three items; Obligations under letters of credit, Subordinated bonds and Senior bonds placed in the local and foreign market.

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

Valuation of financial instruments and recognition of fair value changes

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 includes transaction costs. Subsequently, and at the end of each reporting period, they are measured pursuant to the following criteria:

Valuation of financial assets

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

According to IFRS 13 Fair Value Measurement (effective date from January 1, 2013), “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

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

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

All derivatives are recorded in the Unaudited 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 on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income from financial operations” in the Unaudited Consolidated Interim Statement of Income.

Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included credit valuation adjustments (CVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and the Bank’s own risk of the operation.

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

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate 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 financial liabilities designated as hedged items or hedging instruments and financial liabilities held for trading, which are measured at fair value.

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iii.

Valuation techniques

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

In cases where price quotations cannot be observed, the 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.

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 data, mainly interest rates.

The main techniques used as of June 30, 2014 and 2013 and as of December, 2013 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

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, quoted market price of shares, volatility and prepayments, among others. 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 result

As a general rule, changes in the carrying amount of financial assets and liabilities are recorded in the Unaudited Consolidated Interim 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, which 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 adjustment and foreign exchange, are included in the Unaudited 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 and accumulated under the heading “Other comprehensive income” within Equity.

When available-for-sale instruments are disposed of or determined to be impaired, the cumulative gain or loss previously accumulated as “Other comprehensive income” is reclassified to the Unaudited Consolidated Interim Statement of Income.

Hedging transactions

The Bank uses financial derivatives for the following purposes:

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

to sell to customers who request these instruments in the management of their market and credit risks,

ii)

to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and

iii)

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

All financial derivatives that 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:

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

Changes in the 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”);

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

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

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

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

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

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:

In fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are recorded directly in the Unaudited Consolidated Interim Statement of Income.

In fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments are recorded directly in the Unaudited Consolidated Interim Statement of Income, whereas gains or losses due to changes in fair value of the hedged item (attributable to the hedged risk) are recorded in the Unaudited Consolidated Interim Statement of Income as a charge or credit, as applicable, to “Net income from financial operations”.

In cash flow hedges, the effective portion of the change in value of the hedging instrument is recorded under the heading “Cash flow hedge” within Equity component “Other comprehensive income”, until the hedged transaction occurs, thereafter being recorded in the Unaudited Consolidated Interim Statement of Income, unless the hedged transaction results in the recognition of non–financial assets or liabilities, in which case it is included in the cost of the non-financial asset or liability.

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

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

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 18

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 “Trading investments portfolio”.

vii.

Offsetting of financial instruments

Financial asset and liability balances are offset, i.e., reported in the Unaudited Consolidated Interim Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and an intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

viii.

Derecognition of financial assets and liabilities

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

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

ii.

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

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

Both the income from the transferred (but not removed) financial asset as well as any expenses incurred on the new financial liability.

iii.

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

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

If the transferor retains control of the transferred financial asset: it continues to be recorded in the Unaudited Consolidated Interim Statements 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 Unaudited Consolidated Interim Statements of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Unaudited Consolidated Interim Statements of Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 19

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Recognizing income and expenses

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

Interest revenue, interest expense, and similar items

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

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

This interest and these adjustments are generally referred to as “suspended” and are recorded in memo accounts which are not part of the Unaudited Consolidated Interim Statements of Income. Instead, they are reported as part of the complementary information thereto and as memorandum accounts (Note 22). This interest is recognized as income, when collected.

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

Dividends received from companies classified as “Investments in associates and other companies” are recorded as income when the right to receive them arises.

ii.

Commissions, fees and similar items

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

Fee and commission income and expenses relating to financial assets and liabilities measured at fair value through profit or loss are recognized when they are earned.

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

Those relating to services provided in a single act are recognized when the single act is performed.

iii.

Non-financial income and expenses

These are recognized for accounting purposes on an accrual basis.

iv.

Loan arrangement fees

Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to in the Unaudited Consolidated Interim Statement of Income over the term of the loan.

Impairment

Financial assets

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

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

An impairment loss relating to a financial asset available for sale is calculated based on a significant or prolonged decline in 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 impairment loss relating to a financial asset available for sale previously recorded in equity is transferred to profit or loss.

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

ii. Non-financial assets

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

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

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

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

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, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount).

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

	Useful life
ITEM	(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
ATM’s		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 up to October 2002)		120
Buildings		1,200

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

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 depreciation 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 had 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 each reporting period to detect significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Unaudited 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 operating leases

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

l) Leasing

i. Finance leases

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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, including the exercise price of the lessee’s purchase option at the end of the lease term, which is equivalent to one additional lease payment and so is reasonably certain to be exercised, is recognized as lending to third parties and is therefore included under “Loans and accounts receivables from customers” in the Unaudited Consolidated Interim Statements of Financial Position.

When the consolidated entities act as lessees, they show the cost of the leased assets in the Unaudited 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 income and finance expenses arising from these contracts are credited and debited, respectively, to “Interest income” and “Interest expense” in the Unaudited 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 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 Unaudited 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 and other expenses” in the Unaudited Consolidated Interim Statement of Income.

iii. Sale and leaseback transactions

For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of sale except in the case of excess of proceeds over fair value, which difference is amortized over the period of use of the asset. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.

m) Factored receivables

Factored receivables are valued at the amount disbursed by the Bank in exchange of invoices or other commercial instruments representing the credit which the transferor assigns to the Bank. The price difference between the amounts disbursed and the actual face value of the credits is recorded as interest income in the Unaudited 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 assignee, the Bank assumes the risks of insolvency of the parties responsible for payment.

n) Intangible assets

Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of a legal transaction (contractual terms) or are developed internally by the consolidated entities. They are assets whose cost can be estimated reliably and over which the consolidated entities have control and 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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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. The estimated useful life for software is 3 years.

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

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

o) Cash and cash equivalents

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 operating, investment or financing activities.

For the preparation of the cash flow statement, the following items are considered:

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

ii.

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

iii.

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

iv.

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

p) Allowances for loan losses

The Bank has established allowances to cover probable losses on loans and account receivables in accordance with instructions issued by Superintendency of Banks and Financial Institutions. These models and risk assessment have been approved by the Board of Directors.

The Bank models determine allowances and provisions for loan losses according to the type of portfolio or operations. Loans and accounts receivables from customers are divided into three categories:

Consumer loans,

ii.

Mortgage loans, and

iii.

Commercial loans.

The Bank performs an assessment of the risk associated with loans and accounts receivable from customers to determine their allowance for loan losses as described below:

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

Group assessment - a group assessment is relevant for analyzing a large number of operations with small individual balances from individuals or small-size companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis.

The models used to determine credit risk allowances are described as follows:

I. Allowances for individual assessment

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 24

The Bank assigns to each debtor, his contingent loans and loans a risk category, after assigning them to one of the following portfolio categories: Normal, Substandard and Impaired. The risk factors used are: industry or economic sector, owners or managers, financial situation and payment capacity, and payment behavior.

The portfolio categories and their definitions are as follows:

Normal Portfolio, debtors with a payment ability that allows them to comply with their obligations and commitments and there is not likely to change, based on the current economic and financial situation. The classifications assigned to this portfolio are categories from A1 to A6.

ii.

Substandard Portfolio, includes debtors with financial difficulties or a significant deterioration of their payment ability and about which are reasonable doubts about the reimbursement of the capital and interest within the contractual terms, showing low margin to fulfill of their short-term financial obligations. The classifications assigned to this portfolio are categories from B1 to B4.

iii.

Impaired Portfolio includes debtors and their loans from which payment is considered remote since they show a deteriorated or null payment capacity, with signs of a possible bankruptcy, who required a forced debt restructuring or any debtor who has been in default for over 90 days in his payment of interest or capital, are included in this portfolio. The classifications assigned to this portfolio are categories from C1 to C6.

Normal and Substandard Compliance Portfolio

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

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

At the beginning, the Bank determines all credit exposure, which includes the accounting balances of loans and accounts receivable from customers plus contingent loans, minus any amount recovered through executing the guarantees. To the exposure amount determined, is applied the respective expected loss percentages.

Impaired Portfolio

The provisions over impaired portfolio include determining, at first, the expected loss rate, deducting any amount recovered by guarantee execution and the present value of recoveries through collection actions, net of related expenses.

Once expected loss range is determined, the related allowance percentage is applied over the exposure amount, which include loans plus contingent loans related to a debtor.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The allowance percentages applied over exposure are as follows:

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

II. Allowances for group evaluations

The collective evaluation is relevant to address a large number of smaller balance loans related to individuals and small-size companies.

Levels of required allowances have been established by the Bank, in accordance with loan losses methodology by classifying and grouping the loan portfolio based on similar credit risk characteristic indicative of debtor’s ability to pay all amounts due according to the contractual terms. The Bank uses models based on debtors’ characteristics, payment history, due and default loans, among others.

The Bank uses methodologies to establish credit risk, based on internal models to estimate the allowances for the group-evaluated portfolio, which include non-individually commercial significant loans, mortgage and consumer loans (including installment loans, credit cards and overdraft lines). These methodologies allow the Bank to independently identify the portfolio behavior and establish the provision required to cover losses arising during the year.

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

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

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

III. Additional provisions

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

According to No. 10 of Chapter B-1 from the SBIF Compendium of Accounting Standards, these provisions will be recorded in liabilities, similar to provisions for contingent loans. The Bank has not recorded provisions for this concept as of June 30, 2014 and 2013 and as of December 31, 2013.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

IV. Charge-offs

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

These charge-offs refer to derecognition from Unaudited Consolidated Interim Statements of Financial Position of the corresponding loans operations in its therefore, includes a not past due of a loan in the case of installments loans or leasing operations (no partial charge-offs exists).

Charge-offs are always recorded under provision for loan losses through the Unaudited Consolidated Interim Statement of Income in accordance with Chapter B-1 of the Compendium of Accounting Standards (SBIF), no matter what causes the charge-off. Subsequent payments obtained from charge-off operations will be recognized in the Unaudited Consolidated Interim Statement of Income as recovery of loan previously charged-off.

Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments based on the time periods expired since reaching overdue status, as described below:

Type of loan	Term

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

Any renegotiation of an already charged-off loan will not give rise to income—as long as the operation is still in an impaired status—and the effective payments received when removed from impaired status are accounted as recovery from loans previously charged off.

Renegotiated loans shall be recognized as an asset if no longer impaired.

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

Recovery of previously charged off loans and accounts receivable from customers, are recorded in the Unaudited Consolidated Interim Statement of Income as a reduction of provision for loan losses.

q) Provisions, contingent assets, and contingent liabilities

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

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

ii.

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

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The following are classified as contingent in the supplementary information:

Guarantees and bonds: Encompasses guarantees, bonds, standby letters of credit.

ii.

Confirmed foreign letters of credit: Encompasses 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.

Interbank guarantee: Guarantees letters 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 interim, as well as annual, accounts reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more likely than not. Provisions are quantified using the best available information on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each reporting period and are used to address the specific liabilities for which they were originally recognized. Partial or total reversals are recognized when such obligations cease to exist or are reduced.

Provisions are classified according to the obligation covered as follows:

Provision for employee salaries and expenses

Provision for mandatory dividends

Allowance for contingent credit risks

Provisions for contingencies

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 will be 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.

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, revenues and expenses. Actual results may differ from these estimates.

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Bank has established allowances to cover probable losses, therefore, to estimate the allowances, 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’ payment capacity. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Unaudited Consolidated Interim Statement of Income. Loans are charged-off when Management determines that a 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 certain assets, liabilities, revenues, expenses, and commitments. Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period.

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

Impairment losses of certain assets (Notes 7, 8, 10, 11 and 29)

The useful lives of tangible and intangible assets (Notes 10, 11 and 29)

The fair value of assets and liabilities (Notes 5, 6, 9 and 32)

Commitments and contingencies (Note 18)

Current and deferred taxes (Note 12)

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 carrying amount or fair value minus cost of sales.

As of June 30, 2014 and 2013 and December 31, 2013 the Bank has not classified any non-current assets as held for sale.

Assets received or awarded in lieu of payment

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

The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”.

These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale). The difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to net income for the period, under “Other operating expenses”.

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

u) Earnings per share

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

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 consideration the potential diluting effect of stock options, warrants, and convertible debt.

As of June 30, 2014 and 2013 and December 31, 2013 the Bank did not have any instruments that generated diluting effects over equity.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 29

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 Income based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”).

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

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

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

x) Provision for mandatory dividends

As of June 30, 2014 and December 31, 2013 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 Unaudited Consolidated Interim Statement of Changes in Equity with offset to Provisions.

y) Employee benefits

i. Post-employment benefits – Defined Benefit Plan:

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

Features of the Plan:

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

Aimed at the Group’s management

The general requisite to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.

The Santander Group will take on insurance (pension fund) on their behalf that it will pay up periodically.

The Santander Group will be responsible for granting the benefits directly.

To determine the present value of the defined benefit obligation and the current service cost, the method of projected unit credit is used.

Components of defined benefit cost include:

current service cost and any past service cost, which are recognized in profit or loss for the period;

net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;

new liability (asset) remeasurements for net defined benefit include: (a) actuarial gains and losses;

(b) changes in the performance of the plan assets and; (c) changes in the effect of the asset ceiling, which are recognized in other comprehensive income.

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 30

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

The Bank presents the present service cost and the net interest of the Personnel wages and expenses on the Unaudited Consolidated Interim Statement of Income.

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

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

ii. Severance provision:

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

iii. Cash-settled share based compensation:

The allocation of equity instruments to executives of the Bank and its Subsidiaries 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 Unaudited Consolidated Interim Statement of Income under the “Personnel expenses” item, as the relevant executives provide their services over the course of the period. The Bank pays the parent for the equity instruments granted to its employees. The cash obligation is determined at the grant date in an amount equal to the fair value of the liability with employees at that date. The Bank receives invoices from the parent on a bi-annual basis. Therefore, at the end of each six-month period, the liability recorded is reversed by the payment to the parent.

Our stock performance plan corresponds to cash-settled share-based payment in accordance with IFRS 2 “Share based payments”. The fair value at grant date is determined using a Monte Carlo model which represents the basis of the payment amount, and is recorded on a straight-line basis over the life of the plan. IFRS 2 requires that the fair value of the liability be remeasured at the end of each reporting period and that fair value changes attributable to rendered services to date be reflected in the statement of income. Given the immateriality of any changes to the fair value of the liability over the 3-year life of the plan, the fair value remeasurement was not recorded. As a cash-settled share-based payment award, the offset of the journal entry to record the compensation expense is a liability for share-based payment awards.

z) Reclassification of items

Banco Santander Chile has reclassified some items in the Interim Financial Statements to provide relevant, reliable, comparable and understandable information.

These reclassifications, which did not affect the Bank’s results, have no significant or material impact on the current Unaudited Consolidated Interim Financial Statements.

aa) Application of new and revised International Financial Reporting Standards

i. New and revised standards affecting amounts reported and/or disclosures in the financial statements

In the current year, the Bank has applied a number of new revised IFRSs issued by the International Accounting Standard Board (IASB) as well as accounting standards as issued by the both the SBIF that are mandatory effective for an accounting period that begins on or after 1 January 2014. These standards have been fully incorporate by the Bank and are detailed as follows:

1. Accounting Regulations Issued by the SBIF, effective in current year

As of June 30, 2014, there are no new accounting regulations issued by SBIF to be implemented.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 31

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

2. New and revised IFRS standards effective in current year

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities - The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of 'currently has a legally enforceable right of set-off' and 'simultaneous realization and settlement'. Management does not anticipate that the application of these amendments to IAS 32 will have a significant impact on the Bank's consolidated financial statements as the Bank does not have any financial assets and financial liabilities that qualify for offset. The implantation of this amendment had no material impact on the consolidated financial statements of the Bank.

Investment entities – Amendments to IFRS 10 – Consolidated Financial Statements; IFRS 12 – Disclosures of Interests in Other Entities and IAS 27 – Separated Financial Statements - On October 31, 2012, the IASB issued “Investment entities (amendments to IFRS 10, IFRS 12 and IAS 27)”, providing an exception to the consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities that follow the definition of “investment entity”, as well as some investment funds. Instead, said entities will measure their investments in subsidiaries at fair value through profit and loss, pursuant to IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.

Amendments also require additional disclosure about whether the entity is considered an investment entity, details of non-consolidated subsidiaries, the nature of the relationship and certain transactions between the investment entity and its subsidiaries. On the other hand, amendments force an investment entity to account for its investment in a subsidiary in the same way in the consolidated financial statements as well as in its individual financial statements (or just provide individual financial statements if all subsidiaries are not consolidated). These modifications will be effective for yearly periods beginning on or after January 1, 2014. In-advance enforcement is allowed. Early application is permitted. The implantation of this amendment had no material impact on the consolidated financial statements of the Bank.

IFRIC 21 - Levies – On May 20, 2013 the IASB issued this interpretation addressing the accounting for a liability to pay a levy if such liability is within the IAS 37. It also addresses the accounting for a liability to pay a levy which amount and maturity is true. For the purposes of this Interpretation, a levy is an outflow of resources embodying economic benefits imposed by governments to entities according to legislation (laws and regulations). This is different from the outflow of resources within the reach of IAS 12 Income Tax, and fines or other penalties imposed for breaches of the legislation. An entity shall apply these modifications retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted. If an entity applies this Interpretation for prior periods it shall disclose this fact. Changes in accounting policies resulting from the application of this Interpretation shall be accounted for retrospectively in accordance with IAS 8 - Accounting policies, changes in accounting estimates and errors. The implantation of this amendment had no material impact on the consolidated financial statements of the Bank.

Amendment IAS 36, Impairment of the Assets – On May 29, 2013 the IASB issued Recoverable Amount Disclosures for Non-Financial Assets. The objective of this amendment is to harmonize the disclosure requirements about fair value without the disposal costs and value in use, when present value techniques are used to measure the recoverable amount of assets that are considered value impaired, requiring an entity to disclose the discount rates that have been used to determine the recoverable amount of assets that are considered value impaired. An entity shall apply these modifications retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted. An entity shall not apply these modifications to periods (including comparative periods) in which IFRS 13 is not applied. The implantation of this amendment had no material impact on the consolidated financial statements of the Bank.

Amendment IAS 39, Financial instruments: recognition and measurement – On June, 27, 2013 the IASB issued the amendment Novation of Derivatives and Continuation of Hedge Accounting, establishing that a derived contract novation with a central counterparty (clearing house) would generate a hedged interruption, derecognition of the original derivative and the recognition of the new derivative contract novated. While product novation laws or regulations do not qualify for derecognition and therefore hedge accounting will not be interrupted (if requirements are met). The effective date of application for annual periods beginning on January 1, 2014, may be applied in advance. An entity shall apply the amendment retrospectively in accordance with IAS 8 - Accounting policies, changes in accounting estimates and errors. The implantation of this amendment had no material impact on the consolidated financial statements of the Bank.

At the end date of these financial statements new IFRS had been published as well as interpretations of these regulations that were not mandatory as of June 30, 2014. Though in some cases, the IASB has allowed for their in-advance adoption, the Bank has not done so up to said date.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 32

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

New accounting regulations and instructions issued by the SBIF as well as by the IASB not enforced as of June 30, 2014

1. Accounting regulations issued by the SBIF

As of June 30, 2014 there are no new accounting regulations issued by SBIF to be implemented.

