SEC Filing | Banco Santander Chile

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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Issuer

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

Commission File Number: 001-14554

Banco Santander Chile

Santander Chile Bank

(Translation of Registrant’s Name into English)

Bandera 140

Santiago, Chile

(Address of principal executive office)

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

Form 20-F

☒

Form 40-F

☐

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

Yes

☐

☒

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

Yes

☐

☒

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

Yes

☐

☒

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

CONTENT

Consolidated Financial Statements

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

Notes to the Consolidated Interim Financial Statements

NOTE 01	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9
NOTE 02	CHANGES IN ACCOUNTING	36
NOTE 03	SIGNIFICANT EVENTS	37
NOTE 04	REPORTING SEGMENTS	38
NOTE 05	CASH AND CASH EQUIVALENTS	40
NOTE 06	TRADING INVESTMENTS	41
NOTE 07	DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING	42
NOTE 08	INTERBANK LOANS	48
NOTE 09	LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS	49
NOTE 10	AVAILABLE FOR SALE INVESTMENTS	55
NOTE 11	INTANGIBLE ASSETS	56
NOTE 12	PROPERTY, PLANT, AND EQUIPMENT	58
NOTE 13	CURRENT AND DEFERRED TAXES	63
NOTE 14	OTHER ASSETS	66
NOTE 15	TIME DEPOSITS AND OTHER TIME LIABILITIES	67
NOTE 16	ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES	68
NOTE 17	MATURITY OF FINANCIAL ASSETS AND LIABILITIES	75
NOTE 18	PROVISIONS	77
NOTE 19	OTHER LIABILITIES	78
NOTE 20	CONTINGENCIES AND COMMITMENTS	79
NOTE 21	EQUITY	82
NOTE 22	CAPITAL REQUIREMENTS (BASEL)	85
NOTE 23	NON-CONTROLLING INTEREST	87
NOTE 24	INTEREST INCOME	89
NOTE 25	FEES AND COMMISSIONS	91
NOTE 26	NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS	94
NOTE 27	NET FOREIGN EXCHANGE INCOME	95
NOTE 28	PROVISIONS FOR LOAN LOSSES	96
NOTE 29	PERSONNEL SALARIES AND EXPENSES	97
NOTE 30	ADMINISTRATIVE EXPENSES	98
NOTE 31	DEPRECIATION, AMORTIZATION AND IMPAIRMENT	99
NOTE 32	OTHER OPERATING INCOME AND EXPENSES	100
NOTE 33	TRANSACTIONS WITH RELATED PARTIES	101
NOTE 34	FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES	105
NOTE 35	SUBSEQUENT EVENTS	111

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

		As of March 31,			As of December 31,
		2019			2018
	NOTE	MCh$			MCh$
ASSETS
Cash and deposits in banks	5		1,550,598			2,065,441
Cash items in process of collection	5		410,616			353,757
Trading investments	6		94,808			77,041
Investments under resale agreements			5,015			-
Financial derivative contracts	7		2,983,230			3,100,635
Interbank loans, net	8		26,414			15,065
Loans and accounts receivables from customers, net	9		29,779,287			29,470,370
Available for sale investments	10		2,799,044			2,394,323
Held to maturity investments			-			-
Investments in associates and other companies			33,098			32,293
Intangible assets	11		63,302			66,923
Property, plant, and equipment	12		201,093			253,586
Right of use assets	12		199,529			-
Current taxes	13		10,195			-
Deferred taxes	13		416,922			382,934
Other assets	14		1,094,414			984,988
TOTAL ASSETS			39,667,565			39,197,356

LIABILITIES
Deposits and other demand liabilities	15		8,526,343			8,741,417
Cash items in process of being cleared	5		275,695			163,043
Obligations under repurchase agreements			120,935			48,545
Time deposits and other time liabilities	15		12,935,703			13,067,819
Financial derivative contracts	7		2,546,341			2,517,728
Interbank borrowing			1,734,863			1,788,626
Issued debt instruments	16		8,534,221			8,115,233
Other financial liabilities	16		215,879			215,400
Obligation for lease contract	12		154,839			-
Current taxes	13		-			8,093
Deferred taxes	13		60,264			15,470
Provisions	18		341,823			329,940
Other liabilities	19		852,470			900,408
TOTAL LIABILITIES			36,299,376			35,911,647

EQUITY
Attributable to the equity holders of the Bank			3,312,798			3,239,546
Capital	21		891,303			891,303
Reserves	21		1,923,022			1,923,022
Valuation adjustments	21		5,341			10,890
Retained earnings			502,132			414,331
Retained earnings from prior years			591,902			-
Income for the year			125,430			591,902
Minus: Provision for mandatory dividends			(215,200	)		(177,571	)
Non-controlling interest	23		46,391			46,163
TOTAL EQUITY			3,368,189			3,285,709

TOTAL LIABILITIES AND EQUITY			39,667,565			39,197,356

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 3

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD

For the periods ended

		As of March 31,
		2019			2018
	NOTE	MCh$			MCh$

OPERATING INCOME

Interest income	24		460,751			528,052
Interest expense	24		(138,050	)		(181,337	)

Net interest income			322,701			346,715

Fee and commission income	25		121,366			124,154
Fee and commission expense	25		(50,691	)		(48,660	)

Net fee and commission income			70,675			75,494

Net income (expense) from financial operations	26		(168,510	)		(27,174	)
Net foreign exchange gain	27		207,355			50,395
Other operating income	32		5,156			6,307

Net operating profit before provision for loan losses			437,377			451,737

Provision for loan losses	28		(76,274	)		(75,405	)

NET OPERATING PROFIT			361,103			376,332

Personnel salaries and expenses	29		(94,557	)		(89,516	)
Administrative expenses	30		(59,336	)		(62,155	)
Depreciation and amortization	31		(26,163	)		(19,180	)
Impairment of property, plant, and equipment	31		-			(39	)
Other operating expenses	32		(14,165	)		(9,921	)

Total operating expenses			(194,221	)		(180,811	)

OPERATING INCOME			166,882			195,521

Income from investments in associates and other companies			923			825

Income before tax			167,805			196,346

Income tax expense	13		(42,146	)		(44,553	)

NET INCOME FOR THE PERIOD			125,659			151,793

Attributable to:
Equity holders of the Bank			125,430			151,016
Non-controlling interest	23		229			777
Earnings per share attributable to Equity holders of the Bank:
(expressed in Chilean pesos)
Basic earnings	21		0.666			0.801
Diluted earnings	21		0.666			0.801

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 4

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF OTHER COMPREHENSIVE INCOME

For the periods ended

		March 31,
		2019			2018
	NOTE	MCh$			MCh$

NET INCOME FOR THE PERIOD			125,659			151,793

OTHER COMPREHENSIVE INCOME - ITEMS WHICH WILL BE RECLASSIFIED TO PROFIT OR LOSS

Available for sale investments	10		9,677			4,232
Cash flow hedge	21		(17,278	)		(7,122	)

Other comprehensive income which may be reclassified subsequently to profit or loss, before tax			(7,601	)		(2,890	)

Income tax related to items which may be reclassified subsequently to profit or loss	13		2,052			806

Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax			(5,549	)		(2,084	)

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

TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD			120,110			149,709

Attributable to:
Equity holders of the Bank			119,881			148,980
Non-controlling interest	23		229			729

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 5

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended March 31, 2019 and 2018

			RESERVES					VALUATION ADJUSTMENTS								RETAINED EARNINGS
	Capital		Reserves and other retained earnings		Effects of merger of companies under common control			Available for sale investments		Hedge cash flow			Income tax effects			Prior years retained earnings		Income for the year			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, 2017		891,303		1,784,042		(2,224	)		459		(3,562	)		791			-		564,815			(169,444	)		3,066,180			41,883			3,108,063
Distribution of income from previous period		-		-		-			-		-			-			564,815		(564,815	)		-			-			-			-
Equity as of January 1, 2018		891,303		1,784,042		(2,224	)		459		(3,562	)		791			564,815		-			(169,444	)		3,066,180			41,883			3,108,063
Increase or decrease of capital and reserves		-		-		-			-		-			-			-		-			-			-			-			-
Dividends distributions/ withdrawals made		-		-		-			-		-			-			-		-			-			-			-			-
Transfer of retained earnings to reserves		-		-		-			-		-			-			-		-			-			-			1			1
Provision for mandatory dividends		-		-		-			-		-			-			-		-			(45,305	)		(45,305	)		-			(45,305	)
Subtotals		-		-		-			-		-			-			-		-			(45,305	)		(45,305	)		1			(45,304	)
Other comprehensive income		-		-		-			4,269		(7,122	)		817			-		-			-			(2,036	)		(48	)		(2,084	)
Income for the year		-		-		-			-		-			-			-		151,016			-			151,016			777			151,793
Subtotals		-		-		-			4,269		(7,122	)		817			-		151,016			-			148,980			729			149,709
Equity as of March 31, 2018		891,303		1,784,042		(2,224	)		4,728		(10,684	)		1,608			564,815		151,016			(214,749	)		3,169,855			42,613			3,212,468

Equity as of December 31, 2018		891,303		1,925,246		(2,224	)		5,114		9,803			(4,027	)		-		591,902			(177,571	)		3,239,546			46,163			3,285,709
Distribution of income from previous period		-		-		-			-		-			-			591,902		(591,902	)		-			-			-			-
Equity as of January 1, 2019		891,303		1,925,246		(2,224	)		5,114		9,803			(4,027	)		591,902		-			(177,571	)		3,239,546			46,163			3,285,709
Increase or decrease of capital and reserves		-		-		-			-		-			-			-		-			-			-			-			-
Transactions with own shares		-		-		-			-		-			-			-		-			-			-			-			-
Dividend distributions/ withdrawals made		-		-		-			-		-			-			-		-			-			(423,611	)		-			(423,611	)
Other equity movements		-		-		-			-		-			-			-		-			-			-			(1	)		(1	)
Provision for mandatory dividends		-		-		-			-		-			-			-		-			(37,629	)		(37,629	)		-			(37,629	)
Subtotals		-		-		-			-		-			-			-		-			(37,629	)		(37,629	)		(1	)		(37,630	)
Other comprehensive income		-		-		-			9,677		(17,278	)		2,052			-		-			-			(5,549	)		-			(5,549	)
Income for the year		-		-		-			-		-			-			-		125,430			-			125,430			229			125,659
Subtotals		-		-		-			9,677		(17,278	)		2,052			-		125,430			-			119,881			229			120,110
Equity as of March 31, 2019		891,303		1,925,246		(2,224	)		14,791		(7,475	)		(1,975	)		591,902		125,430			(215,200	)		3,321,798			46,391			3,368,189

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

	Total attributable to equity holders of the Bank		Allocated to reserves		Allocated to dividends		Distributed Percentage		Number of		Dividend per share
Period	MCh$		MCh$		MCh$		%		shares		(in chilean pesos)

Year 2016 (Shareholders Meeting April 2018)		564,815		141,204		423,611		75		188,446,126,794		2,248

Year 2015 (Shareholders Meeting April 2017)		472,351		141,706		330,645		70		188,446,126,794		1.755

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 6

Banco Santander Chile and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the periods ended

		March 31,
		2019			2018
	NOTE	MCh$			MCh$

A – CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME FOR THE PERIOD			125,659			151,793
Debits (credits) to income that do not represent cash flows			(252,061	)		(290,860	)
Depreciation and amortization	31		26,163			19,180
Impairments of property, plant, and equipment and intangibles	31		-			39
Provision for loan losses	28		97,585			96,224
Provision from trading investments mark to market			7,713			1,438
Income from investments in associates and other companies			(923	)		(825	)
Net gain on sale of assets received in lieu of payment	32		(4,896	)		(5,945	)
Provision on assets received in lieu of payment	32		212			446
Net gain on sale of associates and other companies			-			-
Net gain on sale of controlled companies			-			-
Net gain on sale of property, plant, and equipment	32		(50	)		(1	)
Charge off of assets received in lieu of payment	32		2,622			5,448
Net interest income	24		(322,701	)		(346,715	)
Net fee and commission income	25		(70,675	)		(75,494	)
Other debits (credits) to income that do not represent cash flows			(3,705	)		-
Changes in deferred taxes	13		12,933			15,345
Increase/decrease in operating assets and liabilities			(439,868	)		291,442
(Increase) decrease of loans and accounts receivables from customers, net			(306,865	)		(771,920	)
(Increase) decrease of financial investments			(422,488	)		(104,717	)
Decrease (increase) due to resale agreements (assets)			(5,015	)		-
Decrease (increase) of interbank loans			(11,349	)		153,372
(Increase) decrease of assets received or awarded in lieu of payment			38			1,431
Increase (decrease) of debits in customers checking accounts			(36,080	)		232,245
Increase (decrease) of time deposits and other time liabilities			(132,116	)		54,830
Increase (decrease) of obligations with domestic banks			1,280			(480	)
Increase (decrease) of other demand liabilities or time obligations			(178,994	)		175,197
Increase (decrease) of obligations with foreign banks			(55,039	)		(375,365	)
Increase (decrease) of obligations with Central Bank of Chile			(4	)		-
Increase (decrease) of obligations under repurchase agreements			72,390			(162,162	)
Increase (decrease) in other financial liabilities			479			1,654
Increase (decrease) of obligation for lease contract			154,839			-
Net increase of other assets and liabilities			(409,234	)		783,161
Redemption of letters of credit			(2,190	)		(2,612	)
Mortgage bond issuances			-			-
Senior bond issuances			850,810			-
Redemption mortgage bonds and payments of interest			(3,046	)		(2,589	)
Redemption and maturity of of senior bonds and payments of interest			(350,660	)		(112,812	)
Interest received			460,751			528,052
Interest paid			(138,050	)		(181,337	)
Dividends received from investments in other companies			-			-
Fees and commissions received	25		121,366			124,154
Fees and commissions paid	25		(50,691	)		(48,660	)
Total cash flow provided by (used in) operating activities			(566,270	)		152,375

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 7

Banco Santander Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

		March 31,
		2019			2018
	NOTE	MCh$			MCh$

B – CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property, plant, and equipment	12		(4,110	)		(3,506	)
Sales of property, plant, and equipment	12		47,107			60
Purchases of investments in associates and other companies			-			-
Sales of investments in associates and other companies			-			-
Purchases of intangible assets	11		(2,731	)		(5,064	)
Total cash flow provided by (used in) investment activities			40,266			(8,510	)

C – CASH FLOW FROM FINANCING ACTIVITIES:
From shareholder´s financing activities			(4,277	)		(4,142	)
Increase in other obligations			-			-
Subordinated bonds emisions			-			-
Redemption of subordinated bonds and payments of interest			(4,277	)		(4,142	)
Dividends paid			-			-
From non-controlling interest financing activities			-			-
Dividends and/or withdrawals paid			-			-
Total cash flow used in financing activities			(4,277	)		(4,142	)

D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD			(530,281	)		139,723

E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS			(40,355	)		(16,852	)

F – INITIAL BALANCE OF CASH AND CASH EQUIVALENTS	5		2,256,155			1,634,341

FINAL BALANCE OF CASH AND CASH EQUIVALENTS	5		1,685,519			1,757,212

		As of March 31,
Reconciliation of provisions for the Consolidated Interim Statements		2019			2018
of Cash Flows for the periods		MCh$			MCh$

Provision for loan losses for cash flow purposes			97,585			96,224
Recovery of loans previously charged off			(21,311	)		(20,819	)
Provision for loan losses - net	28		76,274			75,405

						Changes other than cash
Reconciliation of liabilities arising from financing activities	December, 31 2018 MCh$		Cash Flow MCh$			Acquisition MCh$		Foreign Currency Movement MCh$		UF Movement MCh$		Fair Value Changes MCh$		March, 31 2019 MCh$
Subordinated Bonds		795,957		(4,247	)		-		-		3,563		-		795,243
Paid dividends		-		-			-		-		-		-		-
Other		-		-			-		-		-		-		-
Total liabilities from financing activities		773,192		(4,247	)		-		-		3,536		-		795,243

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 8

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE INFORMATION

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

Banco Santander Spain controls Banco Santander Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of March 31, 2019, Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This makes Banco Santander Spain have control over 67.18% of the Bank’s shares.

Basis of preparation

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

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

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

Basis of preparation for the Consolidated Interim Financial Statements

The Consolidated Interim Financial Statements as of March 31, 2019 and 2018 and December 31, 2018, include the financial statements from the Bank entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:

has power over the investee (i.e., it has rights that grant the current capacity of managing the relevant activities of the investee)

II.

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

III.

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

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

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

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

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

The rights arising from other contractual agreements.

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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 9

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 balances and transacctions between consolidated entities are eliminated.

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

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

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

Entities controlled by the Bank through participation in equity

			Percent ownership share
			As of March 31,
		Place of	2019						2018
		Incorporation	Direct		Indirect		Total		Direct		Indirect		Total
Name of the Subsidiary	Main Activity	And operation	%		%		%		%		%		%

Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile		99.75		0.01		99.76		99.75		0.01		99.76
Santander Corredores de Bolsa Limitada	Financial instruments brokerage	Santiago, Chile		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
Santander S.A. Sociedad Securitizadora	Purchase of credits and issuance of debt instruments	Santiago, Chile		99.64		-		99.64		99.64		-		99.64

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

(*) On July 25, 2018, the company has ceased conducting foreign currency purcharse and sale operations, hence forth this operation will be carried out directly by the Bank.

ii.

Entities controlled by the Bank through other considerations

The following companies have been consolidated as of March 31, 2019 and 2018 and December 31, 2018 based on the fact that the activities relevant on them are determined by the Bank (companies complementary to the banking sector) and therefore the Bank exercises control:

Santander Gestión de Recaudación y Cobranza Limitada (collection services)

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

iii.

Associates

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 10

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Percentage of ownership share

Place of

As of March 31,

Incorporation and

2019

2018

Associates

Main activity

operation

Redbanc S.A. (*)

ATM services

Santiago, Chile

33.43

Transbank S.A. (*)

Debit and credit card services

Santiago, Chile

25.00

Centro de Compensación Automatizado S.A.

