FORM 6-K 


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Issuer

 

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

 

Commission File Number: 001-14554

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

 

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

    Form 20-F x     Form 40-F ¨  

 

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

  Yes ¨   No x  

 

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

  Yes ¨   No x  

 

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

  Yes ¨   No x  

 

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

  

 

 

 

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: June 21, 2016

 

 

 

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 38
NOTE 03   REPORTING SEGMENTS 39
NOTE 04   CASH AND CASH EQUIVALENTS 42
NOTE 05   TRADING INVESTMENTS 43
NOTE 06   DERIVATIVE FINANCIAL INSTRUMENTS, AND HEDGE ACCOUNTING 44
NOTE 07   INTERBANK LOANS 51
NOTE 08   LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS 52
NOTE 09   AVAILABLE FOR SALE INVESTMENTS 59
NOTE 10   INTANGIBLE ASSETS 60
NOTE 11   PROPERTY, PLANT AND EQUIPMENT 62
NOTE 12   CURRENT AND DEFERRED TAXES 65
NOTE 13   OTHER ASSETS 68
NOTE 14   TIME DEPOSITS AND OTHER TIME LIABILITIES 69
NOTE 15   ISSUED DEBT INSTRUMENTS, AND OTHER FINANCIAL LIABILITIES 70
NOTE 16   MATURITY OF FINANCIAL ASSETS AND LIABILITIES 76
NOTE 17   OTHER LIABILITIES 78
NOTE 18   CONTINGENCIES AND COMMITMENTS 79
NOTE 19   EQUITY 81
NOTE 20   CAPITAL REQUIREMENTS (BASEL) 84
NOTE 21   NON-CONTROLLING INTEREST 86
NOTE 22   INTEREST INCOME 89
NOTE 23   FEES AND COMMISSIONS 91
NOTE 24   NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS 92
NOTE 25   NET FOREIGN EXCHANGE INCOME 92
NOTE 26   PROVISION FOR LOAN LOSSES 93
NOTE 27   PERSONNEL SALARIES AND EXPENSES 95
NOTE 28   ADMINISTRATIVE EXPENSES 96
NOTE 29   DEPRECIATION, AMORTIZATION AND IMPAIRMENT 97
NOTE 30   OTHER OPERATING INCOME AND EXPENSES 98
NOTE 31   TRANSACTIONS WITH RELATED PARTIES 99
NOTE 32   FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 103
NOTE 33   SUBSEQUENT EVENTS 108

 

2

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

 

      As of
March 31,
  

As of

December 31,

 
      2016   2015 
   NOTE  MCh$   MCh$ 
            
ASSETS             
Cash and deposits in banks  4   1,416,135    2,064,806 
Cash items in process of collection  4   1,043,906    724,521 
Trading investments  5   155,369    324,271 
Investments under resale agreements      -    2,463 
Financial derivative contracts  6   2,990,214    3,205,926 
Interbank loans, net  7   31,896    10,861 
Loans and accounts receivables from customers, net  8   24,909,962    24,535,201 
Available for sale investments  9   2,686,185    2,044,411 
Held to maturity investments      -    - 
Investments in associates and other companies      20,861    20,309 
Intangible assets  10   51,660    51,137 
Property, plant, and equipment  11   234,468    240,659 
Current taxes  12   -    - 
Deferred taxes  12   324,477    331,714 
Other assets  13   982,562    1,097,826 
TOTAL ASSETS      34,847,695    34,654,105 
LIABILITIES             
Deposits and other demand liabilities  14   7,079,271    7,356,121 
Cash items in process of being cleared  4   873,455    462,157 
Obligations under repurchase agreements      51,423    143,689 
Time deposits and other time liabilities  14   12,722,899    12,182,767 
Financial derivative contracts  6   2,784,208    2,862,606 
Interbank borrowing      1,316,766    1,307,574 
Issued debt instruments  15   5,727,832    5,957,095 
Other financial liabilities  15   224,888    220,527 
Current taxes  12   11,799    17,796 
Deferred taxes  12   6,307    3,906 
Provisions      316,637    329,118 
Other liabilities  17   879,962    1,045,869 
TOTAL LIABILITIES      31,995,447    31,889,225 
EQUITY             
              
Attributable to the equity holders of the Bank      2,821,692    2,734,699 
Capital  19   891,303    891,303 
Reserves  19   1,527,893    1,527,893 
Valuation adjustments  19   474    1,288 
Retained earnings      402,022    314,215 
Retained earnings from prior years      448,878    - 
Income for the period      125,439    448,878 
Minus: Provision for mandatory dividends      (172,295)   (134,663)
Non-controlling interest  21   30,556    30,181 
TOTAL EQUITY      2,852,248    2,764,880 
              
TOTAL LIABILITIES AND EQUITY      34,847,695    34,654,105 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    3

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD

For the periods ended

 

      March 31, 
      2016   2015 
   NOTE  MCh$   MCh$ 
            
OPERATING INCOME             
              
Interest income  22   518,729    400,715 
Interest expense  22   (205,856)   (127,296)
              
Net interest income      312,873    273,419 
              
Fee and commission income  23   104,508    94,552 
Fee and commission expense  23   (41,517)   (39,091)
              
Net fee and commission income      62,991    55,461 
              
Net income (expense) from financial operations  24   179,699    (140,559)
Net foreign exchange gain  25   213,961    181,550 
Other operating income  30   5,248    5,108 
              
Net operating profit before provision for loan losses      415,374    374,979 
              
Provision for loan losses  26   (77,926)   (79,226)
              
NET OPERATING PROFIT      337,448    295,753 
              
Personnel salaries and expenses  27   (92,967)   (84,217)
Administrative expenses  28   (58,694)   (54,853)
Depreciation and amortization  29   (14,345)   (12,134)
Impairment of property, plant, and equipment  29   (37)   - 
Other operating expenses  30   (16,234)   (14,646)
              
Total operating expenses      (182,277)   (165,850)
              
OPERATING INCOME      155,171    129,903 
              
Income from investments in associates and other companies      531    485 
              
Income before tax      155,702    130,388 
              
Income tax expense  12   (29,662)   (31,318)
              
NET INCOME FOR THE PERIOD      126,040    99,070 
              
Attributable to:             
Equity holders of the Bank      125,439    95,477 
Non-controlling interest  21   601    3,593 
Earnings per share attributable to Equity holders of the Bank:             
(expressed in Chilean pesos)             
Basic earnings  19   0.666    0.507 
Diluted earnings  19   0.666    0.507 

  

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    4

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF OTHER COMPREHENSIVE INCOME

For the periods ended

 

      March 31 
      2016   2015 
   NOTE  MCh$   MCh$ 
            
NET INCOME FOR THE PERIOD      126,040    99,070 
              
OTHER COMPREHENSIVE INCOME - ITEMS WHICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Available for sale investments  9   20,518    (6,441)
Cash flow hedge  19   (21,425)   (56,410)
              
Other comprehensive income which may be reclassified subsequently to profit or loss, before tax a la renta      (907)   (62,851)
              
Income tax related to items which may be reclassified subsequently to profit or loss  12   194    13,655 
              
Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax      (713)   (49,196)
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD      125,327    49,874 
              
Attributable to:             
Equity holders of the Bank      124,625    46,285 
Non-controlling interest  22   702    3,589 

 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    5

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended March 31, 2016 and 2015

 

       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
equity holders
of the Bank
   Non-
controlling
interest
   Total Equity 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                 
Equity as of December 31, 2014   891,303    1,309,985    (2,224)   21,680    10,725    (6,805)   -    550,331    (165,099)   2,609,896    33,083    2,642,979 
Distribution of income from previous period   -    -    -    -    -    -    550,331    (550,331)   -    -    -    - 
Equity as of January 1, 2015   891,303    1,309,985    (2,224)   21,680    10,725    (6,805)   550,331    -    (165,099)   2,609,896    33,083    2,642,979 
Increase or decrease of capital and reserves   -    -    -    -    -    -    -    -    -    -    (11)   (11)
Dividends distributions/ withdrawals made   -    -    -    -    -    -    -    -    -    -    -    - 
Transfer of retained earnings to reserves   -    -    -    -    -    -    -    -    -    -    -    - 
Provision for mandatory dividends   -    -    -    -    -    -    -    -    (28,643)   (28,643)   -    (28,643)
Subtotals   -    -    -    -    -    -    -    -    (28,643)   (28,643)   (11)   (28,654)
Other comprehensive income   -    -    -    (6,436)   (56,410)   13,654    -    -    -    (49,192)   (4)   (49,196)
Income for the year   -    -    -    -    -    -    -    95,477    -    95,477    3,593    99,070 
Subtotals   -    -    -    (6,436)   (56,410)   13,654    -    95,477    -    46,285    3,589    49,874 
Equity as of March 31, 2015   891,303    1,309,985    (2,224)   15,244    (45,685)   6,849    550,331    95,477    (193,742)   2,627,538    36,661    2,664,199 
                                                             
Equity as of December 31, 2015   891,303    1,530,117    (2,224)   (6,965)   8,626    (373)   -    448,878    (134,663)   2,734,699    30,181    2,764,880 
Distribution of income from previous period   -    -    -    -    -    -    448,878    (448,878)   -    -    -    - 
Equity as of January 1, 2016   891,303    1,530,117    (2,224)   (6,965)   8,626    (373)   448,878    -    (134,663)   2,734,699    30,181    2,764,880 
Increase or decrease of capital and reserves   -    -    -    -    -    -    -    -    -    -    -    - 
Dividends distributions/ withdrawals made   -    -    -    -    -    -    -    -    -    -    (327)   (327)
Transfer of retained earnings to reserves   -    -    -    -    -    -    -    -    -    -    -    - 
Provision for mandatory dividends   -    -    -    -    -    -    -    -    (37,632)   (37,632)   -    (37,632)
Subtotals   -    -    -    -    -    -    -    -    (37,632)   (37,632)   (327)   (37,959)
Other comprehensive income   -    -    -    20,387    (21,425)   224    -    -    -    (814)   101    (713)
Income for the year   -    -    -    -    -    -    -    125,439    -    125,439    601    126,040 
Subtotals   -    -    -    20,387    (21,425)   224    -    125,439    -    124,625    702    125,327 
Equity as of March 31, 2016   891,303    1,530,117    (2,224)   13,422    (12,799)   (149)   448,878    125,439    (172,295)   2,821,692    30,556    2,852,248 

 

  Total attributable to equity
holders of the Bank
  

Allocated to

reserves

   Allocated to
dividends
  

Percentage

distributed

  

Number of

shares

  

Dividend per share

(in pesos)

 
Period  MCh$   MCh$   MCh$   %         
                         
Year 2014 (Shareholders Meeting April 2015)   550,331    220,132    330,199    60    188,446,126,794    1.752 
                               
Year 2013 (Shareholders Meeting April 2014)   441,926    176,770    265,156    60    188,446,126,794    1.407 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    6

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

 

      For the three months ended
March 31,
 
      2016   2015 
   NOTE  MCh$   MCh$ 
            
A – CASH FLOWS FROM OPERATING ACTIVITIES:             
INCOME BEFORE TAX      155,702    130,388 
Debits (credits) to income that do not represent cash flows      (318,390)   (326,253)
Depreciation and amortization  29   14,345    12,134 
Impairments of property, plant, and equipment  11   37    - 
Provision for loan losses  26   95,781    95,369 
Mark to market of trading investments      (2,241)   (6,085)
Income from investments in associates and other companies      (531)   (485)
Net gain on sale of assets received in lieu of payment  30   (4,193)   (3,060)
Provision on assets received in lieu of payment      2,573    2,826 
Net gain on sale of property, plant, and equipment  30   (320)   (81)
Charge off of assets received in lieu of payment  30   2,615    1,324 
Net interest income  22   (312,873)   (273,419)
Net fee and commission income  23   (62,991)   (55,461)
Other debits (credits) to income that do not represent cash flows      (60,424)   (114,742)
Changes in deferred taxes  12   9,832    15,427 
Increase/decrease in operating assets and liabilities      (467,109)   381,100 
(Increase) decrease of loans and accounts receivables from customers, net      (374,761)   (687,086)
(Increase) decrease of financial investments      (472,872)   604,509 
Decrease (increase) due to resale agreements (assets)      2,463    - 
Decrease (increase) of interbank loans      (21,035)   (99,135)
(Increase) decrease of assets received or awarded in lieu of payment      (1,166)   (1,587)
Increase (decrease) of debits in customers checking accounts      (283,946)   10,706 
Increase (decrease) of time deposits and other time liabilities      540,132    817,061 
Increase (decrease) of obligations with domestic banks      9,192    (66,006)
Increase (decrease) of other demand liabilities or time obligations      7,096    (50,419)
Increase (decrease) of obligations with foreign banks      9,176    (395,051)
Increase (decrease) of obligations with Central Bank of Chile      16    (26)
Increase (decrease) of obligations under repurchase agreements      (92,266)   (166,536)
Increase (decrease) in other financial liabilities      4,361    3,546 
Net increase of other assets and liabilities      (370,345)   2,000 
Redemption of letters of credit      (4,956)   (1,551)
Redemption of mortgage bonds and payments of interest      (2,503)   (2,317)
Senior bond issuances      774,362    196,982 
Redemption of senior bonds and payments of interest      (564,597)   (81,553)
Interest received      519,356    400,715 
Interest paid      (206,276)   (127,296)
Dividends received from investments in other companies      28,131    - 
Fees and commissions received  23   104,508    94,552 
Fees and commissions paid  23   (41,517)   (39,091)
Income tax paid  12   (29,662)   (31,318)
Total cash flow provided by (used in) operating activities      (629,797)   185,235 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    7

 

 

 

 

Banco Santander Chile and Subsidiaries

UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

 

      For the three months ended
March 31,
 
      2016   2015 
   NOTE  MCh$   MCh$ 
            
B – CASH FLOWS FROM INVESTMENT ACTIVITIES:             
Purchases of property, plant, and equipment  11   (3,821)   (3,273)
Sales of property, plant, and equipment      146    9 
Purchases of investments in associates and other companies      -    - 
Purchases of intangible assets  10   (5,032)   (2,474)
Total cash flow provided by (used in) investment activities      (8,710)   (5,738)
              
C – CASH FLOW FROM FINANCING ACTIVITIES:             
From shareholder´s financing activities      (5,251)   (2,534)
Redemption of subordinated bonds and payments of interest      (5,251)   (2,534)
Dividends paid           - 
From non-controlling interest financing activities      -    - 
Dividends and/or withdrawals paid      -    - 
Total cash flow used in financing activities      (5,251)   (2,534)
              
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD      (643,758)   176,963 
              
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS      (96,826)   13,858 
              
F – INITIAL BALANCE OF CASH AND CASH EQUIVALENTS      2,327,170    1,859,002 
              
FINAL BALANCE OF CASH AND CASH EQUIVALENTS  4   1,586,586    2,049,823 

 

      For the three months
ended March 31,
 
Reconciliation of provisions for the Consolidated Interim Statements     2016   2015 
of Cash Flows for the periods     MCh$   MCh$ 
            
Provision for loan losses for cash flow purposes      95,781    95,369 
Recovery of loans previously charged off      (17,855)   (16,143)
Provision for loan losses - net  26   77,936    79,226 

 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    8

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

CORPORATE INFORMATION

 

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

 

Banco Santander Spain controls Banco Santander Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of March 31, 2016 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. Article 15 of the General Banking Law states that banks must apply accounting standards established by SBIF. For those issues not covered by the SBIF, the Bank must apply generally accepted standards issued by the Colegio de Contadores de Chile A.G (Association of Chilean Accountants), which conform with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the event of discrepancies between the IFRS and accounting standards issued by the SBIF (Compendium of Accounting Standards and Instructions), the latter shall prevail.

 

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

 

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

 

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

 

The Unaudited Consolidated Interim Financial Statements as of March 31, 2016 and 2015 and December 31, 2015 and for the three-month periods ended March 31, 2016 and 2015, 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. Control is achieved when the Bank:

 

I.   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;
·The potential voting rights held by the Bank, other vote holders or other parties;
·The rights arising from other agreements; and

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    9

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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 Unaudited Consolidated Interim Statement of Income and in the Unaudited Consolidated Interim Financial Statementof 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 ensure their accounting policies are consistent with the Bank’s accounting policies. All intragroup assets, 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 a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.

 

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

 

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

 

i.Entities controlled by the Bank through participation in equity

 

         Percent ownership share 
      Place of  As of March 31,   As of December 31,   As of March 31, 
      Incorporation  2016   2015   2015 
      and  Direct   Indirect   Total   Direct   Indirect   Total   Direct   Indirect   Total 
Name of the Subsidiary  Main Activity  operation  %   %   %   %   %   %   %   %   % 
                                           
Santander Corredora de Seguros Limitada  Insurance brokerage  Santiago, Chile   99.75    0.01    99.76    99.75    0.01    99.76    99.75    0.01    99.76 
Santander Corredores de Bolsa Limitada (*)  Financial instruments brokerage  Santiago, Chile   50.59    0.41    51.00    50.59    0.41    51.00    50.59    0.41    51.00 
Santander Agente de Valores Limitada  Securities brokerage  Santiago, Chile   99.03    -    99.03    99.03    -    99.03    99.03    -    99.03 
Santander S.A. Sociedad Securitizadora  Purchase of credits and issuance of debt instruments  Santiago, Chile   99.64    -    99.64    99.64    -    99.64    99.64    -    99.64 

 

(*) On June 19, 2015, Santander Corredores de Bolsa Limitada, our stock broker company has changed its corporate structure to limited liability company. This situation was informed to SVS through an “essential fact” in accordance with the Law 18.045 articles 9° and 10°, and General Regulation (NCG) N°16 and N°30.

 

The details of non-controlling interest in all the subsidiaries can be seen in Note 21 – Non-controlling interest.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    10

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

ii.Entities controlled by the Bank through other considerations

 

The following companies have been consolidated as of March 31, 2016 and 2015 and as of December 31, 2015 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)
-Bansa Santander S.A. (management of repossessed assets and leasing of properties)

 

During 2015 Multinegocios S.A. (management of sales force), Servicios Administrativos y Financieros Limitada (management of sales force) and Multiservicios de Negocios Limitada (call center) have ceased rendering sales services to the Bank and the Bank no longer controls their relevant activities. Therefore as of June 30, 2015 these entities have been excluded from the consolidation perimeter.