2. New and revised IFRS issued

IFRS 9, Financial Instruments – On November 12, 2009 the IASB issued IFRS 9, Financial Instruments. This regulation incorporates new requirements for the classification and measurement of financial assets and it is effective for yearly periods beginning on or after January 1, 2013. Early application is permitted. IFRS 9 specifies how an entity should classify and measure its financial assets. It requires that all financial assets be classified in their entirely on the basis of the entity’s business model for the management of financial assets and the features of the financial assets agreement cash flows.

Financial assets are measured whether by amortized cost or fair value. Only financial assets classified as measured to amortize cost will be tested for Impairment. On October 28, 2010, the IFRS issued a revised version of IFRS 9, Financial Instruments. The revised Standard keeps the requirements for classification and measurement of financial assets published on November 2009 but it adds guidelines on classification and measurement of financial liabilities. As part of the restructuring of IFRS 9, the IASB has also reproduced the guidelines on un-record of financial instruments and related implementation guidelines from IAS 39 to IFRS 9. These new guidelines constitute the first stage of the IASB project to replace IAS 39. The other stages, impairment and hedge accounting, have not been finished yet.

The guidelines included in IFRS 9 about the classification and measurements of financial assets have not changed from those established in IAS 39. In other words, financial liabilities will continue to be measured whether by amortized cost or fair value with change in income. The concept of bifurcation of embedded derivatives in a contract by financial asset has not change either. Financial liabilities held for trade will continue to be measured at fair value with changes in profit and loss, and all other financial assets will be measured at amortized cost unless the fair value option is applied using currently existing criteria in IAS 39.

Notwithstanding the latter, there are two differences with regards to IAS 39:

The presentation of effects from changes in fair value attributable to a liability’s credit risk; and

The elimination of the cost exemption for liability derivatives to be settled by giving non traded equity instruments.

On December 16, 2012 the IASB issued Mandatory Implementation Date of IFRS 9 and Transition Disclosures, deferring the effective date versions of both 2009 and 2010 for annual periods beginning on or after 01 January 2015. Prior to the amendments, the application of IFRS 9 was mandatory for annual periods beginning on or after 2013. Modifications change the requirements for the transition from IAS 39 Financial Instruments:

Recognition and Measurement to IFRS 9. In addition, the amendments also modify IFRS 7 Financial Instruments: Disclosures, to add certain requirements in the reporting period including the enforcement date of IFRS 9.

Amendments are effective for yearly periods beginning on or after January 1, 2018; early application is permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.

IFRS 9 - Financial Instruments – Coverage and Amendments accounting for IFRS 9, IFRS 7 and IAS 39 – On November 19, 2013 the IASB issued this amendment which includes a new coverage accounting general model. It is more closely aligned with risk management, providing more useful information to users of financial statements. Moreover, the requirements relating to the fair value option for financial liabilities were changed to address own credit risk. This improvement requires that the effects of changes in credit risk of liability should not affect the income of the period unless the liabilities are hold for trading. Early adoption of this amendment is allowed without the application of the other requirements of IFRS 9. Additionally, it conditions the effective date of entry into force to the end of the draft IFRS 9, allowing equally to be adopted. The Bank’s management is assessing the potential impact of the adoption of these modifications regarding IFRS 7 and IAS 39.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 33

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Amendment IAS 19 – Defined benefit plans: employee contributions – On November 21, 2013 the IASB issued these modifications establishing the treatment for employee or third party contributions when accounting for the defined benefit plans. Therefore, if the amount of the contributions is independent of the number of years of service, it allows an entity to recognize these contributions as a reduction in service costs in the period in which the related service is rendered, instead of attributing contributions to periods of service, and if the amount of the contribution depends on the number of years of service, an entity to attribute these contributions to periods of service is required, using the same method of allocation required by paragraph 70 of the IAS 19, for gross proceeds (that is, using the contribution plan formula or a linear basis). These modifications apply for annual periods starting as of July 1, 2014 retroactively, as stated by IAS 8 - Accounting policies changes in accounting estimates and errors. Earlier application permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.

Annual modifications, cycle 2010-2012 – On December 12, 2013 this document covering seven standards was issued:

- IFRS 2 - Share-based Payments: It modifies the definition of 'concession consolidation condition (irrevocability)' y 'market conditions' and adds the definition of 'execution conditions' and ' service condition' (which was a part of the definition of the concession consolidation condition).

- IFRS 3 - Business Combinations: it states that the contingent considerations classified as assets or liabilities must be measure to fair value on each report date.

- IFRS 8 - Operating Segments: it required that and entity reveals the judgments made by the administration regarding the implementations of the criteria for the operating segments aggregation and it states that the entity must only provide reconciliation between all the assets of the reportable segment and the entity's assets if the previous ones are reported regularly.

- IFRS 13 - Fair value measurement: it states that the issuing of IFRS 13 and the modification of IFRS 9 and IAS 39 did not eliminate the possibility of measuring the accounts receivable and pay in the short term those that lack an established interest rate on the invoice amount without discounting if the effect of such action is intangible.

- IAS 16 - Property, plant and equipment: it states that when a property, plant and equipment element is revaluated, the gross carrying value is adjusted consistently with the revaluation of the carrying value.

- IAS 24 - Related party disclosures: it states that an entity providing administration personnel services key to the informing entity or to the parent of the reporting entity, this is a related party of the reporting entity.

- IAS 38 - Intangibles: it states that when an intangible element is revaluated, the gross carrying value is adjusted consistently with the revaluation of the carrying value.

IFRS annual modifications, 2010-2012 cycle, must be implemented for annual periods starting on or after July 1, 2014. Early application is permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.

Annual modifications, cycle 2011-2013 – On December 12, 2013 this document covering four standards was issued:

- IFRS 1 - First-time Adoption: It states that an entity, on its first financial statements under IFRS, has the possibility of choosing between applying an existing and currently effective IFRS, and applying a new or revised IFRS which is not currently mandatory, provided earlier application is permitted. It is required that the entity applies the same version of the IFRS throughout the periods covered by the first financial statements according to IFRS.

- IFRS 3 - Business Combinations: It states that the IFRS 3 excludes from its scope the accounting for the formation of a joint agreement on the financial statements of the joint arrangement itself.

- IFRS 13 - Fair Value Measurement: It states that the scope of the exception of portfolio defined in paragraph 52 of IFRS 13, includes all contracts included under the scope of 'IAS 39 - Financial Instruments: Recognition and measurement' and 'IFRS 9 - Financial Instruments', regardless of whether they conform to the definition of financial assets or financial liabilities as set out in 'IAS 32 - Financial Instruments: Presentation'.

- IAS 40 - Investment Property: It states that if a certain transaction complies with the definition of a business combination -as defined by IFRS 3 -Business Combinations- and of investment properties -as defined by IAS 40 Investment Property-, it needs to implement both norms independently and separately.

IFRS annual modifications, 2011-2013 cycle, must be implemented for annual periods beginning on or after July 1, 2014. Earlier application permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 34

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

IFRS 14, Regulatory Deferral Accounts – On January 1, 2014, the IASB issued IFRS 14 “Regulatory Deferral Accounts”, which, specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at price or rate that is subject to rate regulation. This standard requires:

limited changes to accounting policies that were applied in accordance with its previous GAAP for regulatory deferral account balances;

disclosure that were identify and explain the amounts recognized in the entity`s financial statements that arise from rate regulation;

disclosure that help users of the financial statements to understand the amounts, timing and uncertainty of future cash flows from any regulatory deferral accounts balances that are recognized.

This standard is effective to first-time adopters IFRS for annual periods beginning on or after January 1, 2016. The Bank’s management is assessing the potential impact of the adoption of these modifications.

IFRS 15, Revenue from contracts with customers- On May 28, 2014, the IASB issued IFRS 15, which establishes principles for reporting useful information to users of financial information on the nature, amount, timing and uncertainty of revenues and cash flows generated from an entity’ contracts with their customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer loyalty programs, IFRIC 15 Agreements for the construction of real estate, IFRIC 18 Transfers of assets from customers and SIC 31 Revenue – barter transactions involving advertising services.

This standard is effective for annual periods beginning on or after January 1, 2017. Earlier application permitted. The Bank’s management is assessing the potential impact of the adoption of this standard.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 35

NOTE 02

SIGNIFICANT EVENTS

As of June 30, 2014, the following significant events have occurred had an impact on the Bank`s operations on the Consolidated Interim Financial Statements.

a) The Board

In the Ordinary Board Meeting of Banco Santander Chile held on April 21, 2014, the Chairman of the Board, Mr. Mauricio Larraín Garcés, presented his resignation. In this session, Mr. Vittorio Corbo Lioi was designated as Chairman with Mr. Mauricio larraín Garcés continuing to form part of the Board of Directors as a Director.

Use of Profits and Distribution of Dividends

In the Shareholders’ Meeting of Banco Santander Chile held on April 22, 2014, chaired by Mr. Vittorio Corbo Lioi (Chairman), and attended by Oscar von Chrismar Carvajal (First Vice President), Roberto Méndez Torres (Second Vice President), Víctor Arbulú Crousillat, the Directors: Marco Colodro Hadjes, Mauricio Larraín Garcés, Carlos Olivos Marchant, Lucía Santa Cruz Sutil, Juan Pedro Santa María Pérez, Lisandro Serrano Spoerer, Roberto Zahler Mayanz, Raimundo Monge Zegers (Alternate Director) and Orlando Poblete Iturrate (Alternate Director). Also, the CEO Claudio Melandri Hinojosa and CAO Felipe Contreras Fajardo attended the meeting.

According to the information presented in aforementioned meeting, 2013 net income (designated in the financial statements as “Income attributable to equity holders of the Bank”) amounted to Ch$ 441,926 million. The Board approved the distribution of 60% of such net income which divided by the amount of shares issued corresponds to a $ 1.407 dividend per share, which was payable starting on April 23, 2014. Also, it was approved that the remaining 40% of the profits be destined to increase the Bank’s reserves.

b) Issuance of bonds

In the first semester of 2014, the Bank issued senior bonds in the amount of CHF300,000,000, UF2,000,000, USD750,000,000, CLP25,000,000,000, AUD125,000,000 and JPY 27,300,000,000. The placement detail is included in Note 16.

b.1) Senior bonds

					Issuance	Maturity
Series	Amount		Term	Issuance rate	date	date
Bond	CHF	300,000,000	3 years	1.00% per annum simple	01-31-2014	07-31-2017
Total	CHF	300,000,000
Bond	UF	2,000,000	4 years	3.0% per annum simple	02-22-2014	10-01-2018
Total	UF	2,000,000
Bond	CLP	25,000,000,000	4 years	5.76% per annum simple	02-22-2014	10-01-2018
Total	CLP	25,000,000,000
USD floating bond	USD	250,000,000	5 years	Libor (3 months)+100 bp	02-19-2014	02-19-2019
USD floating bond	USD	500,000,000	5 years	Libor (3 months)+90 bp	04-15-2014	04-11-2017
Total	USD	750,000,000
Bond	AUD	125,000,000	3 years	Libor (3 months)+140 bp	03-13-2014	03-13-2017
Total	AUD	125,000,000
JPY floating bond	JPY	6,600,000,000	3 years	Libor (3 months) +65 pb	04-24-2014	04-24-2017
JPY current bond 2017	JPY	2,000,000,000	3 years	0.72% fixed quarterly	04-24-2014	04-24-2017
JPY current bond 2019	JPY	18,700,000,000	5 years	0.97% fixed quarterly	04-24-2014	04-24-2019
Total	JPY	27,300,000,000

b.2) Subordinated bonds

In first semester of 2014, the Bank has not issued subordinated bonds.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 36

NOTE 02

SIGNIFICANT EVENTS, continued

b.3) Repurchase of bonds

The Bank has conducted the following repurchase of bonds during the first semester of 2014:

Date	Series	Amount

02-21-2014	Senior bond	CLP	118,409,000,000
03-03-2014	Senior bond	UF	6,000,000

c) Merger by absorption of Santander Servicios de Recaudación y Pagos Limitada

The Bank has materialized the merger by absorption of the subsidiary Santander Servicios de Recaudación y Pagos Limitada from May 1, 2014, with the transfer of rights possessed by Santander Corredora de Seguros Limitada to the Bank which, with 100% of the rights, became the successor and legal continuer of the company and authorization was granted by the SBIF on March 26, 2014. This merger included the reconversion of "Supercaja" branches to branches of the Bank.

d) Capital increase of Transbank S.A.

In the Transbank’s Shareholders’ Meeting held in June of the current year, it was agreed to capitalize retained earnings and increase the capital by approximately Ch$ 25,200 million. In both processes, the Bank has participated proportionally to its ownership share (25%), making a contribution of approximately Ch$ 6,313 million to the company.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 37

NOTE 03

OPERATING SEGMENTS

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

Inter-segment transactions 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.

To achieve the strategic objectives adopted by 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, 2014.

During the second half of 2013, the Institutional segment was moved from the Individuals and SME Division to the Companies and Institutional Division. All prior years’ segment information has been presented under the revised Division definitions.

The Bank has the following operating segment falling under each Division header noted below:

Individuals and SME`s

Individuals

a. Santander Banefe

Serves individuals with monthly incomes from Ch$150,000 pesos to Ch$400,000 pesos, 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 brokerage.

b. Commercial Banking

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

SME`s

Considers small companies with annual sales lower 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 brokerage.

Companies and Institutional

Companies

The Companies segment includes the Companies, Real Estate and Large Corporations sub segments:

a. Companies

Considers companies with annual sales over 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 brokerage.

b. Real estate

This segment includes all the companies engaged in the real estate industry who carry out projects to sell properties to third parties and all builders with annual sales exceeding Ch$800 million with no upper limit. 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.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 38

NOTE 03

OPERATING SEGMENTS, continued

c. Large Corporations

Considers companies with annual sales exceeding 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, savings products, mutual funds, and insurance.

Institutional

Serves institutions such as universities, government entities, local and regional governments. 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, savings products, mutual funds, and insurance.

Global Banking and Markets

The Global Banking and Markets segment is comprised of:

a. Corporate

Foreign and domestic multinational companies with sales over 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, investments, savings products, mutual funds, and insurance brokerage.

b. Treasury

The Treasury Division provides sophisticated financial products, mainly 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 may act as brokers to transactions and also manages the Bank’s investment portfolio.

Corporate Activities (“Other”)

This segment includes Financial Management, which develops global management functions, involving the parent company’s structural interest risk and liquidity risk. Liquidity risk is managed mainly through debt issuances. This segment also manages the Bank’s personal funds, capital allocation by unit, and the financing of investments made. The foregoing usually 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. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 39

NOTE 03

OPERATING SEGMENTS, continued

Below are the tables showing the Bank’s results by business segment, for the periods ending as of June 30, 2014 and 2013, and in addition to the corresponding balances of loans and accounts receivable from customers as of December 31, 2013:

	For the three months ended June 30, 2014

						Financial
			Net fee and			transactions,		Provision			Support			Segment`s
	Net interest		commission			net		for loan			expenses			net
	income		income			(1)		losses			(2)			contribution
	MCh$		MCh$			MCh$		MCh$			MCh$			MCh$

Segments
Individuals		153,515		37,185			6,154		(44,053	)		(101,382	)		51,419
Santander Banefe		23,192		5,296			1,324		(12,104	)		(10,765	)		6,943
Commercial Banking		130,323		31,889			4,830		(31,949	)		(90,617	)		44,476
SMEs		67,057		11,515			2,248		(34,047	)		(21,267	)		25,506
Individuals+SMEs		220,572		48,700			8,402		(78,100	)		(122,649	)		76,925

Companies		46,110		6,511			3,748		(4,545	)		(13,844	)		37,980
Companies		19,935		3,218			1,937		(5,616	)		(7,773	)		11,701
Large Corporations		17,942		2,132			1,495		366			(4,620	)		17,315
Real estate		8,233		1,161			316		705			(1,451	)		8,964
Institutional		8,218		590			133		(73	)		(2,900	)		5,968
Companies and institutional		54,328		7,101			3,881		(4,618	)		(16,744	)		43,948

Commercial Banking		274,900		55,801			12,283		(82,718	)		(139,393	)		120,873

Global banking and markets		21,800		4,371			14,908		(1,237	)		(10,271	)		29,571
Corporate		17,818		3,964			80		(1,237	)		(6,128	)		14,497
Treasure		3,982		407			14,828		-			(4,143	)		15,074
Other		51,339		(4,357	)		2,871		(81	)		(3,801	)		45,971

Total		348,039		55,815			30,062		(84,036	)		(153,465	)		196,415

Other operating income															3,485
Other operating expenses															(16,067	)
Income from investments in associates and other companies															552
Income tax expense															(25,079	)
Net income for the period															159,306

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

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 40

NOTE 03

OPERATING SEGMENTS, continued

	For the three months ended June 30, 2013
	Net interest income			Net fee and commission income			Financial transactions, net (1)		Provision for loan losses			Support expenses (2)			Segment`s net contribution
	MCh$			MCh$			MCh$		MCh$			MCh$			MCh$

Segments
Individuals		153,763			36,863			1,401		(55,280	)		(95,742	)		41,005
Santander Banefe		25,314			6,371			29		(15,057	)		(11,589	)		5,068
Commercial Banking		128,449			30,492			1,372		(40,223	)		(84,153	)		35,937
SMEs		66,067			10,739			1,354		(21,450	)		(18,535	)		38,175
Individuals+SMEs		219,830			47,602			2,755		(76,730	)		(114,277	)		79,180

Companies		40,415			6,684			3,511		(8,483	)		(12,017	)		30,110
Companies		18,422			3,634			1,878		(4,663	)		(6,681	)		12,590
Large Corporations		15,648			2,184			1,590		(3,951	)		(3,958	)		11,513
Real estate		6,345			866			43		131			(1,378	)		6,007
Institutional		8,067			675			198		(271	)		(2,897	)		5,772
Companies and institutional		48,482			7,359			3,709		(8,754	)		(14,914	)		35,882

Commercial Banking		268,312			54,961			6,464		(85,484	)		(129,191	)		115,062

Global banking and markets		16,894			3,854			10,034		(768	)		(9,405	)		20,609
Corporate		14,778			3,586			93		(768	)		(5,547	)		12,142
Treasure		2,116			268			9,941		-			(3,858	)		8,467
Other		(36,539	)		(671	)		16,755		(403	)		(3,367	)		(24,225	)

Total		248,667			58,144			33,253		(86,655	)		(141,963	)		111,446

Other operating income																7,188
Other operating expenses																(12,871	)
Income from investments in associates and other companies																667
Income tax expense																(20,293	)
Net income for the period																86,137

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

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 41

NOTE 03

OPERATING SEGMENTS, continued

			For the six months ended June 30, 2014
	Loans and accounts receivable from customers (1)		Net interest income		Net fee and commission income			Financial transactions, net (2)		Provision for loan losses			Support expenses (3)			Segment`s net contribution
	MCh$		MCh$		MCh$			MCh$		MCh$			MCh$			MCh$

Segments
Individuals		11,049,148		300,387		72,147			7,578		(89,031	)		(191,635	)		99,446
Santander Banefe		744,128		46,532		10,517			1,334		(25,732	)		(21,871	)		10,780
Commercial Banking		10,305,020		253,855		61,630			6,244		(63,299	)		(169,764	)		88,666
SMEs		3,293,787		132,429		22,390			3,524		(61,801	)		(39,850	)		56,692
Individuals+SMEs		14,342,935		432,816		94,537			11,102		(150,832	)		(231,485	)		156,138

Companies		4,783,918		91,072		13,438			7,658		(12,753	)		(26,629	)		72,786
Companies		1,819,896		39,333		6,667			3,959		(11,012	)		(14,868	)		24,079
Large Corporations		1,967,387		35,463		4,347			3,314		(2,521	)		(8,997	)		31,606
Real estate		996,635		16,276		2,424			385		780			(2,764	)		17,101
Institutional		387,850		16,592		1,202			305		20			(5,986	)		12,133
Companies and institutional		5,171,768		107,664		14,640			7,963		(12,733	)		(32,615	)		84,919

Commercial Banking		19,514,703		540,480		109,177			19,065		(163,565	)		(264,100	)		241,057

Global banking and markets		2,315,308		42,446		10,169			32,781		(1,824	)		(19,971	)		63,601
Corporate		2,315,308		34,766		9,759			207		(1,824	)		(11,880	)		31,028
Treasure		-		7,680		410			32,574		-			(8,091	)		32,573
Other		52,073		78,606		(7,767	)		11,188		119			(6,968	)		75,178

Total		21,882,084		661,532		111,579			63,034		(165,270	)		(291,039	)		379,836

Other operating income																	8,995
Other operating expenses																	(36,946	)
Income from investments in associates and other companies																	839
Income tax expense																	(51,231	)
Net income for the period																	301,493

(1) Corresponds to loans and accounts receivable from customers, net, without deducting their allowances for loan losses.