Electronic fund transfer and compensation services

Santiago, Chile

33.33

Sociedad Interbancaria de Depósito de Valores S.A.

Repository of publically offered securities

Santiago, Chile

29.29

Cámara de Compensación de Pagos de Alto Valor S.A.

Payments clearing

Santiago, Chile

15.00

14.23

Administrador Financiero del Transantiago S.A.

Administration of boarding passes to public transportation

Santiago, Chile

20.00

Sociedad Nexus S.A. (*)

Credit card processor

Santiago, Chile

12.90

Servicios de Infraestructura de Mercado OTC S.A.

Administration of the infrastructure for the financial market of derivative instruments

Santiago, Chile

12.07

(*) During 2018 Banco Santander-Chile, has granted a mandate to Credicorp Capital to exercise all its political rights as a shareholder.

In the case of Nexus S.A. and Compensation Chamber for High-Value Payments S.A., Banco Santander Chile has a representative in the Board of Directors of such companies, which is why the Administration has concluded that it exercises significant influence over the same.

In the case of Market Infrastructure Services OTC S.A. The Bank participates, through its executives, actively in the administration and in the organizational process, which is why the Administration has concluded that it exerts significant influence about it.

iv.

Share or rights in other companies

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

Non-controlling interest

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

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

Reporting segments

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

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

ii.

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

iii.

for which discrete financial information is available.

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

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

ii.

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

iii.

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 11

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 Consolidated Interim Financial Statements.

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

Functional and presentation currency

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

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

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$679.91 per US$1 for March, 2019 (Ch$604.67 per US$1 for March 2018 and Ch$697.76 per US$1 for December, 2018).

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

Definitions and classification of financial instruments

Definitions

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

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

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

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative. As of March 31, 2019 and 2018 and December 31, 2018, Banco Santander did not keep implicit derivatives in its portfolio.

ii.

Classification of financial assets for measurement purposes

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

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

Effective interest method

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 12

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Financial assets FVTPL - Trading investments

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

A financial asset is classified as held for trading if:

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

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

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

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

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

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

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

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

Held to maturity investments

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

Available for sale investments (AFS investments)

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

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

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 13

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Loans and accounts receivables from customers

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

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

iii.

Classification of financial assets for presentation purposes

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

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

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

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

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

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

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

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

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

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

iv.

Classification of financial liabilities for measurement purposes

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

Financial liabilities FVTPL

As of March 31, 2019 and December 31, 2018, the bank does not possess any financial liabilities FVTPL.

Other financial liabilities

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 14

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Classification of financial liabilities for presentation purposes

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

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

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

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

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

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

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

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

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

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

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

Valuation of financial instruments and recognition of fair value changes

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

Valuation of financial instruments

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

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 15

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

(CVA) is a valuation adjustment to derivatives contracted in non-organized markets as a result of exposure to counterparty credit risk. The CVA is calculated considering the potential exposure to each counterparty in future periods. Own-credit risk (DVA) is a valuation adjustment similar to the CVA, but generated by the Bank's credit risk assumed by our counterparties. As of March 31, 2019, the CVA and DVA are Ch$ 8,462 million and Ch$ 14,838 million, respectively.

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

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

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

ii.

Valuation techniques

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

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 16

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The main techniques used as of March 31, 2019 and 2018 and as of December 31, 2018 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

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

ii.

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

iii.

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

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

iii.

Hedging transactions

The Bank uses financial derivatives for the following purposes:

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:

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

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

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

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

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

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

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

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

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

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

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 17

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

iv.

Derivatives embedded in hybrid financial instruments

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

Offsetting of financial instruments

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

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:

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

ii.

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

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

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

iii.

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

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

If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Interim Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 18

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

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

Recognizing income and expenses

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

Interest revenue, interest expense, and similar items

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

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

This interest and adjustments are generally referred to as “suspended” and are recorded in they are reported as part of the complementary information thereto and as memorandum accounts (Note 24). 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 Consolidated Interim Statement of Income using criteria stablished in IFRS 15 “Revenue from contracts with customers”, using retrospectively with the cumulative effect recognised at the date of initial application method and therefore has not restated the prior comparative information, which continues to be reporting under IAS 18 “Revenue recognition”.

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

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

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

Fees and commissions for lines of credits and overdrafts:includes accrued fees related to granting lines of credit and overdrafts in checking accounts.

Fees and commissions for guarantees and letters of credit:includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations.

Fees and commissions for card services:includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards.

Fees and commissions for management of accounts:includes accrued commissions for the maintenance of checking, savings and other accounts.

Fees and commissions for collections and payments:includes income arising from collections and payments services provided by the Bank.

Fees and commissions for intermediation and management of securities:includes income from brokerage, placements, administration and securitie's custody services.

Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 19

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Other fees and commissions:includes income arising from currency changes,financial advisory, cashier check issuance, placement of financial products and onlilne banking services.

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

Compensation for card operation:includes commission expenses for credit and debit card operations related to income commissions card services.

Fees and commissions for securities transactions:includes commissions expense for deposits, securities custody service and securitie's brokerage.

Other fees and commissions:includes mainly expenses generayed from online services.

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

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

iii.

Non-financial income and expenses

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

Impairment

Financial assets:

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

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

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.

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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 20

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Property, plant, and equipment

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

Property, plant and equipment for own use

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

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

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

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

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

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

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

ii.

Assets leased out under operating leases

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 21

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Right-of-use assets and lease liabilities

The Bank is party to lease contracts for offices and branches, all those required to carry out its business activities.

Leases are recognized, measured and presented in accordance with IFRS 16 “Leases”.

The lease term comprises non-cancelable period of lease contracts, and typically contains automatic extension, which is not consider in the lease liability since both parties have a genuine ability to negotiate. Additionally, each party has the right of early termination. For lease contract with indefinite term the Bank has estimates the length equal to maximum non-cancelable contracts period. The same economic useful life is apply to determine the depreciation rate of right-of-use assets.

The present value of the lease payment is determined using the discount rate representing the incremental borrowing rate at the date when lease contract commences or is modify.

The Bank has elected to apply IFRS 16 using the modified retrospective approach, and does not restate comparative figures. Thus, disclosures related to prior year were prepared under IAS 17 Leases.

According to the above, the Bank has elected to recognize a lease liability at the date of initial application, as the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application, and the right-of-use, for an amount equal to the lease liability.

At initial measurement, the Bank measures the right-of-use asset at cost. The rent of these leases are according in UF, and payable in Chilean pesos.

The Bank has decided not to apply the new guidance to leases whose term will end within 12 months of the date of initial application. In those cases, the leases are accounted for as short-term leases, and the lease payments associated with them will be recognised as an expense from short-term leases.

Leasing

Finance leases

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

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

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

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

ii.

Operating leases

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

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 22

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

iii.

Sale and leaseback transactions

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

Factored receivables

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

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

Intangible assets

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

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

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated. The estimated useful life for software is 3 years. Intangible assets are amortized on a straight-line basis over their estimated useful life; which has been defined as 36 months.

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

Cash and cash equivalents

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

The cash flow statement was prepared considering the following definitions:

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

ii.

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

iii.

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

iv.

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

Allowances for loan losses

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 23

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Bank has established allowances to cover probable losses on loans and account receivables in accordance with instructions issued by Superintendency of Banks and Financial Institutions (SBIF) and models of credit risk rating and assessment approved by the Board’s Committee, including the amendments introduced by Circular No. 3,573 (and its further modifications) 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.

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:

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.

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.

	Debtor’s	Probability of
Portfolio	Category	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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 24

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

Impaired Portfolio

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

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

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

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

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

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

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:

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;

if the debtor must pay monthly installments for one or more loans, four consecutive installments have been made;

vi.

the debtor does not appear to have bad debts in the information provided by the SBIF, except for insignificant amounts.

II.

Allowances for group assessments

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 25

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

The customers are classified according to their internal and external characteristics into profiles, using a customer-portfolio model to differentiate

each portfolio’s risk in an appropriate manner. This is known as the profile allocation method.

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

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

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

Standard method of residential mortgage loan provisions

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

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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 26

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

III.

Additional provisions

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

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

IV.

Charge-offs

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

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

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

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

Type of loan		Term

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

Recovery of loans previously charged off and accounts receivable from customers

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

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

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

Provisions, contingent assets, and contingent liabilities

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 27

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

ii.

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

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

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

Provisions are classified according to the obligation covered as follows:

Provision for employee salaries and expenses

Provision for mandatory dividends

Provision for contingent loan risks

Provisions for contingencies

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.

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 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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 28

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Allowances for loan losses (Notes 8, 9, and 28)

Impairment losses of certain assets (Notes 7, 8, 9, 10, and 31)

The useful lives of tangible and intangible assets (Notes 11, 12 and 31)

The fair value of assets and liabilities (Notes 6, 7, 10 and 34)

Commitments and contingencies (Note 20)

Current and deferred taxes (Note 13)

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, 2019 and December 31, 2018, the bank has not qualified any non-current assets as held for sale.

Assets received or awarded in lieu of payment

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

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

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

At the end of each year the Bank performs an analysis to review the “selling costs” of assets received or awarded in lieu of payments which will be applied at this date and during the following year. On December 31, 2018 the average selling cost has been estimated at 3.4% of the appraisal value (5.1% for December 31, 2016).

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

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

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, 2019 and December 31, 2018, the Bank did not have any instruments that generated dilution.

Temporary acquisition (assignment) of assets and liabilities

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 29

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Assets under management and investment funds managed by the Bank

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

Provision for mandatory dividends

As of March 31, 2019 and December 31, 2018, the Bank recorded a provision for minimum mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, which requires at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded as a deduction from “Retained earnings” – “Provision for mandatory dividends” in the Consolidated Statement of Changes in Equity with offset to Provisions.

Employee benefits

Post-employment benefits – Defined Benefit Plan:

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

Features of the Plan:

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

Aimed at the Bank’s management.

II.

The general requirement is that the beneficiary must still be employed by the Bank when reaching 60 years old.

III.

The Bank will 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.

IV.

The Bank will be responsible for granting the benefits directly.

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

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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 30

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

ii.

Severance provision:

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

iii.

Cash-settled share based compensation

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

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

aa)

New accounting pronouncements

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

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

Accounting Standards Issued by the SBIF

Circular N ° 3,645 - Leases in accordance with IFRS 16. Modifies and complements the Compendium of Accounting Standards. Chapters A- 2, B-1, C-1 and C-3 - On January 11, 2019, the SBIF issued this circular with the purpose of clarifying the way in which banks must apply the criteria defined in the International Information Standard. Financial N ° 16 (IFRS 16). Detailing the changes in the statement of financial position and income statement, and notes.

These modifications are applicable as of January 2019. The Administration made the necessary adjustments to comply with this requirement in a timely manner, and there are no relevant situations that indicate otherwise.

Accounting Standards issued by the International Accounting Standards Board

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

This regulation is applicable as of January 1, 2019. The Administration carried out an implementation process during the year 2018, which culminated successfully with the application as of January 1, 2019, using the modified retrospective method, this means that At the date of initial application, the right-of-use asset is equal to the financial liability, and in addition it has been chosen not to restate the balances of the previous year, for more information see related accounting policies and Note 02 of accounting changes.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 31

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

IFRIC 23 Uncertainty about the treatment of income tax - This interpretation issued on June 7, 2017 clarifies the accounting for tax uncertainties, which applies to the determination of taxable income, tax base, tax losses and unused credits, when there is an uncertainty about the treatment according to IAS 12 "Income Tax". This standard covers four points: (a) If an entity considers tax uncertainties individually or together, (b) The assumptions that an entity makes about the tax treatment review established by the tax authority, (c) As an entity determines the taxable profit (or loss), the tax base, tax loss and unused credits and tax rates, and (d) How an entity considers changes in facts and circumstances.

This interpretation is effective for annual periods beginning on or after January 1, 2019. Early application is permitted. Management has assessed that the implementation of this interpretation has not had a material impact on the Bank's consolidated financial statements.

Amendment to IAS 28 Long-Term Participations in Associates and Joint Ventures - On October 12, 2017 the IASB published this amendment to clarify that an entity would also apply IFRS 9 to a long-term participation in an associate or joint venture to which the participation method does not apply. When applying IFRS 9, the adjustments of the long-term interests that arise from the application of this Standard will not be taken into account.

This amendment is effective retroactively in accordance with IAS 8 to annual periods beginning on or after January 1, 2019. Management has assessed that the implementation of this amendment has not had a material impact on the Consolidated Interim Financial Statements. from the bank.

Annual Improvements, cycle 2015-2017 - This amendment published on December 12, 2017 introduces the following improvements:

IFRS 3 Business Combinations / IFRS 11 Joint Agreements: deals with the prior interest in a joint operation, as a business combination in stages. IAS 12 Income Tax: deals with the consequences in income tax of payments of financial instruments classified as equity. IAS 23 Loan costs: deals with the eligible costs for capitalization.

This amendment is effective for annual periods beginning on or after January 1, 2019. Management has assessed that the implementation of these amendments has not had a material impact on the Bank's consolidated financial statements.

Amendment IAS 19 - Modification, reduction or liquidation of pension plans - This amendment issued on February 7, 2018 introduces the following modifications:

1. If a modification, reduction or liquidation of a plan occurs, it is now mandatory that the current service cost and the net interest for the period subsequent to the new measurement be determined using the assumptions used for the new measurement.

2. In addition, amendments have been included to clarify the effect of a modification, reduction or liquidation of a plan on the requirements with respect to the asset's ceiling.

An entity applies these amendments on or after January 1, 2019. Early application is allowed, but must be disclosed. Management has assessed that the implementation of these amendments has not had a material impact on the Bank's consolidated financial statements.

II.

New accounting standards and instructions issued by both the Superintendency of Banks and Financial Institutions and by the International Accounting Standards Board that have not come into effect as of March 31, 2019

As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them and SBIF rules, which were not mandatory as of March 31, 2019. Although in some cases the application is permitted by the IASB, the Bank has not made its application on that date.

Accounting Standards issued by the Superintendency of Banks and Financial Institutions

Circular N ° 3,638 - Establishes standard method of provisions for commercial loans of the group portfolio - On July 6, 2018 the SBIF issued this circular that establishes the standard methods that must be used by banking entities to estimate provisions for risk of credit of the commercial portfolio of group analysis, which will be incorporated into Chapter B-1 of the Compendium of Accounting Standards.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 32

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

· Method for the Commercial Leasing portfolio: it considers the delinquency, the type of asset in leasing (real estate or non-real estate) and the current value over value of the asset (PVB) of the operation.

· Method for the Student portfolio: it considers the type of loan granted (whether it is CAE or not), the enforceability of the payment and the delinquency that it presents, in case the loan is required.

· Method for the Commercial Generic portfolio: considers delinquency and the existence of real guarantees that guarantee the placement. In the case of mediating guarantees, the relationship between the placement and the value of the collateral that covers it is considered.

The use of the standard method to establish provisions on credits of the group commercial portfolio, will be mandatory as of July 1, 2019, while the accounting effects of first application should be considered as a change in an accounting estimate according to IAS 8 , and therefore, register in results. The Administration is working on the implementation of these modifications, and there are no relevant situations to date that indicate otherwise.

Circular N ° 3.647 - Standard method of provisions for commercial loans of the group portfolio. Complements instructions on factoring operations, Chapter B-1 of the Compendium of Accounting Standards - On January 31, 2019 the SBIF issued this circular with the purpose of recognizing the mitigating effect of the credit risk represented by the assignor's responsibility in the operations of factoring, for this it has been considered necessary to introduce a particular factor in the component "Loss Given Default" (PDI) of the standard method for the commercial portfolio of group analysis, which must be considered for the calculation of provisions of said operations, as provided in Chapter B-1 of the Compendium of Accounting Standards.

This amendment does not alter the effective date of the standard method of provisions for commercial loans of the group portfolio established in Circular No. 3,638, which is mandatory as of July 1, 2019. The Administration will make the necessary adjustments to comply with this requirement in a timely manner, there being no relevant situations that indicate otherwise.

Accounting Standards issued by the International Accounting Standards Board

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

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

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

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

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

The elimination of the cost exemption for liabilities derivatives to be settled through the delivery of non-traded equity instruments.

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 33

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

Amendments to IFRS 10 and IAS 28 - Sale and Contribution of Assets between an Investor and its Associate or Joint Venture - On September 11, 2014, the IASB published this amendment, which clarifies the scope of the gains and losses recognized in a transaction that involves to an associate or joint venture, and that this depends on whether the asset sold or contribution constitutes a business. Therefore, the IASB concluded that all of the gains or losses should be recognized against the loss of control of a business. Likewise, profits or losses resulting from the sale or contribution of a non-business subsidiary (IFRS 3 definition) to an associate or joint venture must be recognized only to the extent of unrelated interests in the associate or business set.

This standard was initially effective as of January 1, 2016, however, on December 17, 2015 the IASB issued "Effective Date of Amendment to IFRS 10 and IAS 28" indefinitely postponing the entry into force of this standard. The Administration will be waiting for the new validity to evaluate the potential effects of this modification.

IFRS 17 Insurance contracts - This regulation issued on May 18, 2017, establishes principles for the recognition, measurement, presentation and disclosure of the insurance contracts issued. It also requires similar principles to apply to maintained reinsurance contracts and to investment contracts issued with discretionary participation components. IFRS 17 repeals IFRS 4 Insurance Contracts.

IFRS 17 will apply to annual periods beginning on or after January 1, 2021. Early application is permitted. This standard does not apply directly to the Bank, however, the Bank has a participation in insurance business and it will be ensured that this regulation is applied correctly and in a timely manner.

Conceptual framework for financial reporting 2018 - This framework was issued on March 29, 2018, and its purpose is to: (a) assist the IASB in the development of IFRS regulations on a consistent basis of concepts, (b) assist preparers in the development of consistent accounting policies when there is no standard that applies to a particular transaction or other event, or when a standard allows a series of accounting policies; and (c) assist the parties in the understanding and interpretation of the regulations.

The revised framework includes a new chapter on measurement, guidelines for reporting financial performance, improvements to definition and guidance, and clarifications of important issues (for example: management functions, prudence and measurement of uncertainties in financial reporting).