 

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:

 

         Percentage of ownership share 
      Place of
Incorporation
  As of March 31   As of
December 31,
   As of March 31, 
      and  2016   2015   2015 
Associates  Main activity  operation  %   %   % 
Redbanc S.A.  ATM services  Santiago, Chile   33.43    33.43    33.43 
Transbank S.A.  Debit and credit card services  Santiago, Chile   25.00    25.00    25.00 
Centro de Compensación Automatizado  Electronic fund transfer and compensation services  Santiago, Chile   33.33    33.33    33.33 
Sociedad Interbancaria de Depósito de Valores S.A.  Repository of publically offered securities  Santiago, Chile   29.29    29.29    29.28 
Cámara de Compensación de Pagos de Alto Valor S.A.  Payments clearing  Santiago, Chile   14.23    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    11.11 

  

In the case of Sociedad Nexus S.A. and Cámara Compensación de Pagos Alto Valor S.A., Banco Santander Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over those entities.

 

Servicios de Infraestructura de Mercado OTC S.A. is considered an associate due to the Bank’s executives being actively involved in the management of the company, including the organization and structuring of this company from the point of incorporation, therefore exercising significant influence over this company.

 

In the Extraordinary Shareholder meeting held in April 2015, Transbank agreed to increase its capital. Banco Santander Chile signed the contract maintaining its ownership.

 

In October 2015, HSBC Bank Chile sold its shares in Camara de Compensación de Pagos de Alto Valor S.A. to Banco Santander Chile, increasing its participation to 14.23%.

 

iv.Share or rights in other companies

 

Such entities represent those over which the Bank has no control or significant influences and are presented in this category. These holdings are shown at acquisition value less impairment, if any.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    11

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

c)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 Unaudited Consolidated Interim Statement of Income, and separately from shareholders’ equity in the Unaudited Consolidated Interim Statement of Financial Position.

 

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

 

d)Reporting segments

 

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

 

i.the nature of the products and services;
ii.the nature of the production processes;
iii.the type or class of customers that use their products and services;
iv.the methods used to distribute their products or services; and
v.if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

 

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

 

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

 

ii.the absolute amount of its reported profit or loss is 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 threshold 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 Unaudited Consolidated Interim Financial Statements.

 

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

 

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

 

i.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.

 

e)Functional and presentation currency

 

According to IAS 21 “The Effects of Changes in Foreign Exchange Rates”, the Chilean peso is the currency of the primary economic environment in which the Bank operates and the currency which influences its costs and revenue structure, so it 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”.

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    12

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

f)Foreign currency transactions

 

The Bank performs transactions in foreign currencies, mainly the U.S. dollar. Assets and liabilities denominated in foreign currencies and held by the Bank are translated to Chilean pesos based on the representative market rate published by Reuters at 1:30 p.m. on the month end date. The rate used was Ch$667.68 per US$1 as of March, 2016 (Ch$625.33 per US$1 as of March, 2015 and Ch$707.80 per US$1 as of December, 2015).

 

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.

 

g)Definitions and classification of financial instruments

 

i.Definitions

 

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

 

An “equity instrument” is a legal transaction that evidences a residual interest 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

 

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

 

Financial assets are initially recognized at fair value plus, in the case of a financial assets not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue.

 

Effective interest method

 

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

 

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

 

Financial assets FVTPL - Trading investments

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    13

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

A financial asset is classified as held for trading if:

 

·it has been acquired principally for the purpose of selling it in the near term; or

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

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

 

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

 

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

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

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

 

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

 

Held to maturity investments

 

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

 

Available for sale investments (AFS investments)

 

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

 

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

 

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

 

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

 

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period.

 

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

 

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    14

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Classification of financial assets for presentation purposes

 

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

 

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

 

-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 timing 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 derivatives held for hedging, as shown in Note 6.

 

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

 

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

 

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

 

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

 

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

 

iv.Classification of financial liabilities for measurement purposes

 

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

 

Financial liabilities FVTPL

 

Financial liabilities are classified as FVTPL when the financial liability is either held for trading or it is designated as FVTPL.

 

A financial liability is classified as held for trading if:

 

·it has been incurred principally for the purpose of repurchasing it in the near term; or

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

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    15

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

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

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

 

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

 

Other financial liabilities

 

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method.

 

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

 

v.Classification of financial liabilities for presentation purposes

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

-Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are for trading or for hedge accounting, as set forth in Note6.

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    16

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

-Issued debt instruments: there are three types of instruments issued by the Bank: Obligations under letters of credit, Subordinated bonds and Senior bonds placed in the local and foreign market.

 

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

 

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

 

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

 

i.Valuation of financial instruments

 

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

 

According to IFRS 13 Fair Value Measurement (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. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

 

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

 

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

 

All derivatives are recorded in the Unaudited Consolidated Interim Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the 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 Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    17

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

 

Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives, whose underlying is an equity instrument that are settled by delivery of those instruments, are measured at acquisition cost adjusted for any related impairment loss.

 

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

 

ii.Valuation techniques

 

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

 

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

 

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

 

The main techniques used as of March 31, 2016 and 2015 and as of December 31, 2015 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

 

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

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    18

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Hedging transactions

 

The Bank uses financial derivatives for the following purposes:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

c.For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”, until the hedged transaction occurs, thereafter being reclassified to the 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.

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    19

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the 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.

 

iv.Derivatives embedded in hybrid financial instruments

 

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

 

v.Offsetting of financial instruments

 

Financial asset and liability balances are offset, i.e., reported in the 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 the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

 

vi.Derecognition of financial assets and liabilities

 

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

 

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

 

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

 

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

 

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:

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    20

 

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

i)Recognizing income and expenses

 

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

 

i.Interest revenue, interest expense, and similar items

 

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

 

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

 

This interest and adjustments are generally referred to as “suspended” and 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 become current (i.e. payments were received such that the loans are contractually past-due for less than 90 days) or they are no longer classified under the C3, C4, C5, or C6 risk categories (for loans individually evaluated for impairment).

 

ii.Commissions, fees, and similar items

 

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

 

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

 

iii.Non-financial income and expenses

 

Non-financial income and expenses 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 the Unaudited Consolidated Interim Statement of Income over the term of the loan.

 

j)Impairment

 

i.Financial assets:

 

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

 

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

 

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

 

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.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    21

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

 

ii.Non-financial assets:

 

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

 

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

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    22

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

 

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

 

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

 

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

 

ii.Assets leased out under operating leases

 

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

 

l)Leasing

 

i.Finance leases

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    23

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

When a consolidated entity is the lessee, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Other operating expenses” in the 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 using the effective interest method over the financing period.

 

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

 

n)Intangible assets

 

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

 

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

 

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated. The estimated useful life for software is 36 months.

 

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

 

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

 

o)Cash and cash equivalents

 

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

 

The cash flow statement was prepared considering the following definitions:

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    24

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 net equity and liabilities that are not operating or investing activities.

 

p)Allowances for loan losses

 

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

 

The Bank has established allowances to cover probable losses on loans and account receivables in accordance with instructions issued by Superintendency of Banks and Financial Institutions (SBIF) Including the amendments introduced by Circular No. 3,573 (and its further modifications) applicable as of January 1, 2016 which establishes a standard method for residential mortgage loans and complements and specifies instructions on provisions and loans classified in the impaired portfolio, and subsequent amendments.

 

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

 

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

 

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

 

I.Allowances for individual assessment

 

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

 

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

 

The portfolio categories and their definitions are as follows:

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    25

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Normal and Substandard Compliance Portfolio

 

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

 

Portfolio 

Debtor’s

Category

 

Probability of

Non-Performance (%)

   Severity (%)  

Expected

Loss (%)

 
   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 

 

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

 

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

 

Impaired Portfolio

 

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

 

Once the expected loss range is determined, the debtor can be classified into categories C1 to C6. Using this classification system the related provision percentage is applied over the exposure amount, which includes loans and contingent loans related to the debtor.

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    26

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

 

II.Allowances for group assessments

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Standard method of residential mortgage loan provisions

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    27

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

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

LTV =Loan capital/Value of guarantee

 

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

 

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

 

Impaired portfolio

 

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

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    28

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

III.Additional provisions

 

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

 

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

 

As of December 31, 2015 the Bank established additional loan provisions for an amount of Ch$35,000 million presented in “Provisions” in the Unaudited Consolidated Interim Statements of Financial Position. As of March 31, 2016, the Bank has reversed these provisions and registered the effects of applying Circular N°3,573 as loan risk provisions.

 

IV.Charge-offs

 

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

 

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

 

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

 

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

 

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

 

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

 

Any recovery on “Loans and accounts receivable from customers” previously charged-off will be recognized as a recovery within “Provision for loan losses” in the Unaudited Consolidated Interim Statement of Income.

 

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:

 

i.has a present obligation (legal or constructive) as a result of past events, and
ii.it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured.

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    29

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Unaudited Consolidated Interim Financial Statements reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more than likely. Provisions are quantified using the best available information regarding the consequences of the event giving rise to them and are reviewed and adjusted at the end of accounting period. Provisions are used when the liabilities for which they were originally recognized are settled. Partial or total reversals are recognized when such liabilities cease to exist or are reduced.

 

Provisions are classified according to the obligation covered as follows:

 

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

 

r)Income taxes and deferred taxes

 

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

 

s)Use of estimates

 

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

 

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

 

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

 

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

 

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

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

 

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

 

-Allowances for loan losses (Notes 7, 8, and 26)
-Impairment losses of certain assets (Notes 6, 7, 8, 9, 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, 7, 9 and 32)
-Commitments and contingencies (Note 18)
-Current and deferred taxes (Note 12)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    30

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

t)Non-current assets held for sale

 

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

 

As of March 31, 2016 and 2015 and December 31, 2015 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”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. 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”.

 

At the end of each year the Bank performs an analysis to review the “selling costs” of assets received or awarded in lieu of payments which will be applied at this date and during the following year. As of December 31, 2015 the average selling cost has been estimated at 5.0% of the appraisal value (4.8% as of December 31, 2014).

 

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

 

u)Earnings per share

 

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

 

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

 

As of March 31, 2016 and 2015 and December 31, 2015 the Bank did not have any instruments that generated dilution.

 

v)Temporary acquisition (assignment) of assets and liabilities

 

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

 

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

 

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

 

Assets owned by third parties and managed by certain companies that are within the Bank’s scope of consolidation (Santander S.A. Sociedad Securitizadora), are not included in the Unaudited Consolidated Interim Statement 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 March 31, 2016 and 2015 and December 31, 2015 the Bank recorded a provision for minimum mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, which requires at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded as a deduction from “Retained earnings” – “Provision for mandatory dividends” in the Unaudited Consolidated Interim Statement of Changes in Equity with offset to Provisions.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    31

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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:

 

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

 

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

 

Components of defined benefit cost include:

 

-current service cost and any past service cost, which are recognized in profit or loss for the period;
-net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;
-new liability (asset) remeasurements for net defined benefit include:

(a) actuarial gains and losses;

(b) the performance of plan assets, and;

(c) changes in the effect of the asset ceiling which are recognized in other comprehensive income.

 

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

 

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

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    32

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

z)New accounting pronouncements

 

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

 

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

 

1.Accounting Standards Issued by the SBIF

 

Circular N°3.573. Compendium of Accounting Standards. Chapter B-1, B-2 and E. Sets the standard method for residential mortgage loans that will apply from 2016. This Circular was issued on December 30, 2014 and establishes a standardized method for measuring provisions on residential mortgage loans that will apply from January 1, 2016. Also it provides complementary information for loans and provisions in the impaired portfolio.

 

In addition the SBIF issued Circular No. 3,584 and 3,598, which correct and supplement Chapter B-1 of the Compendium of Accounting Standards.

 

The application of this regulation generated an effect on net income of Ch$ 35,000 million, see Note 27.

 

Circular N°3,583. Compendium of Accounting Standards. Chapter C-3. Student loans. Amending and supplementing instructions. This Circular was issued on May 25, 2015 and amends Chapter 3 of the Compendium of Accounting Standards. The amendments establish a new classification of loans for higher education, within Commercial Loans. This new classification will include:

 

-Loans for higher education according to Law 20.027
-Loans with CORFO guarantees (CORFO is the Chilean Economic Development Agency)
-Other higher education loans

 

These modifications are obligatory as of January 1, 2016. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Circular No. 3,601 Compendium of Accounting Standards. Chapter C-3. Additional information. Add instructions to report losses related to operational risk events. This Circular was issued on February 18, 2016 and requires the Bank to report losses incurred related to operational risk. Additional line items have been added in the complementary information reported monthly to the SBIF in relation to operational risk quantification and identification of exposures following the Basel guidelines.

 

The new instructions will apply for the first time to the MC1 and MC2 reports as of March 31, 2016, including the amendments introduced by Circular No. 3,602.

The Bank has implemented the instructions of these circulars, which did not have a material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

2.New Standards issued by the International Accounting Standards Board

 

IFRS 14, Regulatory Deferral Accounts – On January 30, 2014, the IASB issued IFRS 14, this standard specified disclosure requirements for regulatory deferral accounting balances generated by entities that provide goods and services to customers at a price or rate set by legislation. The regulations require:

 

- Changes are limited to the accounting policies that the company implemented according to its old GAAP accounting balances for deferred regulatory changes;

- Disclose that the amounts recognized in the financial statements of the entity generated by standard rates are identified and explained;

- Disclose support for users of financial statements to understand the amount, timing and uncertain future cash flows from any regulatory deferral accounting balance.

 

IFRS 14 is effective for entity’s that apply IFRS for the first time on or after January 1, 2016. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Amendments to IFRS 11 - Accounting for Acquisitions of interests in Joint Operations - The IASB issued this amendment on May 6, 2014, which clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business. It amends IFRS 11 Joint Arrangements to require an acquirer of an interest in a joint operation in which the activity constitutes a business to:

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    33

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

·apply all of the business combinations accounting principles in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11;
·disclose the information required by IFRS 3 and other IFRSs for business combinations.

 

The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted but corresponding disclosures are required. The amendments apply prospectively. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortization - The IASB issued these amendments on May 12, 2014, which provide additional guidance on how the depreciation or amortization of property, plant and equipment and intangible assets should be calculated. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Amendments to IAS 27 - Equity Method in Separate Financial Statements -The IASB issued these amendments on August 12, 2014, which reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements.

 

The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted but corresponding disclosures are required. The amendments apply prospectively. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Amendments to IAS 1 - Disclosure initiative - The IASB issued these amendments on December 18, 2014. The IASB added an initiative on disclosure to its program in 2013 to complement the Conceptual Framework project. The initiative is made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing Standards can be improved. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. The implementation of those amendments did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Amendments to IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation Exception - The IASB issued these amendments on December 18, 2014, to address issues that have arisen in the context of applying the consolidation exception for investment entities. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

Annual Improvements 2012-2014 Cycle. These were issued by the IASB on September 25, 2014 and cover four standards.

 

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, - Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution are accounted for as discontinued operations.

 

IFRS 7 Financial Instruments: Disclosures - Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required.

 

IAS 19 Employee Benefits – Clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid.

 

IAS 34 Interim Financial Reporting - Clarifies the meaning of 'elsewhere in the interim report' and requires a cross-reference.

 

The improvements are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. The implementation of those modifications did not have material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

 

ii.New accounting regulations and instructions issued by the SBIF as well as by the IASB not yet mandatory as of March 31, 2016

 

At the end date of these financial statements new IFRS had been published as well as interpretations of these regulations by the SBIF that were not mandatory as of March 31, 2016. Although in some cases the IASB has allowed earlier application, the Bank has not done so at this date.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    34

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

1.

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

2.Accounting Regulations Issued by the SBIF

 

Circular No. 3,604 Banks. Compendium of Accounting Standards. Chapter B-3. Amends the percentage of credit equivalent to freely available credit lines. - The SBIF issued this Circular on March 29, 2016, where it has concluded that the equivalent freely available credit lines when the debtor is not in default can be set at 35% of the amount available. This amendment applies from May 2016. Management is evaluating the impact of this change within the established deadlines.

 

3.New standards issued by the IASB

 

IFRS 9 Financial Instruments - The IASB issued IFRS 9 on November 12, 2009. This Standard introduces new requirements for the classification and measurement of financial assets and is effective from 1 January 2013 with early adoption permitted. IFRS 9 specifies how an entity shall classify and measure its financial assets. This Standard requires that all financial assets be classified on the basis of an entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are either measured at amortized cost or at fair value. Only those financial assets measured at amortized cost are tested for impairment. Additionally, on 28 October 2010, the IASB published a revised version of IFRS 9.

 

The revised standard retains the requirements for classification and measurement of financial assets that were published in November 2009 but adds guidance on the classification and measurement of financial liabilities. As part of its restructuring of IFRS 9, the IASB also copied the guidance on derecognition of financial instruments and related implementation guidance from IAS 39 to IFRS 9. This new guidance concludes the first part of Phase 1 of the Board's project to replace IAS 39. The other phases, impairment and hedge accounting, had not yet been completed.

 

The guidelines included in IFRS 9 on the classification and measurement of financial assets have not changed from those set out in IAS 39. In other words, financial liabilities continue to be measured either at amortized cost or at fair value through net income. The concept of bifurcation of derivatives embedded in a contract for a financial asset has not changed. Financial liabilities held for trading continue to be measured at fair value through net income, and all other financial assets will be measured at amortized cost unless the fair value option is applied using the existing criteria in IAS 39.

 

Notwithstanding the above, there are two differences to IAS 39:

 

- The presentation of the effects of changes in fair value attributable to the credit risk of a liability; and

 

- The elimination of the cost exemption for derivative liabilities to be settled by delivery of not traded equity instruments.

 

On December 16, 2011, the IASB issued Mandatory Effective Date of IFRS 9 and Transition Disclosures, deferring the mandatory effective date of both the 2009 and 2010 versions to annual periods beginning on or after January 1, 2015. Prior to the amendments, application of IFRS 9 was mandatory for annual periods beginning on or after January 1, 2013. The amendments modify the requirements for 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 containing the date of initial application of IFRS 9.

 

The amendments are effective for annual periods beginning on or after January 1, 2015, with earlier application being permitted. Subsequent amendments to this standard have changed the mandatory application date of this standard for annual periods beginning on January 1, 2018. Management will not apply this standard early, in accordance with instructions from the SBIF, unless the SBIF compulsorily require all banks to apply this standard.