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

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 42

NOTE 03

OPERATING SEGMENTS, continued

	As of December 31, 2013		For the six months ended June 30, 2013
	Loans and accounts receivable from customers (1)		Net interest income			Net fee and commission income			Financial transactions, net (2)		Provision for loan losses			Support expenses (3)			Segment`s net contribution
	MCh$		MCh$			MCh$			MCh$		MCh$			MCh$			MCh$

Segments
Individuals		10,474,663		304,626			75,064			2,789		(116,553	)		(181,950	)		83,976
Santander Banefe		730,979		52,315			12,320			67		(31,902	)		(21,747	)		11,053
Commercial Banking		9,743,684		252,311			62,744			2,722		(84,651	)		(160,203	)		72,923
SMEs		3,228,865		127,881			21,686			2,111		(45,673	)		(36,589	)		69,416
Individuals+SMEs		13,703,528		432,507			96,750			4,900		(162,226	)		(218,539	)		153,392

Companies		4,682,221		79,121			13,740			6,617		(13,504	)		(24,961	)		61,013
Companies		1,757,977		37,133			7,387			3,563		(7,281	)		(13,740	)		27,062
Large Corporations		1,927,075		29,637			4,700			2,946		(5,993	)		(8,485	)		22,805
Real estate		997,169		12,351			1,653			108		(230	)		(2,736	)		11,146
Institutional		353,559		14,852			1,297			251		(225	)		(5,927	)		10,248
Companies and institutional		5,035,780		93,973			15,037			6,868		(13,729	)		(30,888	)		71,261

Commercial Banking		18,739,308		526,480			111,787			11,768		(175,955	)		(249,427	)		224,653

Global banking and markets		2,268,440		34,530			8,766			20,680		(3,980	)		(18,919	)		41,077
Corporate		2,268,440		29,840			7,457			121		(3,980	)		(11,352	)		22,086
Treasure		-		4,690			1,309			20,559		-			(7,567	)		18,991
Other		53,013		(65,862	)		(1,788	)		23,067		422			(6,690	)		(50,851	)

Total		21,060,761		495,148			118,765			55,515		(179,513	)		(275,036	)		214,879

Other operating income																		11,757
Other operating expenses																		(25,673	)
Income from investments in associates and other companies																		1,149
Income tax expense																		(34,530	)
Net income for the period																		167,582

(1) Corresponds to loans and accounts receivable from customers, net, without deducting their allowances for loan losses.

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

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 43

NOTE 04

CASH AND CASH EQUIVALENTS

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

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Cash and deposit in banks
Cash		538,376		551,136
Deposit in the Central Bank of Chile		201,087		797,363
Deposit in domestic banks		363		81
Deposit in foreign banks		334,901		223,230
Subtotals – Cash and deposit in banks		1,074,727		1,571,810

Cash in process of collection, net		264,904		327,698

Cash and cash equivalents		1,339,631		1,899,508

The level of funds in cash and at the Central Bank of Chile, which are included in the “Deposits in the Central Bank of Chile” line, reflects regulations governing the reserves that the Bank must maintain on average each month.

Cash in process of collection and in process of being cleared:

Cash items in process of collection and in process of being cleared represent domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to time differences. These transactions are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Assets
Documents held by other banks (document to be cleared)		248,625		289,723
Funds receivable		425,454		314,354
Subtotal		674,079		604,077
Liabilities
Funds payable		409,175		276,379
Subtotal		409,175		276,379

Cash in process of collection, net		264,904		327,698

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 44

NOTE 05

TRADING INVESTMENTS

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

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Chilean Central Bank and Government securities
Chilean Central Bank Bonds		67,717		75,577
Chilean Central Bank Notes		87		100
Other Chilean Central Bank and Government securities		543,862		189,962
Subtotal		611,666		265,639

Other Chilean securities
Time deposits in Chilean financial institutions		-		-
Mortgage finance bonds of Chilean financial institutions		-		-
Chilean financial institutions bonds		22,635		10,042
Chilean corporate bonds		3,637		2,229
Other Chilean securities		-		-
Subtotal		26,272		12,271

Foreign financial securities
Foreign Central Banks and Government securities		-		-
Other foreign financial instruments		-		-
Subtotal		-		-

Investments in mutual funds
Funds managed by related entities		4,147		9,657
Funds managed by others		-		-
Subtotal		4,147		9,657

Total		642,085		287,567

As of June 30, 2014 and December 31, 2013, there are no securities sold with repurchase agreement to clients and financial institutions.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 45

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of June 30, 2014 and December 31, 2013 the Bank holds the following portfolio of derivative instruments:

	As of June 30, 2014
	Notional amount								Fair value
	Up to 3 months		More than 3 months to 1 year		More than 1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Fair value hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		275,412		190,890		257,141		723,443		7,456		151
Cross currency swaps		75,710		169,762		1,093,984		1,339,456		126,894		2,355
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		351,122		360,652		1,351,125		2,062,899		134,350		2,506

Cash flow hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		66,495		808,359		1,434,370		2,309,224		35,985		38,573
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives
Subtotal		66,495		808,359		1,434,370		2,309,224		35,985		38,573

Trading derivatives
Currency forwards		16,599,235		15,175,198		1,891,363		33,665,796		209,814		199,199
Interest rate swaps		4,246,963		12,341,595		29,976,830		46,565,388		453,509		430,264
Cross currency swaps		1,216,008		3,727,380		15,715,519		20,658,907		1,056,816		1,091,537
Call currency options		283,184		50,006		68,235		401,425		1,753		1,681
Call interest rate options		-		8,369		62,705		71,074		680		666
Put currency options		501,516		251,574		2,765		755,855		2,473		1,732
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		249,094		-		-		249,094		174		991
Subtotal		23,096,000		31,554,122		47,717,417		102,367,539		1,725,219		1,726,070

Total		23,513,617		32,723,133		50,502,912		106,739,662		1,895,554		1,767,149

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 46

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2013
	Notional amount								Fair value
	Up to 3 months		More than 3 months to 1 year		More than 1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Fair value hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		-		55,000		375,599		430,599		9,951		1,020
Cross currency swaps		-		233,824		899,293		1,133,117		63,528		1,754
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		-		288,824		1,274,892		1,563,716		73,479		2,774

Cash flow hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		522,451		937,529		661,676		2,121,656		60,453		13,927
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		522,451		937,529		661,676		2,121,656		60,453		13,927

Trading derivatives
Currency forwards		14,972,304		9,801,554		1,749,378		26,523,236		198,130		188,745
Interest rate swaps		4,526,349		11,332,697		25,005,852		40,864,898		241,528		243,326
Cross currency swaps		1,634,855		3,927,402		14,246,746		19,809,003		915,099		847,821
Call currency options		443,944		42,805		5,557		492,306		1,327		2,403
Call interest rate options		-		7,031		-		7,031		-		-
Put currency options		428,638		38,450		2,936		470,024		3,831		1,108
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		54,777		-		-		54,777		171		5
Subtotal		22,060,867		25,149,939		41,010,469		88,221,275		1,360,086		1,283,408

Total		22,583,318		26,376,292		42,947,037		91,906,647		1,494,018		1,300,109

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 47

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

Hedge accounting

Fair value hedge

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

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of June 30, 2014 and December 31, 2013, classified by term to maturity:

	As of June 30, 2014
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$

Hedged item
Loans and accounts receivables from customers
Mortgage loan		12,165		-		-		-		12,165
Available for sale investments
Mortgage finance bonds		-		-		-		3,473		3,473
Time deposits and other demand liabilities
Time deposits		466,302		-		-		28,828		495,130
Issued debt instruments
Senior bonds		-		430,286		407,560		480,978		1,318,824
Subordinated bonds		110,595		-		-		-		110,595
Interbank borrowings
Interbank loans		122,712		-		-		-		122,712
Total		711,774		430,286		407,560		513,279		2,062,899
Hedging instrument
Cross currency swaps		245,472		264,395		382,560		447,029		1,339,456
Interest rate swaps		466,302		165,891		25,000		66,250		723,443
Total		711,774		430,286		407,560		513,279		2,062,899

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 48

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2013
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$

Hedged item
Loans and accounts receivables from customers
Mortgage loan		12,213		-		-		-		12,213
Available for sale investments
Yankee bond		-		-		-		28,308		28,308
Mortgage finance bonds		-		-		-		3,652		3,652
Time deposits and other demand liabilities
Time deposits		55,000		-		-		27,971		82,971
Issued debt instruments
Senior bonds		-		335,805		109,497		769,659		1,214,961
Subordinated bonds		104,840		-		-		-		104,840
Interbank borrowings
Interbank loans		116,771		-		-		-		116,771
Total		288,824		335,805		109,497		829,590		1,563,716
Hedging instrument
Cross currency swaps		233,824		178,545		109,497		611,251		1,133,117
Interest rate swaps		55,000		157,260		-		218,339		430,599
Total		288,824		335,805		109,497		829,590		1,563,716

Cash flow hedges

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

Below is the notional amount of the hedged items as of June 30, 2014 and December 31, 2013, and the period when the cash flows will be generated:

	As of June 30, 2014
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$

Hedged item
Loans and accounts receivables from customers
Mortgage loan		49,899		-		-		-		49,899
Available for sale investments
Yankee bond		-		-		-		138,678		138,678
Chilean Central Bank bonds		-		22,958		-		18,084		41,042
Time deposits and other time liabilities
Time deposits		255,921		-		-		-		255,921
Issued debt instruments
Senior bonds (variable rate)		-		790,155		138,243		-		928,398
Senior bonds (fixed rate)		44,565		-		-		-		44,565
Interbank borrowings
Interbank loans		524,469		326,252		-		-		850,721
Total		874,854		1,139,365		138,243		156,762		2,309,224
Hedging instrument
Cross currency swaps		874,854		1,139,365		138,243		156,762		2,309,224
Total		874,854		1,139,365		138,243		156,762		2,309,224

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 49

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2013
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivables from customers
Mortgage loan		21,623		69,502		-		-		91,125
Available for sale investments
Yankee bond		-		-		-		118,577		118,577
Chilean Central Bank bonds		-		22,958		-		18,084		41,042
Time deposits and other time liabilities
Time deposits		379,331		11,328		-		-		390,659
Issued debt instruments
Senior bonds (variable rate)		288,310		102,062		219,567		-		609,939
Senior bonds (fixed rate)		43,189		-		-		-		43,189
Interbank borrowings
Interbank loans		727,527		99,598		-		-		827,125
Total		1,459,980		305,448		219,567		136,661		2,121,656
Hedging instrument
Cross currency swaps		1,459,980		305,448		219,567		136,661		2,121,656
Total		1,459,980		305,448		219,567		136,661		2,121,656

Below is an estimate of the periods in which flows are expected to be produced:

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

	As of June 30, 2014
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		28,325			13,564			5,430			1,714			49,033
Outflows		(25,889	)		(24,261	)		(4,092	)		-			(54,242	)
Net flows		2,436			(10,697	)		1,338			1,714			(5,209	)

Hedging instrument
Inflows		25,889			24,261			4,092			-			54,242
Outflows (*)		(28,325	)		(13,564	)		(5,430	)		(1,714	)		(49,033	)
Net flows		(2,436	)		10,697			(1,338	)		(1,714	)		5,209

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 50

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2013
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		21,532			10,870			4,102			1,614			38,118
Outflows		(12,180	)		(10,667	)		(6,107	)		-			(28,954	)
Net flows		9,352			203			(2,005	)		1,614			9,164

Hedging instrument
Inflows		12,180			10,667			6,107			-			28,954
Outflows (*)		(21,532	)		(10,870	)		(4,102	)		(1,614	)		(38,118	)
Net flows		(9,352	)		(203	)		2,005			(1,614	)		(9,164	)

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

b.2) Forecasted cash flows for inflation risk:

	As of June 30, 2014
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		61,242			497			-			-			61,739
Outflows		(525	)		(833	)		(1,836	)		(1,381	)		(4,575	)
Net flows		60,717			(336	)		(1,836	)		(1,381	)		57,164

Hedging instrument
Inflows		525			833			1,836			1,381			4,575
Outflows		(61,242	)		(497	)		-			-			(61,739	)
Net flows		(60,717	)		336			1,836			1,381			(57,164	)

	As of December 31, 2013
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		104,730			10,861			-			-			115,591
Outflows		(425	)		(927	)		(1,783	)		(1,709	)		(4,844	)
Net flows		104,305			9,934			(1,783	)		(1,709	)		110,747

Hedging instrument
Inflows		425			927			1,783			1,709			4,844
Outflows		(104,730	)		(10,861	)		-			-			(115,591	)
Net flows		(104,305	)		(9,934	)		1,783			1,709			(110,747	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 51

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

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

	As of June 30, 2014
	Within 1 year			Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$			MCh$		MCh$		MCh$		MCh$
Hedged item
Inflows		-			-		-		-		-
Outflows		(63,708	)		-		-		-		(63,708	)
Net flows		(63,708	)		-		-		-		(63,708

Hedging instrument
Inflows		63,708			-		-		-		63,708
Outflows		-			-		-		-		-
Net flows		63,708			-		-		-		63,708

	As of December 31, 2013
	Within 1 year			Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$			MCh$		MCh$		MCh$		MCh$
Hedged item
Inflows		-			-		-		-		-
Outflows		(64,772	)		-		-		-		(64,772	)
Net flows		(64,772	)		-		-		-		(64,772	)

Hedging instrument
Inflows		64,772			-		-		-		64,772
Outflows		-			-		-		-		-
Net flows		64,772			-		-		-		64,772

The accumulated effect of the mark to market adjustment of cash flow hedges produced by hedge instruments used in hedged cash flow was recorded in the Consolidated Interim Statement of Changes in Equity, specifically within Other comprehensive income, as of June 30, 2014 and 2013, and is as follows:

	As of June 30,
Hedged item	2014			2013
	MCh$			MCh$

Interbank loans		(1,391	)		(2,838	)
Issued debt instruments		(3,800	)		1,399
Available for sale investments		(671	)		(894	)
Loans and accounts receivable from customers		41			62
Net flows		(5,821	)		(2,271	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 52

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

Since the inflows and outflows for both the hedged element and the hedging instrument mirror each other, the hedges are nearly 100% effective, which means that the fluctuations of fair value attributable to risk components are almost completely offset. As of June 30, 2014 and 2013, Ch$63 million and Ch$1 million respectively, were recognized in income.

During the year, the Bank did not have any cash flow hedges of forecast transactions.

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

	For the three months ended June 30,					For the six months ended June 30
	2014			2013		2014			2013
	MCh$			MCh$		MCh$			MCh$

Bond hedging derivatives		(9	)		1		(16	)		(35	)
Interbank loans hedging derivatives		64			387		446			769

Cash flow hedge net income		55			388		430			734

See Note 20 “Equity”, letter d)

Net investment hedges in foreign operations:

As of June 30, 2014 and December 31, 2013, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 53

NOTE 07

INTERBANK LOANS

As of June 30, 2014 and December 31, 2013, balances of “Interbank loans” are as follows:

	As of June 30,			As of December 31,
	2014			2013
	MCh$			MCh$

Domestic banks
Loans and advances to banks		-			-
Deposits in the Central Bank of Chile – not available		-			-
Non-transferable Chilean Central Bank Bonds		-			-
Other Central Bank of Chile loans		-			-
Interbank loans		140			66
Overdrafts in checking accounts		-			-
Non-transferable domestic bank loans		-			-
Other domestic bank loans		-			-
Allowances and impairment for domestic bank loans		-			-

Foreign interbank loans
Interbank loans - Foreign		97,660			125,383
Overdrafts in checking accounts		-			-
Non-transferable foreign bank deposits		-			-
Other foreign bank loans		-			-
Allowances and impairment for foreign bank loans		(36	)		(54	)

Total		97,764			125,395

The amount in each period for provisions and impairment of interbank loans is show below:

	As of June 30,								As of December 31,
	2014								2013
	Domestic banks		Foreign banks			Total			Domestic banks		Foreign banks			Total
	MCh$		MCh$			MCh$			MCh$		MCh$			MCh$

Balance as of January 1		-		54			54			-		46			46
Charge-offs		-		-			-			-		-			-
Provisions established		-		36			36			-		127			127
Provisions release		-		(54	)		(54	)		-		(119	)		(119	)

Total		-		36			36			-		54			54

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 54

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

Loans and accounts receivable from customers

As of June 30, 2014 and December 31, 2013, the composition of the loan portfolio is as follows:

	Assets before allowances								Allowances established
	Normal portfolio		Substandard portfolio		Impaired portfolio		Total		Individual allowances		Group allowances		Total		Assets net balance
As of June 30, 2014	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Commercial loans
Commercial loans		7,190,298		248,378		558,282		7,996,958		136,503		83,908		220,411		7,776,547
Foreign trade loans		1,645,179		57,157		61,366		1,763,702		52,879		909		53,788		1,709,914
Checking accounts debtors		265,139		3,158		11,143		279,440		3,438		5,012		8,450		270,990
Factoring transactions		324,314		2,344		3,027		329,685		3,935		564		4,499		325,186
Leasing transactions		1,321,886		74,389		48,561		1,444,836		15,620		4,755		20,375		1,424,461
Other loans and account receivable		115,386		598		21,197		137,181		6,156		8,338		14,494		122,687
Subtotal		10,862,202		386,024		703,576		11,951,802		218,531		103,486		322,017		11,629,785

Mortgage loans
Loans with mortgage finance bonds		62,249		-		2,843		65,092		-		432		432		64,660
Mortgage mutual loans		103,030		-		2,126		105,156		-		455		455		104,701
Other mortgage mutual loans		5,591,563		-		334,118		5,925,681		-		44,962		44,962		5,880,719
Subtotal		5,756,842		-		339,087		6,095,929		-		45,849		45,849		6,050,080

Consumer loans
Installment consumer loans		1,902,015		-		329,620		2,231,635		-		228,129		228,129		2,003,506
Credit card balances		1,265,623		-		24,572		1,290,195		-		40,636		40,636		1,249,559
Leasing transactions		3,445		-		94		3,539		-		92		92		3,447
Other consumer loans		206,809		-		4,375		211,184		-		5,910		5,910		205,274
Subtotal		3,377,892		-		358,661		3,736,553		-		274,767		274,767		3,461,786

Total		19,996,936		386,024		1,401,324		21,784,284		218,531		424,102		642,633		21,141,651