The IASB also included an amendment that updates references to the framework in certain standards. These amendments are effective for annual periods beginning on January 1, 2020. Bank Management is evaluating the potential impact of this modification.

Amendments to IFRS 3 - Definition of a business - On October 22, 2018, the IASB published this amendment, which clarifies the business definition, with the objective of helping entities determine whether a transaction should be accounted for as a business combination. or as the acquisition of an asset. The modifications:

(a) clarify that, to be considered a business, an acquired set of activities and assets must include, as a minimum, an input and a substantive process that together contribute significantly to the ability to produce products;

(b) eliminate the evaluation of whether market participants can replace the missing processes or supplies and continue with the production of products;

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 34

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

(d) restrict the definitions of a business or products focusing on goods and services provided to customers and eliminate the reference to the ability to reduce costs; Y

(e) they add an optional concentration test that allows a simplified evaluation of whether a set of activities and businesses acquired is not a business.

Entities are required to apply the amendments to transactions whose acquisition date is from the beginning of the first annual reporting period beginning on or after January 1, 2020. Early application is permitted. The Administration does not initially see an effect until a business combination is made.

Modifications to IAS 1 and IAS 8 - Definition of material or materiality - On October 31, 2019, the IASB published these amendments, whose objective is to improve the understanding of the definition of material or with relative importance, coordinating the wording of the definition in the IFRS Standards and the Conceptual Framework to avoid the possibility of confusion arising from different definitions; incorporating support requirements in IAS 1 in the definition to give them more prominence and clarify their applicability; and supplying the existing guides on the definition of material or with relative importance in one place, together with the definition.

This amendment primarily affects paragraph 7 of IAS 1, paragraph 5 of IAS 8, and eliminates paragraph 6 of IAS 8, and is applicable prospectively to annual periods beginning on or after January 1, 2020. . Permit your anticipate app. The Bank's Administration is evaluating the potential impact of this modification.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 35

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 02

ACCOUNTING CHANGES

IFRS 15:

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

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

The Bank concludes that there are not quantitative effects, however new disclosure requirements must be adopted. See Note 1 and Note 25.

IFRS 16:

On January 1, 2019, IFRS 16 Leases has become effective; this standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, thus a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The Bank has elected to adopt IFRS 16 using a modified retrospective approach at the date of initial application, therefore, it has recognise a right-of-use asset for an amount equal to the lease liability, which amounted MCh$154,284.

For more details, see Note 12.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 36

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 03

SIGNIFICANT EVENTS

As of March 31, 2019, the following significant events have occurred and affected the Bank’s operations and Consolidated Interim Financial Statements.

a) Bylaws and The Board

During the ordinary session of the Board of Directors of Banco Santander-Chile, held on February 28, 2019, it was agreed to propose to the Ordinary Shareholders' Meeting that it will cite by April 23, 2019, a dividend of $ 1.88457837 per share, corresponding 60% of the profits for the 2018 fiscal year. Likewise, the board will propose that the remaining 40% of the profits be used to increase the Bank's reserves.

During the ordinary session of the Board of Directors of Banco Santander-Chile, held on March 26, 2019, the following matters were agreed:

On the occasion of the resignation of the Director Mr. Andreu Plaza López, the Board of Directors of the Bank has appointed Mr. Rodrigo Echenique Gordillo as its Regular Director in his replacement.

It was agreed to subscribe a principle in agreement with SKBergé S.A., by which the acquisition by the Bank of SKBergé Financing S.A. of the shares owned and representing 49% of the capital stock of Santander Consumer Chile S.A., in the total value of $ 59,063,470,000 million.

b) Issuance and repurchase of bank bonds

b.1) Senior bonds

As of March 31, 2019, the Bank has issued current bonds for EUR 30,000,000 and CHF 150,000,000. The detail of the placements made during the current year is included in Note N ° 16.

Series	Currency	Term (years)	Issuance rate (Annual)			Issue date	Amount		Maturity date
EUR	EUR	7		1.09	%	02-01-2019		30,000,000	02-07-2026
Total	EUR							30,000,000
CHF	CHF	5.6		0.38	%	03-12-2019		150,000,000	09-27-2024
Total	CHF							150,000,000

b.2) Subordinated bonds

As of March 2019, the Bank has not issued subordinated bonds.

b.3) Mortgage bonds

As of March 2019, the Bank has not issued mortgage bonds.

b.4) Repurchased bonds

Durin the first trimester of 2019 the Bank has repurchased the following bonds:

Fecha	Tipo	Moneda	Monto
02-12-2019	Senior	CLP		10,000,000,000
02-14-2019	Senior	CLP		30,000,000,000
02-19-2019	Senior	CLP		4,200,000,000
02-22-2019	Senior	CLP		14,240,000,000
03-01-2019	Senior	CLP		11,800,000,000
03-04-2019	Senior	CLP		40,080,000,000
03-05-2019	Senior	CLP		20,000,000,000
03-15-2019	Senior	UF		156,000
03-19-2019	Senior	UF		418,000
03-20-2019	Senior	CLP		6,710,000,000
03-20-2019	Senior	UF		154,000
03-21-2019	Senior	UF		100,000
03-25-2019	Senior	UF		100,000
03-26-2019	Senior	UF		90,000

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 37

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 04

REPORTING SEGMENTS

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

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

In order to achieve compliance with the strategic objectives established by senior management and adapt to changing market conditions, from time to time, the Bank makes adjustments in its organization, modifications that in turn impact to a greater or lesser extent, in the way in which it is managed or managed. Thus, the present disclosure provides information on how the Bank is managed as of March 31, 2019. Regarding the information corresponding to the year 2018, it has been prepared with the current criteria at the closing of these financial statements in order to achieve the duecomparability of the figures.

The Bank has the reportable segments noted below:

Retail Banking

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

Middle-market

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

Global Corporate Banking

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

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

Corporate Activities (“Other”)

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 38

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 04

REPORTING SEGMENTS, continued

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

Below are the tables showing the Bank’s results by business segment, for the periods ending as of March 31, 2019 and 2018:

	March 31, 2019
	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		20,983,054		230,796		57,166			5,879		(68,263	)		(137,707	)		87,871
Middle-market		7,885,255		68,939		9,914			4,279		(10,095	)		(22,756	)		50,281
Commercial Banking		28,868,309		299,735		67,080			10,158		(78,358	)		(160,463	)		138,152

Global Corporate Banking		1,590,697		22,398		7,584			19,250		(318	)		(17,196	)		31,718
Other		141,254		568		(3,989	)		9,437		2,402			(2,397	)		6,021
Total		30,600,260		322,701		70,675			38,845		(76,274	)		(180,056	)		175,891
Other operating income																	5,156
Other operating expenses																	(14,165	)
Income from investments in associates and other companies																	923
Income tax expense																	(42,146	)
Net income for the year																	125,659

(1) Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.

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

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

	March 31, 2018
	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		19,380,964		233,150		59,178			5,051		(74,062	)		(131,152	)		92,165
Middle-market		6,975,218		65,829		9,081			3,115		(2,019	)		(21,630	)		54,376
Commercial Banking		26,356,182		298,979		68,259			8,166		(76,081	)		(152,782	)		146,541

Global Corporate Banking		1,886,261		23,644		10,495			7,538		(162	)		(14,550	)		26,965
Other		101,951		24,092		(3,260	)		7,517		838			(3,519	)		25,668
Total		28,344,394		346,715		75,494			23,221		(75,405	)		(170,851	)		199,174
Other operating income																	6,307
Other operating expenses																	(9,960	)
Income from investments in associates and other companies																	825
Income tax expense																	(44,553	)
Net income for the period																	151,793

(1) Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 39

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 05

CASH AND CASH EQUIVALENTS

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Cash and deposit in banks
Cash		627,810		824,863
Deposit in the Central Bank of Chile		815,931		953,016
Deposit in domestic banks		532		664
Deposit in foreign banks		106,325		286,898
Subtotal		1,550,598		2,065,441

Cash in process of collection, net		134,921		190,714

Cash and cash equivalents		1,685,519		2,256,155

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.

Operations in process of settlement:

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$
Assets
Documents held by other banks (document to be cleared)		155,261		210,546
Funds receivable		255,355		143,211
Subtotal		410,616		353,757
Liabilities
Funds payable		275,695		163,043
Subtotal		275,695		163,043

Cash in process of collection, net		134,921		190,714

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 40

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 06

TRADING INVESTMENTS

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Chilean Central Bank and Government securities
Chilean Central Bank Bonds		3,045		22,947
Chilean Central Bank Notes		-		-
Other Chilean Central Bank and Government securities		61,319		48,211
Subtotal		64,364		71,158

Other Chilean securities
Time deposits in Chilean financial institutions		-		-
Mortgage finance bonds of Chilean financial institutions		-		-
Chilean financial institutions bonds		-		-
Chilean corporate bonds		-		-
Other Chilean securities		-		-
Subtotal		-		-

Foreign financial securities
Foreign Central Banks and Government securities		30,444		-
Other foreign financial instruments		-		5,883
Subtotal		30,444		5,883

Investments in mutual funds
Funds managed by related entities		-		-
Funds managed by third parties		-		-
Subtotal		-		-

Total		94,808		77,041

As of March 31, 2019 and December 31, 2017, there were no trading investments sold under contracts to resell to clients and financial institutions.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 41

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of March 31, 2019 and December 31, 2018, the Bank holds the following portfolio of derivative instruments:

	As of March 31, 2019
	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		129,000		821,970		981,638		1,932,608		16,923		15,938
Cross currency swaps		489,530		998,212		6,747,945		8,235,687		95,660		58,044
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		618,530		1,820,182		7,729,583		10,168,295		112,583		73,982

Cash flow hedge derivatives
Currency forwards		168,151		-		-		168,151		-		1,296
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		327,553		4,118,252		8,785,441		13,231,246		73,923		29,192
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		495,704		4,118,252		8,785,441		13,399,397		73,923		30,488

Trading derivatives
Currency forwards		13,725,408		14,910,247		6,010,729		34,646,384		414,693		326,620
Interest rate swaps		9,901,953		23,779,912		75,344,336		109,026,201		867,332		738,352
Cross currency swaps		1,101,278		14,525,576		71,260,110		86,886,964		1,512,066		1,375,014
Call currency options		60,764		22,799		74,504		158,067		2,529		724
Call interest rate options		-		-		-		-		-		-
Put currency options		67,258		19,836		73,375		160,469		104		1,161
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		24,856,661		53,258,370		152,763,054		230,878,085		2,796,724		2,441,871

Total		25,970,895		59,196,804		169,278,078		254,445,777		2,983,230		2,546,341

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 42

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2018
	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		80,000		491,600		1,191,012		1,762,612		14,789		9,188
Cross currency swaps		-		1,276,909		6,706,197		7,983,106		96,357		36,708
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		80,000		1,768,509		7,897,209		9,745,718		111,146		45,896

Cash flow hedge derivatives
Currency forwards		205,750		168,151		-		373,901		-		8,013
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		1,920,900		1,970,412		9,191,209		13,082,521		79,859		32,712
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		2,126,650		2,138,563		9,191,209		13,456,422		79,859		40,725

Trading derivatives
Currency forwards		15,301,943		13,080,875		6,062,183		34,445,001		613,063		466,741
Interest rate swaps		12,024,095		22,064,681		69,453,618		103,542,394		723,870		577,835
Cross currency swaps		2,173,111		8,853,306		68,976,339		80,002,756		1,568,365		1,385,314
Call currency options		26,731		60,235		57,579		144,545		4,332		854
Call interest rate options		-		-		-		-		-		-
Put currency options		23,411		50,445		56,392		130,248		-		363
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		29,549,291		44,109,542		144,606,111		218,264,944		2,909,630		2,431,107

Total		31,755,941		48,016,614		161,694,529		241,467,084		3,100,635		2,517,728

Hedge accounting

Fair value hedge

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 43

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

The hedged items and hedge instruments under fair value hedges as of March 31, 2019 and December 31, 2018, classified by term to maturity are as follows:

	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of March 31, 2019	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Credits and accounts receivable from customers
Mortgage loan		871,892		1,070,705		260,246		603,818		2,806,661
Available for sale investments
Yankee bond		-		-		-		167,670		167,670
Mortgage finance bonds		-		3,512		-		-		3,512
American treasury bonds		-		67,991		33,996		135,982		237,969
Chilean General treasury bonds		-		304,818		-		51,000		355,818
Central bank bonds (BCP)		-		449,729		-		-		449,729
Time deposits and other demand liabilities
Time deposits		805,383		-		-		-		805,383
Issued debt instruments
Senior bonds		761,437		1,007,825		1,415,581		2,156,710		5,341,553
Subordinated bonds		-		-		-		-		-
Obligations with Banks:
Interbank loans		-		-		-		-		-
Total		2,438,712		2,904,580		1,709,823		3,115,180		10,168,295
Hedging instrument
Cross currency swaps		1,487,742		2,586,590		1,400,828		2,760,527		8,235,687
Interest rate swaps		950,970		317,990		308,995		354,653		1,932,608
Total		2,438,712		2,904,580		1,709,823		3,115,180		10,168,295

	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of December 31, 2018	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Credits and accounts receivable from customers
Mortgage loan		653,872		1,272,382		276,590		603,818		2,806,662
Available for sale investments
Yankee bonds		-		-		-		172,072		172,072
Mortgage financing bonds		-		-		3,779		-		3,779
American treasury bonds		-		-		-		174,440		174,440
Chilean General treasury bonds		-		304,818		-		220,041		524,859
Central bank bonds (BCP)		-		449,730		-		-		449,730
Time deposits and other demand liabilities
Time deposits		486,013		-		-		-		486,013
Issued debt instruments
Senior bonds		708,624		1,117,779		1,298,471		2,003,289		5,128,163
Subordinated bonds		-		-		-		-		-
Obligations with Banks:
Interbank loans		-		-		-		-		-
Total		1,848,509		3,144,709		1,578,840		3,173,660		9,745,718
Hedging instrument
Cross currency swaps		1,276,909		2,794,709		1,228,840		2,682,648		7,983,106
Interest rate swaps		571,600		350,000		350,000		491,012		1,762,612
Total		1,848,509		3,144,709		1,578,840		3,173,660		9,745,718

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 44

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

Cash flow hedges

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

The notional values of the hedged items as of March 31, 2019 and December 31, 2017, and the periods when the cash flows will be generated are as follows:

	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of March 31, 2019	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivables from customers
Mortgage loan		1,468,897		2,317,471		1,135,984		2,467,089		7,389,441
Commercial loans		-		-		-		-		-
Available for sale investments
Time deposits (ASI)		-		-		-		-		-
Yankee bond		-		50,030		196,275		-		246,305
Chilean Central Bank bonds		-		-		166,628		-		166,628
Time deposits and other time liabilities
Time deposits		-		-		-		-		-
Issued debt instruments
Senior bonds (variable rate)		-		658,165		-		-		658,165
Senior bonds (fixed rate)		498,523		473,007		645,544		540,855		2,157,929
Interbank borrowings
Interbank loans		2,646,536		134,393		-		-		2,780,929
Total		4,613,956		3,633,066		2,144,431		3,007,944		13,399,397
Hedging instrument
Cross currency swaps		4,445,805		3,633,066		2,144,431		3,007,944		13,231,246
Currency forwards		168,151		-		-		-		168,151
Total		4,613,956		3,633,066		2,144,431		3,007,944		13,399,397

	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of December 31, 2018	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivables from customers
Mortgage loan		1,890,696		3,026,824		1,459,389		2,467,090		8,843,999
Commercial loans		109,585		-		-		-		109,585
Available for sale investments
Time deposits (ASI)		-		-		-		-		-
Yankee bond		-		-		246,306		-		246,306
Chilean Central Bank bonds		-		-		166,628		-		166,628
Time deposits and other time liabilities
Time deposits		-		-		-		-		-
Issued debt instruments
Senior bonds (variable rate)		-		666,823		-		-		666,823
Senior bonds (fixed rate)		500,583		52,790		601,639		503,721		1,658,733
Interbank borrowings
Interbank loans		1,764,348		-		-		-		1,764,348
Total		4,265,212		3,746,437		2,473,962		2,970,811		13,456,422
Hedging instrument
Cross currency swaps		3,891,311		3,746,437		2,473,962		2,970,811		13,082,521
Currency forwards		373,901		-		-		-		373,901
Total		4,265,212		3,746,437		2,473,962		2,970,811		13,456,422

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 45

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

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

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

	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
As of March 31, 2019	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		155,936			68,725			12,886			3,125			240,672
Outflows		(90,500	)		(44,524	)		(2,633	)		(2,030	)		(139,687	)
Net flows		65,436			24,201			10,253			1,095			100,985

Hedging instrument
Inflows		90,500			44,524			2,633			2,030			139,687
Outflows (*)		(155,936	)		(68,725	)		(12,886	)		(3,125	)		(240,672	)
Net flows		(65,436	)		(24,201	)		(10,253	)		(1,095	)		(100,985	)

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

	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
As of December 31, 2018	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		76,736			35,994			3,062			2,401			118,193
Outflows		(125,747	)		(46,372	)		(13,311	)		(4,701	)		(190,131	)
Net flows		(49,011	)		(10,378	)		(10,249	)		(2,300	)		(71,938	)

Hedging instrument
Inflows		(76,736	)		(35,994	)		(3,062	)		(2,401	)		(118,193	)
Outflows (*)		125,747			46,372			13,311			4,701			190,131
Net flows		49,011			10,378			10,249			2,300			71,938

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

b.2) Forecasted cash flows for inflation risk:

	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
As of March 31, 2019	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		8,986			78,600			170,762			318,637			576,985
Outflows		(8,528	)		-			-			-			(8,528	)
Net flows		458			78,600			170,762			318,637			568,457

Hedging instrument
Inflows		8,528			-			-			-			8,528
Outflows		(8,986	)		(78,600	)		(170,762	)		(318,637	)		(576,985	)
Net flows		(458	)		(78,600	)		(170,762	)		(318,637	)		(568,457	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 46

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
As of December 31, 2018	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		37,086			73,576			166,516			310,293			587,471
Outflows		(14,036	)		-			-			-			(14,036	)
Net flows		23,050			73,576			166,516			310,293			573,435

Hedging instrument
Inflows		14,036			-			-			-			14,036
Outflows		(37,086	)		(73,576	)		(166,516	)		(310,293	)		(587,471	)
Net flows		(23,050	)		(73,576	)		(166,516	)		(310,293	)		(573,435	)

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

As of March 31, 2019 and December 31, 2018, the Bank did not have cash flow hedges for exchange rate risk.