 

IFRS 9, Financial Instruments - Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 – The IASB issued this amendment on November 19, 2013, which includes a new general model for hedge accounting, which is aligned more closely 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 provides that the effects of changes in credit risk of a liability should not affect net income for the period unless the liability is held for trading. Early application of this amendment is permitted without applying the other requirements of IFRS 9. In addition, it determines the effective date for the final IFRS 9 project, thereby allowing its application. Management is assessing the potential impact of applying these amendments with respect to IFRS 7 and IAS 39, as those relating to IFRS 9 do not apply, by express instruction of the SBIF, while the SBIF does not compulsorily require all banks to apply this standard.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    35

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

IFRS 9, Financial Instruments - The IASB published IFRS 9 - Financial Instruments on July 24, 2014. This final document includes existing standards and a new model of expected loss and minor changes to the classification and measurement requirements for financial assets, adding a new category of financial instruments: assets at fair value with changes in other comprehensive income for certain debt instruments. It also includes additional guidance on how to implement the business model and test characteristics of contractual cash flow.

 

This standard is effective for periods beginning on or after 1 January 2018. Earlier application is permitted. Management will not apply this standard early, in accordance with instructions from the SBIF, unless the SBIF compulsorily require all banks to apply this standard.

 

IFRS 15, Revenue from Contracts with Customers –

 

The IASB issued IFRS 15 on May 28, 2014, which aims to establish principles for reporting useful information for users of financial information about the nature, amount, timing and uncertainty of revenue and cash flows generated from contracts with an entity’s customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18, IFRIC 13 Customer loyalty programs IFRIC 15 Agreements for 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 periods beginning on or after 1 January 2017. Earlier application is permitted. Management is assessing the potential impact of applying these amendments.

 

Amendments to IFRS 10 and IAS 28 - Sale or Contributions of Assets between an Investor and its Associate or Joint Venture – The IASB published this amendment on September 11, 2014, which clarifies the scope of recognized gains and losses in a transaction involving an associate or joint venture, and that this depends on whether the asset sold or the contribution is a business. Therefore, the IASB concluded that all of the gain or loss should be recognized when losing control of a business. Also, gains or losses resulting from the sale or the contribution of a subsidiary that is not a business (defined in IFRS 3) to an associate or joint venture should be recognized only to the extent of unrelated interests in the associate or joint venture.

 

This standard was initially effective from January 1, 2016, however, on December 17, 2015 IASB issued "Effective date Amendment to IFRS 10 and IAS 28" postponing indefinitely the effective date of this standard. Management is waiting for the new effective date to assess the potential effects of this change.

 

IFRS 16 Leases – The IASB published its new standard for leases on January 13, 2016, which replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC15 Operating leases and SIC27 Evaluating the substance of transactions in the legal form of a lease. The main purpose of this standard applies to lessee accounting, mainly because it eliminates the dual accounting model: operating or finance lease, this means that lessees should recognize "the right to use an asset" and a leasing liability (the present value of future lease payments). Lessor continue to classify leases as finance and operating leases. This standard is effective for periods beginning on or after January 1, 2019, with earlier application permitted, provided IFRS 15 “Revenue from Contracts with Customers” has also been applied. Management is assessing the potential impact of applying this standard.

 

Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealized Losses. The IASB published this amendment on January 19, 2016, to clarify to clarify the recognition of deferred assets relating to debt instruments measured at fair value, due to the various practices in recognizing deferred tax assets. Therefore it clarified that:

 

·Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument’s holder expects to recover the carrying amount of the debt instrument by sale or by use.
·The carrying amount of an asset does not limit the estimation of probable future taxable profits.
·Estimated for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.

 

The amendments are effective for annual periods beginning on or after January 1, 2017. Management is assessing the potential impact of applying this standard.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    36

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Amendments to IAS 7 – Cash Flow Statement, Disclosure Initiative The amendments were published on January 29, 2016, to improve information provided to users of financial statements related to the financing activities of entities. The aim of the amendment is to provide disclosures that enable users of financial statements to assess changes in the liabilities arising from financing operations. One way to meet this new disclosure is to provide a reconciliation between the beginning and ending balance in the Cash Flow Statement for liabilities arising from financing activities.

 

This standard is applicable from January 1, 2017, with early application permitted. Management is assessing the potential impact of applying this standard.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    37

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 02

SIGNIFICANT EVENTS

 

As of March 31, 2016, the following significant events have occurred and affected the Bank`s operations and Unaudited Consolidated Interim Financial Statements.

 

a) The Board

 

Due to the resignation of Víctor Arbulú Crousillat in the Ordinary Board Meeting of Banco Santander Chile held on March 15, 2016 and of Lisandro Serrano Spoerer in the Ordinary Board Meeting of Banco Santander Chile held on October 20, 2015, the Board of Directos appointed Andreu Plaza López and Ana Dorrego de Carlos were appointed as directors. Additionally, Mauricio Larraín Garcés was appointed a member of the Audit and Director Committee, arising from the resignation of Víctor Arbulú Crousillat.

 

The appointment of the directors, Andreu Plaza López and Ana Dorrego de Carlos, is subject to ratification by the Ordinary Board Meeting to be held on April 26, 2016.

 

b) Use of Profits and Distribution of Dividends

 

In the Ordinary Board Meeting of Banco Santander Chile held on March 31, 2016, it was agreed to propose the distribution of 75% of the Income attributable to equity holders of the Bank of 2015, yielding a Ch$1.786 dividend per share and the remaining 25% will be retained in the Bank’s reserves in the Shareholders’ Meeting of Banco Santander Chile to be held on April 26, 2016. As of these Unaudited Consolidated Interim Financial Statements, this has not yet been approved.

 

c) Issuance of bonds – As of March 31 2016

 

In the period ended March 31, 2016 the Bank has issued senior bonds for UF35,000,000 and CLP100,000,000,000. Placement information is included in Note 15.

 

c.1)Senior bonds as of March 31 2016

 

Series  Currency  Issued amount   Term   Issuance rate  Issuance
date
  Maturity
date
R1  UF   15,000,000    5.5 years   2.50% biannually  01-28-2016  03-01-2021
R2  UF   10,000,000    7.5 years   2.60% biannually  01-28-2016  03-01-2023
R3  UF   10,000,000    10.5  years   3.00% biannually  01-28-2016  03-01-2026
Total  UF   35,000,000               
R4  CLP   100,000,000,000    5.5 years   5.50% biannually  01-28-2016  03-01-2021
Total  CLP   100,000,000,000               

.

c.2)Subordinated bonds as of March 31 2016

 

During the first quarter of 2016, the Bank did not issue subordinated bonds.

 

c.3)Repurchased bonds

 

In the three months ended March 31, 2016 the Bank has repurchased the following bonds:

 

Date  Currency  Repurchase amount 
01-13-2016  Senior  USD600,000 
01-27-2016  Senior  USD960,000 
03-08-2016  Senior  USD481,853,000 
03-08-2016  Senior  USD140,104,000 

 

C.4)Mortgage bonds as of March 31 2016

 

During the first quarter of 2016, the Bank did not issue mortgage bonds.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    38

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 03

REPORTING SEGMENTS

 

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

 

Inter-segment transactions 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.

 

Due to changes aimed at improving relations with its customers and streamlining processes, the Bank has modified its internal structure: these changes consist in internal components (the aggregation of subsegments) but do not modify the existing segments or their managers. For this reason, the disclosure has been adapted (simplified) to reflect how the Bank is currently managed.

 

Under IFRS 8, the Bank has aggregated operating segments with similar economic characteristics according to the aggregation criteria specified in the standard. A reporting segment consists of clients that are offered differentiated but, considering how their performance is measured, are homogenous, thus they form part of the same reporting segment. Overall, this aggregation has no significant impact on the understanding of the nature and effects of the Bank’s business activities and the economic environment.

 

The information relating to 2014 has been prepared using the current criteria so that the figures presented are comparable.

 

The Bank has the reportable segments noted below:

 

Retail Banking

 

Consists of individuals and small to middle-sized entities (SMEs) with annual income less than Ch$2,000 million. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally the SME clients are offered government-guaranteed loans, leasing and factoring.

 

Middle-market

 

This segment is made up of companies and large corporations with annual sales exceeding Ch$2,000 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also companies in the real estate industry are offered specialized services to finance residential projects, with the aim of expanding sales of mortgage loans.

 

Global Corporate Banking

 

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

 

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

 

Corporate Activities (“Other”)

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    39

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 03

REPORTING SEGMENTS, continued

 

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

 

Below are the tables showing the Bank’s results by business segment, for the periods ending as of March 31, 2016 and 2015, and in addition to the corresponding balances of loans and accounts receivable from customers as of December 31, 2015:

 

   For the three months ended March 31, 2016 
   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$ 
                             
Retail Banking   17,483,457    225,994    49,054    4,068    (82,805)   (127,201)   69,110 
Middle- market   6,065,108    60,123    7,735    5,061    (2,536)   (19,989)   50,394 
Commercial Banking   23,548,565    286,117    56,789    9,129    (85,341)   (147,190)   119,504 
                                    
Global Corporate Banking   2,095,871    22,641    6,580    10,931    517    (12,721)   27,948 
Other   81,525    4,115    (378)   14,202    6,898    (6,095)   18,742 
                                    
Total   25,725,961    312,873    62,991    34,262    (77,926)   (166,006)   166,194 
Other operating income                                 5,248 
Other operating expenses                                 (16,271)
Income from investments in associates and other companies                                 531 
Income tax expense                                 (29,662)
Net income for the period                                 126,040 

 

(1) Loans and accounts receivable from customers, without deducting their allowances for loan losses.

(2) The sum of net income (expense) from financial operations and foreign exchange gains or losses.

(3) The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    40

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 03

REPORTING SEGMENTS, continued

 

   For the three months ended March 31, 2015 
   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$ 
                             
Retail Banking   15,478,457    216,182    43,190    3,532    (71,556)   (121,706)   69,642 
Middle-market   5,608,412    53,259    6,954    4,031    (4,871)   (17,756)   41,617 
Commercial Banking   21,086,869    269,441    50,144    7,563    (76,427)   (139,462)   111,259 
                                    
Global Corporate Banking   2,456,355    20,129    4,343    15,099    (848)   (11,970)   26,753 
Other   140,336    (16,151)   974    18,329    (1,951)   228    1,429 
                                    
Total   23,683,560    273,419    55,461    40,991    (79,226)   (151,204)   139,441 
Other operating income                                 5,108 
Other operating expenses                                 (14,646)
Income from investments in associates and other companies                                 485 
Income tax expense                                 (31,318)
Net income for the period                                 99,070 

 

(1) Loans and accounts receivable from customers, without deducting their allowances for loan losses.

(2) The sum of net income (expense) from financial operations and foreign exchange gains or losses.

(3) The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    41

 

  

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 04

CASH AND CASH EQUIVALENTS

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Cash and deposit in banks          
Cash   653,096    632,435 
Deposit in the Central Bank of Chile   102,966    184,510 
Deposit in domestic banks   223    192 
Deposit in foreign banks   659,850    1,247,669 
Subtotal   1,416,135    2,064,806 
           
Cash in process of collection, net   170,451    262,364 
           
Cash and cash equivalents   1,586,586    2,327,170 

 

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

 

b) Cash in process of collection:

 

Cash items in process of collection and in process of being cleared represent domestic transactions which have not been processed through the central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences. These transactions are as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Assets          
Documents held by other banks (document to be cleared)   173,969    296,634 
Funds receivable   869,937    427,887 
Subtotal   1,043,906    724,521 
Liabilities          
Funds payable   873,455    462,157 
Subtotal   873,455    462,157 
           
Cash in process of collection, net   170,451    262,364 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    42

 

  

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 05

TRADING INVESTMENTS

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Chilean Central Bank and Government securities          
Chilean Central Bank Bonds   26,001    159,767 
Chilean Central Bank Notes   -    - 
Other Chilean Central Bank and Government securities   79,475    123,469 
Subtotal   105,476    283,236 
           
Other Chilean securities          
Time deposits in Chilean financial institutions   -    - 
Mortgage finance bonds of Chilean financial institutions   -    - 
Chilean financial institutions bonds   -    - 
Chilean corporate bonds   5,354    22,681 
Other Chilean securities   -    - 
Subtotal   5,354    22,681 
           
Foreign financial securities          
Foreign Central Banks and Government securities   44,539    14,948 
Other foreign financial instruments        - 
Subtotal   44,539    14,948 
           
Investments in mutual funds          
Funds managed by related entities   -    3,406 
Funds managed by third parties   -    - 
Subtotal   -    3,406 
           
Total   155,369    324,271 

 

As of March 31, 2016 and December 31, 2015, there were no trading investments sold under contracts to resell to clients and financial institutions.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    43

 

  

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

 

a)As of March 31, 2016 and December 31, 2015 the Bank holds the following portfolio of derivative instruments:

 

   As of March 31, 2016 
   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   382,763    596,931    664,703    1,644,397    5,626    7,731 
Cross currency swaps   -    497,299    1,624,328    2,121,627    76,845    9,829 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   382,763    1,094,230    2,289,031    3,766,024    82,471    17,560 
                               
Cash flow hedge derivatives                              
Currency forwards   -    -    -    -    -    - 
Interest rate swaps   -    -    -    -    -    - 
Cross currency swaps   522,014    5,961,344    3,746,360    10,229,718    104,684    103,836 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   522,014    5,961,344    3,746,360    10,229,718    104,684    103.836 
                               
Trading derivatives                              
Currency forwards   14,131,318    13,850,861    2,619,206    30,601,385    395,009    396,332 
Interest rate swaps   6,358,066    17,557,573    56,068,737    79,984,376    747,002    765,417 
Cross currency swaps   2,279,176    7,922,572    45,744,342    55,946,090    1,658,206    1,498,010 
Call currency options   47,220    58,710    2,764    108,694    1,231    148 
Call interest rate options   -    -    247,189    247,189    1,104    1,125 
Put currency options   15,778    34,386    2,003    52,167    99    1,455 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   184,967    -    -    184,967    408    325 
Subtotal   23,016,525    39,424,102    104,684,241    167,124,868    2,803,059    2,662,812 
                               
Total   23,921,302    46,479,676    110,719,632    181,120,610    2,990,214    2,784,208 

  

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    44

 

  

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

   As of December 31, 2015 
   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   327,955    1,184,795    630,970    2,143,720    5,480    6,364 
Cross currency swaps   9,441    30,040    1,842,421    1,881,902    181,557    1,483 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   337,396    1,214,835    2,473,391    4,025,622    187,037    7,847 
                               
Cash flow hedge derivatives                              
Currency forwards   -    -    -    -    -    - 
Interest rate swaps   -    -    -    -    -    - 
Cross currency swaps   7,281,184    4,445,006    2,720,520    14,446,710    273,291    69,716 
Call currency options   -    -    -    -    -    - 
Call interest rate options   -    -    -    -    -    - 
Put currency options   -    -    -    -    -    - 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   -    -    -    -    -    - 
Subtotal   7,281,184    4,445,006    2,720,520    14,446,710    273,292    69,716 
                               
Trading derivatives                              
Currency forwards   18,731,575    13,328,727    3,459,386    35,519,688    341,236    318,416 
Interest rate swaps   7,272,523    15,677,393    56,140,894    79,090,810    533,416    540,011 
Cross currency swaps   5,881,627    5,898,094    44,921,355    56,701,076    1,826,977    1,883,185 
Call currency options   49,067    60,380    477,057    586,504    42,325    41,451 
Call interest rate options   -    -    264,473    264,473    1148    1,253 
Put currency options   48,958    52,682    -    101,640    422    684 
Put interest rate options   -    -    -    -    -    - 
Interest rate futures   -    -    -    -    -    - 
Other derivatives   125,258    -    -    125,258    74    43 
Subtotal   32,109,008    35,017,276    105,263,165    172,389,449    2,745,598    2,785,043 
                               
Total   39,727,588    40,677,117    110,457,076    190,861,781    3,205,926    2,862,606 

  

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    45

 

  

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

b)Hedge accounting

 

Fair value hedge

 

The Bank uses cross-currency swaps, and interest rate 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.