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 55

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

	Assets before allowances								Allowances established
	Normal portfolio		Substandard Portfolio		Impaired portfolio		Total		Individual allowances		Group allowances		Total		Assets net balance
As of December 31, 2013	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Commercial loans
Commercial loans		6,993,770		246,661		557,251		7,797,682		123,354		81,478		204,832		7,592,850
Foreign trade loans		1,731,328		47,164		61,842		1,840,334		50,574		878		51,452		1,788,882
Checking accounts debtors		264,957		3,176		11,524		279,657		3,513		4,755		8,268		271,389
Factoring transactions		310,228		2,613		3,273		316,114		4,305		617		4,922		311,192
Leasing transactions		1,235,369		73,819		40,626		1,349,814		13,739		5,016		18,755		1,331,059
Other loans and account receivable		99,524		617		18,510		118,651		4,745		7,426		12,171		106,480
Subtotal		10,635,176		374,050		693,026		11,702,252		200,230		100,170		300,400		11,401,852

Mortgage loans
Loans with mortgage finance bonds		69,273		-		3,024		72,297		-		470		470		71,827
Mortgage mutual loans		69,742		-		2,091		71,833		-		380		380		71,453
Other mortgage mutual loans		5,163,396		-		318,286		5,481,682		-		42,456		42,456		5,439,226
Subtotal		5,302,411		-		323,401		5,625,812		-		43,306		43,306		5,582,506

Consumer loans
Installment consumer loans		1,847,289		-		320,832		2,168,121		-		221,723		221,723		1,946,398
Credit card balances		1,212,134		-		23,747		1,235,881		-		37,300		37,300		1,198,581
Leasing transactions		3,383		-		68		3,451		-		68		68		3,383
Other consumer loans		195,030		-		4,765		199,795		-		5,494		5,494		194,301
Subtotal		3,257,836		-		349,412		3,607,248		-		264,585		264,585		3,342,663

Total		19,195,423		374,050		1,365,839		20,935,312		200,230		408,061		608,291		20,327,021

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 56

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio characteristics

As June 30, 2014 and December 31, 2013, the portfolio before allowances is as follows, by customer`s economic activity:

	Domestic loans (*)				Foreign interbank loans (**)				Total loans				Distribution percentage
	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,
	2014		2013		2014		2013		2014		2013		2014		2013
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		%		%
Commercial loans
Manufacturing		1,186,973		1,216,914		-		-		1,186,973		1,216,914		5.42		5.78
Mining		542,525		464,865		-		-		542,525		464,865		2.48		2.21
Electricity, gas, and water		257,911		222,110		-		-		257,911		222,110		1.18		1.05
Agriculture and livestock		826,611		806,092		-		-		826,611		806,092		3.78		3.83
Forest		148,560		183,716		-		-		148,560		183,716		0.68		0.87
Fishing		249,308		265,917		-		-		249,308		265,917		1.14		1.26
Transport		762,564		721,931		-		-		762,564		721,931		3.48		3.43
Communications		271,006		249,499		-		-		271,006		249,499		1.24		1.18
Construction		1,318,240		1,337,791		-		-		1,318,240		1,337,791		6.02		6.35
Commerce		2,615,191		2,578,979		97,660		125,383		2,712,851		2,704,362		12.40		12.84
Services		494,685		447,861		-		-		494,685		447,861		2.26		2.13
Other		3,278,368		3,206,643		-		-		3,278,368		3,206,643		14.98		15.23
Subtotal		11,951,942		11,702,318		97,660		125,383		12,049,602		11,827,701		55.06		56.16

Mortgage loans		6,095,929		5,625,812		-		-		6,095,929		5,625,812		27.86		26.71

Consumer loans		3,736,553		3,607,248		-		-		3,736,553		3,607,248		17.08		17.13

Total		21,784,424		20,935,378		97,660		125,383		21,882,084		21,060,761		100.00		100.00

(*)

Includes domestic interbank loans for Ch$140 million as of June 30, 2014 (Ch$66 million as of December 31, 2013), see Note 07.

(**)

Includes foreign interbank loans for Ch$ 97,660 million as of June 30, 2014 (Ch$125,383 million as of December 31, 2013), see Note 07.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 57

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Impaired portfolio (*)

As of June 30, 2014 and December 31, 2013, the impaired portfolio is as follows:

	As of June 30,								As of December 31,
	2014								2013
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Individual impaired portfolio		355,933		-		-		355,933		317,534		-		-		317,534
Non-performing loans		376,714		163,908		87,502		628,124		364,890		155,688		92,723		613,301
Other impaired portfolio		106,694		175,179		271,159		553,032		122,464		167,713		256,689		546,866
Total		839,341		339,087		358,661		1,537,089		804,888		323,401		349,412		1,477,701

(*) Impaired portfolio includes loans classified as substandard in groups B3 and B4, as well as the impaired portfolio.

ii)

The impaired portfolio with or without guarantee as of June 30, 2014 and December 31, 2013 is as follows:

	As of June 30,								As of December 31,
	2014								2013
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		400,295		317,804		48,568		766,667		385,712		302,219		49,051		736,982
Unsecured debt		439,046		21,283		310,093		770,422		419,176		21,182		300,361		740,719
Total		839,341		339,087		358,661		1,537,089		804,888		323,401		349,412		1,477,701

iii)

The portfolio of non-performing loans as of June 30, 2014 and December 31, 2013 is as follows:

	As of June 30,								As of December 31,
	2014								2013
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		144,489		144,351		7,827		296,667		151,494		136,768		7,241		295,503
Unsecured debt		232,225		19,557		79,675		331,457		213,396		18,920		85,482		317,798
Total		376,714		163,908		87,502		628,124		364,890		155,688		92,723		613,301

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 58

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Allowances

The changes in allowances balances during 2014 and 2013 are as follows:

	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
Activity during 2014	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of December 31, 2013		200,230			100,170			43,306			264,585			608,291
Allowances established		35,610			18,609			6,671			64,604			125,494
Allowances release		(4,643	)		(5,095	)		(2,791	)		(3,348	)		(15,877	)
Allowances released due to charge-off		(12,666	)		(10,198	)		(1,337	)		(51,074	)		(75,275	)
Balance as of June 30, 2014		218,531			103,486			45,849			274,767			642,633

	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
Activity during 2013	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of December 31, 2012		154,935			95,938			35,990			263,259			550,122
Allowances established		85,628			36,724			21,314			155,921			299,587
Allowances release		(22,014	)		(11,151	)		(9,216	)		(35,482	)		(77,863	)
Allowances released due to charge-off		(18,319	)		(21,341	)		(4,782	)		(119,113	)		(163,555	)
Balance as of December 31, 2013		200,230			100,170			43,306			264,585			608,291

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

Country risk to cover the risk taken when holding or committing resources with any foreign country. These allowances are established according to country risk classifications as set for Chapter 7-13 of the Updated Compilation of Rules, issued by the SBIF. The balances of allowances as of June 30, 2014 and December 31, 2013 are Ch$83 million and Ch$470 million, respectively.

ii)

According to SBIF’s regulations (compendium of Accounting Standards), the Bank has established allowances related to the unused balances of credit lines with free disposal and contingent loans. The balances of allowances as of June 30, 2014 and December 31, 2013 are Ch$17,816 million and Ch$18,767 million, respectively and are presented in liabilities of the Consolidated Interim Statement of Financial Position

Allowances established on customer and interbank loans

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

	As of June 30,		As of December 31,
	2014		2013

Customers loans		125,494		299,587
Interbank loans		36		127
Total		125,530		299,714

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 59

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio by its impaired and non-impaired status

	As of June 30, 2014
	Non-impaired												Impaired												Total portfolio
	Commercial			Mortgage			Consumer			Total non-impaired			Commercial			Mortgage			Consumer			Total impaired			Commercial			Mortgage			Consumer			Total portfolio
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Current portfolio		10,807,360			5,452,966			3,182,543			19,442,869			331,729			111,003			160,822			603,554			11,139,089			5,563,969			3,343,365			20,046,423
Overdue for 1-29 days		210,622			104,024			127,212			441,858			47,865			22,671			58,927			129,463			258,487			126,695			186,139			571,321
Overdue for 30-89 days		91,270			199,852			68,137			359,259			87,419			54,046			57,816			199,281			178,689			253,898			125,953			558,540
Overdue for 90 days or more		3,209			-			-			3,209			372,328			151,367			81,096			604,791			375,537			151,367			81,096			608,000

Total portfolio before allowances		11,112,461			5,756,842			3,377,892			20,247,195			839,341			339,087			358,661			1,537,089			11,951,802			6,095,929			3,736,553			21,784,284

Overdue loans (less than 90 days) presented as portfolio percentage		2.72	%		5.28	%		5.78	%		3.96	%		16.12	%		22.62	%		32.55	%		21.39	%		3.66	%		6.24	%		8.35	%		5.19	%

Overdue loans (90 days or more) presented as portfolio percentage		0.03	%		-			-			0.02	%		44.36	%		44.64	%		22.61	%		39.35	%		3.14	%		2.48	%		2.17	%		2.79	%

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 60

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

	As of December 31, 2013
	Non-impaired												Impaired												Total portfolio
	Commercial			Mortgage			Consumer			Total non- impaired			Commercial			Mortgage			Consumer			Total impaired			Commercial			Mortgage			Consumer			Total portfolio
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Current portfolio		10,665,404			5,017,319			3,071,977			18,754,700			335,382			102,214			151,804			589,400			11,000,786			5,119,533			3,223,781			19,344,100
Overdue for 1-29 days		142,613			103,335			122,088			368,036			34,715			23,111			57,693			115,519			177,328			126,446			179,781			483,555
Overdue for 30-89 days		89,347			181,757			63,771			334,875			74,863			51,143			54,202			180,208			164,210			232,900			117,973			515,083
Overdue for 90 days or more		-			-			-			-			359,928			146,933			85,713			592,574			359,928			146,933			85,713			592,574

Total portfolio before allowances		10,897,364			5,302,411			3,257,836			19,457,611			804,888			323,401			349,412			1,477,701			11,702,252			5,625,812			3,607,248			20,935,312

Overdue loans (less than 90 days) presented as portfolio percentage		2.13	%		5.38	%		5.70	%		3.61	%		13.61	%		22.96	%		32.02	%		20.01	%		2.92	%		6.39	%		8.25	%		4.77	%

Overdue loans (90 days or more) presented as portfolio percentage		-			-			-			-			44.72	%		45.43	%		24.53	%		40.10	%		3.08	%		2.61	%		2.38	%		2.83	%

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 61

NOTE 09

AVAILABLE FOR SALE INVESTMENTS

As of June 30, 2014 and December 31, 2013, detail of instruments deemed as available for sale investments is as follows:

	As of June 30,		As of December 31,
	2014 MCh$		2013 MCh$

Chilean Central Bank and Government securities
Chilean Central Bank Bonds		339,302		364,821
Chilean Central Bank Notes		40,515		1,078
Other Chilean Central Bank and Government securities		184,782		146,295
Subtotal		564,599		512,194
Other Chilean securities
Time deposits in Chilean financial institutions		583,937		1,011,354
Mortgage finance bonds of Chilean financial institutions		33,263		33,856
Chilean financial institution bonds		-		-
Chilean corporate bonds		-		-
Other Chilean securities		-		-
Subtotal		617,200		1,045,210
Foreign financial securities
Foreign Central Banks and Government securities		145,403		143,589
Other foreign financial securities		-		-
Subtotal		145,403		143,589

Total		1,327,202		1,700,993

As of June 30, 2014 and December 31, 2013, the line item Chilean Central Bank and Government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$20,529 million and Ch$90,818 million, respectively.

As of June 30, 2014 and December 31, 2013, the line item Other National Institutions Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$116,036 million and Ch$118,195 million, respectively.

As of June 30, 2014 available for sale investments included a net unrealized profit of Ch$14,324 million, recorded as a “Valuation adjustment” in Equity, distributed between a profit of Ch$14,302 million attributable to Bank shareholders and a profit of Ch$22 million attributable to non-controlling interest.

As of December 31, 2013 available for sale investments included a net unrealized profit of Ch$ 840 million, recorded as a “Valuation adjustment” in Equity, distributed between a profit of Ch$ 802 million attributable to Bank shareholders and a profit of Ch$ 38 million attributable to non-controlling interest.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 62

NOTE 10

INTANGIBLE ASSETS

As of June 30, 2014 and December 31, 2013 the composition of intangible assets is as follows:

							As of June 30, 2014
	Years of useful life		Average remaining useful life		Net opening balance as of January 1, 2014		Gross balance		Accumulated amortization			Net balance
					MCh$		MCh$		MCh$			MCh$

Licenses		3		1.3		2,197		10,140		(8,130	)		2,010
Software development		3		1.9		64,506		249,993		(192,545	)		57,448

Total						66,703		260,133		(200,675	)		59,458

							As of December 31, 2013
	Years of useful life		Average remaining useful life		Net opening balance as of January 1, 2013		Gross balance		Accumulated amortization			Net balance
					MCh$		MCh$		MCh$			MCh$

Licenses		3		2		2,621		9,955		(7,758	)		2,197
Software development		3		2		84,726		242,023		(177,517	)		64,506

Total						87,347		251,978		(185,275	)		66,703

The activity in intangible assets during de periods ended June 30, 2014 and December 31, 2013 is as follows:

b.1)

Gross balance

Gross balances	Licenses		Software development			Total
	MCh$		MCh$			MCh$

Balances as of January 1, 2014		9,955		242,023			251,978
Acquisitions		185		7,970			8,155
Disposals		-		-			-
Other		-		-			-
Balances as of June 30, 2014		10,140		249,993			260,133

Balances as of January 1, 2013		9,329		224,671			234,000
Acquisitions		626		17,774			18,400
Disposals		-		-			-
Other		-		(422	)		(422	)
Balances as of December 31, 2013		9,955		242,023			251,978

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 63

NOTE 10

INTANGIBLE ASSETS, continued

b.2)

Accumulated amortization

Accumulated amortization	Licenses			Software development			Total
	MCh$			MCh$			MCh$

Balances as of January 1, 2014		(7,758	)		(177,517	)		(185,275	)
Period`s amortization		(372	)		(15,028	)		(15,400	)
Other changes		-			-			-
Balances as of June 30 2014		(8,130	)		(192,545	)		(200,675	)

Balances as of January 1, 2013		(6,708	)		(139,945	)		(146,653	)
Period`s amortization		(1,050	)		(37,572	)		(38,622	)
Other changes		-			-			-
Balances as of December 31, 2013		(7,758	)		(177,517	)		(185,275	)

The Bank has no restriction on intangible assets as of June 30, 2014 and December 31, 2013. Additionally, the intangible assets have not been pledged as guarantee for fulfillment of financial liabilities. Also, the Bank has no debt related intangible assets as of those dates.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 64

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT

As of June, 2014 and December 31, 2013 the composition of property, plant and equipment is as follows:

			As of June 30, 2014
	Net opening balance as of January 1, 2014		Gross balance		Accumulated depreciation			Net balance
	MCh$		MCh$		MCh$			MCh$

Land and building		128,119		190,109		(61,542	)		128,567
Equipment		38,841		90,836		(52,997	)		37,839
Ceded under operating leases		4,329		4,888		(599	)		4,289
Other		8,926		34,400		(25,479	)		8,921
Total		180,215		320,233		(140,617	)		179,616

			As of December 31, 2013
	Net opening balance as of January 1, 2013		Gross balance		Accumulated depreciation			Net balance
	MCh$		MCh$		MCh$			MCh$

Land and building		119,853		184,711		(56,592	)		128,119
Equipment		28,625		85,857		(47,016	)		38,841
Ceded under operating leases		4,507		4,888		(559	)		4,329
Other		9,229		32,207		(23,281	)		8,926
Total		162,214		307,663		(127,448	)		180,215

The activity in property, plant and equipment during de periods ended June 30, 2014 and December 31, 2013 is as follows:

b.1)

Gross balance

	Land and buildings		Equipment			Ceded under operating leases		Other			Total
2014	MCh$		MCh$			MCh$		MCh$			MCh$

Balances as of January 1, 2014		184,711		85,857			4,888		32,207			307,663
Additions		5,398		5,047			-		2,244			12,689
Disposals		-		(39	)		-		(51	)		(90	)
Impairment due to damage (i)		-		(29	)		-		-			(29	)
Transfers		-		-			-		-			-
Other		-		-			-		-			-
Balances as of June 30, 2014		190,109		90,836			4,888		34,400			320,233

(i)

Banco Santander Chile recognized on its financial statements as of June 30, 2014 Ch$29 million impairment from damages to ATMs. Compensation received from insurance totaled Ch$421 million, which is presented within Other operating income (see Note 31).

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 65

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT, continued

	Land and buildings		Equipment			Ceded under operating leases			Other		Total
2013	MCh$		MCh$			MCh$			MCh$		MCh$

Balances as of January 1, 2013		167,241		66,170			4,996			28,957		267,364
Additions		17,470		20,171			-			3,148		40,789
Disposals		-		(240	)		(108	)		-		(348	)
Impairment due to damage (i)		-		(244	)		-			-		(244	)
Transfers		-		-			-			-		-
Other		-		-			-			102		102
Balances as of December 31, 2013		184,711		85,857			4,888			32,207		307,663

(i)

Banco Santander Chile recognized on its financial statements as of December 31, 2013 Ch$244 million impairment from damages to ATMs. Compensation received from insurance totaled Ch$725 million.

b.2)

Accumulated depreciation

	Land and buildings			Equipment			Ceded under operating leases			Other			Total
2014	MCh$			MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2014		(56,592	)		(47,016	)		(559	)		(23,281	)		(127,448	)
Depreciation charges in the period		(4,950	)		(5,985	)		(40	)		(2,210	)		(13,185	)
Sales and disposals in the period		-			4			-			12			16
Transfers		-			-			-			-			-
Others		-			-			-			-			-
Balances as of June 30, 2014		(61,542	)		(52,997	)		(599	)		(25,479	)		(140,617	)

	Land and buildings			Equipment			Ceded under operating leases			Other			Total
2013	MCh$			MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2013		(47,388	)		(37,545	)		(489	)		(19,728	)		(105,150	)
Depreciation charges in the period		(9,207	)		(9,554	)		(89	)		(3,602	)		(22,452	)
Sales and disposals in the period		3			83			19			49			154
Transfers		-			-			-			-			-
Others		-			-			-			-			-
Balances as of December 31, 2013		(56,592	)		(47,016	)		(559	)		(23,281	)		(127,448	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 66

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT, continued

Operational leases - Lessor

As of June 30, 2014 and December 31, 2013, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		634		637
Due after 1 year but within 2 years		769		508
Due after 2 years but within 3 years		289		300
Due after 3 years but within 4 years		271		263
Due after 4 years but within 5 years		271		263
Due after 5 years		1,848		2,148

Total		4,082		4,119

Operational leases - Lessee

Certain Bank`s premises and equipment are leased under various operating leases. Future minimum rental payments under non-cancellable leases are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		19,685		18,941
Due after 1 year but within 2 years		17,236		16,948
Due after 2 years but within 3 years		16,086		15,161
Due after 3 years but within 4 years		14,950		14,083
Due after 4 years but within 5 years		13,386		12,902
Due after 5 years		59,860		61,730

Total		141,203		139,765

As of June 30, 2014 and December 31, 2013 the Bank has not financial leases which cannot be unilaterally rescinded.