The accumulated effect of the mark to market adjustment of cash flow hedges produced by hedge instruments used in hedged cash flow was recorded in the Consolidated Statement of Changes in Equity, specifically within Other comprehensive income as of March 31, 2019 and December 31, 2017, and is as follows:

	As of March 31,
	2019			2018
Hedged item	MCh$			MCh$

Interbank loans		(4,167	)		601
Time deposits and other time liabilities		-			(307	)
Issued debt instruments		(12,487	)		358
Available for sale investments		(1,817	)		(1,042	)
Loans and accounts receivable from customers		10,977	)		(10,294	)
Net flows		(7,494	)		(10,684	)

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

As of March 31, 2019 and 2017 due to inneficiencies Ch$372 million and Ch$687 million were transferred to profit/loss respectively.

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

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

	As of March 31,
	2019			2018
	MCh$			MCh$

Bond hedging derivatives		-			-
Interbank loans hedging derivatives		(222	)		-

Cash flow hedge net income		(222	)		-

Net investment hedges in foreign operations:

As of March 31, 2019 and December 31, 2018, the Bank does not have any net foreign investment hedges in its hedge accounting portfolio.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 47

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 08

INTERBANK LOANS

As of March 31, 2019 and December 31, 2018, the balances for “Interbank loans” are as follows:

	As of March 31,			As of December 31,
	2019			2018
	MCh$			MCh$

Domestic banks
Loans and advances to banks		-			-
Deposits in the Central Bank of Chile - not available		-			-
Non-transferable Chilean Central Bank Bonds		-			-
Other Central Bank of Chile loans		-			-
Interbank loans		-			-
Overdrafts in checking accounts		-			-
Non-transferable domestic bank loans		-			-
Other domestic bank loans		-			1
Allowances and impairment for domestic bank loans		-			-

Foreign interbank loans
Interbank loans – Foreign		26,466			15,093
Overdrafts in checking accounts		-			-
Non-transferable foreign bank deposits		-			-
Other foreign bank loans		-			-
Provisions and impairment for foreign bank loans		(52	)		(29	)

Total		26,414			15,055

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

	As of March 31,								As of December 31,
	2019								2018
	Domestic banks		Foreign banks			Total			Domestic banks		Foreign banks			Total
	MCh$		MCh$			MCh$			MCh$		MCh$			MCh$

Balance as of January 1		-		29			29			-		86			86
Charge-offs		-		-			-			-		-			-
Provisions established		-		28			28			-		45			45
Provisions released		-		(5	)		(5	)		-		(102	)		(251	)

Total		-		52			52			-		29			29

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 48

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

Loans and accounts receivable from customers

As of March 31, 2019 and December 31, 2018, the composition of the loan portfolio is as follows:

	Assets before allowances								Established Allowances
	Normal portfolio		Substandard portfolio		Non-compliance portfolio		Total		Individual allowances		Group allowances		Total		Assets Net Balances
As of March 31, 2019	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Commercial loans
Commercial loans		10.134.295		568.344		677.371		11.380.010		156.017		178.897		334.914		11.045.096
Foreign trade loans		1.537.472		39.194		50.313		1.626.979		49.786		1.868		51.654		1.575.325
Checking accounts debtors		186.280		13.120		15.562		214.962		3.686		12.981		16.667		198.295
Factoring transactions		415.214		4.827		4.230		424.271		5.554		857		6.411		417.860
Student Loans		67.062		-		10.625		77.687		-		5.936		5.936		71.751
Leasing transactions		1.221.446		109.493		97.449		1.428.388		18.957		10.917		29.874		1.398.514
Other loans and account receivable		129.350		1.465		35.029		165.844		11.017		18.102		29.119		136.725
Subtotal		13.691.119		736.443		890.579		15.318.141		245.017		229.558		474.575		14.843.566

Mortgage loans
Loans with mortgage finance bonds		14.958		-		1.145		16.103		-		87		87		16.016
Mortgage mutual loans		101.622		-		4.358		105.980		-		490		490		105.490
Other mortgage mutual loans		9.743.876		-		469.376		10.213.252		-		62.969		62.969		10.150.283
Subtotal		9.860.456		-		474.879		10.335.335		-		63.546		63.546		10.271.789

Consumer loans
Installment consumer loans		3.022.900		-		246.810		3.269.710		-		221.065		221.065		3.048.645
Credit card balances		1.371.699		-		17.723		1.389.422		-		26.891		26.891		1.362.531
Leasing transactions		4.042		-		134		4.176		-		85		85		4.091
Other consumer loans		253.210		-		3.800		257.010		-		8.345		8.345		248.665
Subtotal		4.651.851		-		268.467		4.920.318		-		256.386		256.386		4.663.932

Total		28.203.426		736.443		1.633.925		30.573.794		245.017		549.490		794.507		29.779.287

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 49

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

	Assets before allowances								Established Allowances
	Normal portfolio		Substandar portfolio		Non- compliance portfolio		Total		Individual allowances		Group allowances		Total		Assets Net Balances
As of December 31, 2018	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Commercial loans
Commercial loans		9,988,841		552,462		661,073		11,202,374		151,769		179,318		331,087		10,871,287
Foreign trade loans		1,648,616		53,127		50,694		1,752,437		52,696		1,668		54,364		1,698,073
Checking accounts debtors		187,273		11,984		15,905		215,162		3,566		13,375		16,941		198,221
Factoring transactions		370,851		5,532		4,600		380,983		5,843		834		6,677		374,306
Student Loans		69,599		-		10,317		79,916		-		5,835		5,835		74,081
Leasing transactions		1,240,081		113,313		90,330		1,443,724		17,339		10,833		28,172		1,415,552
Other loans and account receivable		126,643		1,635		36,785		165,063		11,384		18,416		29,800		135,263
Subtotal		13,631,904		738,051		869,704		15,239,659		242,597		230,279		472,876		14,766,783

Mortgage loans
Loans with mortgage finance bonds		16,153		-		1,273		17,426		-		97		97		17,329
Mortgage mutual loans		104,131		-		4,405		108,536		-		498		498		108,038
Other mortgage mutual loans		9,558,032		-		466,987		10,025,019		-		63,546		63,646		9,961,373
Subtotal		9,678,316		-		472,665		10,150,981		-		64,241		64,241		10,086,740

Consumer loans
Installment consumer loans		2,937,309		-		252,361		3,189,670		-		223,948		223,948		2,965,722
Credit card balances		1,399,112		-		18,040		1,417,152		-		26,673		26,673		1,390,479
Leasing transactions		4,071		-		86		4,157		-		72		72		4,085
Other consumer loans		261,202		-		4,108		265,310		-		8,749		8,749		256,561
Subtotal		4,601,694		-		374,595		4,876,289		-		259,442		259,442		4,616,847

Total		27,911,914		738,051		1,616,964		30,266,929		242,597		553,962		796,559		29,470,370

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 50

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio characteristics

As of March 31, 2019 and December 31, 2018, 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
	2019		2018		2019		2018		2019		2018		2019		2018
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		%		%
Commercial loans
Manufacturing		1,316,156		1,139,766		-		-		1,316,156		1,139,766		4.30		3.76
Mining		216,830		208,748		-		-		216,830		208,748		0.71		0.69
Electricity, gas, and water		350,298		408,932		-		-		350,298		408,932		1.14		1.35
Agriculture and livestock		1,232,441		1,206,197		-		-		1,232,441		1,206,197		4.03		3.98
Forest		158,228		143,888		-		-		158,228		143,888		0.52		0.48
Fishing		213,088		253,021		-		-		213,088		253,021		0.70		0.84
Transport		739,376		809,306		-		-		739,376		809,306		2.42		2.67
Communications		212,527		215,844		-		-		212,527		215,844		0.69		0.71
Construction		991,857		906,038		-		-		991,857		906,038		3.24		2.99
Commerce		3,339,501		3,386,806		26,466		15,093		3,365,967		3,401,899		11.00		11.23
Services		2,526,432		1,865,669		-		-		2,526,432		1,865,669		8.26		6.16
Other		4,021,407		4,695,445		-		-		4,021,407		4,695,445		13.14		15.52

Subtotal		15,318,141		15,239,660		26,466		15,093		15,344,607		15,254,753		50.15		50.38

Mortgage loans		10,335,335		10,150,981		-		-		10,335,335		10,150,981		33.78		33.52

Consumer loans		4,920,318		4,876,289		-		-		4,920,318		4,876,289		16.07		16.10

Total		30,573,794		27,563,229		26,466		15,093		30,600,260		30,282,023		100.0		100.00

(*)

Includes domestic interbank loans for Ch$0 million as of March 31, 2019 (Ch$1 million as of December 31, 2018), see Note 8.

(**)

Includes foreign interbank loans for Ch$26,466 million as of March 31, 2019 (Ch$15,093 million as of December 31, 2018), see Note 8.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 51

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Impaired portfolio (*)

As of March 31, 2019 and December 31, 2018, the impaired portfolio is the following:

	As of Marzo 31,								As of December 31,
	2019								2018
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Individually impaired portfolio		422,759		-		-		422,759		397,978		-		-		397,978
Non-performing loans (collectively evaluated)		409,665		128,429		85,373		623,467		409,451		133,880		88,318		631,649
Other impaired portfolio		221,690		346,450		183,094		751,234		224,750		338,785		186,277		749,812
Total		1,054,114		474,879		268,467		1,797,460		1,032,179		472,665		274,595		1,779,439

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

ii)

The impaired portfolio with or without warranty as of March 31, 2019 and December 31, 2018 is the following:

	As of March 31,								As of December 31,
	2019								2018
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		631,274		433,782		29,175		1,094,231		604,545		430,011		29,201		1,063,757
Unsecured debt		422,840		41,097		239,292		703,229		427,634		42,654		245,394		715,682
Total		1,054,114		474,879		268,467		1,797,460		1,032,179		472,665		274,595		1,779,439

iii)

The portfolio of non-performing loans (due for 90 days or longer) as of March 31, 2019 and December 31, 2018 is the following:

	As of March 31,								As of December 31,
	2019								2018
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		192,877		116,359		8,047		317,283		192,889		121,690		8,516		323,095
Unsecured debt		216,788		12,070		77,326		306,184		216,562		12,190		79,802		308,554
Total		409,665		128,429		85,373		623,467		409,451		133,880		88,318		631,649

iv)

Reconciliation of loans (with arrears equal to or greater tan 90 days), with past due loans as of March 31, 2019 and December 31, 2018, is the following:

	As of March 31,								As of December 31,
	2019								2018
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
With defaults equal to or greater than 90 days		407,242		126,525		83,263		617,030		399,382		130,716		85,137		615,235
With defaults up to 89 days, classified in past due portfolio		2,423		1,904		2,110		6,437		10,069		3,164		3,181		16,414
Total		409,665		128,429		85,373		623,467		409,451		133,880		88,318		631,649

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 52

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Allowances

The changes in allowances balances during 2019 and 2018 is the following:

	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
Activity during 2019	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of January 01, 2019		242,597			230,279			64,241			259,442			796,559
Allowances established		21,361			20,337			5,197			42,757			89,652
Allowances released		(11,982	)		(4,700	)		(1,912	)		(6,943	)		(25,537	)
Allowances released due to charge-off		(6,959	)		(16,358	)		(3,980	)		(38,870	)		(66,167	)
Balance as of March 31, 2019		245,017			229,558			63,546			256,386			794,507

	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
Activity during 2018	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of January 01, 2018		243,792			219,073			69,066			283,756			815,687
Allowances established		68,302			83,979			22,683			190,868			365,832
Allowances released		(35,301	)		(8,764	)		(8,446	)		(45,031	)		(97,542	)
Allowances released due to charge-off		(34,196	)		(64,009	)		(19,062	)		(170,151	)		(287,418	)
Balance as of December 31, 2018		242,597			230,279			64,241			259,442			796,559

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

Country risk to cover the risk taken when holding or committing resources with any foreign country, these allowances are established according to country risk classifications as set forth in Chapter 7-13 of the Updated Compilation of Rules, issued by the SBIF, the balances of allowances as of March 31, 2019 and December 31, 2018 are Ch$575 million and Ch$620 million respectively. These are presented as “Allowances” in the liabilities section of the “Consolidated Interim Statement of Financial Position”.

ii)

According to SBIF’s regulations (compendium of Accounting Standards), the Bank has established allowances related to the undrawn available credit lines and contingent loans. The balances of allowances as of March 31, 2019 and December 31, 2018 are Ch$15,010 million and Ch$14,666 million, respectively, and are presented as “Allowances” in the liabilities section of the “Consolidated Interim Statement of Financial Position”.

e) Allowances established

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

	As of March 31,		As of Diciembre 31,
	2019 MCh$		2018 MCh$

Customers loans		86,652		365,832
Interbank loans		28		45
Total		89,680		365,877

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 53

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio by its impaired and non-impaired condition

	As of March 31, 2019
	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		14,085,128			9,557,180			4,444,118			28,086,426			427,595			161,396			96,513			685,504			14,512,723			9,718,576			4,540,631			28,771,930
Overdue for 1-29 days		112,281			176,380			118,156			406,817			120,089			79,443			32,054			231,586			232,370			255,823			150,210			638,403
Overdue for 30-89 days		66,618			126,896			89,577			283,091			99,188			107,515			56,637			263,340			165,806			234,411			146,214			546,431
Overdue for 90 days or more		-			-			-			-			407,242			126,525			83,263			617,030			407,242			126,525			83,263			617,030

Total portfolio before allowances		14,264,027			9,860,456			4,651,851			28,776,334			1,054,114			474,879			268,467			1,797,460			15,318,141			10,335,335			4,920,318			30,573,794

Overdue loans (less than 90 days) presented as portfolio percentage		1.25	%		3.08	%		4.47	%		2.40	%		20.80	%		39.37	%		33.04	%		27.53	%		2.60	%		4.74	%		6.02	%		3.88	%

Overdue loans (90 days or more) presented as portfolio percentage		0.00	%		0.00	%		0.00	%		0.00	%		38.63	%		26.64	%		31.01	%		34.33	%		2.66	%		1.22	%		1.69	%		2.02	%

	As of December 31, 2018
	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		14,016,945			9,360,102			4,379,507			27,756,554			446,423			156,546			95,220			698,189			14,463,368			9,516,648			4,474,727			28,454,743
Overdue for 1-29 days		120,376			194,334			131,550			446,260			72,964			78,537			34,501			186,002			193,340			272,871			166,051			632,262
Overdue for 30-89 days		70,159			123,880			90,637			284,676			113,410			106,866			59,737			280,013			183,569			230,746			150,374			564,689
Overdue for 90 days or more		-			-			-			-			399,382			130,716			85,137			615,235			399,382			130,716			85,137			615,235

Total portfolio before allowances		14,207,480			9,678,316			4,601,694			28,487,490			1,032,179			472,665			274,595			1,779,439			15,239,659			10,150,981			4,876,289			30,266,929

Overdue loans (less than 90 days) presented as portfolio percentage		1.34	%		3.29	%		4.83	%		2.57	%		18.06	%		39.23	%		34.32	%		26.19	%		2.47	%		496	%		6.49	%		3.95	%

Overdue loans (90 days or more) presented as portfolio percentage		-			-			-			-			38.69	%		27.66	%		31.00	%		34.57	%		2.62	%		1.29	%		1.75	%		2.03	%

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 54

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 10

AVAILABLE FOR SALE INVESTMENTS

As of March 31, 2019 and December 31, 2018, details of instruments defined as available for sale investments are as follows:

	As of March 31		As of December 31
	2019		2018
	MCh$		MCh$

Chilean Central Bank and Government securities
Chilean Central Bank Bonds		726,898		657,096
Chilean Central Bank Notes		495,528		56,719
Other Chilean Central Bank and Government securities		1,138,692		1,207,221
Subtotal		2,361,118		1,921,036
Other Chilean securities
Time deposits in Chilean financial institutions		520		2,693
Mortgage finance bonds of Chilean financial institutions		18,625		19,227
Chilean financial institution bonds		-		-
Chilean corporate bonds		-		-
Other Chilean securities		3,069		2,907
Subtotal		22,214		24,827
Foreign financial securities
Foreign Central Banks and Government securities		244,028		280,622
Other foreign financial securities		171,684		167,838
Subtotal		415,712		448,460

Total		2,799,044		2,394,323

As of March 31, 2019 and December 31, 2018, the item Chilean Central Bank and Government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$120,808 million and Ch$16,109 million, respectivel. Under the same item, there are instruments that guarantee margins for operations of derivatives through Comder Contraparte Central S.A. for an amount of $68,232 million and $ 42,910 million as of March 31, 2019 and December 31 of 2018.

As of March 31, 2019 and December 31, 2018, the item Other Chilean Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$128 million and Ch$32,436 million, respectively.

The instruments of Foreign Institutions include instruments sold under repurchase agreements with customers and financial institutions for a total of $62,687 and $24,910 million as of March 31, 2019 and December 31, 2018. Under the same item, there are instruments that guarantee margins for derivative transactions through the London Clearing House (LCH) for an amount of $36,121 million and $48,106 million as of March 31, 2019 and December 31, 2018. In order to comply with the initial margin specified in the European EMIR standard, instruments in guarantee with Euroclear are maintained for an amount of $129,649 million and $33,711 million as of March 31, 2019 and December 31, 2018.

As of March 31, 2019 available for sale investments included a net unrealized profit of Ch$3,084 million, recorded as a “Valuation adjustment” in equity, distributed between a profit of Ch$1,726 million attributable to equity holders of the Bank and a profit of Ch$1,358 million attributable to non-controlling interest.