 

The hedged items and hedge instruments under fair value hedges as of March 31, 2016 and December 31, 2015, classified by term to maturity are as follows:

 

   As of March 31, 2016 
   Within 1 year   Between 1 and 3
years
   Between 3 and 6
years
   Over 6 years   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Hedged item                         
Available for sale investments                         
Yankee bonds   -    -    -    216,319    216,319 
Mortgage financing bonds   -    -    6,265    -    6,265 
Treasury bonds (BTP)   -    -    -    -    - 
Central bank bonds (BCP)   -    -    -    -    - 
Time deposits and other demand liabilities                         
Time deposits   1,349,828    168,168    -    -    1,517,996 
Issued debt instruments                         
Senior bonds   127,165    440,761    1,020,624    436,894    2,025,444 
Total   1,476,993    608,929    1,026,889    653,213    3,766,024 
Hedging instrument                         
Cross currency swaps   497,299    518,929    726,889    378,510    2,121,627 
Interest rate swaps   979,694    90,000    300,000    274,703    1,644,397 
Total   1,476,993    608,929    1,026,889    653,213    3,766,024 

 

   As of December 31, 2015 
   Within 1 year   Between 1 and 3
years
   Between 3 and 6
years
   Over 6 years   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Hedged item                         
Available for sale investments                         
Yankee bond   -    -    -    92,106    92,106 
Mortgage finance bonds   -    -    -    6,460    6,460 
Treasury bonds (BTP)   -    -    -    -    - 
Central bank bonds (BCP)   -    -    -    -    - 
Time deposits and other demand liabilities                         
Time deposits   1,542,789    65,000    -    -    1,607,789 
Issued debt instruments                         
Senior bonds   9,442    573,960    867,865    868,000    2,319,267 
Total   1,552,231    638,960    867,865    966,566    4,025,622 
Hedging instrument                         
Cross currency swaps   39,481    548,960    567,865    725,596    1,881,902 
Interest rate swaps   1,512,750    90,000    300,000    240,970    2,143,720 
Total   1,552,231    638,960    867,865    966,566    4,025,622 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    46

 

 

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

Cash flow hedges

 

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

 

The notional values of the hedged items as of March 31, 2016 and December 31, 2015, and the period when the cash flows will be generated are as follows:

 

   As of March 31, 2016 
   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   3,714,076    462,944    623,733    -    4,800,753 
Commercial loans   345,410    -    -    -    345,410 
Available for sale investments                         
Time deposits (ASI)   50,204    -    -    -    50,204 
Yankee bond   -    -    77,670    577,339    655,009 
Chilean Central Bank bonds   117,087    25,926    -    -    143,013 
Time deposits and other time liabilities                         
Time deposits   189,653    51,582    -    -    241,235 
Issued debt instruments                         
Senior bonds (variable rate)   316,327    983,427    -    -    1,299,754 
Senior bonds (fixed rate)   139,318    -    14,084    199,574    352,976 
Interbank borrowings                         
Interbank loans   1,611,283    730,081    -    -    2,341,364 
Total   6,483,358    2,253,960    715,487    776,913    10,229,718 
Hedging instrument                         
Cross currency swaps   6,483,358    2,253,960    715,487    776,913    10,229,718 
Total   6,483,358    2,253,960    715,487    776,913    10,229,718 

 

   As of December 31, 2015 
   Within 1
year
   Between 1 and
3
 years
   Between 3 and

years
   Over 6 years   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
Hedged item                    
Loans and accounts receivables from customers                         
Mortgage loan   8,098,639    157,462    158,649    -    8,414,750 
Commercial loans   564,800    -    -    -    564,800 
Available for sale investments                         
Time deposits (ASI)   50,023    -    -    -    50,023 
Yankee bond   -    -    80,078    585,386    665,464 
Chilean Central Bank bonds   123,962    20,467    -    -    144,429 
Time deposits and other time liabilities                         
Time deposits   -    -    -    -    - 
Issued debt instruments                         
Senior bonds (variable rate)   963,829    1,176,383    -    -    2,140,212 
Senior bonds (fixed rate)   -    -    14,036    202,562    216,598 
Interbank borrowings                         
Interbank loans   1,924,937    325,497    -    -    2,250,434 
Total   11,726,190    1,679,809    252,763    787,948    14,446,710 
Hedging instrument                         
Cross currency swaps   11,726,190    1,679,809    252,763    787,948    14,446,710 
Total   11,726,190    1,679,809    252,763    787,948    14,446,710 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    47

 

 

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

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

 

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

 

   As of March 31, 2016 
   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   61,199    20,496    9,399    4,780    95,874 
Outflows   (41,479)   (31,591)   (7,512)   (735)   (81,317)
Net flows   19,720    (11,095)   1,887    4,045    14,557 
                          
Hedging instrument                         
Inflows   41,479    31,591    7,512    735    81,317 
Outflows (*)   (61,199)   (20,496)   (9,399)   (4,780)   (95,874)
Net flows   (19,720)   11,095    (1,887)   (4,045)   (14,557)

 

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

 

   As of December 31, 2015 
   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   69,477    23,003    9,466    4,661    106,607 
Outflows   (40,521)   (25,018)   (6,216)   (650)   (72,405)
Net flows   28,956    (2,015)   3,250    4,011    34,202 
                          
Hedging instrument                         
Inflows   40,521    25,018    6,216    650    72,405 
Outflows (*)   (69,477)   (23,003)   (9,466)   (4,661)   (106,607)
Net flows   (28,956)   2,015    (3,250)   (4,011)   (34,202)

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    48

 

  

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

b.2) Forecasted cash flows for inflation risk:

 

   As of March 31, 2016 
   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   102,196    23,427    -    -    125,623 
Outflows   (5,739)   (1,042)   -    -    6,781 
Net flows   96,457    22,385    -    -    118,842 
                          
Hedging instrument                         
Inflows   5,739    1,042    -    -    6,781 
Outflows   (102,196)   (23,427)   -    -    (125,623)
Net flows   (96,457)   (22,385)   -    -    (118,842)

 

   As of December 31, 2015 
   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   147,374    10,554    -    -    157,928 
Outflows   -    -    -    -    - 
Net flows   147,374    10,554    -    -    157,928 
                          
Hedging instrument                         
Inflows   -    -    -    -    - 
Outflows   (147,374)   (10,554)   -    -    (157,928)
Net flows   (147,374)   (10,554)   -    -    (157,928)

 

b.2) Forecasted cash flows for exchange rate risk:

 

As of March 31, 2016 and 2015, the Bank did not have cash flow hedges for exchange rate risk.

 

c)The accumulated effect of the mark to market adjustment of cash flow hedges produced by hedge instruments used in hedged cash flow was recorded in the Unaudited Consolidated Interim Statement of Changes in Equity, specifically within Other comprehensive income, as of March 31, 2016 and 2015, and is as follows:

 

   As of 
March 31,
   As of
December 31,
 
Hedged item  2016   2015 
   MCh$   MCh$ 
         
Interbank loans   (2,677)   (7,398)
Time deposits and other time liabilities   (27)   - 
Issued debt instruments   247    (12,185)
Available for sale investments   (7,605)   (13,858)
Loans and accounts receivable from customers   (2,738)   (12,244)
Net flows   (12,800)   (45,685)

 

Since the inflows and outflows for both the hedged item 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 March 31, 2016 and 2015, Ch$473 million and Ch$1,184 million respectively, are recognized in income for the ineffective portion.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    49

 

 

 
 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

  

NOTE 06

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

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

 

d)The income generated by cash flow hedges that were reclassified from other comprehensive income to the period’s net income is as follows:

 

   As of 
March 31,
   As of
December
31,
 
   2016   2015 
   MCh$   MCh$ 
         
Bond hedging derivatives   7    - 
Interbank loans hedging derivatives   -    - 
           
Cash flow hedge net income   7    - 

 

See Note 19 “Equity”, letter d)

 

e)Net investment hedges in foreign operations:

 

As of March 31, 2016 and December 31, 2015, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    50

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 07

INTERBANK LOANS

 

a)As of March 31, 2016 and December 31, 2015, balances of “Interbank loans” are as follows:

 

   As of
March 31,
  

As of

December 31,

 
   2016   2015 
   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   24    14 
Overdrafts in checking accounts   -    - 
Non-transferable domestic bank loans   -    - 
Other domestic bank loans   63    36 
Allowances and impairment for domestic bank loans   -    - 
           
Foreign interbank loans          
Interbank loans – Foreign   31,839    10,827 
Overdrafts in checking accounts   -    - 
Non-transferable foreign bank deposits   -    - 
Other foreign bank loans   -    - 
Provisions and impairment for foreign bank loans   (30)   (16)
Total   31,896    10,861 

 

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

 

   As of March 31,   As of December 31, 
   2016   2015 
   Domestic
banks
   Foreign
banks
   Total   Domestic
banks
   Foreign
banks
   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balance as of January 1   -    16    16    -    25    25 
Charge-offs   -    -    -    -    -    - 
Provisions established   -    18    18    141    42    183 
Provisions released   -    (4)   (4)   (141)   (51)   (192)
Total   -    30    30    -    16    16 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    51

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

 

a)Loans and accounts receivable from customers

 

As of March 31, 2016 and December 31, 2015, the composition of the loan portfolio is as follows:

 

As of March 31, 2016  Assets before allowances   Allowances established     
  

Normal

portfolio

   Substandard
portfolio
  


Impaired

portfolio

   Total  

Individual

allowances

  

Group

allowances

   Total  

Assets

net

balance

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans                                        
Commercial loans   8,213,895    289,850    574,564    9,078,309    167,987    145,869    313,856    8,764,453 
Foreign trade loans   1,899,503    156,980    63,046    2,119,529    67,310    1,477    68,787    2,050,742 
Checking accounts debtors   212,237    6,434    12,093    230,764    2,804    7,088    9,892    220,872 
Factoring transactions   255,471    4,255    4,742    264,468    5,638    868    6,506    257,962 
Leasing transactions   1,407,753    59,652    84,182    1,551,587    21,488    6,145    27,633    1,523,954 
Other loans and account receivable   180,666    799    26,650    208,115    4,942    16,338    21,280    186,835 
Subtotal   12,169,525    517,970    765,277    13,452,772    270,169    177,785    447,954    13,004,818 
                                         
Mortgage loans                                        
Loans with mortgage finance bonds   39,089    -    2,050    41,139    -    40    40    41,099 
Mortgage mutual loans   126,936    -    4,337    131,273    -    216    216    131,057 
Other mortgage mutual loans   7,514,546    -    412,519    7,927,065    -    68,546    68,546    7,858,519 
Subtotal   7,680,571    -    418,906    8,099,477    -    68,802    68,802    8,030,675 
                                         
Consumer loans                                        
Installment consumer loans   2,206,253    -    255,977    2,462,230    -    214,985    214,985    2,247,245 
Credit card balances   1,398,352    -    26,915    1,425,267    -    43,385    43,385    1,381,882 
Leasing transactions   5,091    -    89    5,180    -    73    73    5,107 
Other consumer loans   244,053    -    5,056    249,109    -    8,874    8,874    240,235 
Subtotal   3,853,749    -    288,037    4,141,786    -    267,317    267,317    3,874,469 
Total   23,703,845    517,970    1,472,220    25,694,035    270,169    513,904    784,073    24,909,962 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    52

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

As of December 31, 2015  Assets before allowances   Allowances established     
  

Normal

portfolio

  

Substandard

Portfolio

  

Impaired

portfolio

   Total  

Individual

allowances

  

Group

allowances

   Total  

Assets

net

balance

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans                                        
Commercial loans   8,112,912    275,528    597,012    8,985,452    172,452    140,700    313,152    8,672,300 
Foreign trade loans   1,929,145    157,359    66,066    2,152,570    70,900    1,421    72,321    2,080,249 
Checking accounts debtors   216,751    5,902    12,070    234,723    2,879    6,951    9,830    224,893 
Factoring transactions   269,773    869    5,005    275,647    5,611    734    6,345    269,302 
Leasing transactions   1,393,851    64,550    75,791    1,534,192    20,320    6,394    26,714    1,507,478 
Other loans and account receivable   121,040    729    22,006    143,775    4,937    12,351    17,288    126,487 
Subtotal   12,043,472    504,937    777,950    13,326,359    277,099    168,551    445,650    12,880,709 
                                         
Mortgage loans                                        
Loans with mortgage finance bonds   42,263    -    1,765    44,028    -    275    275    43,753 
Mortgage mutual loans   131,118    -    2,987    134,105    -    695    695    133,410 
Other mortgage mutual loans   7,243,322    -    391,395    7,634,717    -    50,190    50,190    7,584,527 
Subtotal   7,416,703    -    396,147    7,812,850    -    51,160    51,160    7,761,690 
                                         
Consumer loans                                        
Installment consumer loans   2,167,378    -    302,268    2,469,646    -    208,135    208,135    2,261,511 
Credit card balances   1,410,036    -    24,573    1,434,609    -    41,604    41,604    1,393,005 
Leasing transactions   5,383    -    77    5,460    -    76    76    5,384 
Other consumer loans   236,564    -    4,392    240,956    -    8,054    8,054    232,902 
Subtotal   3,819,361    -    331,310    4,150,671    -    257,869    257,869    3,892,802 
Total   23,279,536    504,937    1,505,407    25,289,880    277,099    477,580    754,679    24,535,201 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    53

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

b)Portfolio characteristics

 

As of March 31, 2016 and December 31, 2015, the portfolio before allowances is as follows, by customer`s economic activity:

 

   Domestic loans (*)   Foreign interbank loans (**)   Total loans   Distribution percentage 
   As of
March 31,
   As of
December 31,
   As of
March 31,
   As of
December 31,
   As of
March 31,
   As of
December 31,
   As of
March 31,
   As of
December 31,
 
   2016   2015   2016   2015   2016   2015   2016   2015 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   %   % 
Commercial loans                                        
Manufacturing   1,172,113    1,171,830    -    -    1,172,113    1,171,830    4.56    4.63 
Mining   485,764    510,467    -    -    485,764    510,467    1.89    2.02 
Electricity, gas, and water   504,525    454,456    -    -    504,525    454,456    1.96    1.80 
Agriculture and livestock   1,042,003    1,019,922    -    -    1,042,003    1,019,922    4.05    4.03 
Forest   130,054    96,069    -    -    130,054    96,069    0.51    0.38 
Fishing   344,888    344,496    -    -    344,888    344,496    1.34    1.36 
Transport   847,287    876,329    -    -    847,287    876,329    3.29    3.46 
Communications   164,225    160,135    -    -    164,225    160,135    0.64    0.63 
Construction   1,515,441    1,462,535    -    -    1,515,441    1,462,535    5.89    5.78 
Commerce   2,907,825    3,050,663    31,839    10,827    2,939,664    3,061,490    11.43    12.10 
Services   479,303    483,516    -    -    479,303    483,516    1.86    1.91 
Other   3,859,431    3,695,991    -    -    3,859,431    3,695,991    15.00    14.61 
                                         
Subtotal   13,452,859    13,326,409    31,839    10,827    13,484,698    13,337,236    52.42    52.71 
                                         
Mortgage loans   8,099,477    7,812,850    -    -    8,099,477    7,812,850    31.48    30.88 
                                         
Consumer loans   4,141,786    4,150,671    -    -    4,141,786    4,150,671    16.10    16.41 
Total   25,694,122    25,289,930    31,839    10,827    25,725,961    25,300,757    100.00    100.00 

 

(*)Includes domestic interbank loans for Ch$87 million as of March 31, 2016 (Ch$50 million as of December 31, 2015), see Note 7.

 

(**)Includes foreign interbank loans for Ch$31,839 million as of March 31, 2016 (Ch$10,827 million as of December 31, 2015), see Note 7.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    54

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

c)Impaired portfolio

 

i)As of March 31, 2016 and December 31, 2015, the impaired portfolio is as follows:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Individually impaired portfolio   409,653    -    -    409,653    486,685    -    -    486,685 
Non-performing loans (collectively evaluated)   365,245    181,024    93,712    639,981    346,868    183,133    113,467    643,468 
Other impaired portfolio   160,246    237,882    194,325    592,453    108,330    213,014    217,843    539,187 
Total   935,144    418,906    288,037    1,642,087    941,883    396,147    331,310    1,669,340 

 

ii)The impaired portfolio with or without guarantee as of March 31, 2016 and December 31, 2015 is as follows:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Secured debt   497,893    376,005    42,240    916,138    410,700    362,326    42,244    815,270 
Unsecured debt   437,251    42,901    245,797    725,949    531,183    33,821    289,066    854,070 
Total   935,144    418,906    288,037    1,642,087    941,883    396,147    331,310    1,669,340 

 

iii)The portfolio of non-performing loans as of March 31, 2016 and December 31, 2015 is as follows:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Secured debt   153,020    157,612    10,813    321,445    115,733    158,854    9,144    283,731 
Unsecured debt   212,225    23,412    82,899    318,536    231,135    24,279    104,323    359,737 
Total   365,245    181,024    93,712    639,981    346,868    183,133    113,467    643,468 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    55

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

d)Allowances

 

The changes in allowances balances during 2016 and 2015 are as follows:

 

Activity during 2016  Commercial
loans
   Mortgage
loans
   Consumer
loans
     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of December 31, 2015   277,099    168,551    51,160    257,869    754,679 
Allowances established   12,218    24,600    20,657    47,539    105,014 
Allowances released   (10,820)   (3,906)   (2,533)   (6,528)   (23,787)
Allowances released due to charge-off   (8,328)   (11,460)   (482)   (31,563)   (51,833)
Balance as of March 31, 2016   270,169    177,785    68,802    267,317    784,073 

 

Activity during 2015  Commercial
loans
   Mortgage
loans
   Consumer
loans
     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of December 31, 2014   232,304    165,697    48,744    254,023    700,768 
Allowances established   124,968    71,578    12,149    135,744    344,439 
Allowances released   (42,472)   (17,885)   (7,205)   (18,126)   (85,688)
Allowances released due to charge-off   (37,701)   (50,839)   (2,528)   (113,772)   (204,840)
Balance as of December 31, 2015   277,099    168,551    51,160    257,869    754,679 

 

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

 

i)Country risk to cover the risk taken when holding or committing resources with any foreign country. These allowances are established according to country risk classifications as set for Chapter 7-13 of the Updated Compilation of Rules, issued by the SBIF. The balances of allowances as of March 31, 2016 and December 31, 2015 are Ch$505 million and Ch$385 million, respectively.

 

ii)According to SBIF’s regulations (compendium of Accounting Standards), the Bank has established allowances related to the undrawn available credit lines and contingent loans. The balances of allowances as of March 31, 2016 and December 31, 2015 are Ch$19,257 million and Ch$17,321 million, respectively and are presented in liabilities of the Unaudited Consolidated Interim Statement of Financial Position

 

i)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
March 31,
   As of
December 31,
 
   2016   2015 
         
Customers loans   105,014    344,439 
Interbank loans   18    183 
Total   105,032    344,622 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    56

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

ii)Portfolio by its impaired and non-impaired status

 

   As of March 31, 2016 
   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   12,334,708    7,421,234    3,660,595    23,416,537    392,420    123,177    94,809    610,406    12,727,128    7,544,411    3,755,404    24,026,943 
Overdue for 1-29 days   105,243    76,667    114,492    296,402    60,782    16,495    36,326    113,603    166,025    93,162    150,818    410,005 
Overdue for 30-89 days   77,677    182,670    78,662    339,009    118,510    107,256    71,117    296,883    196,187    289,926    149,779    635,892 
Overdue for 90 days or more   -    -    -    -    363,432    171,978    85,785    621,195    363,432    171,978    85,785    621,195 
                                                             
Total portfolio before allowances   12,517,628    7,680,571    3,853,749    24,051,948    935,144    418,906    288,037    1,642,087    13,452,772    8,099,477    4,141,786    25,694,035 
                                                             
Overdue loans (less than 90 days) presented as portfolio percentage   1.46%   3.38%   5.01%   2.64%   19.17%   29.54%   37.30%   25.00%   2.69%   4.73%   7.26%   4.07%
                                                             
Overdue loans (90 days or more) presented as portfolio percentage   0.00%   0.00%   0.00%   0.00%   38.86%   41.05%   29.78%   37.83%   2.70%   2.12%   2.07%   2.42%

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    57

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 08

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

 

   As of December 31, 2015 
   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   12,207,967    7,125,404    3,617,676    22,951,047    441,308    146,909    134,700    722,917    12,649,275    7,272,313    3,752,376    23,673,964 
Overdue for 1-29 days   98,692    80,621    120,912    300,225    61,626    11,990    45,280    118,896    160,318    92,611    166,192    419,121 
Overdue for 30-89 days   77,817    210,678    80,773    369,268    108,743    61,962    59,754    230,459    186,560    272,640    140,527    599,727 
Overdue for 90 days or more   -    -    -    -    330,206    175,286    91,576    597,068    330,206    175,286    91,576    597,068 
                                                             
Total portfolio before allowances   12,384,476    7,416,703    3,819,361    23,620,540    941,883    396,147    331,310    1,669,340    13,326,359    7,812,850    4,150,671    25,289,880 
                                                             
Overdue loans (less than 90 days) presented as portfolio percentage   1.43%   3.93%   5.28%   2.83%   18.09%   18.67%   31.70%   20.93%   2.60%   4.68%   7.39%   4.03%
                                                             
Overdue loans (90 days or more) presented as portfolio percentage   -    -    -    -    35.06%   44.25%   27.64%   35.77%   2.48%   2.24%   2.21%   2.36%

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    58

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 09

AVAILABLE FOR SALE INVESTMENTS

 

As of March 31, 2016 and December 31, 2015, details of instruments defined as available for sale investments are as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Chilean Central Bank and Government securities          
Chilean Central Bank Bonds   643,312    687,292 
Chilean Central Bank Notes   420,797    - 
Other Chilean Central Bank and Government securities   15,783    145,603 
Subtotal   1,079,892    832,895 
Other Chilean securities          
Time deposits in Chilean financial institutions   1,002,445    712,859 
Mortgage finance bonds of Chilean financial institutions   28,235    29,025 
Chilean financial institution bonds   -    - 
Chilean corporate bonds   -    - 
Other Chilean securities   -    - 
Subtotal   1,030,680    741,884 
Foreign financial securities          
Foreign Central Banks and Government securities   102,274    - 
Other foreign financial securities   473,339    469,632 
Subtotal   575,613    469,632 
           
Total   2,686,185    2,044,411 

 

As of March 31, 2016 and December 31, 2015, the item Chilean Central Bank and Government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$45,566 million and Ch$72,901 million, respectively.