The Bank has no restriction on intangible assets as of June 30, 2014 and December 31, 2013. Additionally, the property, plant, and equipment have not been surrendered as guarantees for the compliance of financial liabilities. Also, the Bank has no debt regarding property, plant and equipment as those dates.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 67

NOTE 12

CURRENT AND DEFERRED TAXES

Current taxes

As of June 30, 2014 and December 31, 2014, the Bank recognizes an income tax provision, which is determined based on the currently applicable tax legislation. This provision is recorded net of recoverable taxes, as shown as follows:

	As of June 30,			As of December 31,
	2014			2013
	MCh$			MCh$

Summary of current tax liabilities (assets)
Current tax (assets)		(22,943	)		(1,643	)
Current tax liabilities		-			50,242

Total tax payable (recoverable)		(22,943	)		48,599

(Assets) liabilities current taxes detail (net)
Income tax, tax rate 20%		24,682			117,095
Minus:
Provisional monthly payments (PPM)		(44,005	)		(61,730	)
Credit for training expenses		(631	)		(1,656	)
Land taxes leasing		(1,383	)		(2,987	)
Grant credits		(694	)		(1,892	)
Other		(912	)		(231	)

Total tax payable (recoverable)		(22,943	)		48,599

Effect on income

The effect of tax expense on income for the periods from January 1 and June 30, 2014 and 2013 is comprised of the following items:

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	MCh$			MCh$			MCh$			MCh$

Income tax expense
Current tax		1,437			27,827			24,682			40,622

Credits (debits) for deferred taxes
Origination and reversal of temporary differences		23,411			(7,652	)		26,241			(5,887	)
Subtotals		24,848			20,175			50,923			34,735
Tax for rejected expenses (Article No.21)		341			98			418			(176	)
Other		(110	)		20			(110	)		(29	)
Net charges for income tax expense		25,079			20,293			51,231			34,530

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 68

NOTE 12

CURRENT AND DEFERRED TAXES, continued

Effective tax rate reconciliation

The reconciliation between the income tax rate and the effective rate applied in determining tax expenses as of June 30, 2014 and 2013 is as follows:

	As of June 30,
	2014						2013
	Tax rate			Amount			Tax rate			Amount
	%			MCh$			%			MCh$

Tax calculated over profit before tax		20.00			70,545			20.00			40,422
Permanent differences		(5.47	)		(19,289	)		(1.71	)		(3,456	)
Single penalty tax (rejected expenses)		0.12			418			0.09			176
Real estate taxes		(0.39	)		(1,383	)		(2.72	)		(5,500	)
Other		0.26			940			1.42			2,888
Effective rates and expenses for income tax		14.52			51,231			17.08			34,530

Effect of deferred taxes on other comprehensive income

Below is a summary of the separate effect of deferred tax on other comprehensive income, showing the asset and liability balances, for the periods ended June 30, 2014 and December 31, 2013:

	As of June 30,			As of June 30,
	2014			2013
	MCh$			MCh$

Deferred tax assets
Available for sale investments		48			82
Cash flow hedges		1,164			454
Total deferred tax assets affecting other with effect in other comprehensive income		1,212			536

Deferred tax liabilities					-
Available for sale investments		(2,913	)		-
Cash flow hedges		-			-
Total deferred tax liabilities affecting other with effect in other comprehensive income		(2,913	)		-

Net deferred tax balances in equity		(1,701	)		536

Deferred taxes in equity attributable to Bank shareholders		(1,696	)		543
Deferred tax in equity attributable to non-controlling interests		(5	)		(7	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 69

NOTE 12

CURRENT AND DEFERRED TAXES, continued

Effect of deferred taxes on income

As of June 30, 2014 and December 31, 2013, the Bank has recorded effects for deferred taxes in the financial statements.

Below are effects of deferred taxes on assets, liabilities and income:

	As of June 30,			As of December 31,
	2014			2013
	MCh$			MCh$
Deferred tax assets
Interests and adjustments		8,118			7,203
Non-recurring charge-offs		6,855			9,787
Assets received in lieu of payment		782			1,149
Exchange rate differences		272			-
Property, plant and equipment		4,299			3,579
Allowance for loan losses		95,259			92,088
Provision for expenses		16,339			19,130
Derivatives		31			19
Leased assets		55,136			52,447
Subsidiaries tax losses		6,651			5,716
Other		792			37,415
Total deferred tax assets		194,534			228,533

Deferred tax liabilities
Valuation of investments		(16,695	)		(11,593	)
Depreciation		(185	)		(315	)
Prepaid expenses		(25	)		-
Other		(226	)		(12,981	)
Total deferred tax liabilities		(17,131	)		(24,889	)

Summary of deferred tax assets and liabilities

Below is a summary of the deferred taxes impact on equity and income.

	As of June 30,			As of December 31,
	2014			2013
	MCh$			MCh$

Deferred tax assets
Recognized through other comprehensive income		1,212			1,682
Recognized through profit or loss		194,534			228,533
Total deferred tax assets		195,746			230,215

Deferred tax liabilities
Recognized through other comprehensive income		(2,913	)		(199	)
Recognized through profit or loss		(17,131	)		(24,889	)
Total deferred tax liabilities		(20,044	)		(25,088	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 70

NOTE 13

OTHER ASSETS

Other assets item includes the following:

	As of June 30,			As of December 31,
	2014			2013
	MCh$			MCh$

Assets for leasing (*)		51,444			41,402

Assets received or awarded in lieu of payment (**)
Assets received in lieu of payment		11,251			14,448
Assets awarded at judicial sale		7,850			6,530
Provision on assets received in lieu of payment or awarded		(2,669	)		(2,914	)
Subtotal		16,432			18,064

Other assets
Guarantee deposits		3,417			68,330
Gold investments		426			373
VAT credit		12,293			8,705
Income tax recoverable		38,824			42,354
Prepaid expenses		23,100			34,970
Assets recovered from leasing for sale		6,590			5,747
Pension plan assets		1,901			1,822
Accounts and notes receivable		43,326			60,256
Notes receivable through brokerage and simultaneous transactions		71,002			75,145
Other receivable assets		9,362			9,746
Other assets		35,340			33,111
Subtotal		245,581			340,559

Total		313,457			400,025

(*)

Assets available to be granted under the financial leasing agreements.

(**)

Assets received in lieu of payment correspond to assets received as payment of overdue debts. The total assets held that correspond to this type must not exceed 20% of the Bank’s effective equity. These assets currently represent 0.36% as of June 30, 2014 (0.48% as of December 31, 2013) of the Bank’s effective equity.

Assets awarded in judicial sale correspond to those acquired in judicial auction as payment of debts previously subscribed with the Bank. The assets awarded through a judicial sale are not subject to the aforementioned requirement. These properties are assets available for sale assets. The Bank is expected to complete the sale within one year from the date on which the asset are received or acquired. When they are not sold within that period of time, the Bank must write-off those assets.

Additionally, the Bank records a provision for the difference between the initial award value plus any additions and its estimated realizable value (appraisal), when the first is greater.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 71

NOTE 14

TIME DEPOSITS AND OTHER TIME LIABILITIES

As of June 30, 2014 and December 31, 2013, the composition of this item is as a follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Deposits and other demand liabilities
Checking accounts		4,563,301		4,403,526
Other deposits and demand accounts		459,837		569,395
Other demand liabilities		641,422		647,842

Total		5,664,560		5,620,763

Time deposits and other time liabilities
Time deposits		9,201,165		9,567,855
Time savings account		106,287		104,143
Other time liabilities		3,209		3,274

Total		9,310,661		9,675,272

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 72

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

As of June 30, 2013 and December 31, 2014, the composition of this item is as a follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Other financial liabilities
Obligations to public sector		67,055		68,075
Other domestic obligations		120,801		118,683
Foreign obligations		2,076		3,023
Subtotals		189,932		189,781
Issued debt instruments
Mortgage finance bonds		91,670		101,667
Senior bonds		4,471,933		4,190,918
Mortgage bond		70,604		70,339
Subordinated bonds		856,891		835,734
Subtotals		5,491,098		5,198,658

Total		5,681,030		5,388,439

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

	As of June 30, 2014
	Current		Non-current		Total
	MCh$		MCh$		MCh$

Mortgage finance bonds		8,489		83,181		91,670
Senior bonds		1,753,610		2,718,323		4,471,933
Mortgage bonds		-		70,604		70,604
Subordinated bonds		149,654		707,237		856,891
Issued debt instruments		1,911,753		3,579,345		5,491,098

Other financial liabilities		104,298		85,634		189,932

Total		2,016,051		3,664,979		5,681,030

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 73

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

	As of December 31, 2013
	Current		Non-current		Total
	MCh$		MCh$		MCh$

Mortgage finance bonds		6,493		95,174		101,667
Senior bonds		1,603,929		2,586,989		4,190,918
Mortgage bonds		-		70,339		70,339
Subordinated bonds		138,466		697,268		835,734
Issued debt instruments		1,748,888		3,449,770		5,198,658

Other financial liabilities		101,698		88,083		189,781

Total		1,850,586		3,537,853		5,388,439

Mortgage finance bonds

These bonds are used to finance mortgage loans. Their principal amounts are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. Loans are indexed to UF and create a yearly interest rate of 5.94% as of June 30, 2014 (5.21% as of December 31, 2013).

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		8,489		6,493
Due after 1 year but within 2 years		9,547		9,760
Due after 2 years but within 3 years		9,045		8,768
Due after 3 years but within 4 years		10,728		9,921
Due after 4 years but within 5 years		6,837		12,511
Due after 5 years		47,024		54,214
Total mortgage finance bonds		91,670		101,667

Senior bonds

The following table shows senior bonds by currency:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Santander bonds in UF		1,635,133		1,964,905
Santander bonds in USD		1,939,247		1,658,789
Santander bonds in CHF		451,887		246,284
Santander bonds in Ch$		184,412		277,530
Santander bonds in CNY		45,188		43,410
Santander bonds in AUD		66,200		-
Santander bonds in JPY		149,866		-
Total senior bonds		4,471,933		4,190,918

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 74

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Placement of senior bonds:

In 2014, the Bank placed bonds for UF 2,000,000; CLP 25,000,000,000; CHF 300,000,000; USD 750,000,000, AUD 125,000,000, and JPY 27,300,000,000 detailed as follows:

Series

Amount

Term

Issuance rate

Issuance
date

Series issued
amount

Maturity
date

EB Series

2,000,000

5 years

3.5% per annum simple

02-21-2014

2,000,000

10-01-2018

UF Total

2,000,000

EA Series

CLP

25,000,000,000

5 years

6.20% per annum simple

02-24-2014

CLP

25,000,000,000

09-01-2018

CLP Total

CLP

25,000,000,000

CHF Bond

CHF

300,000,000

3 years

1% per annum simple

01-31-2014

CHF

300,000,000

07-31-2017

CHF Total

CHF

300,000,000

DN Current Bond

USD

250,000,000

5 years

Libor (3 months) + 75 bp

02-19-2014

USD

250,000,000

02-19-2019

Floating Bond

USD

500,000,000

3 years

Libor (3 months) + 90 bp

04-15-2014

USD

500,000,000

04-11-2017

USD Total

USD

750,000,000

AUD Bond

AUD

125,000,000

3 years

4.5% per annum simple

03-13-2014

AUD

125,000,000

03-13-2017

AUD Total

AUD

125,000,000

JPY Floating Bond

JPY

6,600,000,000

3 years

Libor (3 months) + 65 bp

04-24-2014

JPY

6,600,000,000

04-24-2017

JPY Current Bond

JPY

2,000,000,000

3 years

0.72% per annum simple

04-24-2014

JPY

2,000,000,000

04-24-2017

JPYCurrent Bond

JPY

18,700,000,000

5 years

0.97% per annum simple

04-24-2014

JPY

18,700,000,000

04-24-2019

JPY Total

JPY

27,300,000,000

During 2014, the Bank repurchased bonds for CLP 118,409,000,000 and UF 6,000,000.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 75

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

During 2013, the Bank placed bonds for UF 13,768,000; CLP 32,500,000,000; USD 250,000,000 and CHF 300,000,000 detailed as follows:

Series

Amount

Term

Issuance rate

Issuance
date

Series issued
amount

Maturity date

E1 Series

2,742,000

5 years

3.50% annum simple

02-01-2011

4,000,000

02-01-2016

E2 Series

952,000

7 years

3.00% annum simple

01-01-2012

4,000,000

07-01-2018

E3 Series

2,244,000

8,5 years

3.50% annum simple

01-01-2011

4,000,000

07-01-2019

E6 Series

3,720,000

10 years

3.50% annum simple

04-01-2012

4,000,000

04-01-2022

E9 Series

2,000,000

10 years

3.50% annum simple

01-01-2013

2,000,000

12-25-2018

FD Series

110,000

5 years

3.00% annum simple

08-01-2010

110,000

12-25-2018

EC Series

2,000,000

10 years

3.50% annum simple

11-28-2013

2,000,000

09-01-2023

UF Total

13,768,000

E4 Series

CLP

7,500,000,000

5 years

6.75% annum simple

06-01-2011

CLP

7,500,000,000

06-01-2016

E8 Series

CLP

25,000,000,000

10 years

6.60% annum simple

11-01-2012

CLP

25,000,000,000

11-01-2022

CLP Total

CLP

32,500,000,000

CHF Floating Bond

CHF

150,000,000

4 years

Libor (3 months) + 100 bp

03-28-2013

CHF

150,000,000

03-28-2017

CHF Floating Bond

CHF

150,000,000

6 years

1.75% annum simple

09-26-2013

CHF

150,000,000

09-26-2019

CHF Total

CHF

300,000,000

DN Current Bond

USD

250,000,000

5 years

Libor (3 months) + 100 bp

06-07-2013

USD

250,000,000

06-07-2018

USD TOTAL

USD

250,000,000

During 2013, the Bank performed a partial repurchase of bonds for CLP 49,245,000,000.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 76

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

ii.

Nominal bonds to be placed:

As of June 30, 2014, there are no outstanding amounts of bonds authorized, to be placed.

Maturities of senior bonds are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		1,753,610		1,603,929
Due after 1 year but within 2 years		709,828		674,784
Due after 2 years but within 3 years		183,904		338,853
Due after 3 years but within 4 years		560,638		321,589
Due after 4 years but within 5 years		283,735		154,368
Due after 5 years		980,218		1,097,395
Total senior bonds		4,471,933		4,190,918

Mortgage bonds

Detail of mortgage bonds per currency is as a follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Mortgage bonds in UF		70,604		70,339
Total mortgage bonds		70,604		70,339

Placement of mortgage bonds

In 2014, the Bank no has issued mortgage bonds.

In 2013, the Bank issued bonds for UF 3,000,000, detailed as follows:

Series

Amount

Term

Issuance rate

Issuance
date

Series issued
amount

Maturity date

3,000,000

15 years

3.2% annum simple

07-31-2013

3,000,000

07-31-2028

UF Total

3,000,000

Maturities of mortgage bonds are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		-		-
Due after 1 year but within 2 years		-		-
Due after 2 years but within 3 years		-		-
Due after 3 years but within 4 years		-		-
Due after 4 years but within 5 years		-		-
Due after 5 years		70,604		70,339
Total mortgage bonds		70,604		70,339

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 77

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Subordinated bonds

Detail of subordinated bonds per currency is as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Subordinated bonds denominated in USD		144,260		139,802
Subordinated bonds denominated in UF		712,631		695,932
Total subordinated bonds		856,891		835,734

Placement of subordinated bonds

During 2014, the Bank has not placed any subordinated bonds.

During 2013, the Bank placed subordinated bonds for UF 5,900,000.

The following chart shows details related to subordinated bonds placed:

Series

Amount

Term

Issuance rate

Issuance
date

Series issued
amount

Maturity date

1,900,000

20 years

3.9% annum simple

04-05-2011

4,000,000

04-01-2031

4,000,000

30 years

3.9% annum simple

11-04-2011

4,000,000

04-01-2041

Total

5,900,000

During the first half of 2013, the Bank performed a partial repurchase of bonds for USD 47,786,000.

The maturities of subordinated bonds are as follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Due within 1 year		149,654		138,466
Due after 1 year but within 2 years		13,301		14,039
Due after 2 years but within 3 years		2,517		4,140
Due after 3 years but within 4 years		-		-
Due after 4 years but within 5 years		-		-
Due after 5 years		691,419		679,089
Total subordinated bonds		856,891		835,734

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 78

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Other financial liabilities

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

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Non-current portion:
Due after 1 year but within 2 years		3,337		3,389
Due after 2 year but within 3 years		3,210		2,389
Due after 3 year but within 4 years		2,259		3,045
Due after 4 year but within 5 years		31,699		20,862
Due after 5 years		45,129		58,398
Non-current portion subtotals		85,634		88,083

Current portion:
Amounts due to credit card operators		98,488		97,027
Acceptance of letters of credit		206		741
Other long-term financial obligations, short-term portion		5,604		3,930
Current portion subtotals		104,298		101,698

Total other financial liabilities		189,932		189,781

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 79

NOTE 16

MATURITY OF ASSETS AND LIABILITIES

As of June 30, 2014 and December 31, 2013, the detail of the maturities of assets and liabilities is as follows:

As of June 30, 2014	Demand		Up to 1 month		Between 1 and 3 months		Between 3 and 12 months		Subtotal up to 1 year		Between 1 and 5 years		More than 5 years		Subtotal More than 1 year		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		1,074,727		-		-		-		1,074,727		-		-		-		1,074,727
Cash items in process of collection		674,079		-		-		-		674,079		-		-		-		674,079
Trading investments		-		4,147		-		244,958		249,105		142,700		250,280		392,980		642,085
Investments under resale agreements		-		-		-		-		-		-		-		-		-
Financial derivatives contracts		-		76,987		87,950		265,316		430,253		772,061		693,240,		1,465,301		1,895,554
Interbank loans (*)		4,127		-		93,673		-		97,800		-		-		-		97,800
Loans and accounts receivables from customers (**)		669,174		2,293,319		2,090,916		3,529,336		8,582,745		6,497,674		6,703,865		13,201,539		21,784,284
Available for sale investments		-		96,587		101,815		539,089		737,491		189,759		399,952		589,711		1,327,202
Held to maturity investments		-		-		-		-		-		-		-		-		-

Total assets		2,422,107		2,471,040		2,374,354		4,578,699		11,846,200		7,602,194		8,047,337		15,649,531		21,495,731

Liabilities
Deposits and other demand liabilities		5,664,560		-		-		-		5,664,560		-		-		-		5,664,560
Cash items in process of collection		409,175		-		-		-		409,175		-		-		-		409,175
Obligations under repurchase agreements		-		124,452		11,384		721		136,557		-		-		-		136,557
Time deposits and other time liabilities		111,201		4,800,525		2,260,420		1,978,947		9,151,093		74,244		85,324		159,568		9,310,661
Financial derivatives contacts		-		72,685		68,256		316,975		457,916		736,395		572,838		1,309,233		1,767,149
Interbank borrowings		13,968		161,199		291,163		811,548		1,277,878		447,340		-		447,340		1,725,218
Issued debts instruments		1,152		881,122		600,264		429,215		1,911,753		1,790,080		1,789,265		3,579,345		5,491,098
Other financial liabilities		100,297		311		791		2,899		104,298		40,506		45,128		85,634		189,932

Total liabilities		6,300,353		6,040,294		3,232,278		3,540,305		19,113,230		3,088,565		2,492,555		5,581,120		24,694,350

(*)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$36 million.