As of December 31, 2018 available for sale investments included a net unrealized loss of Ch$1,855 million, recorded as a “Valuation adjustment” in equity, distributed between a profit of Ch$459 million attributable to equity holders of the Bank and a profit of Ch$1,396 million attributable to non-controlling interest.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 55

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 11

INTANGIBLE ASSETS

As of March 31, 2019 and December 31, 2018 the composition of intangible assets is as follows:

					As of March 31, 2019
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2019		Gross balance			Accumulated amortization			Net balance
			MCh$		MCh$			MCh$			MCh$

Licenses	3	-		976		9,705			(8,781	)		924
Software development	3	2		65,947		344,807			(282,429	)		62,378

Subtotal				66,923		354,512			(291,210	)		63,302
Fully amortized assets				-		(245,656	)		245,656			-
Total				66,923		108,856			(45,554	)		63,302

					As of December 31, 2018
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2018		Gross balance			Accumulated amortization			Net balance
			MCh$		MCh$			MCh$			MCh$

Licenses	3	1		1,200		10,932			(9,956	)		976
Software development	3	2		62,019		342,112			(276,165	)		65,947

Subtotal				63,219		353,044			(286,121	)		66,923
Fully amortized assets				-		(245,242	)		245,242			-
Total				63,219		107,802			(40,879	)		66,923

The changes in the value of intangible assets during the periods of March 31, 2019 and December 31, 2018 is as follows:

b.1)

Gross balance

	Licenses			Software development			Fully amortized assets			Total
Gross balances	MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2019		10,932			342,112			(245,242	)		107,802
Acquisitions		-			2,731			-			2,731
Disposals and impairment (*)		(1,227	)		(36	)		-			(1,263	)
Other		-			-			(414	)		(414	)
Balances as of March 31, 2019		9,705			344,807			(245,656	)		108,856

Balances as of January 1, 2018		10,932			314,115			(200,774	)		124,273
Acquisitions		-			29,563			-			29,563
Disposals and impairment		-			-			-			-
Other		-			(1,566	)		(44,468	)		(46,034	)
Balances as of December 31, 2018		10,932			342,112			(245,242	)		107,802

(*) See Note 31 a).

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 56

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 11

INTANGIBLE ASSETS, continued

b.2)

Accumulated amortization

	Licenses			Software development			Fully amortized assets		Total
Accumulated amortization	MCh$			MCh$			MCh$		MCh$

Balances as of January 1, 2019		(9,956	)		(276,165	)		245,242		(40,879	)
Amortization for the period		(53	)		(6,264	)		-		(6,316	)
Other changes		1,227			-			414		1,641
Balances as of March 31 , 2019		(8,781	)		(282,429	)		245,656		(45,554	)

Balances as of January 1, 2018		(9,732	)		(252,096	)		200,774		(61,054	)
Amortization for the period		(224	)		(24,069	)		-		(24,293	)
Other changes		-			-			44,468		44,468
Balances as of December 31, 2018		(9,956	)		(276,165	)		245,242		(40,879	)

The Bank has no restriction on intangible assets as of March 31, 2019 and December 31, 2018. 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 2019 / Banco Santander Chile 57

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 12

PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT

As of March 31, 2019 and December 31, 2018 the property, plant and equipment balances is as follows:

			As of March 31, 2019
	Net opening balance as of January 1, 2019		Gross balance			Accumulated depreciation			Net balance
	MCh$		MCh$			MCh$			MCh$

Land and building (*)		132,527		232,350			(100,776	)		131,574
Equipment		58,202		218,257			(167,136	)		51,121
Ceded under operating leases		4,221		4,893			(667	)		4,226
Other		14,206		64,391			(50,219	)		14,172
Subtotal		209,156		519,891			(318,798	)		201,093
Fully depreciated assets		-		(22,698	)		22,698			-
Total		209,156		497,193			(296,100	)		201,093

(*) As of January 1, 2019, assets have been reclassified by application of IFRS 16, according to circular Banks No. 3,645 of the SBIF.

			As of December 31, 2018
	Net opening balance as of January 1, 2018		Gross balance			Accumulated depreciation			Net balance
	MCh$		MCh$			MCh$			MCh$

Land and building		159,352		309,385			(132,428	)		176,957
Equipment		63,516		217,958			(159,756	)		58,202
Ceded under operating leases		4,221		4,888			(667	)		4,221
Other		15,458		67,197			(52,991	)		14,260
Subtotal		242,547		599,428			(345,842	)		253,586
Fully depreciated assets		-		(55,374	)		55,374			-
Total		242,547		544,054			(290,468	)		253,586

The changes in the value of property, plant and equipment as of March 31, 2019 and December 31, 2018 is the following:

b.1)

Gross balance

	Land and buildings			Equipment			Operating leases		Other			Fully depreciated assets			Total
2019	MCh$			MCh$			MCh$		MCh$			MCh$			MCh$

Balances as of January 1, 2019		309,385			217,958			4,888		67,197			(55,374	)		544,054
Additions		1,372			501			-		2,237			-			4,110
Disposals		(78,407	)		(202	)		-		(150	)		31,652			(47,107	)
Impairment due to damage (*)		-			-			-		-			-			-
Other		-			-			5		(4,893	)		1,024			(3,864	)
Balances as of March 31, 2019		232,350			218,257			4,893		64,391			(22,698	)		497,193

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 58

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 12

PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT, continued

	Land and buildings			Equipment			Operating leases		Other			Fully depreciated assets			Total
2018	MCh$			MCh$			MCh$		MCh$			MCh$			MCh$

Balances as of January 1, 2018		274,079			193,689			4,888		60,823			(59,045	)		474,434
Additions		35,369			28,428			-		4,522			-			68,329
Disposals		(63	)		(4,130	)		-		(2,104	)		-			(6,297	)
Impairment due to damage (*)		-			(39	)		-		-			-			(39	)
Other		-			-			-		3,956			3,671			7,627
Balances as of December 31, 2018		309,385			271,958			4,888		67,197			(55,374	)		544,054

(*) Banco Santander Chile has had to recognize in its financial statements as of December 31, 2018 impairment by 39 million, corresponding to looting in ATM’s. Compensation charged for insurance concepts involved, amounted to Ch$144 million, which are presented in “Other income and operational expenses”.

b.2)

Accumulated depreciation

	Land and buildings			Equipment			Operating leases			Other			Fully depreciated assets			Total
2019	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2019		(132,428	)		(159,756	)		(667	)		(52,991	)		55,374			(290,468	)
Depreciation in the period		(2,325	)		(7,513	)		-			(2,130	)		-			(11,968	)
Sales and disposals in the period		33,977			133			-			4,222			(31,652	)		6,680
Transfers		-			-			-			-			-			-
Others		-			-			-			680			(1,024	)		(344	)
Balances as of March 31, 2019		(100,776	)		(167,136	)		(667	)		(50,219	)		22,698			(296,100	)

	Land and buildings			Equipment			Operating leases			Other			Fully depreciated assets			Total
2018	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2018		(114,727	)		(130,173	)		(667	)		(45,364	)		59,045			(231,886	)
Depreciation in the period		(17,704	)		(29,623	)		-			(7,660	)		-			(54,987	)
Sales and disposals in the period		3			40			-			34			-			77
Transfers		-			-			-			-			-			-
Others		-			-			-			-			(3,671	)		(3,671	)
Balances as of December 31, 2018		(132,428	)		(159,756	)		(667	)		(52,991	)		55,374			(290,468	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 59

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 12

PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT, continued

Operational leases - Lessor

As of March 31, 2019 and December 31, 2018, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Due within 1 year		651		469
Due after 1 year but within 2 years		1,382		882
Due after 2 years but within 3 years		498		469
Due after 3 years but within 4 years		487		460
Due after 4 years but within 5 years		464		428
Due after 5 years		1,828		2,242
Total		5,310		4,950

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,
	2019		2018
	MCh$		MCh$

Due within 1 year		8,504		25,702
Due after 1 year but within 2 years		-		24,692
Due after 2 years but within 3 years		-		22,439
Due after 3 years but within 4 years		-		19,574
Due after 4 years but within 5 years		-		17,250
Due after 5 years		-		63,945
Total		8,504		173,602

As of March 31, 2019 and December 31, 2018 the Bank has no finance leases which cannot be unilaterally cancelled.

The Bank has no restriction on property, plant and equipment as of March 31, 2019 and December 31, 2018. 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 2019 / Banco Santander Chile 60

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 12

PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT, continued

The composition of the active item for the right to use assets under lease as of March 31, 2019 and December 31, 2018 is as follows:

			Al 31 de marzo de 2019
	Net opening balance as of January 1, 2019		Gross balance		Accumulated depreciation			Net balance
	MCh$		MCh$		MCh$			MCh$

Land and building		-		160,515		(5,928	)		154,587
Lease improvements		-		80,732		(35,790	)		44,942
Equipment		-		-		-			-
Other		-		-		-			-
Totales		-		241,247		(41,718	)		199,529

The movement of the active item by right to use assets under lease during the periods 2019 and 2018, is as follows:

h.1) Gross balance

	Land and building			Lease improvements		Equipment		Other		Total
2019	MCh$			MCh$		MCh$		MCh$		MCh$

Balances as of January 1, 2019		154,839			78,407		-		-		233,246
Additions		6,660			2,325		-		-		8,985
Disposals		(3,924	)		-		-		-		(3,924	)
Impairment		-			-		-		-		-
Other		2,940			-		-		-		2,940
Balances as of March 31, 2019		160,515			80,732		-		-		241,247

h.2)

Accumulated amortization

	Land and building			Lease improvements			Equipment		Other		Total
2019	MCh$			MCh$			MCh$		MCh$		MCh$

Balances as of January 1, 2019		-			(33,977	)		-		-		(33,977	)
Amortization for the period		(6,065	)		(1,813	)		-		-		(7,878	)
Sales and disposals in the period		208			-			-		-		208
Transfers		-			-			-		-		-
Others		(71	)		-			-		-		(71	)
Balances as of March 31, 2019		(5,928	)		(35,790	)		-		-		(41,718	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 61

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 12

PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT, continued

Obligation for lease contract

As of March 31, 2019 and December 31, 2018, the obligations for lease agreements are as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Obligation for lease contract		154,839		-

Totales		154,839		-

As of March 31, 2019 and December 31, 2018, the maturity level of the obligations for lease agreements, according to their contractual maturity is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Due within 1 year		462		-
Due after 1 year but within 2 years		3,534		-
Due after 2 years but within 3 years		6,807		-
Due after 3 years but within 4 years		6,702		-
Due after 4 years but within 5 years		13,323		-
Due after 5 years		124,012		-

Totales		154,839		-

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 62

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 13

CURRENT AND DEFERRED TAXES

Current taxes

As of March 31, 2019 and December 31, 2018, 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,
	2019			2018
	MCh$			MCh$

Summary of current tax liabilities (assets)
Current tax (assets)		(10.195	)		-
Current tax liabilities		-			8,093

Total tax payable (recoverable)		(10,195	)		8,093

(Assets) liabilities current taxes detail (net)
Income tax (*)		195,209			166,173
Less:
Provisional monthly payments		(202,677	)		(155,706	)
Credit for training expenses		(2.315	)		(1,937	)
Grant credits		(1,453	)		(1,320	)
Other		1,041			883

Total tax payable (recoverable)		(10,195	)		8,093

(*) For 2019 the tax rates were 27% and 27% for 2018

Income tax

The effect tax expense has on income for the period ended March 31, 2019 and 2018 is comprised of the following items:

	As of March 31,
	2019 MCh$		2018 MCh$
Income tax expense
Current tax		29,036		29,070
Credits (debits) for deferred taxes
Origination and reversal of temporary differences		12,955		15,346
Provision due to valuation		-		-
Subtotal		41,991		44,416
Tax for rejected expenses (Article No,21)		155		193
Other		-		(56	)
Net income tax expense		42,146		44,553

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 63

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 13

CURRENT AND DEFERRED TAXES, continued

Effective tax rate reconciliation

The reconciliation between the income tax rate and the effective rate in tax expense as of March 31, 2019 and 2018 is as follows:

	As of March 31,
	2019						2018
	Tax rate			Amount			Tax rate			Amount
	%			MCh$			%			MCh$

Tax calculated over profit before tax		27.00			45,307			27.00			53,014
Permanent differences (1)		(2.07	)		(3,481	)		(4.88	)		(9,546	)
Penalty tax (rejected expenses)		0.09			154			0.08			193
Rate change effect		-			-			-			-
Other		0.10			166			0.47			892
Effective rates and expenses for income tax		25.12			42,146			22.67			44,553

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

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, 2019 and December 31, 2018 is the following:

	As of March 31,			As of December 31,
	2019			2018
	MCh$			MCh$
Deferred tax assets
Available for sale investments		4,416			1,071
Cash flow hedges		2,019			65
Total deferred tax assets recognized through other comprehensive income		6,435			1,136

Deferred tax liabilities
Available for sale investments		(8,764	)		(2,806	)
Cash flow hedges		-			(2,711	)
Total deferred tax liabilities recognized through other comprehensive income		(8,764	)		(5,517	)

Net deferred tax balances in equity		(2,329	)		(4,381	)

Deferred taxes in equity attributable to equity holders of the bank		(1,976	)		(4,027	)
Deferred tax in equity attributable to non-controlling interests		(354	)		(354	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 64

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 13

CURRENT AND DEFERRED TAXES, continued

Effect of deferred taxes on income

During 2019 and 2018, the Bank has registered in its finiancial statements the effects from deffered taxes.

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

	As of March 31,			As of December 31,
	2019			2018
	MCh$			MCh$
Deferred tax assets
Interests and adjustments		8,888			8,747
Non-recurring charge-offs		13,173			13,790
Assets received in lieu of payment		1,985			2,467
Exchange rate adjustment		1,592			1,675
Property, plant and equipment		6,262			6,138
Provision for loan losses		165,863			168,320
Provision for expenses		59,263			63,134
Derivatives		223			3,924
Leased assets		106,011			107,897
Subsidiaries tax losses		5,325			5,314
Preapid expenses		93			156
Investment valuation		-			-
Right of use assets		41,808			-
Others		-			-
Total deferred tax assets		410,486			381,798

Deferred tax liabilities
Valuation of investments		(1,191	)		(42	)
Depreciation		-			-
Anticipated Expenses		(477	)		(349	)
Valuation provision		(6,083	)		(6,084	)
Derivatives		(1,991	)		(3,383	)
Exchange rate adjustments		-			-
Obligation for lease contract		(41,739	)		-
Others		(19	)		(20	)
Total deferred tax liabilities		(51,500	)		(9,878	)

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,
	2019			2018
	MCh$			MCh$
Deferred tax assets
Recognized through other comprehensive income		6,435			1,136
Recognized through profit or loss		410,487			381,798
Total deferred tax assets		416,922			382,934

Deferred tax liabilities
Recognized through other comprehensive income		(8,764	)		(5,517	)
Recognized through profit or loss		(51,500	)		(9,878	)
Total deferred tax liabilities		(60,264	)		(15,395	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 65

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 14

OTHER ASSETS

The composition of other assets is the following:

	As of Marzo 31,			As of December 31,
	2019			2018
	MCh$			MCh$
Assets for leasing (1)		43,513			47,486

Assets received or awarded in lieu of payment (2)
Assets received in lieu of payment		13,522			11,297
Assets awarded at judicial sale		19,261			21,524
Provision on assets received in lieu of payment or awarded		(743	)		(723	)
Subtotal		32,040			32,098

Other assets
Guarantee deposits (margin accounts) (3)		233,175			170,232
Investments in gold		514			522
VAT credit tax		8,032			9,097
Income tax recoverable		1,756			1,756
Prepaid expenses		484,235			477,819
Plant, Property and Equipment held for sale		-			-
Assets recovered from leasing held for sale		6,670			6,848
Macro-hedging valuation adjustment		28,870			9,414
Pension plan assets		834			846
Accounts and notes receivable		103,119			59,511
Notes receivable through brokerage and simultaneous transactions		61,906			78,330
Other receivable accounts		42,528			48,612
Other assets		47,222			42,417
Subtotal		1,018,861			905,404

Total		1,094,414			984,988

(1)

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

(2)

The goods received in payment correspond to the goods received as payment of debts due from customers. The set of goods that remain acquired in this way must not exceed 20% of the Bank's effective equity at any time. These assets currently represent 0.32% (0,28% as of December 31, 2018) of the Bank's effective equity.

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

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

(3)

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 66

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 15

TIME DEPOSITS AND OTHER TIME LIABILITIES

As of March 31, 2019 and December 31, 2018, the composition of the item time deposits and other liabilities is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$
Deposits and other demand liabilities
Checking accounts		6,758,052		6,794,132
Other deposits and demand accounts		631,069		709,711
Other demand liabilities		1,137,222		1,237,574

Total		8,526,343		8,741,417

Time deposits and other time liabilities
Time deposits		12,813,239		12,944,846
Time savings account		118,333		118,587
Other time liabilities		4,131		4,386

Total		12,935,703		13,067,819

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 67

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

As of March 31, 2019 and December 31, 2018, the composition for this item is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$
Other financial liabilities
Obligations to public sector		32,202		32,449
Other domestic obligations		164,139		175,210
Foreign obligations		19,538		7,741
Subtotal		215,879		215,400
Issued debt instruments
Mortgage finance bonds		23,300		25,490
Senior bonds		7,623,579		7,198,865
Mortgage Bonds		92,099		94,921
Subordinated bonds		795,243		795,957
Subtotal		8,534,221		8,115,233

Total		8,750,100		8,330,633

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, 2019
	Current		Non-current		Total
	MCh$		MCh$		MCh$
Mortgage finance bonds		6,349		16,951		23,301
Senior bonds		1,322,886		6,300,693		7,623,579
Mortgage Bonds		6,434		85,665		92,098
Subordinated bonds		1		795,242		795,243
Issued debt instruments		1,335,670		7,198,551		8,534,221

Other financial liabilities		206,754		33,721		215,879

Total		1,542,424		7,345,623		8,750,100

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 68

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

	As of December 31, 2018
	Current		Non-current		Total
	MCh$		MCh$		MCh$
Mortgage finance bonds		6,830		18,660		25,490
Senior bonds		844,898		6,353,967		7,198,865
Mortgage Bonds		4,833		90,088		94,921
Subordinated bonds		1		795,956		795,957
Issued debt instruments		856,562		7,258,671		8,115,233

Other financial liabilities		205,871		9,529		215,400

Total		1,062,433		7,268,200		8,330,633

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 5.42% as of March 31, 2019 (5.39% as of December 31, 2018).