 

As of March 31, 2016 and December 31, 2015, the item Other Chilean Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$6.154 million and Ch$68,321 million, respectively.

 

As of March 31, 2016 available for sale investments included a net unrealized profit of Ch$13,425 million, recorded as a “Valuation adjustment” in Equity, distributed between a profit of Ch$13,422 million attributable to equity holders of the Bank and a profit of Ch$3 million attributable to non-controlling interest.

 

As of December 31, 2015 available for sale investments included a net unrealized loss of Ch$7,093 million, recorded as a “Valuation adjustment” in Equity, a loss of Ch$6,965 million attributable to equity holders of the Bank and a loss of Ch$128 million attributable to non-controlling interest.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    59

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 10

INTANGIBLE ASSETS

 

a)As of March 31, 2016 and December 31, 2015 the composition of intangible assets is as follows:

 

             As of March 31, 2016 
  

Years of

useful

life

 

Average

remaining

useful life

 

Net opening

balance as of

January 1,

2016

  

Gross

balance

  

Accumulated

amortization

   Net balance 
         MCh$   MCh$   MCh$   MCh$ 
                       
Licenses  3  2   2,060    10,932    (8,943)   1,989 
Software development  3  2   49,077    264,535    (214,864)   49,671 
                           
Total         51,137    275,467    (223,807)   51,660 

 

             As of December 31, 2015 
  

Years of

useful

life

 

Average

remaining

useful life

 

Net opening

balance as of

January 1,

2015

  

Gross

balance

  

Accumulated

amortization

   Net balance 
         MCh$   MCh$   MCh$   MCh$ 
                       
Licenses  3  2   2,006    10,932    (8,872)   2,060 
Software development  3  2   38,977    259,500    (210,423)   49,077 
                           
Total         40,983    270,432    (219,295)   51,137 

 

b)The changes in the value of intangible assets during the periods ended March 31, 2016 and December 31, 2015 is as follows:

 

b.1)Gross balance

 

Gross balances  Licenses  

Software

development

   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2016   10,932    259,500    270,432 
Acquisitions   -    5,035    5,035 
Disposals and impairment   -    -    - 
Other   -    -    - 
Balances as of March 31, 2016   10,932    264,535    275,467 
                
Balances as of January 1, 2015   10,441    232,418    242,859 
Acquisitions   491    27,082    27,573 
Disposals and impairment   -    -    - 
Other   -    -    - 
Balances as of December 31, 2015   10,932    259,500    270,432 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    60

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 10

INTANGIBLE ASSETS, continued

 

b.2) Accumulated amortization

 

Accumulated amortization  Licenses   Software
development
   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2016   (8,872)   (210,423)   (219,295)
Amortization for the period   (71)   (4,438)   (4,509)
Other changes   -    -    - 
Balances as of March 31, 2016   (8,943)   (214,861)   (223,804)
                
Balances as of January 1, 2015   (8,435)   (193,441)   (201,876)
Amortization for the period   (437)   (16,982)   (17,419)
Other changes   -    -    - 
Balances as of December 31, 2015   (8,872)   (210,423)   (219,295)

 

c)The Bank has no restriction on intangible assets as of March 31, 2016 and December 31, 2015. Additionally, the intangible assets have not been pledged as guarantee to secure compliance with financial liabilities. Also, the Bank has no debt related to Intangible assets as of those dates.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    61

 

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT

 

a)As of March 31, 2016 and December 31, 2015 the property, plant and equipment balances is as follows:

 

       As of March 31, 2016 
  

Net opening
balance as of

January 1, 2016

  

Gross

balance

   Accumulated
depreciation
  

Net

balance

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Land and building   158,434    238,583    (82,259)   156,324 
Equipment   59,908    139,923    (82,850)   57,073 
Ceded under operating leases   4,238    4,888    (652)   4,236 
Other   18,079    51,684    (34,849)   16,835 
Total   240,659    435,078    (200,610)   234,468 

 

       As of December 31, 2015 
   Net opening
balance as of
January 1, 2015
   Gross
balance
   Accumulated
depreciation
   Net
 balance
 
   MCh$   MCh$   MCh$   MCh$ 
                 
Land and building   142,596    237,449    (79,015)   158,434 
Equipment   49,100    137,621    (77,713)   59,908 
Ceded under operating leases   4,250    4,888    (650)   4,238 
Other   15,615    51,482    (33,403)   18,079 
Total   211,561    431,440    (190,781)   240,659 

 

b)     The changes in the value of property, plant and equipment during the periods ended March 31, 2016 and December 31, 2015 is as follows:

 

b.1) Gross balance

 

  Land and
buildings
   Equipment   Operating
leases
   Other   Total 
2016  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balances as of January 1, 2016   237,449    137,621    4,888    51,482    431,440 
Additions   1,134    2,376    -    311    3,821 
Disposals   -    (37)   -    (109)   (146)
Impairment due to damage   -    (37)   -    -    (37)
Other   -    -    -    -    - 
Balances as of March 31, 2016   238,583    139,923    4,888    51,684    435,078 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    62

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT, continued

 

  Land and
buildings
   Equipment   Operating
leases
   Other   Total 
2015  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balances as of January 1, 2015   209,668    108,416    4,888    43,499    366,471 
Additions   27,781    29,282    -    8,048    65,111 
Disposals   -    (56)   -    (65)   (121)
Impairment due to damage   -    (21)   -    -    (21)
Other   -    -    -    -    - 
Balances as of December 31, 2015   237,449    137,621    4,888    51,482    431,440 

 

b.2) Accumulated depreciation

 

  Land and
buildings
   Equipment  

Operating
leases

   Other   Total 
2016  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balances as of January 1, 2016   (79,015)   (77,713)   (650)   (33,403)   (190,781)
Depreciation in the period   (3,244)   (5,138)   (2)   (1,452)   (9,836)
Sales and disposals in the period   -    1    -    6    7 
Transfers   -    -    -    -    -  
Others   -    -    -    -    - 
Balances as of March 31, 2016   (82,259)   (82,850)   (652)   (34,849)   (200,610)

 

  Land and
buildings
   Equipment   Operating
leases
   Other   Total 
2015  MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balances as of January 1, 2015   (67,073)   (59,316)   (638)   (27,883)   (154,910)
Depreciation in the period   (11,966)   (18,417)   (12)   (5,800)   (36,195)
Sales and disposals in the period   24    20    -    280    324 
Transfers   -    -    -    -    - 
Others   -    -    -    -    - 
Balances as of December 31, 2015   (79,015)   (77,713)   (650)   (33,403)   (190,781)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    63

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 11

PROPERTY, PLANT, AND EQUIPMENT, continued

 

c)Operational leases - Lessor

 

As of March 31, 2016 and December 31, 2015, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   469    465 
Due after 1 year but within 2 years   882    1,057 
Due after 2 years but within 3 years   469    465 
Due after 3 years but within 4 years   460    462 
Due after 4 years but within 5 years   428    440 
Due after 5 years   2,242    2,322 
           
Total   4,950    5,211 

 

d)Operational leases - Lessee

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   25,922    22,303 
Due after 1 year but within 2 years   24,598    20,862 
Due after 2 years but within 3 years   22,667    19,499 
Due after 3 years but within 4 years   18,075    17,215 
Due after 4 years but within 5 years   15,125    14,154 
Due after 5 years   61,947    55,561 
           
Total   168,334    149,594 

 

e)As of March 31, 2016 and December 31, 2015 the Bank has no finance leases which cannot be unilaterally cancelled.

 

f)The Bank has no restriction on property, plant and equipment as of March 31, 2016 and December 31, 2015. Additionally, the property, plant, and equipment have not been provided as guarantees to secure compliance with financial liabilities. The Bank has no debt in connection with property, plant and equipment.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    64

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 12

CURRENT AND DEFERRED TAXES

 

a)      Current taxes

 

As of March 31, 2016 and December 31, 2015, the Bank recognizes taxes payable (recoverable), which is determined based on the currently applicable tax legislation. This amount is recorded net of recoverable taxes, and is shown as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Summary of current tax liabilities (assets)          
Current tax (assets)   -    - 
Current tax liabilities   11,799    17,796 
           
Total tax payable (recoverable)   11,799    17,796 
           
(Assets) liabilities current taxes detail (net)          
Income tax (*)   150,153    121,775 
Less:          
Provisional monthly payments   (130,588)   (96,319)
Credit for training expenses   (2,170)   (1,851)
Land taxes leasing   (3,860)   (3,853)
Grant credits   (1,389)   (1,326)
Other   (347)   (630)
           
Total tax payable (recoverable)   11,799    17,796 

(*)Tax rate as of March 31, 2016 and December 31, 2015 are 24% and 22.5%, respectively

 

b)      Effect on income

 

The effect of tax expense on income for the periods from January 1 and March 31, 2016 and 2015 is comprised of the following items:

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Income tax expense          
Current tax   19,277    14,778 
           
Credits (debits) for deferred taxes          
Origination and reversal of temporary differences   9,832    15,427 
Subtotal   29,109    30,205 
Tax for rejected expenses (Article No.21)   665    901 
Other   (112)   212 
Net income tax expense   29,662    31,318 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    65

 

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 12

CURRENT AND DEFERRED TAXES, continued

 

c)      Effective tax rate reconciliation

 

The reconciliation between the income tax rate and the effective rate in calculating the tax expense as of March 31, 2016 and 2015 is as follows:

 

   As of March 31, 
   2016   2015 
   Tax rate   Amount   Tax rate   Amount 
   %   MCh$   %   MCh$ 
                 
Tax calculated over profit before tax   24.00    37,367    22.50    29,337 
Permanent differences   (4.34)   (6,759)   (0.54)   (709)
Penalty tax (rejected expenses)   0.43    665    0.69    901 
Effect of tax reform changes on deferred tax (*)   (0.02)   (28)   1.37    1,789 
Other   (1.02)   (1,583)   -    - 
Effective rates and expenses for income tax   19.05    29,662    24.02    31,318 

(*) The publication of Law No. 20,780 on September 29, 2014 increased the corporate income tax rate to 21% for 2014, to 22.5% in 2015, 24% for 2016, 25.5 % in 2017 and 27% for 2018 onwards.

 

d)      Effect of deferred taxes on other comprehensive income

 

A summary of the separate effect of deferred tax on other comprehensive income, showing the asset and liability balances, for the periods ended March 31, 2016 and December 31, 2015 follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Deferred tax assets          
Available for sale investments   1,202    1,751 
Cash flow hedges   3,072    (155)
Total deferred tax assets recognized through other comprehensive income   4,274    1,596 
           
Deferred tax liabilities          
Available for sale investments   -    (155)
Cash flow hedges   (4,424)   (1,785)
Total deferred tax liabilities recognized through other comprehensive income   (4,424)   (1,940)
           
Net deferred tax balances in equity   (150)   (344)
           
Deferred taxes in equity attributable to equity holders of the bank   (149)   (379)
Deferred tax in equity attributable to non-controlling interests   (1)   (29)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    66

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 12

CURRENT AND DEFERRED TAXES, continued

 

e)      Effect of deferred taxes on income

 

As of March 31, 2016 and December 31, 2015, 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
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
 Deferred tax assets          
 Interests and adjustments   10,705    10,962 
 Non-recurring charge-offs   10,442    7,839 
 Assets received in lieu of payment   2,743    2,214 
 Property, plant and equipment   5,176    5,408 
 Allowance for loan losses   149,474    150,436 
 Provision for expenses   51,705    47,218 
 Derivatives   6,614    7,481 
 Leased assets   71,980    69,244 
 Subsidiaries tax losses   8,820    7,705 
Valuation of investments   2,215    9,800 
 Other   329    11,811 
Total deferred tax assets   320,203    330,118 
           
 Deferred tax liabilities          
 Depreciation   (666)   (355)
 Other   (1,217)   (1,611)
Total deferred tax liabilities   1,883    (1,966)

 

f)       Summary of deferred tax assets and liabilities

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Deferred tax assets          
Recognized through other comprehensive income   4,274    1,596 
Recognized through profit or loss   320,203    330,118 
Total deferred tax assets   324,477    331,714 
           
Deferred tax liabilities          
Recognized through other comprehensive income   (4,424)   (1,940)
Recognized through profit or loss   (1,883)   (1,966)
Total deferred tax liabilities   (6,307)   (3,906)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    67

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 13

OTHER ASSETS

 

Other assets include the following:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Assets for leasing (1)   37,278    35,519 
           
Assets received or awarded in lieu of payment (2)          
Assets received in lieu of payment   13,491    13,544 
Assets awarded at judicial sale   13,825    14,938 
Provision on assets received in lieu of payment or awarded   (5,838)   (5,873)
Subtotal   21,478    22,609 
           
Other assets          
Guarantee deposits (margin accounts)   494,750    649,325 
Gold investments   483    443 
VAT credit   6,025    9,468 
Income tax recoverable   35,925    35,925 
Prepaid expenses   186,605    192,894 
Assets recovered from leasing for sale   2,624    2,214 
Pension plan assets   1,884    1,875 
Accounts and notes receivable   33,713    36,566 
Notes receivable through brokerage and simultaneous transactions   75,843    52,798 
Other receivable assets   12,188    11,379 
Other assets   73,766    46,811 
Subtotal   923,806    1,039,698 
           
Total   982,562    1,097,826 

 

(1)Assets available to be granted under the financial leasing agreements.

 

(2)The assets received in lieu of payment correspond to assets received as payment of debts due from customers. The total value of assets acquired in this way should not at any time exceed 20% of regulatory capital of the Bank. These assets currently represent 0.38% as of March 31, 2016 (0.38% as of December 31, 2015) of the Bank’s effective equity.

 

Assets awarded in judicial sale are 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. The Bank expects to complete the sale within one year from the date on which the assets are received or acquired. When they are not sold within that period of time, the Bank must charge-off those assets.

 

Additionally, a provision is recorded for the difference between the initial awarded value plus any additions and the estimated realizable value (appraisal value) when the former is greater.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    68

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 14

TIME DEPOSITS AND OTHER TIME LIABILITIES

 

As of March 31, 2016 and December 31, 2015, the composition of the item Time deposits and other liabilities is as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Deposits and other demand liabilities          
Checking accounts   5,592,046    5,875,992 
Other deposits and demand accounts   557,913    577,077 
Other demand liabilities   929,312    903,052 
           
Total   7,079,271    7,356,121 
           
Time deposits and other time liabilities          
Time deposits   12,605,440    12,065,697 
Time savings account   114,267    113,562 
Other time liabilities   3,192    3,508 
           
Total   12,722,899    12,182,767 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    69

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

 

As of March 31, 2016 and December 31, 2015, the composition of this item is as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Other financial liabilities          
Obligations to public sector   64,121    63,921 
Other domestic obligations   159,080    152,247 
Foreign obligations   1,687    4,359 
Subtotal   224,888    220,527 
Issued debt instruments          
Mortgage finance bonds   58,144    62,858 
Senior bonds   4,815,283    5,041,636 
Mortgage Bonds   105,865    107,582 
Subordinated bonds   748,540    745,019 
Subtotal   5,727,832    5,957,095 
           
Total   5,952,720    6,177,622 

 

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 March 31, 2016 
   Current   Non-current   Total 
   MCh$   MCh$   MCh$ 
             
Mortgage finance bonds   5,747    52,397    58,144 
Senior bonds   336,505    4,478,778    4,815,283 
Mortgage Bonds   5,469    100,396    105,865 
Subordinated bonds   2,726    745,814    748,540 
Issued debt instruments   350,447    5,377,385    5,727,832 
                
Other financial liabilities   140,704    84,184    224,888 
                
Total   491,151    5,461,569    5,952,720 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    70

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

   As of December 31, 2015 
   Current   Non-current   Total 
   MCh$   MCh$   MCh$ 
             
Mortgage finance bonds   5,544    57,314    62,858 
Senior bonds   796,012    4,245,624    5,041,636 
Mortgage Bonds   4,063    103,519    107,582 
Subordinated bonds   6,583    738,436    745,019 
Issued debt instruments   812,202    5,144,893    5,957,095 
                
Other financial liabilities   136,172    84,355    220,527 
                
Total   948,374    5,229,248    6,177,622 

 

a)Mortgage finance bonds

  

These bonds are used to finance mortgage loans. Their principal amounts are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. Loans are indexed to UF and create a yearly interest rate of 5.95% as of March 31, 2016 (5.95% as of December 31, 2015).