(**)

Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to type of loan are detailed as follows: Commercial loans Ch$322,017 million, Mortgage loans Ch$45,849 million, Consumer loans Ch$274,767 million.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 80

NOTE 16

MATURITY OF ASSETS AND LIABILITIES, continued

	Demand		Up to 1 month		Between 1 and 3 months		Between 3 and 12 months		Subtotal up to 1 year		Between 1 and 5 years		More than 5 years		Subtotal More than 1 year		Total
As of December 31, 2013	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		1,571,810		-		-		-		1,571,810		-		-		-		1,571,810
Cash items in process of collection		604,077		-		-		-		604,077		-		-		-		604,077
Trading investments		-		10,018		17		-		10,035		203,608		73,924		277,532		287,567
Investments under resale agreements		-		-		17,469		-		17,469		-		-		-		17,469
Financial derivatives contracts		-		168,785		99,471		225,617		493,873		565,329		434,816		1,000,145		1,494,018
Interbank loans (*)		1,224		66,264		56,901		1,060		125,449		-		-		-		125,449
Loans and accounts receivables from customers (**)		773,387		2,173,231		1,776,530		3,533,313		8,256,461		6,367,870		6,310,981		12,678,851		20,935,312
Available for sale investments		-		228,997		240,018		627,052		1,096,067		275,281		329,645		604,926		1,700,993
Held to maturity investments		-		-		-		-		-		-		-		-		-

Total assets		2,950,498		2,647,295		2,190,406		4,387,042		12,175,241		7,412,088		7,149,366		14,561,454		26,736,695

Liabilities
Deposits and other demand liabilities		5,620,763		-		-		-		5,620,763		-		-		-		5,620,763
Cash items in process of collection		276,379		-		-		-		276,379		-		-		-		276,379
Obligations under repurchase agreements		-		185,140		18,466		5,366		208,972		-		-		-		208,972
Time deposits and other time liabilities		104,233		5,351,489		2,333,001		1,743,525		9,532,248		87,380		55,644		143,024		9,675,272
Financial derivatives contacts		-		126,257		89,128		223,414		438,799		510,661		350,649		861,310		1,300,109
Interbank borrowings		8,199		104,490		216,472		1,201,070		1,530,231		152,146		-		152,146		1,682,377
Issued debts instruments		-		470,600		688,261		590,027		1,748,888		1,548,733		1,901,037		3,449,770		5,198,658
Other financial liabilities		97,027		568		1,111		2,992		101,698		29,685		58,398		88,083		189,781

Total liabilities		6,106,601		6,238,544		3,346,439		3,766,394		19,457,978		2,328,605		2,365,728		4,694,333		24,152,311

(*)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$54 million.

(**)

Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to type of loan are detailed as follows: Commercial loans Ch$300,400 million, Mortgage loans Ch$43,306 million, Consumer loans Ch$264,585 million.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 81

NOTE 17

OTHER LIABILITIES

The composition of other liabilities is as a follows:

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Accounts and notes payable		82,585		84,729
Unearned income		406		384
Guarantees received (threshold)		95,601		2,631
Notes payable through brokerage and simultaneous transactions		44,431		-
Other payable obligations		53,104		95,266
Other liabilities		10,174		15,767

Total		286,301		198,777

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 82

NOTE 18

CONTINGENCIES AND COMMITMENTS

Lawsuits and legal procedures

As of the issuance date of these financial statements, the Bank and its affiliates were subject to certain legal actions in the normal course of their business. As of June 30, 2014, the Bank and its subsidiaries have provisions for this item of Ch$1,976 million (Ch$1,224 million as of December 31, 2013), which is included in “Provisions” in the Consolidated Interim Financial Statement as provisions for contingencies. In addition, there are other lawsuits for UF 4,911.83, which primarily relates to the litigation between Santander Corredores de Seguros Limitada and its clients for leasing assets.

Contingent loans

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

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Letters of credit issued		191,185		218,032
Foreign letters of credit confirmed		82,828		127,600
Guarantees		1,344,320		1,212,799
Personal guarantees		166,111		181,416
Subtotal		1,784,444		1,739,847
Available on demand credit lines		5,368,458		5,141,831
Other irrevocable credit commitments		40,492		47,376
Total		7,193,394		6,929,054

Held securities

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

	As of June 30,		As of December 31,
	2014		2013
	MCh$		MCh$

Third party operations
Collections		225,174		217,948
Assets from third parties managed by the Bank and its affiliates		1,128,033		1,015,817
Subtotal		1,353,207		1,233,765
Custody of securities
Securities held in custody		428,618		304,535
Securities held in custody deposited in other entity		546,164		532,072
Issued securities held in custody		16,239,232		15,351,545
Subtotal		17,214,014		16,188,152
Total		18,567,221		17,421,917

Guarantees

Banco Santander Chile has comprehensive officer fidelity insurance policy, No. 2823611, with the Chilena Consolidada de Seguros insurance company, for USD 5,000,000, which jointly covers both the Bank and its affiliates for the period from July 1, 2013 to June 30, 2014.

Contingent loans and liabilities

To satisfy its clients’ needs, the Bank took on several contingent loans and liabilities, yet these could not be recognized in the Consolidated Interim Financial Statement of Financial Position; these contain loan risks and they are, therefore, part of the Bank`s global risk.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 83

NOTE 18

CONTINGENCIES AND COMMITMENTS, continued

Santander Agente de Valores Limitada

To ensure correct and full performance of all its obligations as an agent, in conformity with the provisions of Articles No.30 and onward of Law No.18.045 on the Securities Market, the Company provided a guarantee in the amount of UF4,000 through Insurance Policy No. 213117286, underwritten by the Compañía de Seguros de Crédito Continental S.A., which matures on December 19, 2014.

Santander S.A. Corredores de Bolsa

The Company has given guarantees to the Bolsa de Comercio de Santiago for a current value of Ch$ 26,617 million to cover simultaneous transactions of own portfolio.

ii)

In addition, the Company has issued a guarantee to CCLV Contraparte Central S.A. (formerly known as Cámara de Compensación) in cash, for a total Ch$ 3,000 million and additional guaranteed entered at the Electronical Stock Market for Ch$1,087 million as of June 30, 2014.

iii)

As of June 30, 2014, the following legal situations are in process:

Complaint procedures before the 27th Civil Court of Santiago, labeled “Nahum vs. Santander Investment S.A. Corredores de Bolsa” predecessor of Santander S.A. Corredores de Bolsa, File No. 16.703-2010 for Ch$200 million. Regarding its current state, the ruling granted the appeal and it is currently pending the review of the Court of Appeals of Santiago. There are no provisions recorded since they are not considered necessary given that the cause is in its preliminary stages.

Case of “Inverfam S.A. vs. Santander Investment S.A. Corredores de Bolsa” predecessor of Santander S.A. Corredores de Bolsa, followed in Santiago First Civil Court, File No. 32.543-2011; a claim for indemnity damages from the loss of some securities destined to Optimal Funds which were affected by the Madoff case, that amount to Ch$107 million, approximately. We are currently waiting for a conciliation meeting.

Case of “Bilbao vs. Santander Investment S.A. Corredores de Bolsa”, predecessor to Santander S.A. Corredores de Bolsa, followed in Santiago 20^th Civil Court, File No. 15549-2012. As of June 30, 2014, the period to show proofs has expired and probatory diligences are pending.

Santander Corredora de Seguros Limitada

In accordance with Circular No. 1,160 of the Chilean Securities and Insurance Supervisor, the Company has an insurance policy in connection with its obligations as an intermediary in insurance contracts. The company purchased a guarantee policy No. 10025805, covering UF500 and professional liability policy No. 10025806 for its insurance brokers, covering UF 60.000; from the Seguros Generales Consorcio Nacional de Seguros S.A. Policies are valid from April 15, 2014 to April 14, 2015.

ii)

There are lawsuits for UF4,911.83; which corresponds mainly to goods given in leasing. Our lawyers have estimated a loss of Ch$106.3 million. The estimated loss amount was recorded as provisions.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 84

NOTE 19

EQUITY

Capital

As of June 30, 2014 and December 31, 2013, the Bank had 188,446,126,794 shares outstanding, all of which are subscribed for and paid in full. All shares have the same rights, and have no preferences or restrictions.

The activity with respect to shares during 2014 and 2013 was as follows:

	SHARES
	As of June 30, 2014		As of December 31, 2013

Issued as of January 1		188,446,126,794		188,446,126,794
Issuance of paid shares		-		-
Issuance of outstanding shares		-		-
Stock options exercised		-		-
Issued as period end		188,446,126,794		188,446,126,794

As of June 30, 2014 and December 31, 2013 the Bank does not have any of its own shares in treasury, nor do any of the consolidated companies.

As of June 30, 2014 the shareholder composition is as follows:

Corporate Name or Shareholder`s Name	Shares		ADRs (*)		Total		% of equity holding

Santander Chile Holding S.A.		66,822,519,695		-		66,822,519,695		35.46
Teatinos Siglo XXI Inversiones Limitada		59,770,481,573		-		59,770,481,573		31.72
J.P. Morgan Chase Bank		-		31,745,522,471		31,745,522,471		16.85
Banks on behalf of third parties		11,568,095,274		-		11,568,095,274		6.14
AFP on behalf of third parties		10,283,158,721		-		10,283,158,721		5.46
Other minority holders		8,256,349,060		-		8,256,349,060		4.37
Total		156,700,604,323		31,745,522,471		188,446,126,794		100.00

(*)

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 85

NOTE 19

EQUITY, continued

As of December 31, 2013 the shareholder composition is as follows:

Corporate Name or Shareholder`s Name	Shares		ADRs (*)		Total		% of equity holding

Santander Chile Holding S.A.		66,822,519,695		-		66,822,519,695		35.46
Teatinos Siglo XXI Inversiones Limitada		59,770,481,573		-		59,770,481,573		31.72
J.P. Morgan Chase Bank		-		30,087,328,471		30,087,328,471		15.97
Banks on behalf of third parties		11,590,917,506		-		11,590,917,506		6.15
AFP on behalf of third parties		10,533,224,876		-		10,533,224,876		5.59
Other minority holders		9,641,654,673		-		9,641,654,673		5.11
Total		158,358,798,323		30,087,328,471		188,446,126,794		100.00

(*)

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

Dividends

The distribution of dividends is detailed in the chart of the Consolidated Interim Statements of Changes in Equity of the period.

As of June 30, 2014 and 2013, the composition of diluted earnings and basic earnings were as follows:

	As of June 30,
	2014		2013
	MCh$		MCh$

a) Basic earnings per share
Total attributable to Bank`s shareholders		301,459		166,771
Weighted average number of outstanding shares		188,446,126,794		188,446,126,794
Basic earnings per share (in Ch$)		1.600		0.885

b) Diluted earnings per share
Total attributable to Bank`s shareholders		301,459		166,771
Weighted average number of outstanding shares		188,446,126,794		188,446,126,794
Assumed conversion of convertible debt		-		-
Adjusted number of shares		188,446,126,794		188,446,126,794
Diluted earnings per share (in Ch$)		1.600		0.885

As of June 30, 2013 and 2013, the Bank does not own instruments with dilutive effect.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 86

NOTE

EQUITY, continued

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

	As of June 30,			As of June 30,
	2014			2013
	MCh$			MCh$

Available for sale investments
As of January 1,		840			(10,017	)
Gain (loss) on the re-measurement of available for sale investments, before tax		12,183			4,683
Reclassification adjustments on available for sale investments, before tax		-			-
Reclassification from other comprehensive income to income for the year		1,301			4,923
Subtotals		13,484			9,606
Total		14,324			(411	)

Cash flow hedges
As of January 1,		(8,257	)		5,315
Gains (losses) on the re-measurement of cash flow hedges, before tax		2,006			(8,320	)
Reclassification adjustments on cash flow hedges, before tax		430			734
Amounts removed from equity and included in carrying amount of non-financial asset (liability) which acquisition or incurrence was hedged as a highly probable transaction		-
Subtotals		2,436			(7,586	)
Total		(5,821	)		(2,271	)

Other comprehensive income, before tax		8,503			(2,682	)

Income tax related to other comprehensive income components
Income tax relating to available for sale investments		(2,865	)		82
Income tax relating to cash flow hedges		1,164			454
Total		(1,701	)		536

Other comprehensive income, net of tax		6,802			(2,146	)
Attributable to:
Bank shareholders (Equity holders of the Bank)		6,785			(2,170	)
Non-controlling interest		17			24

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 87

NOTE 20

CAPITAL REQUIREMENTS (BASEL)

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

Assets are allocated to different risk categories, each of which is assigned a weighting percentage according to the amount of capital required to be held for each type of asset. For example, cash, deposits in banks and financial instruments issued by the Central Bank of Chile have a 0% risk weighting, meaning that it is not necessary to hold equity to back these assets according to current regulations. Property, plant and equipment have a 100% risk weighting, meaning that a minimum capital equivalent to 11% of these assets must be held. All derivatives traded off the exchanges are also assigned a risk weighting, using a conversion factor applied to their notional values, to determine the amount of their exposure to credit risk. Off-balance-sheet contingent credits are also included for weighting purposes, as “Credit equivalents.”

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

Type of contingent loan	Exposure

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 88

NOTE 20

CAPITAL REQUIREMENTS (BASEL), Continued

The levels of basic capital and effective net equity as of June 30, 2014 and December 31, 2013, are as follows:

	Consolidated assets				Risk-weighted assets
	As of June 30,		As of December 31,		As of June 30,		As of December 31,
	2014		2013		2014		2013
	MCh$		MCh$		MCh$		MCh$

Balance-sheet assets (net of allowances)
Cash and deposits in banks		1,074,727		1,571,810		-		-
Cash in process of collection		674,079		604,077		132,374		66,672
Trading investments		642,085		287,567		84,805		40,924
Investments under resale agreements		-		17,469		-		3,494
Financial derivative contracts (*)		1,001,833		1,008,026		859,440		862,810
Interbank loans, net		97,764		125,395		19,553		25,079
Loans and accounts receivables from customers, net		21,141,651		20,327,021		18,723,199		18,071,792
Available for sale investments		1,327,202		1,700,993		157,358		238,835
Investments in associates and other companies		16,631		9,681		16,631		9,681
Intangible assets		59,458		66,703		59,458		66,703
Property, plant, and equipment		179,616		180,215		179,616		180,215
Current taxes		22,943		1,643		2,294		164
Deferred taxes		195,746		230,215		19,575		23,022
Other assets		313,457		400,025		313,457		346,533
Off-balance-sheet assets
Contingent loans		3,575,614		3,436,773		2,066,471		2,013,057
Total		30,322,806		29,967,613		22,634,231		21,948,981

(*)

“Financial derivative contracts” are presented at their “Credit Equivalent Risk” value as established in Chapter 12-1 of the Updated Compilation of Ruled issued by the SBIF.

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

					Ratio
	As of June 30,		As of December 31,		As of June 30,		As of December 31,
	2014		2013		2014		2013
	MCh$		MCh$		%		%

Basic capital		2,416,870		2,325,678		7.97		7.76
Effective net equity		3,143,327		3,033,741		13.89		13.82

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 89

NOTE 21

NON-CONTROLLING INTEREST

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

The non-controlling interest in the subsidiaries and the entities controlled through other considerations is summarized as follows:

									Other comprehensive income
	Non- controlling		Equity			Income			Available for sale investments			Deferred tax		Total other comprehensive income			Comprehensive income
As of June 30, 2014	%		MCh$			MCh$			MCh$			MCh$		MCh$			MCh$

Subsidiaries:
Santander Agente de Valores Limitada		0.97		516			45			(1	)		-		(1	)		44
Santander S.A. Sociedad Securitizadora		0.36		2			-			-			-		-			-
Santander S.A. Corredores de Bolsa		49.00		20,237			545			(15	)		3		(12	)		533
Santander Corredora de Seguros Limitada		0.25		151			(2	)		-			-		-			(2	)
Subtotals				20,906			588			(16	)		3		(13	)		575

Entities controlled through other considerations:
Bansa Santander S.A.		100.00		3,218			(217	)		-			-		-			(217	)
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		(779	)		(1,054	)		-			-		-			(1,054	)
Multinegocios S.A		100.00		596			119			-			-		-			119
Servicios Administrativos y Financieros Limitada		100.00		1,834			148			-			-		-			148
Servicios de Cobranzas Fiscalex Limitada		100.00		907			275			-			-		-			275
Multiservicios de Negocios Limitada		100.00		1,854			175			-			-		-			175
Subtotals				7,630			(554	)		-			-		-			(554	)

Total				28,536			34			(16	)		3		(13	)		21

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 90

NOTE 21

NON-CONTROLLING INTEREST, continued

								Other comprehensive income
	Non- controlling		Equity		Income			Available for sale investments		Deferred tax			Total other comprehensive income		Comprehensive income
As of June 30, 2013	%		MCh$		MCh$			MCh$		MCh$			MCh$		MCh$

Subsidiaries:
Santander Agente de Valores Limitada		0.97		701		46			2		-			2		48
Santander S.A. Sociedad Securitizadora		0.36		3		-			-		-			-		-
Santander S.A. Corredores de Bolsa		49.00		19,113		1,063			5		(1	)		4		1,067
Santander Asset Management S.A. Administradora General de Fondos(*)		0.02		4		2			-		-			-		2
Santander Corredora de Seguros Limitada		0.25		147		2			-		-			-		2
Subtotals				19,968		1,113			7		(1	)		6		1,119

Entities controlled through other considerations:
Bansa Santander S.A.		100.00		2,503		375			-		-			-		375
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		1,275		(1,230	)		-		-			-		(1,230	)
Multinegocios S.A		100.00		362		119			-		-			-		119
Servicios Administrativos y Financieros Limitada		100.00		1,541		130			-		-			-		130
Servicios de Cobranzas Fiscalex Limitada		100.00		341		125			-		-			-		125
Multiservicios de Negocios Limitada		100.00		1,479		179			-		-			-		179
Subtotals				7,501		(302	)		-		-			-		(302	)

Total				27,469		811			7		(1	)		6		817

(*) Santander assets Management S.A. Administradora General de Fondos was sold in November of 2013.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 91

NOTE 21

NON-CONTROLLING INTEREST, continued

						Other comprehensive income
For the three months ended June 30,	Non- controlling		Income			Available for sale investments			Deferred tax		Total other comprehensive income			Comprehensive income
2014	%		MCh$			MCh$			MCh$		MCh$			MCh$

Subsidiaries:
Santander Agente de Valores Limitada		0.97		22			(1	)		-		(1	)		21
Santander S.A. Sociedad Securitizadora		0.36		-			-			-		-			-
Santander S.A. Corredores de Bolsa		49.00		261			1			-		1			262
Santander Corredora de Seguros Limitada		0.25		(1	)		-			-		-			(1	)
Subtotals				282			-			-		-			282

Entities controlled through other considerations:
Bansa Santander S.A.		100.00		(66	)		-			-		-			(66	)
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		(901	)		-			-		-			(901	)
Multinegocios S.A		100.00		66			-			-		-			66
Servicios Administrativos y Financieros Limitada		100.00		75			-			-		-			75
Servicios de Cobranzas Fiscalex Limitada		100.00		156			-			-		-			156
Multiservicios de Negocios Limitada		100.00		78			-			-		-			78
Subtotals				(592	)		-			-		-			(592	)

Total				(310	)		-			-		-			(310	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 92

NOTE 21

NON-CONTROLLING INTEREST, continued

						Other comprehensive income
For the three months ended June 30,	Non- controlling		Income			Available for sale investments			Deferred tax		Total other comprehensive income			Comprehensive income
2013	%		MCh$			MCh$			MCh$		MCh$			MCh$

Subsidiaries:
Santander Agente de Valores Limitada		0.97		25			2			-		2			27
Santander S.A. Sociedad Securitizadora		0.36		-			-			-		-			-
Santander S.A. Corredores de Bolsa		49.00		565			(8	)		2		(6	)		559
Santander Asset Management S.A. Administradora General de Fondos		0.02		1			-			-		-			1
Santander Corredora de Seguros Limitada		0.24		1			-			-		-			1
Subtotals				592			(6	)		2		(4	)		588