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Due within 1 year		6,349		6,830
Due after 1 year but within 2 years		5,745		5,946
Due after 2 years but within 3 years		4,774		5,034
Due after 3 years but within 4 years		3,704		3,997
Due after 4 years but within 5 years		2,024		2,480
Due after 5 years		704		1,203
Total mortgage finance bonds		23,300		25,490

Senior bonds

The following table shows senior bonds by currency:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Santander bonds in UF		4,327,386		4,095,741
Santander bonds in USD		1,239,497		1,094,267
Santander bonds in CHF		476,913		386,979
Santander bonds in Ch$		1,238,362		1,291,900
Santander bonds in AUD		24,428		24,954
Santander bonds in JPY		185,690		191,598
Santander bonds in EUR		131,303		113,426
Total senior bonds		7,623,579		7,198,865

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 69

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

i. Placement of senior bonds:

As of March 31, 2019 the Bank has placed bonds for UF 14,000,000, CLP 75,000,000,000 EUR 30,000,000 Y CHF 150,000,000 detailed as follows:

Series	Currency	Amount placed		Term (years)		Issuance rate (Annual)			Issue date	Amount		Maturity date
T7	UF		4,000,000		4		2.50	%	02-01-2016		5,000,000	02-01-2023
T8	UF		2,000,000		4.6		2.50	%	02-01-2016		8,000,000	08-01-2023
T14	UF		3,000,000		8		2.80	%	02-01-2016		18,000,000	02-01-2027
Total	UF		9,000,000								31,000,000
U9	CLP		75,000,000,000		2.8		ICP + 0,8%		11-01-2018		75,000,000,000	11-19-2021
Total	CLP		75,000,000,000								75,000,000,000
EUR	EUR		30,000,000		7		1.10	%	02-01-2019		40,000,000	02-07-2026
Total	EUR		30,000,000								40,000,000	02-07-2026
CHF	CHF		150,000,000		5.6		0.384	%	03-12-2019		150,000,000	09-27-2024
Total	CHF		150,000,000								150,000,000

During 2019’s first trimester, the Bank repurchased the following bonds:

Date	Type	Currency	Amount
02-12-2019	Senior	CLP		10.000.000.000
02-14-2019	Senior	CLP		30.000.000.000
02-19-2019	Senior	CLP		4.200.000.000
02-22-2019	Senior	CLP		14.240.000.000
03-01-2019	Senior	CLP		11.800.000.000
03-04-2019	Senior	CLP		40.080.000.000
03-05-2019	Senior	CLP		20.000.000.000
03-15-2019	Senior	UF		156.000
03-19-2019	Senior	UF		418.000
03-20-2019	Senior	CLP		6.710.000.000
03-20-2019	Senior	UF		154.000
03-21-2019	Senior	UF		100.000
03-25-2019	Senior	UF		100.000
03-26-2019	Senior	UF		90.000

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 70

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

During 2018 the Bank has placed bonds for UF 23,000,000, CLP 225,000,000,000, USD 70,000,000, EUR 66,000,000, AUD 20,000,000, CHF 115,000,000 and JPY 7,000,000,000, detailed as follows:

Series	Currency	Amount placed		Term (years)		Issuance rate (Annual)		Issue date	Amount		Maturity date
T1	UF		4.000.000		2		2.20%	02-01-2016		7.000.000	02-01-2020
T4	UF		4.000.000		3		2.35%	02-01-2016		8.000.000	08-01-2021
T11	UF		5.000.000		7		2.65%	02-01-2016		5.000.000	02-01-2025
T12	UF		5.000.000		7		2.70%	02-01-2016		5.000.000	08-01-2025
T15	UF		5.000.000		11		3.00%	02-01-2016		5.000.000	08-01-2028
Total	UF		23.000.000							30.000.000
P5	CLP		75.000.000.000		4		5.30%	03-05-2015		150.000.000.000	03-01-2022
U4	CLP		75.000.000.000		3.4		ICP + 1.00%	01-10-2017		75.000.000.000	01-10-2022
U3	CLP		75.000.000.000		2.7		ICP + 1.00%	06-11-2018		75.000.000.000	06-11-2021
Total	CLP		225.000.000.000							300.000.000.000
USD	USD		50.000.000		10		4.17%	10-10-2018		50.000.000	10-10-2028
USD	USD		20.000.000		2		0.0369%	11-16-2018		20.000.000	11-16-2020
Total	USD		70.000.000							70.000.000
EUR	EUR		26.000.000		7		1.00%	05-04-2018		26.000.000	05-28-2025
EUR	EUR		40.000.000		12		1.78%	06-07-2018		40.000.000	06-15-2030
Total	EUR		66.000.000							66.000.000
AUD	AUD		20.000.000		5		3.56%	11-13-2018		20.000.000	11-13-2023
Total	AUD		20.000.000							20.000.000
CHF	CHF		115.000.000		5.3		0.441%	09-21-2018		115.000.000	12-21-2023
Total	CHF		115.000.000							115.000.000
JPY	JPY		4.000.000.000		10.6		0.65%	07-13-2018		4.000.000.000	01-13-2029
JPY	JPY		3.000.000.000		5		56%	10-30-2018		3.000.000.000	10-30-2023
Total	JPY		7.000.000.000							7.000.000.000

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 71

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

During 2018, the Bank partially repurchased the following bonds:

Date	Type	Currency	Amount
01-04-2018	Senior	CLP		12.890.000.000
01-04-2018	Senior	CLP		4.600.000.000
01-22-2018	Senior	UF		24.000
04-05-2018	Senior	UF		484.000
04-06-2018	Senior	UF		184.000
04-23-2018	Senior	UF		216.000
04-24-2018	Senior	UF		4.000
04-25-2018	Senior	UF		262.000
05-10-2018	Senior	UF		800.000
06-07-2018	Senior	USD		3.090.000
12-11-2018	Senior	USD		250.000.000

ii.

Maturities for senior bonds are the following:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Due within 1 year		1,322,886		844,898
Due after 1 year but within 2 years		1,443,913		1,331,255
Due after 2 years but within 3 years		914,553		1,073,847
Due after 3 years but within 4 years		1,193,893		1,104,547
Due after 4 years but within 5 years		425,958		421,918
Due after 5 years		2,322,376		2,422,400
Total senior bonds		7,623,579		7,198,865

Mortgage bonds

The detail of mortgage bonds per currency is the following:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Mortgage bonds in UF		92,099		94,921
Total mortgage bonds		92,099		94,921

Placement of Mortgage bonds

As of March 31, 2019, the Bank has not placed any mortgage bonds.

During 2018 the Bank did not place any mortgage bonds.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 72

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

ii.

Maturities of mortgage bonds is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Due within 1 year		6,434		4,833
Due after 1 year but within 2 years		7,699		7,758
Due after 2 years but within 3 years		7,947		8,008
Due after 3 years but within 4 years		8,204		8,267
Due after 4 years but within 5 years		8,468		8,534
Due after 5 years		53,347		57,521
Total mortgage bonds		92,099		94,921

Subordinated bonds

Detail of subordinated bonds per currency is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Subordinated bonds denominated in Ch$		1		1
Subordinated bonds denominated in USD		-		-
Subordinated bonds denominated in UF		795,242		795,956
Total subordinated bonds		795,243		795,957

Placement of subordinated bonds

As of March 31, 2019, the Bank has not placed any mortgage bonds.

During 2018 the Bank did not place any mortgage bonds.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 73

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Other financial liabilities

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Non-current portion:
Due after 1 year but within 2 years		8,826		9,221
Due after 2 year but within 3 years		41		40
Due after 3 year but within 4 years		44		44
Due after 4 year but within 5 years		49		48
Due after 5 years		165		176
Non-current portion subtotal		9,125		9,529

Current portion:
Amounts due to credit card operators		161,391		172,425
Acceptance of letters of credit		15,075		2,894
Other long-term financial obligations, short-term portion		30,288		30,552
Current portion subtotal		206,754		205,871

Total other financial liabilities		215,879		215,400

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 74

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

As of March 31, 2019 and December 31, 2018, 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		Up to 1 year Subtotal		Between 1 and 3 years		Between 3 and 5 years		More than 5 years		More than 1 year Subtotal		Total
As of March 31, 2019	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		1,550,598		-		-		-		1,550,598		-		-		-		-		1,550,598
Cash items in process of collection		410,616		-		-		-		410,616		-		-		-		-		410,616
Trading investments		-		-		14		514		528		36,326		8,315		49,639		94,280		94,808
Investments under resale agreements		-		5,015		-		-		5,015		-		-		-		-		5,015
Financial derivatives contracts		-		66,978		128,143		317,365		512,486		777,582		542,185		1,150,977		2,470,744		2,983,230
Interbank loans (1)		-		22,461		2,804		1,201		26,466		-		-		-		-		26,466
Loans and accounts receivables from customers (2)		23,743		3,374,390		2,666,339		4,704,198		10,768,670		5,588,736		3,251,809		10,964,579		19,805,124		30,573,794
Available for sale investments		-		476,764		5,546		19,119		501,429		1,165,301		537,926		594,388		2,297,615		2,799,044
Held to maturity investments		-		-		-		-		-		-		-		-		-		-
Guarantee deposits (margin accounts)		233,175		-		-		-		233,175		-		-		-		-		233,175
Total assets		2,218,132		3,945,608		2,802,846		5,042,397		14,008,983		7,567,945		4,340,235		12,759,583		24,667,763		38,676,746

Liabilities
Deposits and other demand liabilities		8,526,343		-		-		-		8,526,343		-		-		-		-		8,526,343
Cash items in process of collection		275,695		-		-		-		275,695		-		-		-		-		275,695
Obligations under repurchase agreements		-		120,935		-		-		120,935		-		-		-		-		120,935
Time deposits and other time liabilities		122,464		5,502,705		4,310,737		2,884,358		12,820,264		47,686		3,116		64,637		115,439		12,935,703
Financial derivatives contracts		-		79,038		109,483		379,100		567,621		443,102		470,296		1,065,322		1,978,720		2,546,341
Interbank borrowings		13,079		25,448		115,481		1,399,451		1,553,459		181,404		-		-		181,404		1,734,863
Issued debts instruments		-		304,926		228,099		802,645		1,335,670		2,384,631		1,642,251		3,171,668		7,198,551		8,534,221
Other financial liabilities		168,232		13,551		1,823		23,148		206,754		8,867		93		165		9,125		215,879
Guarantees received (margin accounts)		-		-		-		462		462		10,341		20,025		124,011		154,377		154,839
Total liabilities		512,903		-		-		-		512,903		-		-		-		-		512,903

(1)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$18 million,

(2)

Loans and accounts receivables from customers are presented on a gross basis. Provisions on loans amounts according to customer type are the following: Commercial loans Ch$464,155 million, Mortgage loans Ch$68,876 million and Consumer loans Ch$277,341 million.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 75

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES, continued

	Demand		Up to 1 month		Between 1 and 3 months		Between 3 and 12 months		Up to 1 year Subtotal		Between 1 and 3 years		Between 3 and 5 years		More than 5 years		More than 1 year Subtotal		Total
As of December 31, 2018	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Financial Assets
Cash and deposits in banks		2,065,441		-		-		-		2,065,441		-		-		-		-		2,065,441
Cash items in process of collection		353,757		-		-		-		353,757		-		-		-		-		353,757
Trading investments		-		1,064		-		11,642		12,706		16,331		20,080		27,924		64,335		77,041
Investments under resale agreements		-		-		-		-		-		-		-		-		-		-
Financial derivatives contracts		-		111,268		128,024		543,722		783,014		723,622		552,133		1,041,866		2,317,621		3,100,635
Interbank loans (1)		-		9,427		3,220		2,447		15,094		-		-		-		-		15,094
Loans and accounts receivables from customers (2)		238,213		3,285,576		2,320,222		4,946,887		10,790,898		5,474,289		3,236,349		10,765,393		19,476,031		30,266,929
Available for sale investments		-		2,394,329		-		1		2,391,330		86		-		2,907		2,993		2,394,323
Held to maturity investments		-		-		-		-		-		-		-		-		-		-
Guarantee deposits (margin accounts)		170,232		-		-		-		170,232		-		-		-		-		170,232
Total financial assets		2,827,643		5,798,664		2,451,466		5,504,699		16,582,472		6,214,328		3,808,562		11,838,090		21,860,980		38,443,452

Financial Liabilities
Deposits and other demand liabilities		8,741,417		-		-		-		8,741,417		-		-		-		-		8,741,417
Cash items in process of collection		163,043		-		-		-		163,043		-		-		-		-		163,043
Obligations under repurchase agreements		-		48,545		-		-		48,545		-		-		-		-		48,545
Time deposits and other time liabilities		122,974		5,248,418		4,108,556		3,326,199		12,806,147		191,547		6,137		63,988		261,672		13,067,819
Financial derivatives contracts		-		131,378		120,361		349,551		601,290		495,789		471,185		949,464		1,916,438		2,517,728
Interbank borrowings		39,378		16,310		404,575		1,188,692		1,648,955		139,671		-		-		139,671		1,788,626
Issued debts instruments		-		71,465		39,267		745,830		856,562		2,431,849		1,549,743		3,277,079		7,258,671		8,115,233
Other financial liabilities		179,681		934		2,412		22,844		205,871		9,261		92		176		9,529		215,400
Guarantees received (margin accounts)		540,091		-		-		-		540,091		-		-		-		-		540,091
Total financial liabilities		9,786,584		5,517,050		4,675,171		5,633,116		25,611,921		3,268,117		2,027,157		4,290,707		9,585,981		35,197,902

(1)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$29 million.

(2)

Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to customer type of loan are the following: Commercial loans for Ch$472,876 million, Mortgage loans for Ch$64,241 million and Consumer loans for Ch$259,442 million.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 76

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 18

PROVISIONS

As of March 31, 2019 and December 31, 2018, the detail for the provisions is as follows:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Provision for employee salaries and expenses		63,870		93,379
Provision for mandatory dividends		215,200		177,571
Provision for contingent loan risks:
Provision for lines of credit of immediate disponibility		14,667		14,177
Other provisions for contingent loans		15,996		15,230
Provision for contingencies		11,515		8,963
Additonal provisions		20,000		20,000
Provision for foreign bank loans		575		620
Total		341,823		329,940

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 77

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 19

OTHER LIABILITIES

Other liabilities consist of:

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Accounts and notes payable		195,204		163,216
Income received in advance		670		673
Adjustment due to macro-hedging valuation		10,722		7,039
Guarantees received (margin accounts) (1)		512,903		540,091
Notes payable through brokerage and simultaneous transactions		17,787		50,807
Other payable obligations		78,971		94,779
Withheld VAT		2,010		1,990
Accounts payable by insurance companies		8,542		8,424
Other liabilities		25,661		33,389
Total		852,470		900,408

(1)

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 78

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 20

CONTINGENCIES AND COMMITMENTS

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, 2019, the Bank and its subsidiaries have provisions for this item for Ch$883 million and Ch$118 million, respectively (Ch$923 million and Ch$0 million as of December 31, 2018) which is included in “Provisions” in the Consolidated Statement of Financial Position as provisions for contingencies.

As of March 31, 2019, the following legal situations are pending:

Santander Corredores de Bolsa Limitada

The case "Echeverría with Santander Corredora" (currently Santander Corredores de Bolsa Ltda.), followed before the 21st Civil Court of Santiago, Case C-21,366-2014, on compensation for damages for faults in the purchase of shares. With regard to its actual situation as of December 31, 2018, Santander Corredores de Bolsa Limitada requested the Court to declare the proceeding abandoned due to the pending actions of the plaintiff, a situation that is pending for the Court to resolve.

Santander Corredora de Seguros Limitada

There are lawsuits amounting to UF3,790 corresponding to processes mainly for goods delivered in leasing. Our lawyers have not estimated additional material losses for these trials.

Contingent loans

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

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Letters of credit issued		159,753		223,420
Foreign letters of credit confirmed		37,994		57,038
Performance guarantees		1,731,043		1,954,205
Personal guarantees		341,751		133,623
Subtotal		2,270,541		2,368,286
On demand credit lines		8,745,864		8,997,650
Other irrevocable credit commitments		298,087		327,297
Total		11,314,492		11,693,223

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 79

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 20

CONTINGENCIES AND COMMITMENTS, continued

Held securities

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

	As of March 31,		As of December 31,
	2019		2018
	MCh$		MCh$

Third party operations
Collections		108,747		99,784
Transferred financial assets managed by the Bank		24619		26,262
Assets from third parties managed by the Bank and its affiliates (1)		1,650,305		1,630,431
Subtotal		1,783,671		1,756,477
Custody of securities
Securities held in custody		11,682,859		11,160,488
Securities held in custody deposited in other entity		868,665		861,405
Issued securities held in custody		12,104,633		12,335,871
Subtotal		24,656,157		24,357,764
Total		26,439,828		26,114,241

(1) The Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates”, as of March 31, 2019, the balance for this was Ch$1,650,270 million (Ch$1,630,396 million at December 31, 2018).

Guarantees

Banco Santander Chile has an integral bank policy of coverage of Official Loyalty N °4505199 in force with the company Compañía de Seguros Chilena Consolidada SA, Coverage for 50,000,000 USD per claim with an annual limit of 100,000,000 USD, which covers both the Bank and its subsidiaries, with an expiration date of June 30, 2019.

Santander Agente de Valores Limitada

In order to ensure the correct and full compliance of all its obligations as securities agent in accordance with the provisions of articles N° 30 and following of Law N° 18,045, on Stock Market, the company constituted a guarantee for 4,000 UF with insurance policy N° 216113821 taken with the Insurance Company of Crédito Continental S.A. and whose maturity is December 19, 2019.