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   5,747    5,544 
Due after 1 year but within 2 years   7,976    6,237 
Due after 2 years but within 3 years   5,995    8,000 
Due after 3 years but within 4 years   4,572    5,211 
Due after 4 years but within 5 years   6,793    5,005 
Due after 5 years   27,061    32,861 
Total mortgage finance bonds   58,144    62,858 

 

b)Senior bonds

 

The following table shows senior bonds by currency:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Santander bonds in UF   2,835,974    2,179,643 
Santander bonds in USD   777,501    1,625,150 
Santander bonds in CHF   522,601    535,448 
Santander bonds in Ch$   447,258    475,075 
Santander bonds in AUD   64,007    62,060 
Santander bonds in JPY   167,942    164,254 
Total senior bonds   4,815,283    5,041,636 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    71

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

i.Placement of senior bonds:

 

During 2016 the Bank has placed bonds for UF 30,000,000 detailed as follows:

 

Series   Currency   Amount
placed (*)
   Term   Issuance rate  Issue date  Series
Maximum
amount
   Maturity date
BSTDR10915    UF    15,000,000   5.5 years   2.50% biannually  01-28-2015   15,000,000   03-01-2021
BSTDR20915    UF    10,000,000   7.5 years   2.60% biannually  01-28-2015   10,000,000   03-01-2023
BSTDR30915    UF    5,000,000   10.5 years   3.00% biannually  01-28-2015   10,000,000   03-01-2026
Total    UF    30,000,000                    
                                

During the first quarter of 2016, the Bank repurchased the following bonds.

 

Date  Type  Amount
01-13-2016   Senior  USD 600,000
01-27-2016   Senior  USD 960,000
03-08-2016   Senior  USD 418,853,000
03-08-2016   Senior  USD 140,104,000

 

In 2015, the Bank issued bonds for UF22,000,000, CLP200,000,000,000, CHF150,000,000 and JPY1,200,000,000 detailed as follows:

 

Series  Currency   Amount Placed   Term   Issuance rate  Issue date  Maximum amount  Maturity date
SG Series   UF     3,000,000    12 years   3.30% per annum simple  11-01-2014  UF 3,000,000  11-01-2025
SF Series   UF     3,000,000    5 years   3.00% per annum simple  11-01-2014  UF 3,000,000  04-01-2020
SB Series   UF    2,000,000    5 years   2.65% per annum simple  07-01-2014  UF 2,000,000  07-01-2019
BSTDP6 Series   UF     3,000,000    5 years   2.25% per annum simple  03-01-2015  UF 3,000,000  03-01-2020
BSTDP7 Series   UF    3,000,000    8 years   2.40% per annum simple  03-01-2015  UF 3,000,000  09-01-2022
BSTDP8 Series   UF    3,000,000    6 years   2.25% per annum simple  03-01-2015  UF 3,000,000  09-01-2021
BSTDP9 Series   UF    2,000,000    6 years   2.60% per annum simple  03-01-2015  UF 5,000,000  09-01-2025
BSTDSA0714  Series   UF    3,000,000    10 years   3.00% per annum simple  07-01-2014  UF 5,000,000  07-01-2024
UF Total   UF    22,000,000                  
BSTDP2 Series   CLP    100,000,000,000    5 years   5.20% per annum simple  01-01-2015  CLP 100,000,000,000  03-01-2020
BSTDP4 Series   CLP    100,000,000,000    5 years   4.80% per annum simple  03-01-2015  CLP 150,000,000,000  03-01-2020
CLP Total   CLP    200,000,000,000                  
CHF fixed rate bond   CHF    150,000,000    7 years   0.38%  quarterly  05-19-2015  CHF 150,000,000  05-19-2022
CHF Total   CHF    150,000,000                  
JPY Current Bond   JPY    1,200,000,000    5 years   0.42% biannually  12-17-2015  JPY 1,200,000,000  12-17-2020
JPY Total   JPY    1,200,000,000                  

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    72

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

During 2015, the Bank repurchased the following bonds:

 

Date   Type   Amount 
          
12-01-2015   Senior   USD         19,000,000 
             

ii.Maturities of senior bonds are as follows:

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   336,505    796,012 
Due after 1 year but within 2 years   1,078,760    1,147,138 
Due after 2 years but within 3 years   429,930    415,914 
Due after 3 years but within 4 years   778,637    682,494 
Due after 4 years but within 5 years   634,839    466,700 
Due after 5 years   1,556,612    1,533,378 
Total senior bonds   4,815,238    5,041,636 

 

c)Mortgage bonds

 

Detail of mortgage bonds per currency is as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Mortgage bonds in UF   105,865    107,582 
Total mortgage bonds   105,865    107,582 

 

i.Placement of Mortgage bonds

 

No mortgage bonds have been placed during 2015 nor 2016.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    73

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

ii.Maturities of mortgage bonds is as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   5,469    4,063 
Due after 1 year but within 2 years   6,545    6,522 
Due after 2 years but within 3 years   6,758    6,733 
Due after 3 years but within 4 years   6,975    6,951 
Due after 4 years but within 5 years   7,201    7,175 
Due after 5 years   72,917    76,138 
Total mortgage bonds   105,865    107,582 

 

d)Subordinated bonds

 

Detail of subordinated bonds per currency is as follows:

 

   As of
March 31
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Subordinated bonds denominated in Ch$   6    6 
Subordinated bonds denominated in USD   -    - 
Subordinated bonds denominated in UF   748,534    745,013 
Total subordinated bonds   748,540    745,019 

 

i.Placement of subordinated bonds

 

No subordinated bonds have been placed during 2015 nor 2016.

 

ii.Maturities of subordinated bonds are as follows:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Due within 1 year   2,726    6,583 
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   745,814    738,436 
Total subordinated bonds   748,540    745,019 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    74

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 15

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

 

e)Other financial liabilities

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Non-current portion:          
Due after 1 year but within 2 years   3,402    3,497 
Due after 2 year but within 3 years   34,126    20,240 
Due after 3 year but within 4 years   25,057    16,063 
Due after 4 year but within 5 years   5,554    28,227 
Due after 5 years   16,045    16,328 
Non-current portion subtotal   84,184    84,355 
           
Current portion:          
Amounts due to credit card operators   136,588    129,358 
Acceptance of letters of credit   259    3,176 
Other long-term financial obligations, short-term portion   3,857    3,638 
Current portion subtotal   140,704    136,172 
           
Total other financial liabilities   224,888    220,527 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    75

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 16

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

 

As of March 31, 2016 and December 31, 2015, the detail of the maturities of assets and liabilities is as follows:

 

   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 March 31, 2016  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                     
Financial Assets                                    
Cash and deposits in banks   1,356,135    60,000    -    -    1,416,135    -    -    -    1,416,135 
Cash items in process of collection   1,043,906    -    -    -    1,043,906    -    -    -    1,043,906 
Trading investments   -    -    -    26,478    26,478    71,581    57,311    128,892    155,369 
Investments under resale agreements   -    -    -    -    -    -    -    -    - 
Financial derivatives contracts   -    158,653    151,746    390,994    701,394    1,064,470    1,224,350    2,288,820    2,990,214 
Interbank loans (1)   31,926    -    -    -    31,926    -    -    -    31,926 
Loans and accounts receivables from customers (2)   688,259    2,343,054    2,437,032    3,753,557    9,221,902    7,575,601    8,896,532    16,472,133    25,694,035 
Available for sale investments   -    959,580    258,794    240,349    1,458,722    594,123    633,341    1,227,463    2,686,185 
Guarantee deposits (margin accounts)   494,750    -    -    -    494,750    -    -    -    494,750 
                                              
Total financial assets   3,614,975    3,521,287    2,847,572    4,411,378    14,395,212    9,305,774    10,811,534    20,117,308    34,512,520 
                                              
Financial Liabilities                                             
Deposits and other demand liabilities   7,079,271    -    -    -    7,079,271    -    -    -    7,079,271 
Cash items in process of collection   873,455    -    -    -    873,455    -    -    -    873,455 
Obligations under repurchase agreements   -    51,424    -    -    51,424    -    -    -    51,424 
Time deposits and other time liabilities   117,458    5,952,772    3,474,352    2,793,915    12,338,497    326,548    57,854    384,402    12,722,899 
Financial derivatives contracts   -    124,863    147,845    424,278    696,986    972,879    1,114,344    2,087,222    2,784,208 
Interbank borrowings   266    9,829    25,042    593,329    628,466    688,300    -    688,300    1,316,766 
Issued debts instruments   -    43,327    127,333    179,787    350,447    2,974,982    2,402,403    5,377,385    5,727,832 
Other financial liabilities   136,618    374    587    3,125    140,704    68,139    16,045    84,184    224,888 
Guarantees received (margin accounts)   603,129    -    -    -    603,129    -    -    -    603,129 
                                              
Total financial liabilities   8,810,197    6,182,589    3,775,159    3,994,434    22,762,379    5,030,848    3,590,645    8,621,493    31,383,872 

 

(1)Interbank loans are presented on a gross basis. The amount of allowances is Ch$30 million.
(2)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$447,954 million, Mortgage loans Ch$68,802 million, Consumer loans Ch$267,317 million.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    76

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 16

MATURITY OF FINANCIAL 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, 2015  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                     
Assets                                             
Cash and deposits in banks   1,677,076    387,730    -    -    2,064,806    -    -    -    2,064,806 
Cash items in process of collection   724,521    -    -    -    724,521    -    -    -    724,521 
Trading investments   -    126,248    21,364    264    147,876    87,735    88,660    176,395    324,271 
Investments under resale agreements   -    2,463    -    -    2,463    -    -    -    2,463 
Financial derivatives contracts   -    158,843    213,335    407,854    780,032    1,191,866    1,234,028    2,425,894    3,205,926 
Interbank loans (1)   9,371    -    1,506    -    10,877    -    -    -    10,877 
Loans and accounts receivables from customers (2)   664,164    2,401,995    2,178,424    4,027,990    9,272,573    7,498,802    8,518,505    16,017,307    25,289,880 
Available for sale investments   -    480,801    72,217    243,241    796,259    517,655    730,497    1,248,152    2,044,411 
Guarantee deposits (margin accounts)   649,325    -    -    -    649,325    -    -    -    649,325 
                                              
Total assets   3,724,457    3,558,080    2,486,846    4,679,349    14,448,732    9,296,058    10,571,690    19,867,748    34,316,480 
                                              
Liabilities                                             
Deposits and other demand liabilities   7,356,121    -    -    -    7,356,121    -    -    -    7,356,121 
Cash items in process of collection   462,157    -    -    -    462,157    -    -    -    462,157 
Obligations under repurchase agreements   -    143,689    -    -    143,689    -    -    -    143,689 
Time deposits and other time liabilities   114,341    5,707,940    3,210,947    2,853,761    11,886,989    238,933    56,845    295,778    12,182,767 
Financial derivatives contracts   -    126,643    190,409    380,158    697,210    1,016,731    1,148,665    2,165,396    2,862,606 
Interbank borrowings   27,323    7,946    148,509    684,819    868,597    438,977    -    438,977    1,307,574 
Issued debts instruments   1,953    440,500    155,821    213,928    812,202    2,764,082    2,380,811    5,144,893    5,957,095 
Other financial liabilities   129,358    3,142    558    3,114    136,172    68,027    16,328    84,355    220,527 
Guarantees received (margin accounts)   819,331    -    -    -    819,331    -    -    -    819,331 
                                              
Total liabilities   8,910,584    6,429,860    3,706,244    4,135,780    23,182,468    4,526,750    3,602,649    8,129,399    31,311,867 

 

(1)Interbank loans are presented on a gross basis. The amount of allowances is Ch$68 million.
(2)Loans and accounts receivables from customers are presented on a gross basis. Provisions on loans amounts according to customer type: Commercial loans Ch$445,650 million, Mortgage loans Ch$51,160 million, Consumer loans Ch$257,869 million.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    77

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 17

OTHER LIABILITIES

 

Other liabilities consist of:

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Accounts and notes payable   139,271    129,547 
Income received in advance   487    514 
Guarantees received (margin accounts)   603,129    819,331 
Notes payable through brokerage and simultaneous transactions   37,598    20,764 
Other payable obligations   62,620    40,828 
Withheld VAT   1,727    1,656 
Other liabilities   35,130    33,229 
Total   879,962    1,045,869 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    78

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 18

CONTINGENCIES AND COMMITMENTS

 

a)Lawsuits and legal procedures

 

At the date these financial statements were issued, the Bank and its affiliates were subject to certain legal actions in the normal course of their business. As of March 31, 2016, the Banks and its subsidiaries have provisions for this item of Ch$1,058 million and Ch$103 million, respectively (Ch$1,803 million and Ch$ 118 million as of December 31, 2015) which is included in “Provisions” in the Unaudited Consolidated Financial Statements of Financial Position as provisions for contingencies.

 

b)Contingent loans

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Letters of credit issued   192,542    179,042 
Foreign letters of credit confirmed   76,081    70,434 
Performance guarantees   1,653,431    1,684,847 
Personal guarantees   146,883    163,955 
Subtotal   2,068,938    2,098,278 
Available on demand credit lines   6,726,087    6,806,745 
Other irrevocable credit commitments   95,426    82,328 
Total   8,890,452    8,987,351 

 

c)Held securities

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Third party operations          
Collections   184,427    162,619 
Assets from third parties managed by the Bank and its affiliates (1)   1,513,743    1,507,359 
Subtotal   1,698,170    1,669,978 
Custody of securities          
Securities held in custody   430,862    321,741 
Securities held in custody deposited in other entity   605,732    561,612 
Issued securities held in custody   19,478,587    18,246,385 
Subtotal   20,515,181    19,129,738 
Total   22,213,351    20,799,716 

 

(1) During 2016, the Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates”. At the end of March 2016, the balance for this was Ch$1,513,708 million (Ch$1,507,305 million at December 31, 2015).

 

d)Guarantees

 

Banco Santander Chile has a comprehensive officer fidelity insurance policy, No. 4223658, with Compañía de Seguros Chilena Consolidada S.A., for USD 5,000,000, which jointly covers both the Bank and its affiliates for the period from July 1, 2015 to June 30, 2016.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    79

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 18

CONTINGENCIES AND COMMITMENTS, continued

 

e)Contingent loans and liabilities

 

To satisfy its clients’ needs, the Bank took on several contingent loans and liabilities that cannot 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.

 

Santander Agente de Valores Limitada

 

In accordance with the provisions of Article 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. 216100453, underwritten by the Compañía de Seguros de Crédito Continental S.A., which matures on December 19, 2016.

 

Santander S.A. Corredores de Bolsa

 

i)The Company has given guarantees to the Bolsa de Comercio de Santiago for a current value of Ch$38,531 million to cover default risk on transactions entered into instantaneously or within short timeframes.

 

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$3,150 million and additional guarantees entered at the Electronical Stock Market for Ch$1,009 million as of March 31, 2016.

 

iii)As of March 31, 2016, the following legal situations are in process:

 

-Case of “Bilbao vs. Santander Investment S.A. Corredores de Bolsa”, predecessor to Santander S.A. Corredores de Bolsa, (now Santander Corredores de Bolsa Ltda.) before the Santiago 20th Civil Court, Case No. 15549-2012 regarding an obligation to reimburse. The lawsuit was filed on May 6, 2014, which was confirmed at the appeal. The Supreme Court rejected the appeals brought by Santander Investment S.A. It is pending return to the first court for sentencing.

 

-Case of “Echeverria con Santander Corredora” (now Santander Corredores de Bolsa Ltda.) before the Santiago 21st Civil Court Case No. C-21,366-2014: a damage indemnity claim for failures when acquiring shares. Value: Ch$ 59,594,764. The judge is considering the evidence presented in order to pass judgement.

 

-At the end of 2014, the Financial Analysis Unit (UAF) fined Santander Corredores de Bolsa Ltda. applying an administrative sanction (250 UF). An appeal was placed and later rejected in July 2015. On August 12, 2015 the Company made a claim of illegality to the Appeal court of Santiago Case No. 8244-2015. On January 11, 2016 an appeal was filed with the Supreme Court, which is pending. The Financial Analysis Unit and Santander Corredores de Bolsa Ltda., have presented their cases.

 

Santander Corredora de Seguros Limitada

 

i)In accordance with Circular No. 1,160 of the Chilean Securities and Insurance Superintendent, the Company has taken out an insurance policy In order to secure correct and full compliance with all its obligations as an insurance broker.

 

ii)The company purchased a guarantee policy No. 10029139, covering UF500 and professional liability policy No. 10029140 for insurance brokers, covering UF 60,000 from the Compañía de Seguros Generales Consorcio Nacional de Seguros S.A. Both policies are valid run from April 15, 2015 to April 14, 2016.

 

iii)There are lawsuits for UF 3,990.38 which relates to assets provided under leasing contracts. Our lawyers have estimated a loss of Ch$103 million, which has been recorded within provisions.

 

iv)There are performance guarantees with Banco Santander Chile to guarantee full compliance with public bidding of payment protection insurance and payment protection plus 2/3 permanent disability insurance for the mortgage loan portfolio of Banco Santander Chile. The values of these policies are UF 5,000 and UF 2,500 respectively, both valid till July 31, 2017. For the same reason, the Company also has a performance guarantee for compliance with public bidding of fire insurance which amounts to UF 5,000 with the same Bank, valid till December 31, 2016.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    80

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 19

EQUITY

 

a)Capital

 

As of March 31, 2016 and December 31, 2015 the Bank had 188,446,126,794 shares outstanding, all of which are subscribed for and paid in full, amounting to Ch$ 891,303 million. All shares have the same rights, and have no preferences or restrictions.

 

The movement in shares during 2016 and 2015 is as follows:

 

   Shares 
   As of March 31,
2016
   As of December 31,
2015
 
         
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 March 31, 2016 and December 31, 2015 the Bank does not own any of its shares in treasury, nor do any of the consolidated companies.