Entities controlled through other considerations:
Bansa Santander S.A.		100.00		53			-			-		-			53
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		(723	)		-			-		-			(723	)
Multinegocios S.A		100.00		64			-			-		-			64
Servicios Administrativos y Financieros Limitada		100.00		68			-			-		-			68
Servicios de Cobranzas Fiscalex Limitada		100.00		101			-			-		-			101
Multiservicios de Negocios Limitada		100.00		90			-			-		-			90
Subtotals				(347	)		-			-		-			(347	)

Total				245			(6	)		2		(4	)		241

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 93

NOTE 21

NON-CONTROLLING INTEREST, continued

The overview of the financial information of the subsidiaries included in the consolidation of the Bank that possess non-controlling interests is as follows, which does not include consolidation or conforming adjustments:

	As of June 30,									As of December 31,
	2014									2013
							Net									Net
	Assets		Liabilities		Capital		Income			Assets		Liabilities		Capital		Income
	MCh$		MCh$		MCh$		MCh$			MCh$		MCh$		MCh$		MCh$
Santander Corredora de Seguros Limitada		68,024		7,617		61,315		(908	)		67,956		8,484		59,012		460
Santander S.A. Corredores de Bolsa		90,774		49,565		40,119		1,090			110,917		70,799		36,735		3,383
Santander Agente de Valores Limitada		172,721		119,521		48,558		4,642			194,812		146,255		39,581		8,976
Santander S.A. Sociedad Securitizadora		674		67		651		(44	)		725		74		764		(113	)
Santander Gestión de Recaudación y Cobranzas Ltda.		3,332		4,111		275		(1,054	)		4,978		4,703		2,505		(2,230	)
Multinegocios S.A.		1,546		950		477		119			1,441		963		244		234
Servicios Administrativos y Financieros Ltda.		2,523		689		1,686		148			2,412		725		1,411		276
Servicio de Cobranza Fixcalex Ltda.		2,563		1,656		632		275			4,008		3,376		216		416
Multiservicios de Negocios Ltda.		3,149		1,296		1,679		174			3,049		1,371		1,299		379
Bansa Santander S.A.		28,531		25,314		3,435		(218	)		28,490		25,055		2,128		1,307
Total		373,837		210,786		158,827		4,224			418,788		261,805		143,895		13,088

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 94

NOTE 22

INTEREST INCOME AND INFLAXION-INDEXING ADJUSTMENTS

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

For the periods ended June 30, 2014 and 2013, the composition of income from interest and inflation-indexing adjustments, not including income from hedge accounting, is as follows:

	For the three months ended June 30,
	2014								2013
	Interest		Inflation- indexing adjustments		Prepaid fees		Total		Interest		Inflation- indexing adjustments			Prepaid fees		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$			MCh$		MCh$

Repurchase agreements		335		-		-		335		440		-			-		440
Interbank loans		76		-		-		76		142		-			-		142
Commercial loans		176,757		64,616		2,729		244,102		181,762		(2,080	)		1,297		180,979
Mortgage loans		61,360		101,776		4,370		167,506		57,785		(3,249	)		3,107		57,643
Consumer loans		151,562		1,607		785		153,954		153,688		50			802		154,540
Investment instruments		13,360		8,403		-		21,763		18,623		(422	)		-		18,201
Other interest income		2,995		1,043		-		4,038		925		(320	)		-		605

Interest income		406,445		177,445		7,884		591,774		413,365		(6,021	)		5,206		412,550

	For the six months ended June 30,
	2014								2013
	Interest		Inflation- indexing adjustments		Prepaid fees		Total		Interest		Inflation- indexing adjustments			Prepaid fees		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$			MCh$		MCh$

Resale agreements		682		-		-		682		817		-			-		817
Interbank loans		83		-		-		83		153		-			-		153
Commercial loans		357,275		110,955		4,128		472,358		359,980		2,633			2,466		365,079
Mortgage loans		120,824		172,568		8,524		301,916		114,564		3,514			5,982		124,060
Consumer loans		301,089		2,799		1,445		305,333		304,405		255			1,448		306,108
Investment instruments		30,998		15,194		-		46,192		41,440		(354	)		-		41,086
Other interest income		5,273		1,160		-		6,433		1,937		(1,277	)		-		660

Interest income		816,224		302,676		14,097		1,132,997		823,296		4,771			9,896		837,963

As indicated in section i) of Note 01, suspended interests correspond to operations with late payments up to 90 days or more, which are recorded in off-balance sheet accounts until they are effectively received.

For the periods ended June 30, 2013 and 2014, the composition of suspended interest and adjustments income is as follows:

	As of June 30,
	2014						2013
	Interest		Inflation- indexing adjustments		Total		Interest		Inflation- indexing adjustments		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Commercial loans		17,204		7,089		24,293		17,415		2,788		20,203
Mortgage loans		3,971		7,256		11,227		4,120		3,194		7,314
Consumer loans		5,271		851		6,122		5,846		703		6,549

Total		26,446		15,196		41,642		27,381		6,685		34,066

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 95

NOTE 22

INTEREST INCOME AND INFLAXION-INDEXING ADJUSTMENTS, continued

For the periods ended June 30 , 2014 and 2013, the composition of expense from interest and inflation-indexing adjustments, excluding expense from hedge accounting is as follows:

	For the three months ended June 30,
	2014									2013
	Interest			Inflation- indexing adjustments			Total			Interest			Inflation- indexing adjustments			Total
Items	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Demand deposits		(1,342	)		(611	)		(1,953	)		(925	)		22			(903	)
Repurchase agreements		(1,614	)		-			(1,614	)		(2,615	)		-			(2,615	)
Time deposits and liabilities		(78,466	)		(23,320	)		(101,786	)		(107,593	)		148			(107,445	)
Interbank borrowings		(5,214	)		(3	)		(5,217	)		(5,300	)		-			(5,300	)
Issued debt instruments		(43,364	)		(43,088	)		(86,452	)		(42,580	)		1,905			(40,675	)
Other financial liabilities		(781	)		(555	)		(1,336	)		(1,185	)		24			(1,161	)
Other interest expense		(631	)		(4,742	)		(5,373	)		(590	)		(109	)		(699	)
Interest expense total		(131,412	)		(72,319	)		(203,731	)		(160,788	)		1,990			(158,798	)

	For the six months ended June 30,
	2014									2013
	Interest			Inflation- indexing adjustments			Total			Interest			Inflation- indexing adjustments			Total
Items	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Demand deposits		(2,966	)		(1,052	)		(4,018	)		(2,436	)		(11	)		(2,447	)
Repurchase agreements		(3,512	)		-			(3,512	)		(4,991	)		-			(4,991	)
Time deposits and liabilities		(172,348	)		(37,694	)		(210,042	)		(217,944	)		(1,011	)		(218,955	)
Interbank borrowings		(9,884	)		(5	)		(9,889	)		(11,184	)		-			(11,184	)
Issued debt instruments		(87,603	)		(77,147	)		(164,750	)		(83,938	)		(1,236	)		(85,174	)
Other financial liabilities		(1,555	)		(959	)		(2,514	)		(2,368	)		(18	)		(2,386	)
Other interest expense		(1,259	)		(8,073	)		(9,332	)		(1,165	)		(125	)		(1,290	)
Interest expense total		(279,127	)		(124,930	)		(404,057	)		(324,026	)		(2,401	)		(326,427	)

For the periods ended June 30, 2014 and 2013, the overview of interest and inflation-indexing adjustments is as follows:

	For the three months ended						For the six months ended
	2014			2013			2014			2013
Items	MCh$			MCh$			MCh$			MCh$

Interest income		591,774			412,550			1,132,997			837,963
Interest expense		(203,731	)		(158,798	)		(404,057	)		(326,427	)

Interest income		388,043			253,752			728,940			511,536

Income from hedge accounting, net		(40,004	)		(5,085	)		(67,408	)		(16,388	)

Total net interest income		348,039			248,667			661,532			495,148

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 96

NOTE 23

FEES AND COMMISSIONS

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

	For the three months ended June 30,				For the six months ended June 30,
	2014		2013		2014		2013
	MCh$		MCh$		MCh$		MCh$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		1,748		1,728		3,470		3,719
Fees and commissions for guarantees and letters of credit		7,596		7,624		15,537		15,032
Fees and commissions for card services		35,929		31,207		71,975		63,857
Fees and commissions for management of accounts		7,219		6,948		14,325		14,076
Fees and commissions for collections and payments		8,568		11,471		18,873		22,804
Fees and commissions for intermediation and management of securities		2,040		2,799		4,331		5,786
Fees and commissions for investments in mutual funds or others (*)		-		8,540		-		16,930
Insurance brokerage fees		8,530		8,081		16,647		15,369
Office banking		183		3,850		4,350		7,339
Other fees earned		16,943		3,748		29,929		8,624
Total		88,756		85,996		179,437		173,536

(*) Due to the sale of Santander Asset Management S.A. Administradora General de Fondos, the Bank does not have any fees and commissions for investments in mutual funds recorded.

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	MCh$			MCh$			MCh$			MCh$

Fee and commission expense
Compensation for card operation		(24,594	)		(21,430	)		(50,580	)		(42,434	)
Fees and commissions for securities transactions		(231	)		(1,152	)		(506	)		(2,343	)
Office banking and other fees		(8,116	)		(5,270	)		(16,772	)		(9,994	)
Total		(32,941	)		(27,852	)		(67,858	)		(54,771	)

Net fees and commissions income		55,815			58,144			111,579			118,765

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

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 97

NOTE 24

OTHER INCOME FROM FINANCIAL OPERATIONS

This item includes adjustments for changes in financial instruments, except for interest attributable to the application of the effective interest rate method for adjustments to asset values, as well as the income earned in purchases and sales of financial instruments.

For the periods ended June 30, 2014 and 2013, the detail of income from financial operations is as follows:

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	MCh$			MCh$			MCh$			MCh$

Net income from financial operations
Trading derivatives		(122,825	)		(825	)		(109,965	)		(27,970	)
Trading investments		12,731			7,531			23,705			16,772
Sale of loans and accounts receivables from customers
Current portfolio		-			(3	)		-			(86	)
Charged-off portfolio		4,898			(41	)		4,928			17
Available for sale investments		1,639			5,361			2,205			6,434
Repurchase of issued bonds		(1	)		-			5,199			-
Other profit and loss from financial operations		(25	)		3,016			(113	)		2,999
Total		(103,583	)		15,039			(74,041	)		(1,834	)

NOTE 25

NET FOREIGN EXCHANGE INCOME

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

For the periods ended June 30, 2014 and 2013, the detail of foreign exchange income is as follows:

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	MCh$			MCh$			MCh$			MCh$

Net foreign exchange gain (loss)
Net profit (loss) from currency exchange differences		(21,405	)		(135,872	)		(152,205	)		(71,954	)
Hedging derivatives		154,937			149,037			284,443			125,267
Income from inflation-indexed assets in foreign currency		167			5,761			5,337			4,642
Income from inflation-indexed liabilities in foreign currency		(54	)		(712	)		(500	)		(606	)
Total		133,645			18,214			137,075			57,349

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 98

NOTE 26

PROVISIONS FOR LOAN LOSSES

The 2014 and 2013 activity within income for provisions for loan losses is as follows:

				Loans and accounts receivable from customers
	Interbank			Commercial						Mortgage			Consumer
	loans			loans						loans			loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
For the three months ended June 30, 2014	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off loans, net of provisions:		-			(2,140	)		(18,301	)		(2,423	)		(21,513	)		-			-			(44,377	)
Provisions established		(36	)		(17,552	)		(8,982	)		(3,841	)		(31,264	)		(486	)		(662	)		(62,823	)
Total provisions and charge-offs		(36	)		(19,692	)		(27,283	)		(6,264	)		(52,777	)		(486	)		(662	)		(107,200	)
Provisions released		9			2,089			1,611			1,922			1,635			1,192			296			8,754
Recovery of loans previously charged-off		-			883			2,935			1,260			9,332			-			-			14,410
Net charge to income		(27	)		(16,720	)		(22,737	)		(3,082	)		(41,810	)		706			(366	)		(84,036	)

				Loans and accounts receivable from customers
	Interbank			Commercial						Mortgage			Consumer
	loans			loans						loans			loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
For the six months ended June 30, 2014	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off loans, net of provisions:		-			(4,729	)		(33,751	)		(4,432	)		(43,388	)		-			-			(86,300	)
Provisions established		(36	)		(35,610	)		(18,609	)		(6,671	)		(64,604	)		(1,076	)		(1,366	)		(127,972	)
Total provisions and charge-offs		(36	)		(40,339	)		(52,360	)		(11,103	)		(107,992	)		(1,076	)		(1,366	)		(214,272	)
Provisions released		54			4,643			5,095			2,791			3,348			3,110			1,132			20,173
Recovery of loans previously charged-off		-			1,623			5,272			2,502			19,432			-			-			28,829
Net charge to income		18			(34,073	)		(41,993	)		(5,810	)		(85,212	)		2,034			(234	)		(165,270	)

				Loans and accounts receivable from customers
	Interbank loans			Commercial loans						Mortgage loans			Consumer loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
For the three months ended June 30, 2013	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off loans, net of provisions:		-			(1,385	)		(14,958	)		(5,825	)		(27,685	)		-			-			(49,853	)
Provisions established		(22	)		(21,385	)		(6,180	)		(8,564	)		(50,221	)		(546	)		(1,056	)		(87,974	)
Total provisions and charge-offs		(22	)		(22,770	)		(21,138	)		(14,389	)		(77,906	)		(546	)		(1,056	)		(137,827	)
Provisions released		21			5,631			3,893			4,433			20,733			994			1,110			36,815
Recovery of loans previously charged-off		-			1,190			2,163			930			10,074			-			-			14,357
Net charge to income		(1	)		(15,949	)		(15,082	)		(9,026	)		(47,099	)		448			54			(86,655	)

				Loans and accounts receivable from customers
	Interbank loans			Commercial loans						Mortgage loans			Consumer loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
For the six months ended June 30, 2013	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off loans, net of provisions:		-			(2,452	)		(28,438	)		(10,023	)		(59,839	)		-			-			(100,752	)
Provisions established		(72	)		(34,296	)		(16,039	)		(14,511	)		(90,151	)		(2,425	)		(1,394	)		(158,888	)
Total provisions and charge-offs		(72	)		(36,748	)		(44,477	)		(24,534	)		(149,990	)		(2,425	)		(1,394	)		(259,640	)
Provisions released		37			11,031			5,914			6,691			27,308			1,324			2,914			55,219
Recovery of loans previously charged-off		-			1,739			4,233			1,896			17,040			-			-			24,908
Net charge to income		(35	)		(23,978	)		(34,330	)		(15,947	)		(105,642	)		(1,101	)		1,520			(179,513	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 99

NOTE 26

PROVISIONS FOR LOAN LOSSES, continued

b) Charged-off, net of provisions:

	Loans and accounts receivable from customers
	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
As of June 30, 2014	MCh$			MCh$			MCh$			MCh$			MCh$
Charge-off loans		17,395			43,949			5,769			94,462			161,575
Provisions used		(12,666	)		(10,198	)		(1,337	)		(51,074	)		(75,275	)
Charged-off loans, net of provisions		4,729			33,751			4,432			43,388			86,300

	Loans and accounts receivables from customers
	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
As of June 30, 2013	MCh$			MCh$			MCh$			MCh$			MCh$
Charge-off loans		8,968			39,032			12,303			129,841			190,144
Provisions used		(6,516	)		(10,594	)		(2,280	)		(70,002	)		(89,392	)
Charged-off loans, net of provisions		2,452			28,438			10,023			59,839			100,752

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 100

NOTE 27

PERSONNEL SALARIES AND EXPENSES

Composition of personnel salaries and expenses:

	For the three months ended June 30,					For the six months ended June 30,
	2014		2013			2014		2013
	MCh$		MCh$			MCh$		MCh$

Personnel compensation		55,866		50,974			100,964		94,860
Bonuses or gratifications		18,770		16,517			36,714		32,939
Stock-based benefits		163		326			328		380
Senior compensation		2,273		2,552			4,302		4,915
Pension plans (*)		166		(129	)		359		33
Training expenses		685		602			1,218		1,145
Day care and kindergarten		562		696			1,291		1,351
Health funds		1,159		942			2,170		1,761
Other personnel expenses		7,205		7,314			14,170		13,943
Total		86,849		79,794			161,516		151,327

(*)

Some of the executives that qualified for this benefit left the Group for different reasons, without complying with the requirements to use the benefit, therefore the obligation amount decreased, which generated an income for the reversal of provisions.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 101

NOTE 28

ADMINISTRATIVE EXPENSES

For the periods ended June 30, 2014 and 2013, the composition of the item is as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2014			2013		2014		2013
	MCh$			MCh$		MCh$		MCh$

General administrative expenses		30,367			29,897		60,334		58,701
Maintenance and repair of property, plant and equipment		4,100			3,760		7,908		7,846
Office lease		6,787			6,794		13,430		13,520
Equipment lease		20			83		46		108
Insurance payments		824			792		1,636		1,603
Office supplies		1,125			1,192		2,257		2,092
IT and communication expenses		7,823			7,121		15,457		13,605
Lighting, heating, and other utilities		1,046			1,030		2,090		2,000
Security and valuables transport services		3,822			4,586		8,004		8,674
Representation and personnel travel expenses		1,065			1,227		2,160		2,522
Judicial and notarial expenses		621			450		1,101		804
Fees for technical reports and auditing		1,580			1,578		3,019		3,144
Other general administrative expenses		1,554			1,284		3,226		2,783
Outsourced services		13,591			10,372		26,522		21,315
Data processing		8,125			6,387		15,829		13,111
Products sale		307			485		850		804
Archive service		1,492			16		2,568		727
Valuation service		588			541		1,028		870
Outsourcing		1,357			1,046		2,886		2,468
Other		1,722			1,897		3,361		3,335
Board expenses		311			272		614		544
Marketing expenses		4,631			3,772		8,249		7,005
Taxes, payroll taxes, and contributions		2,582			2,449		5,190		5,057
Real estate taxes		311			229		615		601
Patents		397			468		815		945
Other taxes		(1	)		3		10		4
Contributions to SBIF		1,875			1,749		3,750		3,507
Total		51,482			46,762		100,909		92,622

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 102

NOTE 29

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

The values of depreciation, amortization and impairment charges during the first semester 2014 and 2013 are detailed below:

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	MCh$			MCh$			MCh$			MCh$

Depreciation and amortization
Depreciation of property, plant, and equipment		(7,251	)		(5,533	)		(13,185	)		(10,858	)
Amortizations of intangible assets		(7,867	)		(9,728	)		(15,400	)		(20,056	)
Total depreciation and amortization		(15,118	)		(15,261	)		(28,585	)		(30,914	)
Impairment of property, plant, and equipment		(16	)		(146	)		(29	)		(173	)
Total		(15,134	)		(15,407	)		(28,614	)		(31,087	)

As of June 30, 2014, the costs for property, plant and equipment impairment totaled Ch$29 million, mainly due to damages to ATMs (Ch$173 million as of June 30, 2013)

The reconciliation between the book values and balances as of June 30, 2014 and 2013 is as follows:

	Depreciation and amortization
	2014
	Property, plant, and equipment			Intangible assets			Total
	MCh$			MCh$			MCh$

Balances as of January 1, 2014		(127,448	)		(185,275	)		(312,723	)
Depreciation and amortization charges in the period		(13,185	)		(15,400	)		(28,585	)
Sales and disposals in the period		16			-			16
Other		-			-			-
Balances as of June 30, 2014		(140,617	)		(200,675	)		(341,292	)

	Depreciation and amortization
	2013
	Property, plant, and equipment			Intangible assets			Total
	MCh$			MCh$			MCh$

Balances as of January 1, 2013		(105,150	)		(146,653	)		(251,803	)
Depreciation and amortization charges in the period		(10,858	)		(20,056	)		(30,914	)
Sales and disposals in the period		17			-			17
Other		-			-			-
Balances as of June 30, 2013		(115,991	)		(166,709	)		(282,700	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 103

NOTE 30

OTHER OPERATING INCOME AND EXPENSES

Other operating expenses are comprised of the following componenets:

	For the three months ended June 30,				For the six months ended June 30,
	2014		2013		2014		2013
	MCh$		MCh$		MCh$		MCh$

Income from assets received in lieu of payment
Income from sale of assets received in lieu of payment		926		1,831		1,535		3,375
Recovery of charge-offs and income from assets received in lieu of payment		1,906		4,340		5,986		7,053
Subtotal		2,832		6,171		7,521		10,428
Income from the sale of participation in companies
Income from the sale of participation in companies		-		-		-		-
Subtotal		-		-		-		-
Other income
Leases		252		33		432		59
Income from sale of property, plant and equipment		36		65		123		174
Recovery of provisions for contingencies		160		-		386		-
Compensation from insurance companies due to damages		181		393		421		466
Other		24		526		112		630
Subtotal		653		1,017		1,474		1,329

Total		3,485		7,188		8,995		11,757

Other operating expenses are detailed as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2014		2013			2014		2013
	MCh$		MCh$			MCh$		MCh$
Allowances and expenses for assets received in lieu of payment
Charge-offs of assets received in lieu of payment		846		2,264			1,803		4,033
Provisions on assets received in lieu of payment		1,072		501			2,590		1,300
Expenses for maintenance of assets received in lieu of payment		574		616			1,240		1,213
Subtotal		2,492		3,381			5,633		6,546

Credit card expenses		652		612			1,305		1,076

Customer services		2,533		3,547			5,013		5,556

Other expenses
Operating charge-offs		1,317		1,935			3,366		3,163
Life insurance and general product insurance policies		2,114		1,860			4,336		3,565
Additional tax on expenses paid overseas		745		750			1,502		1,440
Expenses from sale of property, plant and equipment		2		-			2		-
Provisions for contingencies		4,225		(1,219	)		8,644		525
Expense for adopting chip technology on cards		258		(223	)		502		-
Other		1,729		2,228			6,643		3,802
Subtotal		10,390		5,331			24,995		12,495

Total		16,067		12,871			36,946		25,673

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 104

NOTE 31

TRANSACTIONS WITH RELATED PARTIES

In addition to Affiliates and associated entities, the Bank’s “related parties” include its “key personnel” from the 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, given that all of them have a common parent, i.e., Banco Santander S.A. (located in Spain).