Santander Corredores de Bolsa Limitada

i) As of March 31, 2019, the Company has comprehensive guarantees in the Santiago Stock Exchange to cover simultaneous operations carried out through its own portfolio for a total of Ch$ 21,321 (Ch$ 40,427 as of December 31, 2018).

ii) Additionally, as of March 31, 2019, the Company holds a guarantee in CCLV Contraparte Central S.A., in cash, for an amount of Ch$ 5,976 (Ch$ 5,000 as of December 31, 2018).

iii) In order to ensure the correct and full compliance of all its obligations as Brokerage Broker, in accordance with the provisions of articles 30 and following of Law N°18,045 on Securities Market, the Company has delivered fixed-income securities to the Santiago Stock Exchange for a present value of Ch$ 1,017 as of March 31, 2019 (Ch$ 1,009 as of December 31, 2018).

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 80

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 20

CONTINGENCIES AND COMMITMENTS, continued

Santander Corredora de Seguros Limitada

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

ii) The insurance policy for insurance brokers N° 4619574, which covers 500 UF, and the professional liability policy for insurance brokers N° 4619581 for an amount equivalent to UF60,000, were contracted with the Compañía de Seguros Generales Chilena Consolidada S.A. both are valid from April 15, 2018 to April 14, 2019.

iii) The Company maintains a guarantee slip with Banco Santander Chile to guarantee the faithful fulfillment of the public bidding rules of the tax and deductibility insurance plus ITP 2/3 of the mortgage portfolio for the housing of Banco Santander Chile. This amounts to 10,000 UF for each portfolio respectively, both with an expiration date of July 31, 2019. For the same reason, the Company maintains a guarantee voucher in compliance with the public tender for fire and earthquake insurance, which amounts to 200 UF and 10,000 UF with the same financial institution, both with an expiration date as of December 31, 2020.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 81

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 21

EQUITY

Capital

As of March 31, 2019 and December 31, 2018 the Bank had 188,446,126,794 shares outstanding amounting to Ch$ 891,303 million. All of which are subscribed for and paid in full. All shares have the same rights, and have no preferences or restrictions.

The movement in shares for the period of March 31, 2019 and December 31, 2018 is the following:

	Shares
	As of March 31,		As of December 31,
	2019		2018

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, 2019 and December 31, 2018 the Bank does not own any of its shares in treasury, nor do any of the consolidated companies.

As of March 31, 2019 the shareholder composition is the following:

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		-		26,833,969,671		26,833,969,671		14,24
Banks on behalf of third parties		15,455,514,414		-		15,455,514,414		8,20
Pension funds (AFP) on behalf of third parties		8,806,628,787		-		8,806,628,787		4,67
Stock brokers on behalf of third parties		4,466,968,277		-		4,466,968,277		2,37
Other minority holders		6,290,044,377		-		6,290,044,377		3,34
Total		161,612,157,123		26,833,969,671		188,446,126,794		100,00

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 82

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 21

EQUITY, continued

As of December 31, 2018 the shareholder composition is the following:

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		-		26,486,000,071		-		14.05
Banks on behalf of third parties		15,451,106,985		-		15,451,106,985		8.20
Pension fund (AFP) on behalf of third parties		9,033,172,896		-		9,033,172,896		4.79
Stock brokers on behalf of third parties		4,773,558,507		-		4,773,558,507		2.53
Other minority holders		6,109,287,067		-		6,109,287,067		3.25
Total		161,960,126,723		26,486,000,071		188,446,126,794		100.00

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

Dividends

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

Diluted earnings per share and basic earnings per share

As of March 31, 2019 and December 31, 2018, the composition of diluted earnings per share and basic earnings per share are as follows:

	As of March 31,
	2019		2018
	MCh$		MCh$

a) Basic earnings per share
Total attributable to equity holders of the Bank		125,430		151,016
Weighted average number of outstanding shares		188,446,126,794		188,446,126,794
Basic earnings per share (in Ch$)		0.666		0.801

b) Diluted earnings per share

Total attributable to equity holders of the Bank		125,430		151,016
Weighted average number of outstanding shares		188,446,126,794		188,446,126,794
Assumed conversion of convertible debt		-		-
Adjusted number of shares		188,446,126,794		188,446,126,794
Diluted earnings per share (in Ch$)		0.666		0.801

As of March 31, 2019 and December 31, 2018, the Bank does not own instruments with dilutive effects.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 83

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 21

EQUITY, continued

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

	As of March 31,			As of December 31,
	2019			2018
	MCh$			MCh$

Available for sale investments
As of January 1,		6,424			1,855
Gain (losses) on the re-valuation of available for sale investments, before tax		1,963			6,071
Reclassification from other comprehensive income to net income for the year		-			-
Net income realized		7,714			(1,502	)
Subtotal		9,677			4,569
Total		16,101			6,424

Cash flow hedges
As of January 1,		9,803			(3,562	)
Gains (losses) on the re-valuation of cash flow hedges, before tax		(17,056	)		14,048
Reclassification and adjustments on cash flow hedges, before tax		(222	)		(683	)
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		(17,278	)		13,365
Total		(7,475	)		9,803

Other comprehensive income, before tax		8,625			16,227

Income tax related to other comprehensive income components
Income tax relating to available for sale investments		(4,348	)		(1,735	)
Income tax relating to cash flow hedges		2,020			(2,646	)
Total		(2,328	)		(4,381	)

Other comprehensive income, net of tax		6,297			11,846
Attributable to:
Equity holders of the Bank		5,341			10,890
Non-controlling interest		956			956

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 2019 / Banco Santander Chile 84

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 22

CAPITAL REQUIREMENTS (BASEL)

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

Assets are allocated to different risk categories, each of which is assigned a weighting percentage according to the amount of capital required to be held for each type of asset. For example, cash, deposits in banks and financial instruments issued by the Central Bank of Chile have a 0% risk weighting, meaning that it is not necessary to hold equity to back these assets according to current regulations. Property, plant and equipment have a 100% risk weighting, meaning that a minimum capital equivalent to 11% of these assets must be held. All derivatives traded off the exchanges are also assigned a risk weighting, using a conversion factor applied to their notional values, to determine the amount of their exposure to credit risk. 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		35	%
g) Other loan commitments:
- Higher education loans Law No, 20,027		15	%
- Other		100	%
h) Other contingent loans		100	%

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 85

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 22

CAPITAL REQUIREMENTS (BASEL), continued

The levels of basic capital and effective net equity as of March 31, 2019 and December 31, 2018, are the following:

	Consolidated assets				Risk-weighted assets
	As of March 31,		As of December 31,		As of March 31,		As of December 31,
	2019		2018		2019		2018
	MCh$		MCh$		MCh$		MCh$

Balance-sheet assets (net of allowances)
Cash and deposits in banks		1,550,598		2,065,441		-		-
Cash in process of collection		410,616		353,757		86,779		105,421
Trading investments		94,808		77,041		36,576		10,704
Investments under resale agreements		5,015		-		5,015		-
Financial derivative contracts (*)		905,285		1,226,892		564,888		868,578
Interbank loans, net		26,414		15,065		26,414		15,064
Loans and accounts receivables from customers, net		29,779,287		29,470,370		25,638,750		25,403,426
Available for sale investment		2,799,044		2,394,323		162,338		172,859
Investments in associates and other companies		33,098		32,293		33,098		32,293
Intangible assets		63,302		66,923		63,302		66,923
Property, plant, and equipment		201,093		253,586		201,093		253,586
Right of use assets		199,529		-		199,529		-
Current taxes		10,195		-		1,020		-
Deferred taxes		416,922		382,934		41,692		38,293
Other assets		1,094,414		984,988		1,087,845		983,299
Off-balance-sheet assets
Contingent loans		4,586,600		4,624,073		2,644,691		2,649,730
Total		42,176,220		41,947,686		30,793,030		30,600,176

(*)

“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,
	2019		2018		2019		2018
	MCh$		MCh$		%		%
Basic capital		3,321,798		3,239,546		7.88		7.72
Effective net equity		4,183,431		4,101,664		13.59		13.40

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 86

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 23

NON-CONTROLLING INTEREST

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

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

							Other comprehensive income
	Non controlling interest		Equity		Income		Available for sale investments			Deferred tax			Total other comprehensive income			Comprehensive income
As of March 31, 2019	%		MCh$		MCh$		MCh$			MCh$			MCh$			MCh$

Subsidiaries:
Santander Corredora de Seguros Limitada		0.25		173		1		-			-			-			1
Santander Corredores de Bolsa Limitada		49.41		21,736		64		-			-			-			64
Santander Agente de Valores Limitada		0.97		490		2		-			-			-			2
Santander S.A. Sociedad Securitizadora		0.36		2		-		-			-			-			-
Subtotal				22,401		67		-			-			-			67

Entities controlled through other considerations:
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		3,904		127		-			-			-			127
Bansa Santander S.A. (1)		100.00		20,086		35		-			-			-			35
Subtotal				23,990		162		-			-			-			162

Total				46,391		229		-			-			-			229

							Other comprehensive income
	Non- controlling interest		Equity		Income		Available for sale investments			Deferred tax			Total other comprehensive income			Comprehensive income
As of March 31, 2018	%		MCh$		MCh$		MCh$			MCh$			MCh$			MCh$

Subsidiaries:
Santander Corredora de Seguros Limitada		0.25		169		1		-			-			-			1
Santander Corredores de Bolsa Limitada		49.41		21,075		122		(37	)		(11	)		(48	)		74
Santander Agente de Valores Limitada		0.97		426		38		-			-			-			38
Santander S.A. Sociedad Securitizadora		0.36		1		161		-			-			-			-
Subtotal				21,671		161		(37	)		(11	)		(48	)		113

Entities controlled through other considerations:
Santander Gestión de Recaudación y Cobranzas Limitada		100.00		3,366		441		-			-			-			441
Bansa Santander S.A. (1)		100.00		17,576		175		-			-			-			175
Subtotal				20,942		616		-			-			-			616

Total				42,613		777		(37	)		(11	)		(48	)		729

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 87

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 23

NON-CONTROLLING INTEREST, continued

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,
	2019									2018
							Net									Net
	Assets		Liabilities		Capital		Income			Assets		Liabilities		Capital		Income
	MCh$		MCh$		MCh$		MCh$			MCh$		MCh$		MCh$		MCh$

Santander Corredora de Seguros Limitada		79,003		10,542		68,169		292			77,761		9,595		66,374		1,795
Santander Corredores de Bolsa Limitada		89,932		45,574		44,229		129			102,228		57,999		42,691		1,538
Santander Agente de Valores Limitada		54,255		3,618		50,481		156			50,552		71		40,177		10,304
Santander S.A. Sociedad Securitizadora		688		65		639		(16	)		704		66		728		(90	)
Santander Gestión de Recaudación y Cobranzas Ltda.		6,681		2,777		3,777		127			6,932		3,155		2,925		852
Bansa Santander S.A.		25,565		5,479		20,051		35			20,437		386		17,401		2,650
Total		256,124		68,055		187,346		723			258,617		71,272		170,296		17,049

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 88

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 24

INTEREST INCOME

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

As of March 31, 2019 and 2018, the income from interest income, not including income from hedge accounting, is attributable to the following items:

	As of March 31,
	2019									2018
	Interest		Inflation adjustments			Prepaid fees		Total		Interest		Inflation adjustments		Prepaid fees		Total
Items	MCh$		MCh$			MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Resale agreements		192		-			-		192		241		-		-		241
Interbank loans		112		-			-		112		554		-		-		554
Commercial loans		196,856		397			2,472		199,725		183,256		32,760		3,534		219,550
Mortgage loans		85,465		887			109		86,461		79,251		56,719		111		136,081
Consumer loans		145,730		37			1,781		147,548		145,459		101		1,367		146,927
Investment instruments		18,902		(42	)		-		18,860		17,818		5,917		-		23,735
Other interest income		4,328		(65	)		-		4,263		3,241		306		-		3,547

Interest income without income from hedge accounting		451,585		1,214			4,362		457,161		429,820		95,803		5,012		530,635

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, 2019 and December 31, 2018, the suspended interest and adjustments income consists of the following:

	As of March 31,						As of December 31,
	2019						2018
	Interest		Inflation adjustments		Total		Interest		Inflation adjustments		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Commercial loans		13,705		8,238		21,943		13,453		8,904		22,357
Mortgage loans		3,064		5,283		8,347		3,030		6,304		9,334
Consumer loans		4,029		301		4,330		4,172		333		4,505

Total		20,798		13,822		34,620		20,655		15,541		36,196

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 89

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 24

INTEREST INCOME, continued

As of March 31, 2019 and 2018, the expenses from interest expense, excluding expense from hedge accounting, are as follows:

	As of March 31,
	2019									2018
	Interest			Inflation adjustments			Total			Interest			Inflation adjustments			Total
Items	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Demand deposits		(3,212	)		4			(3,208	)		(2,694	)		(253	)		(2,947	)
Repurchase agreements		(1,696	)		-			(1,696	)		(888	)		-			(888	)
Time deposits and liabilities		(88,108	)		153			(87,955	)		(76,070	)		(7,792	)		(83,862	)
Interbank borrowings		(12,699	)		-			(12,699	)		(7,015	)		-			(7,015	)
Issued debt instruments		(59,933	)		(97	)		(60,030	)		(55,834	)		(28,806	)		(84,640	)
Other financial liabilities		(316	)		-			(316	)		(718	)		(14	)		(732	)
Other interest expense		(755	)		-			(755	)		(1,835	)		(2,102	)		(3,937	)
Interest expense without expenses from hedge accounting		(2,650	)		(145	)		(2,795	)		(145,054	)		(38,967	)		(184,021	)

As of March 31, 2019 and 2018, the income and expense from interest is as follows:

	As of March 31,
	2019			2018
Items	MCh$			MCh$

Interest income less income from hedge accounting		457,161			530,635
Interest expense less expense from hedge accounting		(169,454	)		(184,021	)

Net Interest income (expense) from hedge accounting		287,707			346,614

Hedge accounting (net)		34,994			101

Total net interest income		322,701			346,715

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 90

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 25

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:

	As of March 31,
	2019		2018
	MCh$		MCh$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		1,560		1,528
Fees and commissions for guarantees and letters of credit		8,731		8,136
Fees and commissions for card services		56,154		59,508
Fees and commissions for management of accounts		8,829		8,254
Fees and commissions for collections and payments		8,349		8,928
Fees and commissions for intermediation and management of securities		2,467		2,439
Fees and commissions for insurance marketing		11,021		8,941
Office banking		3,277		3,912
Fees for other services rendered		11,000		11,206
Other fees earned		9,978		11,302
Total		121,366		124,154

	As of March 31,
	2019			2018
	MCh$			MCh$

Fee and commission expense
Compensation for card operations		(41,544	)		(44,288	)
Fees and commissions for securities transactions		(270	)		(165	)
Office banking		(435	)		(4,136	)
Other fees		(8,442	)		(71	)
Total		(50,691	)		(48,660	)

Net fees and commissions income		70,675			75,494

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 91

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 25

FEES AND COMMISSIONS, continued

Income and expenses from commissions that are generated through the different segments of the business are presented in the following chart as well as the calendar which recognizes ordinary activity income.

	Segments															Calendar recognizing ordinary activity income
	Retail Banking			Middle Market			Global Corporate Banking			Others			Total			Transfered through time		Transfered in an exact moment			Accrual model
As of March 31, 2019	MM$			MM$			MM$			MM$			MM$			MM$		MM$			MM$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		1,484			65			10			1			1,560			1,560		-			-
Fees and commissions for guarantees and letters of credit		2,235			4,395			1,592			9			8,731			8,731		-			-
Fees and commissions for card services		54,302			1,580			246			26			56,154			9,655		46,499			-
Fees and commissions for management of accounts		8,005			621			203			-			8,829			8,829		-			-
Fees and commissions for collections and payments		9,753			353			115			(1,872	)		8,349			-		3,207			5,142
Fees and commissions for intermediation and management of securities		768			39			2,465			(805	)		2,467			-		2,467			-
Fees and commissions for insurance marketing		11,021			-			-			-			11,021			-		-			11,021
Office banking		2,222			921			134			-			3,277			-		3,277			-
Fees for other services rendered		9,795			902			225			78			11,000			-		11,000			-
Other fees earned		2,726			3,191			3,972			89			9,978			-		9,978			-
Totals		102,811			12,067			8,962			2,474			121,366			28,775		76,428			16,163

Fee and commission expense
Compensation for card operations		(40,591	)		(835	)		(81	)		(37	)		(41,544	)		-		(41,544	)		-
Fees and commissions for securities transactions		-			-			(10	)		(260	)		(270	)		-		(270	)		-
Office banking		(277	)		(91	)		(66	)		(1	)		(435	)		-		(435	)		-
Other fees		(4,777	)		(1,227	)		(1,221	)		(1,217	)		(8,442	)		-		(8,442	)		-
Totals		(45,645	)		(2,153	)		(1,378	)		(1,515	)		(50,691	)		-		(50,691	)		-
Net fees and commissions income		57,166			9,914			7,584			(3,989	)		70,675			28,775		25,737			16,163

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 92

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 25

FEES AND COMMISSIONS, continued

	Segments															Calendar recognizing ordinary activity income
	Retail Banking			Middle Market			Global Corporate Banking			Others			Total			Transfered through time		Transfered in an exact moment			Accrual model
As of March 31, 2018	MM$			MM$			MM$			MM$			MM$			MM$		MM$			MM$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		1,437			41			52			(2	)		1,528			1,528		-			-
Fees and commissions for guarantees and letters of credit		2,665			3,832			1,610			29			8,136			8,136		-			-
Fees and commissions for card services		57,267			1,893			324			24			59,508			8,133		51,375			-
Fees and commissions for management of accounts		7,450			619			185			-			8,254			8,254		-			-
Fees and commissions for collections and payments		15,262			279			133			(6,747	)		8,928			-		4,294			4,634
Fees and commissions for intermediation and management of securities		1,174			5			1,379			(119	)		2,439			-		2,439			-
Fees and commissions for insurance marketing		-			-			-			8,941			8,941			-		-			8,941
Office banking		2,846			946			120			-			3,912			-		3,912			-
Fees for other services rendered		10,018			961			215			12			11,206			-		11,206			-
Other fees earned		1,412			2,337			7,369			184			11,302			-		11,302			-
Totals		99,531			10,913			11,387			2,323			124,154			26,051		84,528			13,575

Fee and commission expense
Compensation for card operations		(39,926	)		(719	)		(76	)		(3,567	)		(44,288	)		-		(44,288	)		-
Fees and commissions for securities transactions		(131	)		(98	)		(114	)		178			(165	)		-		(165	)		-
Office banking		(2,660	)		(860	)		(610	)		(6	)		(4,136	)		-		(4,136	)		-
Other fees		2,364			(155	)		(92	)		(2,188	)		(71	)		-		(71	)		-
Totals		(40,353	)		(1,832	)		(892	)		(5,583	)		(48,660	)		-		(48,660	)		-
Net fees and commissions income		59,178			9,081			10,495			(3,260	)		75,494			26,051		35,868			13,575

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 93

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 26

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

Includes the amount of the adjustments from the financial instruments variation, except those attributable to the interest accrued by the application of the effective interest rate method of the value adjustments of the assets, as well as the results obtained in their sale.