 

As of March 31, 2016 the shareholder composition is as follows:

 

Corporate Name or Shareholder`s Name  Shares   ADRs (*)   Total   % share
holding
 
                 
Santander Chile Holding S.A.   66,822,519,695    -    66,822,519,695    35.46 
Teatinos Siglo XXI Inversiones Limitada   59,770,481,573    -    59,770,481,573    31.72 
The Bank of New York Mellon   -    32,109,049,671    32,109,049,671    17.04 
Banks on behalf of third parties   12,582,421,319    -    12,582,421,319    6.68 
Pension funds (AFP)   8,502,955,184    -    8,502,955,184    4.51 
Stock brokers on behalf of third parties   3,474,805,849    -    3,474,805,849    1.84 
Other minority holders   5,183,893,503    -    5,183,893,503    2.75 
Total   156,337,077,123    32,109,049,671    188,446,126,794    100.00 

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    81

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 19

EQUITY, continued

 

As of December 31, 2015 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 
The Bank of New York Mellon   -    32,516,063,671    32,516,063,671    17.25 
Banks on behalf of third parties   11,878,070,560    -    11,878,070,560    6.30 
Pension fund (AFP) on behalf of third parties   8,887,560,424    -    8,887,560,424    4.72 
Stock brokers on behalf of third parties   3,460,285,074    -    3,460,285,074    1.84 
Other minority holders   5,111,145,797    -    5,111,145,797    2.71 
Total   155,930,063,123    32,516,063,671    188,446,126,794    100.00 

 

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

 

b)Dividends

 

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

 

c)Diluted earnings per share and basic earnings per share

 

As of March 31, 2016 and 2015, the composition of diluted earnings per share and basic earnings per share are as follows:

 

   As of March 31, 
   2016   2015 
   MCh$   MCh$ 
         
a) Basic earnings per share          
Total attributable to equity holders of the Bank   125,439    95,477 
Weighted average number of outstanding shares   188,446,126,794    188,446,126,794 
Basic earnings per share (in Ch$)   0.666    0.507 
           
b) Diluted earnings per share          
Total attributable to equity holders of the Bank   125,439    95,477 
Weighted average number of outstanding shares   188,446,126,794    188,446,126,794 
Adjusted number of shares   188,446,126,794    188,446,126,794 
Diluted earnings per share (in Ch$)   0.666    0.507 

 

As of March 31, 2016 and 2015, the Bank does not own instruments with dilutive effects.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    82

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 19

EQUITY, continued

 

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

 

   As of
March 31,
   As of
December 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Available for sale investments          
As of January 1,   (7,093)   21,684 
Gain (losses) on the re-valuation of available for sale investments, before tax   17,793    (51,178)
Reclassification from other comprehensive income to net income for the year   2,725    22,401 
Subtotal   20,518    (28,777)
Total   13,425    (7,093)
           
Cash flow hedges          
As of January 1,   8,626    10,725 
Gains (losses) on the re-valuation of cash flow hedges, before tax   (21,432)   (2,105)
Reclassification and adjustments on cash flow hedges, before tax   7    6 
Amounts removed from equity and included in carrying amount of non-financial asset (liability) whose acquisition or assignment was hedged as a highly probable transaction        - 
Subtotal   (21,425)   (2,099)
Total   (12,799)   8,626 
           
Other comprehensive income, before tax   626    1,533 
           
Income tax related to other comprehensive income components          
Income tax relating to available for sale investments   (3,222)   1,596 
Income tax relating to cash flow hedges   3,072    (1,940)
Total   (150)   (344)
           
Other comprehensive income, net of tax   476    1,189 
Attributable to:          
Equity holders of the Bank   474    1,288 
Non-controlling interest   2    (99)

 

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 March 2016 / Banco Santander Chile    83

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 20

CAPITAL REQUIREMENTS (BASEL)

 

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

 

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

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    84

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 20

CAPITAL REQUIREMENTS (BASEL), Continued

 

The levels of basic capital and effective net equity as of March 31, 2016 and December 31, 2015, are as follows:

 

   Consolidated assets   Risk-weighted assets 
   As of
March 31,
   As of
December 31,
   As of
March 31,
   As of
December 31,
 
   2016   2015   2016   2015 
   MCh$   MCh$   MCh$   MCh$ 
                 
Balance-sheet assets (net of allowances)                    
Cash and deposits in banks   1,416,135    2,064,806    -    - 
Cash in process of collection   1,043,906    724,521    183,041    80,447 
Trading investments   155,369    324,271    17,756    57,796 
Investments under resale agreements   -    2,463    -    493 
Financial derivative contracts (*)   1,150,810    1,425,450    942,718    1,158,218 
Interbank loans, net   31,896    10,861    14,494    1,505 
Loans and accounts receivables from customers, net   24,909,962    24,535,201    21,665,238    21,480,044 
Available for sale investments   2,686,185    2,044,411    265,276    222,784 
Investments in associates and other companies   20,861    20,309    20,861    20,309 
Intangible assets   51,660    51,137    51,660    51,137 
Property, plant, and equipment   234,468    240,659    234,468    240,659 
Current taxes   -    -    -    - 
Deferred taxes   324,477    331,714    32,448    33,171 
Other assets   982,562    1,097,826    635,832    605,503 
Off-balance-sheet assets                    
Contingent loans   4,452,248    4,156,319    2,545,202    2,507,530 
Total   37,460,539    37,389,948    26,608,992    26,457,596 

 

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

 

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

 

       Ratio 
   As of
March 31,
   As of
December 31,
   As of
March 31,
   As of
December 31,
 
   2016   2015   2016   2015 
   MCh$   MCh$   %   % 
                 
Basic capital   2,821,692    2,734,699    7.53    7.31 
Effective net equity   3,595,273    3,538,216    13.51    13.37 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    85

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 21

NON-CONTROLLING INTEREST

 

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

 

               Other comprehensive income 
   Non-
controlling
interest
   Equity   Income   Available for
sale
investments
   Deferred
tax
   Total other
comprehensive
income
   Comprehensive
income
 
As of March 31, 2016  %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                             
Subsidiaries:                                   
Santander Agente de Valores Limitada   0.97    402    26    (1)   -    (1)   25 
Santander S.A. Sociedad Securitizadora   0.36    2    -    -    -    -    - 
Santander Corredores de Bolsa Limitada (1)   49.00    22,003    188    132    (30)   102    290 
Santander Corredora de Seguros Limitada   0.25    157    1    -    -    -    1 
Subtotal        22,564    215    131    (30)   101    316 
                                    
Entities controlled through other considerations:                                   
Bansa Santander S.A.   100.00    6,209    205    -    -    -    205 
Santander Gestión de Recaudación y
Cobranzas Limitada
   100.00    1,783    181    -    -    -    181 
Multinegocios S.A. (2)   100.00    -    -    -    -    -    - 
Servicios Administrativos y Financieros Limitada. (2)   100.00    -    -    -    -    -    - 
Multiservicios de Negocios Limitada. (2)   100.00    -    -    -    -    -    - 
Subtotal        7,992    386    -    -    -    386 
                                    
Total        30,556    601    131    (30)   101    702 

 

(1) Formerly Santander S.A. Corredores de Bolsa. See Note1.

(2) As of June 30, 2015, these entities have stopped rendering sales services for the Bank and therefore they have been excluded from the consolidation perimeter. See Note 1.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    86

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 21

NON-CONTROLLING INTEREST, continued

 

               Other comprehensive income 
   Non-
controlling
interest
   Equity   Income   Available for
sale
investments
   Deferred
tax
   Total other
comprehensive
income
   Comprehensive
income
 
As of March 31, 2015  %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                             
Subsidiaries:                                   
Santander Agente de Valores Limitada   0.97    579    21    (3)   1    (2)   19 
Santander S.A. Sociedad Securitizadora   0.36    2    -    -    -    -    - 
Santander S.A. Corredores de Bolsa (1)   49.00    21,050    135    (2)   -    (2)   133 
Santander Corredora de Seguros Limitada   0.25    152    -    -    -    -    - 
Subtotals        21,783    156    (5)   1    (4)   152 
                                    
Entities controlled through other considerations:                                   
Bansa Santander S.A.   100.00    5,901    231    -    -    -    231 
Santander Gestión de Recaudación y
Cobranzas Limitada
   100.00    2,966    1,929    -    -    -    1,929 
Multinegocios S.A (2)   100.00    1,039    309    -    -    -    309 
Servicios Administrativos y Financieros Limitada (2)   100.00    2,487    486    -    -    -    486 
Multiservicios de Negocios Limitada (2)   100.00    2,485    482    -    -    -    482 
Subtotals        14,878    3,437    -    -    -    3,437 
                                    
Total        36,661    3,593    (5)   1    (4)   3,589 

(1) Formerly Santander S.A. Corredores de Bolsa. See Note1.

(2) As of June 30, 2015, these entities have stopped rendering sales services for the Bank and therefore they have been excluded from the consolidation perimeter. See Note 1.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    87

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 21

NON-CONTROLLING INTEREST, continued

 

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

 

   As of March 31,   As of December 31, 
   2016   2015 
               Net               Net 
   Assets   Liabilities   Capital   Income   Assets   Liabilities   Capital   Income 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Santander Agente de Valores Limitada   44,803    3,234    38,851    2,718    131,305    64,049    57,554    9,702 
Santander S.A. Sociedad Securitizadora   559    58    512    (11)   566    53    560    -48 
Santander S.A. Corredores de Bolsa (1)   82,239    44,400    44,436    403    71,118    26,763    42,618    1,737 
Santander Corredora de Seguros Limitada   72,624    10,011    62,272    341    72,860    10,588    60,765    1,507 
Bansa Santander S.A.   31,476    25,627    6,004    205    31,631    25,627    5,670    334 
Santander Gestión de Recaudación y Cobranzas Ltda.   6,185    4,401    1,602    182    6,194    4,592    1,038    564 
Multinegocios S.A. (2)   -    -    -    -    -    -    -    - 
Servicios Administrativos y Financieros Ltda.(2)   -    -    -    -    -    -    -    - 
Multiservicios de Negocios Ltda.(2)   -    -    -    -    -    -    -    - 
Total   244,886    87,371    153,677    3,838    313,674    131,672    168,205    13,796 

(1) Formerly Santander S.A. Corredores de Bolsa. See Note1.

(2) As of June 30, 2015, these entities have stopped rendering sales services for the Bank and therefore they have been excluded from the consolidation perimeter. See Note 1.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    88

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 22

INTEREST INCOME

 

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

 

a)For the periods ended March 31, 2016 and 2015, the income from interest income, not including income from hedge accounting, is attributable to the following items:

 

   For the three months ended March 31, 
   2016   2015 
   Interest   Inflation
adjustments
   Prepaid
fees
   Total   Interest   Inflation
adjustments
   Prepaid
fees
   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Resale agreements   347    -    -    347    144    -    -    144 
Interbank loans   199    -    -    199    116    -    -    116 
Commercial loans   178,035    32,545    1,701    212,281    167,591    392    1,677    169,660 
Mortgage loans   67,917    56,703    6,644    131,264    62,944    466    4,692    68,102 
Consumer loans   146,166    185    927    147,278    147,226    99    796    148,121 
Investment instruments   17,776    1,002    -    18,778    11,515    (537)   -    10,978 
Other interest income   2,529    616    -    3,145    1,008    1,657    -    2,665 
                                         
Interest income less income from hedge accounting   412,969    91,051    9,272    513,292    390,544    2,077    7,165    399,786 

 

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

 

As of March 31, 2016 and as of December 31, 2015, the suspended interest and adjustments income consists of the following:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Interest   Inflation
adjustments
   Total   Interest   Inflation
adjustments
   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Commercial loans   14,428    9,170    23,598    13,999    9,311    23,310 
Mortgage loans   3,785    8,840    12,625    3,831    9,437    13,268 
Consumer loans   5,216    631    5,847    5,546    678    6,224 
                               
Total   23,429    18,641    42,070    23,376    19,426    42,802 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    89

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 22

INTEREST INCOME, continued

 

c)For the periods ended March 31, 2016 and 2015, the expenses from interest expense, excluding expense from hedge accounting, are as follows:

 

   For the three months ended March 31, 
   2016   2015 
   Interest   Inflation
adjustments
   Total   Interest   Inflation
adjustments
   Total 
Items  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Demand deposits   3,941    245    4,186    (3,809)   4    (3,805)
Repurchase agreements   692    -    692    (1,814)   -    (1,814)
Time deposits and liabilities   100,631    8,993    109,624    (74,127)   590    (73,537)
Interbank borrowings   4,519    -    4,519    (3,381)   -    (3,381)
Issued debt instruments   44,375    22,556    66,931    (42,799)   (199)   (42,998)
Other financial liabilities   752    204    956    (758)   7    (751)
Other interest expense   950    2,950    3,900    (835)   993    158 
Interest expense less expenses from hedge accounting   155,860    34,948    190,808    (127,523)   1,395    (126,128)

 

d)For the periods ended March 31, 2016 and 2015, the income and expense from interest is as follows:

 

   For the three months ended March 31, 
   2016   2015 
Items  MCh$   MCh$ 
         
Interest income less income from hedge accounting   513,292    399,786 
Interest expense less expense from hedge accounting   (190,808)   (126,128)
           
Net Interest income (expense) from hedge accounting   322,484    273,658 
           
Hedge accounting (net)   (9,611)   (239)
           
Total net interest income   312,873    273,419 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    90

 

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 23

FEES AND COMMISSIONS

 

Fees and commissions includes the value of fees earned and paid during the year, except those which are an integral part of the financial instrument`s effective interest rate:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Fee and commission income          
Fees and commissions for lines of credits and overdrafts   1,345    1,660 
Fees and commissions for guarantees and letters of credit   9,284    9,101 
Fees and commissions for card services   47,621    39,607 
Fees and commissions for management of accounts   7,848    7,603 
Fees and commissions for collections and payments   7,961    7,931 
Fees and commissions for intermediation and management of  securities   2,178    2,823 
Insurance brokerage fees   9,659    8,082 
Office banking   3,499    4,985 
Fees for other services rendered   8,876    8,180 
Other fees earned   6,237    4,580 
Total   104,508    94,552 

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Fee and commission expense          
Compensation for card operations   (33,437)   (29,631)
Fees and commissions for securities transactions   (138)   (268)
Office banking   (3,485)   (5,292)
Other fees   (4,457)   (3,900)
Total   (41,517)   (39,091)
           
Net fees and commissions income   62,991    55,461 

 

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

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    91

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 24

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

 

For the periods ended March 31, 2016 and 2015, the detail of income from financial operations is as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Profit and loss from financial operations          
Trading derivatives   (178,095)   (171,863)
Trading investments   3,967    8,149 
Sale of loans and accounts receivables from customers          
Current portfolio   -    - 
Charged-off portfolio   (28)   (27)
Available for sale investments   3,076    23,202 
Repurchase of issued bonds(1)   (8,631)   - 
Other profit and loss from financial operations   12    (20)
Total   (179,699)   (140,559)

(1) As of March 31, 2016 the Bank has repurchased bonds, see Note 2.

 

NOTE 25

NET FOREIGN EXCHANGE INCOME

 

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

 

For the periods ended March 31, 2016 and 2015, net foreign exchange income is as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Net foreign exchange gain (loss)          
Net gain (loss) from currency exchange differences   51,158    (78,350)
Hedging derivatives   169,727    254,964 
Income from assets indexed to foreign currency   (7,027)   5,338 
Income from liabilities indexed to foreign currency   103    (402)
Total   213,961    181,550 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    92

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 26

PROVISIONS FOR LOAN LOSSES

 

a)The movement in provisions for loan losses for the periods ended March 31, 2016 and 2015 is as follows:

 

   Loans and accounts receivable from customers        
For the three months ended March 31, 2016  Interbank
loans
   Commercial
loans
   Mortgage
loans
   Consumer
loans
   Contingent loans     
   Individual   Individual   Group   Group   Group   Individual   Group    Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charged-off individually significant loans   -    (2,147)   (14,052)   (4,785)   (27,185)   -    -    (48,169)
Provisions established   (18)   (12,218)   (24,600)   (20,657)   (47,539)   (998)   (2,030)   (108,060)
Total provisions and charge-offs   (18)   (14,365)   (38,652)   (25,442)   (74,724)   (998)   (2,030)   (156,229)
Provisions released(1)   4    10,820    10,016    19,145    18,806    1,557    100    60,448 
Recovery of loans previously charged-off   -    2,978    3,944    1,933    9,000    -    -    17,855 
Net charge to income   (14)   (567)   (24,692)   (4,364)   (46,918)   559    (1,930)   (77,926)

(1) See Note 1 p) III

 

   Loans and accounts receivable from customers        
For the three months ended March 31, 2015  Interbank
loans
   Commercial
loans
   Mortgage
loans
   Consumer
loans
   Contingent loans     
   Individual   Individual   Group   Group   Group   Individual   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charged-off individually significant loans   -    (2,625)   (14,217)   (2,456)   (25,213)   -    -    (44,511)
Provisions established   (89)   (19,329)   (14,939)   (3,845)   (34,113)   (1,061)   (533)   (73,909)
Total provisions and charge-offs   (89)   (21,954)   (29,156)   (6,301)   (59,326)   (1,061)   (533)   (118,420)
Provisions released   21    8,345    5,464    2,474    3,533    1,603    1,611    23,051 
Recovery of loans previously charged-off   -    1,407    5,121    1,414    8,201    -    -    16,143 
Net charge to income   (68)   (12,202)   (18,571)   (2,413)   (47,592)   542    1,078    (79,226)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    93

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 26

PROVISIONS FOR LOAN LOSSES, continued

 

b) The detail of Charge-off of individually significant loans, is as follows:

 

   Loans and accounts receivable from customers     
As of March 31, 2016  Commercial
loans
   Mortgage
loans
   Consumer
loans
     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charge-off loans   10,475    25,512    5,267    58,748    100,002 
Provision applied   (8,328)   (11,460)   (482)   (31,563)   (51,833)
Net charge offs of individually significant loans   2,147    14,052    4,785    27,185    48,169 

 

   Loans and accounts receivables from customers     
As of March 31, 2015  Commercial
loans
   Mortgage
loans
   Consumer
loans
     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
Charge-off loans   9,318    27,141    3,113    52,726    92,298 
Provision applied   (6,693)   (12,924)   (657)   (27,513)   (47,787)
Net charge offs of individually significant loans   2,625    14,217    2,456    25,213    44,511 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    94

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 27

PERSONNEL SALARIES AND EXPENSES

 

a)Composition of personnel salaries and expenses:

 

For the periods ended March 31, 2016 and 2015, the composition of personnel salaries and expenses is as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Personnel compensation   56,517    50,638 
Bonuses or gratuities   19,599    19,162 
Stock-based benefits   (25)   70 
Seniority compensation:   6,473    3,840 
Pension plans   (141)   2 
Training expenses   576    653 
Day care and kindergarden   948    938 
Health and welfare funds   1,388    1,140 
Other personnel expenses   7,632    7,774 
Total   92,967    84,217 

 

Share-based compensation (settled in cash)

 