Article 89 of the Ley de Sociedades Anónimas (Public Companies Act), which is also applicable to banks, provides that any transaction with a related party must be made under equitable conditions similar to those that customarily prevail in the market.

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

Transactions between the Bank and its related parties are specified below. 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 1 to 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 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.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 105

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

Loans to related parties

Below are loans and receivables as will as contingent loans that correspond to related entities:

	As of June 30,												As of December 31,
	2014												2013
	Companies of the Group			Associated Companies			Key personnel			Other			Companies of the Group			Associated Companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Loans and accounts receivables:
Commercial loans		46,582			682			3,227			36,289			47,305			618			4,022			51,141
Mortgage loans		-			-			17,981			-			-			-			15,561			-
Consumer loans		-			-			1,925			-			-			-			2,061			-
Loans and account receivables:		46,582			682			23,133			36,289			47,305			618			21,644			51,141

Allowance for loan losses		(250	)		(4	)		(39	)		(10	)		(238	)		(3	)		(44	)		(6	)
Net loans		46,332			678			23,094			36,279			47,067			615			21,600			51,135

Guarantees		-			-			-			-			124,420			-			19,237			2,326

Contingent loans
Personal guarantees		-			-			-			-			-			-			-			-
Letters of credit		27,619			-			-			-			30,714			-			-			-
Guarantees		258,136			-			-			5,658			172,274			-			-			9,989
Contingent loans		285,755			-			-			5,658			202,988			-			-			9,989

Allowance for contingent loans		(7	)		-			-			(2	)		(22	)		-			-			(4	)

Net contingent loans		285,748			-			-			5,656			202,966			-			-			9,985

Loans activity to related parties during the period 2014 and 2013 is shown below:

	As of June 30,												As of December 31,
	2014												2013
	Companies of the Group			Associated Companies			Key personnel			Other			Companies of the Group			Associated Companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Balances as of January 1,		250,293			618			21,644			61,130			107,384			668			19,512			59,166
Loans granted		158,147			90			4,474			6,379			161,763			377			7,313			14,858
Loans payments		(76,103	)		(26	)		(2,985	)		(25,562	)		(18,854	)		(427	)		(5,181	)		(12,894	)

Total		332,337			682			23,133			41,947			250,293			618			21,644			61,130

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 106

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

Assets and liabilities with related parties

	As of June 30,								As of December 31,
	2014								2013
	Companies of the Group		Associated Companies		Key personnel		Other		Companies of the Group		Associated Companies		Key personnel		Other
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		8,378		-		-		-		5,306		-		-		-
Trading investments		-		-		-		-		-		-		-		-
Investments under resale agreements		-		-		-		-		-		-		-		-
Financial derivative contracts		779,901		-		-		-		557,026		-		-		-
Available for sale investments		-		-		-		-		-		-		-		-
Other assets		2,648		-		-		-		2,460		-		-		-

Liabilities
Deposits and other demand liabilities		20,627		19,197		3,151		9,392		58,030		10,406		2,783		23,300
Obligations under repurchase agreements		22,383		-		-		-		59,703		-		-		-
Time deposits and other time liabilities		97,625		344		3,360		47,112		54,212		299		3,774		156,977
Financial derivative contracts		873,219		-		-		-		537,162		-		-		-
Issued debs instruments		130,014		-		-		-		96,872		-		-		-
Other financial liabilities		3,435		-		-		-		3,912		-		-		-
Other liabilities		609		-		-		-		462		-		-		-

Income (expenses) recorded due to transactions with related parties

	For the three months ended June 30,
	2014												2013
	Companies of the Group			Associated Companies			Key personnel			Other			Companies of the Group			Associated Companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Income (expense) recorded
Income and expenses from interest and inflation		226			18			578			(680	)		(2,159	)		23			164			(418	)
Income and expenses from fees and services		7,533			26			97			57			-			21			27			46
Net income from financial operations and foreign exchange transactions (*)		56,295			-			17			1,582			(77,697	)		-			123			729
Other operating income and expenses		291			-			-			-			178			-			-			-
Key personnel compensation and expenses		-			-			(8,437	)		-			-			-			(7,864	)		-
Administrative and other expenses		(7,972	)		(8,484	)		-			-			(6,417	)		(7,855	)		-			-

Total		56,373			(8,440	)		(7,745	)		959			(86,095	)		(7,811	)		(7,550	)		357

(*)

Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 107

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

	For the six months ended June 30,
	2014												2013
	Companies of the Group			Associated Companies			Key personnel			Other			Companies of the Group			Associated Companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Income (expense) recorded
Income and expenses from interest and inflation		113			28			939			(2,067	)		(4,399	)		35			353			(1,200	)
Income and expenses from fees and services		13,952			43			129			108			-			36			65			99
Net income from financial operations and foreign exchange transactions (*)		21,285			-			35			(142	)		26,996			-			121			1,390
Other operating income and expenses		573			-			-			-			353			-			-			-
Key personnel compensation and expenses		-			-			(16,365	)		-			-			-			(15,592	)		-
Administrative and other expenses		(15,721	)		(16,902	)		-			-			(13,622	)		(14,596	)		-			-

Total		20,202			(16,831	)		(15,262	)		(2,101	)		9,328			(14,525	)		(15,053	)		289

(*)

Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries.

Payment to Board members and key management personnel

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

	For the three months ended June 30,					For the six months ended June 30,
	2014		2013			2014		2013
	MCh$		MCh$			MCh$		MCh$

Personnel compensation		4,314		4,239			8,453		8,556
Board member`s salaries and expenses		306		270			582		539
Bonuses or gratifications		3,224		2,913			6,091		5,646
Compensation in stock		163		326			328		380
Training expenses		30		19			40		30
Seniority compensation		16		8			134		11
Health funds		70		72			139		145
Other personnel expenses		158		146			249		252
Pension Plans (*)		156		(129	)		349		33
Total		8,437		7,864			16,365		15,592

(*)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 108

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

Composition of key personnel

As of June 30, 2014 and 2013, the composition of the Bank`s key personnel is as follows:

	No. of executives
Position	As of June 30,		As of December 31,
	2014		2013

Director		13		12
Division manager		19		16
Department manager		82		80
Manager		61		60

Total key personnel		175		168

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 109

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement of fair value assumes the transaction to sale and asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.

For financial instruments with no available market prices, fair values have been estimated by using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community. In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.

These techniques are 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.

Determination of fair value of financial instruments

Below is a comparison between the value at which the Bank’s financial assets and liabilities are recorded and their fair value as of June 30, 2014 and December 31, 2013:

	As of June 30,				As of December 31,
	2014				2013
	Amount recorded		Financial Fair value		Amount recorded		Financial Fair value
	MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		1,074,727		1,074,727		1,571,810		1,571,810
Cash items in process of collection		674,079		674,079		604,077		604,077
Trading investments		642,085		642,085		287,567		287,567
Investments under repurchase agreements		-		-		17,469		17,469
Financial derivative contracts		1,895,554		1,895,554		1,494,018		1,494,018
Loans and accounts receivable from customers and interbank loans		21,239,415		23,926,583		20,452,416		23,562,746
Available for sale investments		1,327,202		1,327,202		1,700,993		1,700,993

Liabilities
Deposits and interbank borrowings		16,700,439		16,913,518		16,978,412		16,921,614
Cash items in process of being cleared		409,175		409,175		276,379		276,379
Obligations under repurchase agreements		136,557		136,557		208,972		208,972
Financial derivative contracts		1,767,149		1,767,149		1,300,109		1,300,109
Issued debt instruments and other financial liabilities		5,681,030		6,072,918		5,388,439		5,729,213

In addition, the fair value estimates presented above do not attempt to estimate the value of the Bank’s profits generated by its business activity, nor its future activities, and accordingly, they do not represent the Bank’s value as a going concern. Below is a detail of the methods used to estimate the financial instruments’ fair value.

Cash and deposits in banks

The recorded value of cash and interbank loans approximates its estimated fair value in view of these instruments’ short-term nature.

Unsettled transactions, trading instruments, available for sale investment instruments, resale agreements, and securities loans

The estimated fair value of these financial instruments was established using market values or estimates from an available dealer, or quoted market prices of similar financial instruments. Investments with maturity in less than one year are evaluated at recorded value since, due to their short maturity term, they are considered as having a fair value not significantly different from their recorded value. To estimate the fair value of debt investments or representative values in these lines of businesses, we take into consideration additional variables and elements, as long as they apply, including the estimate of prepayment rates and credit risk of issuers.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 110

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

Loans and accounts receivable from customers and interbank loans

Fair value of commercial, mortgage and consumer loans and credit cards is measured through a discounted cash flow (DCF) analysis. To do so, we use current market interest rates considering product, term, amount and similar loan quality. Fair value of loans with 90 days or more of delinquency are measured by means of the market value of the associated guarantee, minus the rate and term of expected payment. For variable rate loans whose interest rates change frequently (monthly or quarterly) and that are not subjected to any significant credit risk change, the estimated fair value is based on their book value.

Deposits

Disclosed fair value of deposits that do not bear interest and saving accounts is the amount payable at the reporting date and, therefore, equals the recorded amount. Fair value of time deposits is calculated through a discounted cash flow calculation that applies current interest rates from a monthly calendar of scheduled maturities in the market.

Short and long term issued debt instruments

The fair value of these financial instruments is calculated by using a discounted cash flow analysis based on the current incremental lending rates for similar types of loans having similar maturities.

Financial derivative contracts

The estimated fair value of financial derivative contracts is calculated using the prices quoted on the market for financial instruments having similar characteristics.

The fair value of interest rate swaps represents the estimated amount that the Bank expects to receive or pay to rescind the contracts or agreements, bearing in mind the term structures of the interest rate curve, the underlying asset’s volatility, and the counterparty’s credit risk.

If there are no quoted prices from the market (either direct or indirect) for any derivative instrument, the respective fair value estimates have been calculated by using models and valuation techniques such as Black-Scholes, Hull, and Monte Carlo simulations, taking into consideration the relevant inputs/outputs such as volatility of options, observable correlations between underlying assets, counterparty credit risk, implicit price volatility, the velocity with which the volatility reverts to its average value, and the straight-line relationship (correlation) between the value of a market variable and its volatility, among others.

Measurement of fair value and hierarchy

IFRS 13 - Fair Value Measurement, provides a hierarchy of reasonable values which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. The three levels of the hierarchy of fair values are the following:

• Level 1: the inputs are quoted prices (unadjusted) on active markets for identical assets and liabilities that the Bank can access on the measurement date.

• Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: inputs are unobservable inputs for the asset or liability i.e. they are not based on observable market data.

The hierarchy level within which the fair value measurement is categorized in its entirety is determined based on the lowest level of input that is significant to the fair value measurement in its entirety.

The best evidence of a financial instrument’s fair value at the initial time is the transaction price (Level 1).

In cases where quoted market prices cannot be observed, Management makes its best estimate of the price that the market would set using its own internal models which in most cases use data based on observable market parameters as a significant input (Level 2) and, in very specific cases, significant inputs not observable in market data (Level 3). Various techniques are employed to make these estimates, including the extrapolation of observable market data.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 111

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

Financial instruments at fair value and determined by quotations published in active markets (Level 1) include:

Chilean Government and Department of Treasury bonds

Instruments which cannot be 100% observable in the market are valued according to other inputs observable in the market (Level 2).

The following financial instruments are classified under Level 2:

Type of financial instrument	Model used in valuation	Description
ž Mortgage and private bonds	Present Value of Cash Flows Model	Internal Rates of Return (“IRRs”) are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given nemotechnic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given nemotechnic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on historical spread for the same item or similar ones.

ž Time deposits	Present Value of Cash Flows Model	IRRs are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given nemotechnic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given nemotechnic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves.

ž Constant Maturity Swaps (CMS), FX and Inflation Forward (Fwd) , Cross Currency Swaps (CCS), Interest Rate Swap (IRS)	Present Value of Cash Flows Model	IRRs are provided by ICAP, GFI, Tradition, and Bloomberg according to this criterion: With published market prices, a valuation curve is created by the bootstrapping method and is then used to value different derivative instruments.

ž FX Options	Black-Scholes	Formula adjusted by the volatility smile (implicit volatility). Prices (volatility) are provided by BGC Partners, according to this criterion: With published market prices, a volatility surface is created by interpolation and then these volatilities are used to value options.

In limited occasions significant inputs not observable in market data are used (Level 3). To carry out this estimate, several techniques are used, including extrapolation of observable market data or a mix of observable data.

The following financial instruments are classified under Level 3:

Type of financial instrument	Model used in valuation	Description
ž Caps/ Floors/ Swaptions	Black Normal Model for Cap/Floors and Swaptions	There is no observable input of implicit volatility.

ž UF options	Black – Scholes	There is no observable input of implicit volatility.

ž 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.

ž CCS (special contracts)	Implicit Forward Rate Agreement (FRA)	Start Fwd unsupported by MUREX (platform) due to the UF forward estimate.

ž Cross currency swap, Interest rate swap, Call money swap in Tasa Activa Bancaria (Active Bank Rate) TAB,	Present Value of Cash Flows Model	Validation obtained by using the interest curve and interpolating at flow maturities, but TAB is not a directly observable variable and is not correlated to any market input.

ž Bonds (in our case, low liquidity bonds)	Present Value of Cash Flows Model	Valued by using similar instrument prices plus a charge-off rate by liquidity.

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 112

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

The following table presents the assets and liabilities that are measured at fair value on a recurrent basis, as of June 30, 2014 and December 31, 2013.

	Fair value measurement
As of June 30,	2014		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		642,085		611,666		30,419		-
Available for sale investments		1,327,202		709,111		617,200		891
Financial derivative contracts		1,895,554		-		1,846,147		49,407
Total		3,864,841		1,320,777		2,493,766		50,298

Liabilities
Financial derivative contracts		1,767,149		-		1,767,148		1
Total		1,767,149		-		1,767,148		1

	Fair value measurement
As of December 31,	2013		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		287,567		275,296		12,271		-
Available for sale investments		1,700,993		654,945		1,045,210		838
Financial derivative contracts		1,494,018		-		1,442,752		51,266
Total		3,482,578		930,241		2,500,233		52,104

Liabilities
Financial derivative contracts		1,300,109		-		1,298,690		1,419
Total		1,300,109		-		1,298,690		1,419

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, 2014 and 2013:

	Assets			Liabilities
	MCh$			MCh$

Balances as of January 1, 2014		52,104			(1,419	)

Total realized and unrealized profits (losses)
Included in statement of income		(1,828	)		1,418
Included in other comprehensive income		22			-
Purchases, issuances, and loans (net)		-			-

Balances as of June 30, 2014		50,298			(1	)

Total profits or losses included in comprehensive income for 2014 that are attributable to change in unrealized profit (losses) related to assets or liabilities as June 30, 2014		(1,806	)		1,418

	Assets			Liabilities
	MCh$			MCh$

Balances as of January 1, 2013		63,149			(1,106	)

Total realized and unrealized profits (losses)
Included in statement of income		(6,610	)		(176	)
Included in other comprehensive income		360			-
Purchases, issuances, and loans (net)		-			-

Balances as of June 30, 2013		56,899			(1,282	)

Total profits or losses included in comprehensive income for 2013 that are attributable to change in unrealized profit (losses) related to assets or liabilities as June 30, 2013		(6,250	)		(176	)

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 113

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

The realized and unrealized profits (losses) included in comprehensive income for 2014 and 2013, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the Consolidated Interim Statement of Comprehensive Income in the associate line item.

The potential effect as of June 30, 2014 and 2013 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant entries (level 3), generated by changes in the principal assumptions if other reasonably possible assumptions that are less or more favorable were used, is not considered by the Bank to be significant.

The following sheet shows the financial instruments subject to offsetting according to IAS 32:

							As of June 30, 2014
	Linked financial instruments subject to offsetting						Linked financial instruments not subject to offsetting						Other financial instruments
Financial instrument	Gross value of financial assets		Gross value of financial liabilities compensated on the balance sheet		Net amount ("+" or "-") of financial assets presented on the balance sheet		Financial instruments- Assets		Financial instruments- Liabilities		Net amount		Assets		Liabilities		Net amount
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Financial derivative contracts		-		-		-		1,756,204		1,674,533		81,671		139,350		92,616		46,734
Repurchase agreements		-		-		-		-		-		-		-		136,557		(136,557	)
Total		-		-		-		1,756,204		1,674,533		81,671		139,350		229,173		(89,823	)

NOTE 33

SUBSEQUENT EVENTS

Between July 1, 2014 and the date on which these Consolidated Interim Financial Statements were issued (July 21, 2014), no events have occurred which could significantly affect their interpretation.

FELIPE CONTRERAS FAJARDO
Gerente de Contabilidad

CLAUDIO MELANDRI HINOJOSA
Gerente General

Consolidated Interim Financial Statements June 2014 / Banco Santander Chile 114