In accordance with IFRS 2, equity instruments settled in cash are allocated to executives of the Bank and its Subsidiaries as a form of compensation for their services. The Bank measures the services received and the cash obligation at fair value at the end of each reporting period and on the settlement date, recognizing any change in fair value in the income statement for the period.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    95

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 28

ADMINISTRATIVE EXPENSES

 

For the periods ended March 31, 2016 and 2015, the composition of administrative expenses is as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
General administrative expenses   35,916    32,840 
Maintenance and repair of property, plant and equipment   5,517    5,157 
Office lease   7,000    6,449 
Equipment lease   93    36 
Insurance premiums   979    850 
Office supplies   1,530    1,360 
IT and communication expenses   9,036    8,712 
Lighting, heating, and other utilities   1,451    1,157 
Security and valuables transport services   4,359    3,498 
Representation and personnel travel expenses   1,364    1,099 
Judicial and notarial expenses   423    546 
Fees for technical reports and auditing   1,870    1,803 
Other general administrative expenses   2,294    2,173 
Outsourced services   14,687    14,502 
Data processing   9,610    8,437 
Archive service   973    1,554 
Valuation service   811    469 
Outsourced staff   1,563    1,827 
Other   1,730    2,215 
Board expenses   393    366 
Marketing expenses   4,577    4,350 
Taxes, payroll taxes, and contributions   3,121    2,795 
Real estate taxes   394    323 
Patents   431    391 
Other taxes   6    5 
Contributions to SBIF   2,290    2,076 
Total   58,694    54,853 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    96

 

 

 

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 29

DEPRECIATION, AMORTIZATION AND IMPAIRMENT

 

a)The values of depreciation and amortization during the first quarter of 2016 and 2015 are detailed below:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Depreciation and amortization          
Depreciation of property, plant, and equipment   (9,836)   (8,105)
Amortizations of intangible assets   (4,509)   (4,029)
Total depreciation and amortization   (14,345)   (12,134)
Impairment of property, plant and equipment   (37)   - 
Total   (14,382)   (12,134)

 

b)The changes in book value due to depreciation and amortization for the three month periods ended March 31, 2016 and 2015 are as follows:

 

   Depreciation and amortization 
   2016 
   Property, plant,
and equipment
   Intangible
assets
   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2016   (190,781)   (219,295)   (410,076)
Depreciation and amortization for the period   (9,836)   (4,509)   (14,345)
Sales and disposals in the period   7    -    7 
Other   -    -    - 
Balances as of March 31, 2016   (200,610)   (223,804)   (424,414)

 

   Depreciation and amortization 
   2015 
   Property, plant,
and equipment
   Intangible
assets
   Total 
   MCh$   MCh$   MCh$ 
             
Balances as of January 1, 2015   (154,910)   (201,876)   (356,786)
Depreciation and amortization for the period   (8,105)   (4,029)   (12,134)
Sales and disposals in the period   2    -    2 
Other   -    -    - 
Balances as of March 31, 2015   (163,013)   (205,905)   (368,918)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    97

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 30

OTHER OPERATING INCOME AND EXPENSES

 

a)Other operating income is as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
         
Income from assets received in lieu of payment          
Income from sale of assets received in lieu of payment   511    622 
Recovery of charge-offs and income from assets received in lieu of payment   1,647    2,438 
Other income from assets received in lieu of payment   2,035    - 
Subtotal   4,193    3,060 
Other income          
Leases   148    74 
Income from sale of property, plant and equipment   320    81 
Recovery of provisions for contingencies   -    8 
Compensation from insurance companies due to damages   333    237 
Other   254    1,648 
Subtotal   1,055    2,048 
           
Total   5,248    5,108 

 

b)Other operating expenses are as follows:

 

   For the three months ended
March 31,
 
   2016   2015 
   MCh$   MCh$ 
Allowances and expenses for assets received in lieu of payment          
Charge-offs of assets received in lieu of payment   2,615    1,324 
Provisions on assets received in lieu of payment   2,573    2,826 
Expenses for maintenance of assets received in lieu of payment   634    699 
Subtotal   5,822    4,849 
           
Credit card expenses   1,044    868 
           
Customer services   902    1,117 
           
Other expenses          
Operating charge-offs   2,191    1,551 
Life insurance and general product insurance policies   3,051    2,505 
Additional tax on expenses paid overseas   296    659 
Provisions for contingencies   1,287    946 
Expense for the Retail Association   134    248 
Other   1,507    1,903 
Subtotal   8,466    7,812 
           
Total   16,234    14,646 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    98

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 31

TRANSACTIONS WITH RELATED PARTIES

 

Associated and dependent entities are the Bank’s “related parties”. However, this also includes its “key personnel” from the executive staff (members of the Bank’s Board of Directors and Managers of Banco Santander Chile and its affiliates, together with their close relatives), as well as the entities over which the key personnel could exercise significant influence or control.

 

The Bank also includes those companies that are part of the Santander Group worldwide as related parties, given that all of them have a common parent, i.e., Banco Santander S.A. (located in Spain).

 

Article 89 of the Ley de Sociedades Anónimas (Public Companies Act), which is also applicable to banks, states that any transaction with a related party must be made under equitable conditions similar to those that customarily prevail in the market.

 

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

 

Transactions between the Bank and its related parties are specified below and have been divided into four categories:

 

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 exercises a significant degree of influence, in accordance with section b) of Note 1, and which generally belong to the group of entities known as “business support companies.”

 

Key personnel

 

This category includes members of the Bank’s Board of Directors and managers of Banco Santander Chile and its affiliates, together with their close relatives.

 

Other

 

This category encompasses the related parties that are not included in the groups identified above and which are, in general, entities over which the key personnel could exercise significant influence or control.

 

The terms for transactions with related parties are equivalent to those which prevail in transactions made under market conditions or to which the corresponding considerations in kind have been attributed.

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    99

 

  

 
Banco Santander Chile and Subsidiaries
Notes to the Unaudited Consolidated Interim Financial Statements
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

 

a) Loans to related parties

 

Loans and receivables as well as contingent loans are as follows:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Loans and accounts receivables:                                        
Commercial loans   78,407    750    6,144    1,837    77,388    565    5,841    1,963 
Mortgage loans   -    -    20,512    -    -    -    20,559    - 
Consumer loans   -    -    2,358    -    -    -    2,274    - 
Loans and account receivables:   78,407    750    29,014    1,837    77,388    565    28,674    1,963 
                                         
Allowance for loan losses   (214)   (24)   (74)   (17)   (213)   (190)   (62)   (20)
Net loans   78,193    726    28,940    1,820    77,175    375    28,612    1,943 
                                         
Guarantees   512,717    -    26,473    1,517    499,803    -    25,493    1,632 
                                         
Contingent loans                                        
Personal guarantees   -    -    -    -    -    -    -    - 
Letters of credit   34,626    -    -    -    29,275    -    -    - 
Performance guarantees   522,299    -    -    -    510,309    -    -    2 
Contingent loans   556,925    -    -    -    539,584    -    -    2 
                                         
Allowance for contingent loans   (14)   -    -    -    (11)   -    -    - 
                                         
Net contingent loans   556,911    -    -    -    539,573    -    -    2 

 

Loans activity to related parties during the periods ended March 31, 2016 and December 31, 2015 is as follows:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Opening balances as of January 1,   616,968    565    28,675    1,966    500,449    9,614    27,087    9,516 
Loans granted   35,226    198    2,059    12    276,383    7    8,991    4,113 
Loans payments   (16,862)   (13)   (1,720)   (141)   (159,864)   (9,056)   (7,403)   (11,663)
                                         
Total   635,332    750    29,014    1,837    616,968    565    28,675    1,966 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    100

 

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

 

b)Assets and liabilities with related parties

 

   As of March 31,   As of December 31, 
   2016   2015 
   Santander
 Group
   Associated
   Key
      Santander
Group
   Associated
   Key
    
   companies   companies   personnel   Other   companies   companies   personnel   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Assets                                        
Cash and deposits in banks   46,906    -    -    -    23,578    -    -    - 
Trading investments   -    -    -    -    -    -    -    - 
Investments under resale agreements   -    -    -    -    -    -    -    - 
Financial derivative contracts   913,710    -    -    -    771,774    -    -    - 
Available for sale investments   -    -    -    -    -    -    -    - 
Other assets   4,863    -    -    -    3,218    -    -    - 
                                         
Liabilities                                        
Deposits and other demand liabilities   13,511    4,182    3,254    300    9,987    8,535    2,454    1,373 
Obligations under repurchase agreements   -    -    -    -    12,006    -    -    - 
Time deposits and other time liabilities   1,617,270    70    4,317    1,240    1,360,572    234    2,728    898 
Financial derivative contracts   1,204,166    -    -    -    1,323,996    -    -    - 
Issued debts instruments   171,050    -    -    -    398,565    -    -    - 
Other financial liabilities   7,027    -    -    -    2,409    -    -    - 
Other liabilities   509    -    -    -    376    -    -    - 

 

c)Income (expenses) with related parties

 

   For the three months ended March 31, 
   2016   2015 
   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other   Santander
Group
companies
   Associated
companies
   Key
personnel
   Other 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Income (expense) recorded                                        
Income and expenses from interest and inflation   (6,219)   12    365    24    (2,864)   (15)   205    (515)
Fee and commission income and expenses   8,839    10    63    5    (5)   18    56    56 
Net income (expense) from financial operations and foreign exchange transactions (*)   262,628    -    (82)   3    (62,971)   -    (74)   (957)
Other operating income and expenses   226    -    -    -    227    -    -    - 
Key personnel compensation and expenses   -    -    (9,070)   -    -    -    (8,258)   - 
Administrative and other expenses   (8,581)   (11,682)   -    -    (8,888)   (13,241)   -    - 
                                         
Total   256,893    (11,660)   (8,724)   32    (74,501)   (13,238)   (8,071)   (1,416)

 

(*)Primarily relates to derivative contracts used to hedge economically the exchange risk of assets and liabilities that hedge positions of the Bank and its subsidiaries,

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    101

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 31

TRANSACTIONS WITH RELATED PARTIES, continued

 

d)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, is shown in the “Personnel salaries and expenses” and/or “Administrative expenses” of the Unaudited Consolidated Interim Statements of Income, and detailed as follows:

  

   For the three months ended March 31, 
   2016   2015 
    MCh$    MCh$ 
           
Personnel compensation   4,588    4,660 
Board member`s salaries and expenses   335    329 
Bonuses or gratuity   3,322    2,857 
Compensation in stock   (25)   70 
Training expenses   81    14 
Seniority compensation   642    57 
Health funds   76    78 
Other personnel expenses   192    191 
Pension Plans   (141)   2 
Total   9,070    8,258 

 

e)Composition of key personnel

 

As of March 31, 2016 and 2015, the composition of the Bank`s key personnel is as follows:

 

   No, of executives 
Position  As of
March 31,
   As of
December 31,
 
    2016    2015 
           
Director   11    12 
Division manager   15    16 
Department manager   79    79 
Manager   58    53 
           
Total key personnel   163    160 

  

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    102

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

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 sale transaction of an asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.

 

For financial instruments with no available market prices, fair values have been estimated by using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community. In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.

 

These techniques are significantly influenced by the assumptions used, including the discount rate, the estimates of future cash flows and prepayment expectations. Hence, the fair value estimated for an asset or liability may not coincide exactly with the price at which that asset or liability could be delivered or settled on the date of its valuation, and may not be justified in comparison with independent markets.

 

Except as detailed in the following table, the management consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

 

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 March 31, 2016 and December 31, 2015:

 

   As of March 31,   As of December 31, 
   2016   2015 
   Book value   Fair value   Book value   Fair value 
    MCh$    MCh$    MCh$    MCh$ 
                     
Assets                    
Trading investments   155,369    155,369    324,271    324,271 
Financial derivative contracts   2,990,214    2,990,214    3,205,926    3,205,926 
Loans and accounts receivable from customers and interbank loans, (net)   24,941,869    27,181,253    24,546,062    26,676,836 
Investments available for sale   2,686,185    2,686,185    2,044,411    2,044,411 
Guarantee deposits (margin accounts)   494,750    494,750    649,325    649,325 
                     
Liabilities                    
Deposits and interbank borrowings   21,118,936    21,210,051    20,846,462    21,167,077 
Financial derivative contracts   2,784,208    2,784,208    2,862,606    2,862,606 
Issued debt instruments and other financial liabilities   5,952,720    6,429,758    6,177,622    6,556,120 
Guarantees received (margin accounts)   603,129    603,129    819,331    819,331 

 

The fair value approximates the carrying amount of the following line items due to their short-term nature: cash and deposits-banks, cash items in process of collection and investments under resale or repurchase agreements.

 

In addition, the fair value estimates presented above do not attempt to estimate the value of the Bank’s profits generated by its business activity, nor its future activities, and accordingly, they do not represent the Bank’s value as a going concern. Below is a detail of the methods used to estimate the financial instruments’ fair value.

 

a)Trading investments and available for sale investment instruments

 

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 are evaluated at recorded value since 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 March 2016 / Banco Santander Chile    103

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

b)Loans and accounts receivable from customers and interbank loans

 

Fair value of commercial, mortgage and consumer loans and credit cards is measured through a discounted cash flow (DCF) analysis. To do so, we use current market interest rates considering product, term, amount and similar loan quality. Fair value of loans with 90 days or more of delinquency are measured by means of the market value of the associated guarantee, minus the rate and term of expected payment. For variable rate loans whose interest rates change frequently (monthly or quarterly) and that are not subjected to any significant credit risk change, the estimated fair value is based on their book value.

 

c)Deposits

 

Disclosed fair value of deposits that do not bear interest and saving accounts is the amount payable at the reporting date and, therefore, equals the recorded amount. Fair value of time deposits is calculated through a discounted cash flow calculation that applies current interest rates from a monthly calendar of scheduled maturities in the market.

 

d)Short and long term issued debt instruments

 

The fair value of these financial instruments is calculated by using a discounted cash flow analysis based on the current incremental lending rates for similar types of loans having similar maturities.

 

e)Financial derivative contracts

 

The estimated fair value of financial derivative contracts is calculated using the prices quoted on the market for financial instruments having similar characteristics.

 

The fair value of interest rate swaps represents the estimated amount that the Bank determines as exit price in accordance with IFRS 13.

 

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 March 2016 / Banco Santander Chile    104

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

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 mnemonic, the reported rate is the weighted average amount of the observed rates. 

In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on historical spread for the same item or similar ones.

 

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 mnemonic, the reported rate is the weighted average amount of the observed rates. 

In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves.

 

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 March 2016 / Banco Santander Chile    105

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

The Bank does not believe that any change in unobservable inputs with respect to level 3 instruments would result in a significantly different fair value measurement.

 

The following table presents the assets and liabilities that are measured at fair value on a recurring basis, as of March 31, 2016 and December 31, 2015.

 

   Fair value measurement 
As of March 31,  2016   Level 1   Level 2   Level 3 
    MCh$    MCh$    MCh$    MCh$ 
                     
Assets                    
Trading investments   155,369    150,015    5,354    - 
Available for sale investments   2,686,185    1,654,441    1,030,941    803 
Derivatives   2,990,214    -    2,948,041    42,173 
Guarantee deposits (margin accounts)   494,750    -    494,750    - 
Total   6,326,518    1,804,456    4,479,086    42,976 
                     
                     
Liabilities                    
Derivatives   2,784,207    -    2,783,930    277 
Guarantees received (margin accounts)   603,129    -    603,129    - 
Total   3,387,336    -    3,387,059    277 

 

      Fair value measurement  
As of December 31,     2015       Level 1       Level 2       Level 3  
      MCh$       MCh$       MCh$       MCh$  
                                 
Assets                                
Trading investments     324,271       283,236       41,035       -  
Available for sale investments     2,044,411       1,287,589       756,056       766  
Derivatives     3,205,926       -       3,166,779       39,147  
Guarantee deposits (margin accounts)     649,325       649,325       -       -  
Total     6,223,933       2,220,150       3,963,870       39,913  
                                 
                                 
Liabilities                                
Derivatives     2,862,606       -       2,862,606       -  
Guarantees received (margin accounts)     819,331       819,331       -       -  
Total     3,681,937       819,331       2,862,606       -  

 

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 March 31, 2016 and 2015:

 

   Assets   Liabilities 
   MCh$   MCh$ 
         
As of January 1, 2016   39,913    - 
           
Total realized and unrealized profits (losses)          
Included in statement of income   3,026    277 
Included in other comprehensive income   37    - 
Purchases, issuances, and loans (net)   -    - 
           
As of March 31, 2016   42,976    277 
           
Total profits or losses included in comprehensive income at March 31, 2016 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of March 31, 2015   3,063    277 

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    106

 

  

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 32

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

 

   Assets   Liabilities 
   MCh$   MCh$ 
         
As of January 1, 2015   43,665    - 
           
Total realized and unrealized profits (losses)          
Included in statement of income   466    - 
Included in other comprehensive income   4    - 
Purchases, issuances, and loans (net)   -    - 
           
As of March 31, 2015   44,135    - 
           
Total profits or losses included in comprehensive income at March 31, 2015 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of March 31, 2014   470    - 

 

The realized and unrealized profits (losses) included in comprehensive income for 2016 and 2015, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the Statement of Comprehensive Income in the associate line item.

 

The potential effect as of March 31, 2016 and 2015 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 March 31, 2016 
   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   -    -    -    2,739,303    2,560,316    178,987    250,911    223,892    27,019 
Repurchase agreements   -    -    -    -    -    -    -    51,423    (51,423)
Total   -    -    -    2,739,303    2,560,316    178,987    250,911    275,315    (24,404)

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    107

 

 

 

 

Banco Santander Chile and Subsidiaries

Notes to the Unaudited Consolidated Interim Financial Statements

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2016 AND 2015

 

NOTE 33

SUBSEQUENT EVENTS

 

On April 7, 2016, the Bank issued two bonds for CLF 7,000,000 each one at a fixed rate for 6.5 and 8.5 years, respectively.

 

Between April 1, 2016 and the date on which these Unaudited Consolidated Interim Financial Statements were issued (April 25, 2016), no other events have occurred which could significantly affect their interpretation.

 

     

FELIPE CONTRERAS FAJARDO

Chief Accounting Officer

 

CLAUDIO MELANDRI HINOJOSA

Chief Executive Officer

 

Consolidated Interim Financial Statements March 2016 / Banco Santander Chile    108