As of March 31, 2019 and 2018, the detail of income from financial operations is as follows:

	As of March 31,
	2019			2018
	MCh$			MCh$

Profit and loss from financial operations
Trading derivatives		(182,196	)		(35,156	)
Trading investments		3,489			4,924
Sale of loans and accounts receivables from customers
Current portfolio		-			-
Charged-off portfolio		771			747
Available for sale investments		10,402			2,907
Repurchase of issued bonds (1)		(861	)		(168	)
Other profit and loss from financial operations		(115	)		(428	)
Total		(168,510	)		(27,174	)

(1) As of March 31, 2019 the Bank hasn’t made any repurchases of bonds, see Note 3.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 94

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 27

NET FOREIGN EXCHANGE INCOME

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

As of March 31, 2019 and 2018, net foreign exchange income is as follows:

	As of March 31,
	2019			2018
	MCh$			MCh$
Net foreign exchange gain (loss)
Net gain (loss) from currency exchange differences		246,982			53,336
Hedging derivatives		(37,476	)		(1,702	)
Income from assets indexed to foreign currency		(2,151	)		(1,251	)
Income from liabilities indexed to foreign currency		-			12
Total		207,355			50,395

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 95

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 28

PROVISIONS FOR LOAN LOSSES

The movement in provisions for loan losses registered for March 31, 2019 and 2018 is the following:

				Loans and accounts receivable from customers
	Interbank loans			Commercial loans						Mortgage loans			Consumer loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
As of March 31, 2019	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off of loans		-			(2,862	)		(6,882	)		(3,582	)		(18,866	)		-			-			(32,192	)
Provisions established		(28	)		(21,361	)		(20,337	)		(5,197	)		(42,757	)		(1,451	)		(455	)		(91,586	)
Total provisions and charge-offs		(28	)		(24,223	)		(27,219	)		(8,779	)		(61,623	)		(1,451	)		(455	)		(123,778	)
Provisions released (*)		5			11,982			4,700			1,912			6,943			506			145			26,193
Recovery of loans previously charged-off		-			2,932			3,487			4,313			10,579			-			-			21,311
Net charge to income		(23	)		(9,309	)		(19,032	)		(2,554	)		(44,101	)		(945	)		(310	)		(76,274	)

				Loans and accounts receivable from customers
	Interbank loans			Commercial loans						Mortgage loans			Consumer loans			Contingent loans
	Individual			Individual			Group			Group			Group			Individual			Group			Total
As of March 31, 2018	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charged-off of loans		-			(3,209	)		(5,979	)		(1,601	)		(21,906	)		-			-			(32,695	)
Provisions established		-			(13,395	)		(21,233	)		(3,749	)		(46,660	)		(1,312	)		(664	)		(87,013	)
Total provisions and charge-offs		-			(16,604	)		(27,212	)		(5,350	)		(68,566	)		(1,312	)		(664	)		(119,708	)
Provisions released (*)		68			9,749			1,091			793			10,010			1,562			211			23,484
Recovery of loans previously charged-off		-			3,196			4,589			3,319			9,715			-			-			20,819
Net charge to income		68			(3,659	)		(21,532	)		(1,238	)		(48,841	)		250			(453	)		(75,405	)

The detail for Charge-off to individually significant loans, is the following:

	Loans and accounts receivable from customers
	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
As of March 31, 2019	MCh$			MCh$			MCh$			MCh$			MCh$
Charge-off of loans		9,821			23,240			7,562			57,736			98,359
Provision applied		(6,956	)		(16.358	)		3,980	)		(38,870	)		(66,167	)
Net charge offs of individually significant loans		2,862			6,882			3,582			18,866			32,192

	Loans and accounts receivables from customers
	Commercial loans						Mortgage loans			Consumer loans
	Individual			Group			Group			Group			Total
As of March 31, 2018	MCh$			MCh$			MCh$			MCh$			MCh$
Loan charge-off		10,865			20,821			4,747			64,971			101,404
Provision applied		(7,656	)		(14,842	)		(3,146	)		(43,065	)		(68,709	)
Net charge offs of individually significant loans		3,209			5,979			1,601			21,906			32,695

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 96

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 29

PERSONNEL SALARIES AND EXPENSES

Composition of personnel salaries and expenses:

As of March 31, 2019 and 2018, the composition for personnel salaries and expenses is the following:

	As of March 31,
	2019			2018
	MCh$			MCh$

Personnel compensation		58,593			58,115
Bonuses or gratuities		18,822			20,378
Stock-based benefits		(132	)		(139	)
Seniority compensation		5,489			(305	)
Pension plans		(64	)		294
Training expenses		1,083			953
Day care and kindergarden		813			809
Health and welfare funds		1,617			1,472
Other personnel expenses		8,336			7,939
Total		94,557			89,516

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 2019 / Banco Santander Chile 97

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 30

ADMINISTRATIVE EXPENSES

As of March 31, 2019 and 2018, the composition for administrative expenses is the following:

	As of March 31,
	2019		2018
	MCh$		MCh$

General administrative expenses		33,174		37,242
Maintenance and repair of property, plant and equipment		4,761		5,562
Office lease		-		7,313
Equipment lease		-		28
Expenses for short-term lease agreements		1,672		-
Expenses for low value lease contracts		-		-
Other expenses of obligations for lease agreements		33		-
Insurance premiums		879		753
Office supplies		1,395		1,740
IT and communication expenses		12,325		10,083
Lighting, heating, and other utilities		1,273		1,415
Security and valuables transport services		3,736		3,395
Representation and personnel travel expenses		704		1,214
Judicial and notarial expenses		342		170
Fees for technical reports and auditing		2,431		2,822
Other general administrative expenses		3,623		2,747
Outsourced services		19,934		16,662
Data processing		8,398		8,289
Archive service		867		848
Valuation service		831		739
Outsourced staff		4,068		2,816
Other		5,770		3,970
Board expenses		315		314
Marketing expenses		3,569		4,504
Taxes, payroll taxes, and contributions		2,569		3,433
Real estate taxes		443		431
Patents		540		479
Other taxes		-		5
Contributions to SBIF		1,361		2,518
Total		59,336		62,155

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 98

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 31

DEPRECIATION, AMORTIZATION AND IMPAIRMENT

The values of depreciation and amortization during March 31, 2019 and 2018 are detailed below:

	As March 31,
	2019			2018
	MCh$			MCh$

Depreciation and amortization
Property, plant, and equipment depreciation		(11,968	)		(13,355	)
Intangible assets amortization		(6,316	)		(5,825	)
Amortization for Right of use assets (*)		(7,879	)		-
Total depreciation and amortization		(26,163	)		(19,180	)
Property, plant and equipment impairment		-			(39	)
Totales		(26,163	)		(19,219	)

(*) By application of IFRS 16, according to circular Banks No. 3,645 of the SBIF, a new charge line for depreciation and amortization is added.

As of March 31, 2019, the impairment amount of fixed assets amounts to $39 million ($184 million as of March 31, 2018), mainly due to ATM incidents.

The changes in book value due to depreciation and amortization for March 31, 2019 and 2018 are the following:

	Depreciation and amortization 2019
	Property, plant, and equipment			Intangible assets			Right of use assets			Total
	MCh$			MCh$			MCh$			MCh$

Balances as of January 1, 2019		(290,466	)		(151,492	)		(33,977	)		(475,935	)
Depreciation and amortization for the period		(11,968	)		(6,316	)		(7,879	)		(26,163	)
Sales and disposals in the period		34,122			1,228			138			35,488
Other		-			-			-			-
Balance as of March 31, 2019		(268,312	)		(159,580	)		(41,718	)		(466,610	)

	Depreciation and amortization 2018
	Property, plant, and equipment			Intangible assets			Right of use assets		Total
	MCh$			MCh$			MCh$		MCh$

Balances as of January 1, 2018		(290,931	)		(261,828	)		-		(552,759	)
Depreciation and amortization for the period		(13,355	)		(5,825	)		-		(19,180	)
Sales and disposals in the period		26			-			-		26
Other		-			-			-		-
Balance as of March 31, 2018		(304,260	)		(267,653	)		-		(571,913	)

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 99

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 32

OTHER OPERATING INCOME AND EXPENSES

Other operating income is conformed by the following concepts:

	As of March 31,
	2019		2018
	MCh$		MCh$

Income from assets received in lieu of payment
Income from sale of assets received in lieu of payment		1,556		1,155
Recovery of charge-offs and income from assets received in lieu of payment		3,149		4,150
Other income from assets received in lieu of payment		191		640
Subtotal		4,896		5,945

Provisions released due to contingencies (1)		44		-
Subtotal		-		-
Other income
Leases		-		-
Income from sale of property, plant and equipment		50		1
Recovery of provisions for contingencies		-		100
Ingresos distintos a intereses y comisiones por contratos de arrendamiento		4		-
Compensation from insurance companies due to damages		-		261
Other		162		-
Subtotal		216		362

Total		5,156		6,307

(1) The bank maintained provisions due to contingencies according to IAS 37, which during 2018 resulted in favor of the bank.

Other operating expenses is conformed by the following concepts:

	As of March 31,
	2019		2018
	MCh$		MCh$
Allowances and expenses for assets received in lieu of payment
Charge-offs of assets received in lieu of payment		2,622		5,448
Provisions on assets received in lieu of payment		212		446
Expenses for maintenance of assets received in lieu of payment		526		489
Subtotal		3,360		6,383

Credit card expenses		354		761
Customer services		512		1,034

Other expenses
Operating charge-offs		72		92
Life insurance and general product insurance policies		110		317
Additional tax on expenses paid overseas		-		-
Gain (Loss) for sale of PP&E		11		21
Provisions for contingencies		1,489		923
Expense for the Retail Association		891		215
Other		7,366		175
Subtotal		9,939		1,743

Total		14,165		9,921

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 100

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE N°33

TRANSACTIONS WITH RELATED PARTIES

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

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

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

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

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

Companies with relation to the Santander Group

This category includes all the companies that are controlled by the Santander Group around the world, and hence, it also includes the companies over which the Bank exercises any degree of control (Affiliates and special-purpose entities).

Associated companies

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

Key personnel

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

Other

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

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

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 101

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE N°33

TRANSACTIONS WITH RELATED PARTIES, continued

Loans to related parties

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

	As of March 31,												As of December 31,
	2019												2018
	Companies with relation to the Santander Group			Associated companies			Key personnel			Other			Companies with relation to the Santander Group			Associated companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Loans and accounts receivable
Commercial loans		141,896			405			2,840			7,977			122,289			459			4,299			233
Mortgage loans		-			-			19,224			-			-			-			18,814			-
Consumer loans		-			-			4,542			-			-			-			5,335			-
Loans and account receivable		141,896			405			26,606			7,977			122,289			459			28,448			233

Provision for loan losses		(349	)		(65	)		(116	)		(3	)		(308	)		(9	)		(116	)		(5	)
Net loans		141,547			340			26,490			7,974			121,981			450			28,332			228

Guarantees		381,002			-			22,167			7,369			442,854			-			22,893			7,171

Contingent loans
Personal guarantees		-			-			-			-			-			-			-			-
Letters of credit		5,111			-			-			95			5,392			-			2,060			44
Performance guarantees		382,747			204			-			-			445,064			-			3,364			-
Contingent loans		387,858			204			-			95			450,456			-			5,424			44

Provision for contingent loans		(1	)		-			-			-			(1	)		-			(18	)		-
Net contingent loans		387,857			204			-			95			450,455			-			5,406			44

Loans regarding activity with related parties during the periods of 2019 and is the following:

	As of March 31,												As of December 31,
	2019												2018
	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,		572,745			459			33,871			7,899			476,906			771			27,051			7,826
Loans granted		21,193			207			2,014			359			200,657			39			16,574			773
Loan payments		(64,184	)		(57	)		(9,279	)		(186	)		(104,818	)		(351	)		(9,754	)		(700	)
Total		529,754			609			26,606			8,072			572,745			459			33,871			7,899

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 102

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

Assets and liabilities with related parties

	As of Marzo 31,								As of December 31,
	2019								2018
	Companies with relation to the Santander Group		Associated companies		Key personnel		Other		Companies with relation to the Santander Group		Associated companies			Key personnel		Other
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$			MCh$		MCh$

Assets
Cash and deposits in banks		52,119		-		-		-		189,803		-			-		-
Trading investments		-		-		-		-		-		-			-		-
Investments under resale agreements		-		-		-		-		-		-			-		-
Financial derivative contracts		752,925		85,704		-		-		748,632		105,358			-		9
Available for sale investments		-		-		-		-		-		-			-		-
Other assets		56,302		85,146		-		-		38,960		51,842			-		-

Liabilities
Deposits and other demand liabilities		17,988		21,577		2,424		541		27,515		(21,577	)		2,493		(480	)
Obligations under repurchase agreements		5,764		2,201		426		-		6,501		-			329		68
Time deposits and other time liabilities		2,054,385		-		3,181		838		2,585,337		-			3,189		(838	)
Financial derivative contracts		759,561		79,967		-		4		770,624		112,523			-		-
Bank obligation		-		-		-		-		-		-			-		-
Issued debts instruments		370,161		-		-		-		335,443		-			-		-
Other financial liabilities		6,627		-		-		-		6,807		-			-		-
Other liabilities		5,623		82,684		-		-		60,884		89,817			-		-

Recognized income (expense) with related parties

	As of March 31,												As of December 31,
	2019												2018
	Companies with relation to the Santander Group			Associated companies			Key personnel			Other			Companies with relation to the Santander Group			Associated companies			Key personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Income (expense) recorded
Income and expenses from interest and inflation		(17,690	)		(1,020	)		164			89			(53,256	)		(156	)		1,252			508
Fee and commission income and expenses		39,361			6,420			63			8			91,178			7,826			305			22
Net income (expense) from financial operations and foreign exchange transactions (*)		110,435			(29,615	)		(22	)		(1	)		(566,677	)		65,727			27			(12	)
Other operating income and expenses		-			(1,479	)		-			-			42			1,388			-			-
Key personnel compensation and expenses		-			-			(8,525	)		-			-			-			(11,761	)		-
Administrative and other expenses		(9,679	)		(11,341	)		-			-			(43,035	)		(50,764	)		-			-

Total		122,427			37,035			(8,323	)		96			(571,748	)		24,022			(10,177	)		518

(*)

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 2019 / Banco Santander Chile 103

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

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 Consolidated Interim Statements of Income, and detailed as follows:

	As of March 31,
	2019			2018
	MCh$			MCh$

Personnel compensation		3,707			4,303
Board member`s salaries and expenses		315			303
Bonuses or gratuity		4,203			4,064
Compensation in stock		(132	)		(139	)
Training expenses		2			42
Seniority compensation		352			657
Health funds		65			70
Other personnel expenses		79			163
Pension Plans (*)		(64	)		294
Total		8,527			9,757

(*) Part of the executives that qualified for this benefit stopped being a part of the Group for different motives without fulfilling the requirements to obtain this benefit. Due to this the liability was reduced generating an income from the reversal from these provisions.

Composition of key personnel

As of March 31, 2019 and December 31, 2018, the composition of the Bank’s key personnel is as follows:

	N° of executives
	As of March 31,		As of December 31,
Position	2019		2018

Directors		10		11
Division managers		12		12
Managers		106		119

Total key personnel		128		142

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 104

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction on the main market (or the most advantageous) at the measurement date in the current market conditions (in other words, an exit price) regardless of whether that price is directly observable or estimated by using a different valuation technique. The measurement of fair value assumes the sale transaction of an asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.

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

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

Determination of fair value of financial instruments

Below is a comparison between the value at which the Bank’s financial assets and liabilities are recorded and their fair value as of March 31, 2019 and December 31, 2018:

	As of March 31, 2019				As of December 31, 2018
	Book value		Fair value		Book value		Fair value
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		94,808		94,808		77,041		77,041
Financial derivative contracts		2,983,230		2,983,230		3,100,635		3,100,635
Loans and accounts receivable from customers and interbank loans, (net)		29,805,701		33,819,686		29,485,435		30,573,611
Investments available for sale		2,799,044		2,799,044		2,394,323		2,394,323
Guarantee deposits (margin accounts)		233,175		233,175		170,232		170,232

Liabilities
Deposits and interbank borrowings		23,196,909		23,474,183		23,597,863		23,770,106
Financial derivative contracts		2,546,341		2,546,341		2,517,728		2,517,728
Issued debt instruments and other financial liabilities		8,750,100		9,487,974		8,330,633		8,605,135
Guarantees received (margin accounts)		512,903		512,903		371,512		371,512

Fair value is approximated to book value in the following accounts, due to their short-term nature in the following cases: cash and bank deposits, operations with liquidation in progress and buyback contracts as well as security loans.

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

Below is a detail of the methods used to estimate the financial instruments’ fair value.

Operations pending settlement, trading investments, available for sale investment instruments, repurchase agreements and securities loans

The estimated fair value of these financial instruments was established using market values or estimates from an available dealer, or quoted market prices of similar financial instruments. Investments with maturities of less than 1 year are evaluated at recorded value since they are considered as having a fair value not significantly different from their recorded value, due to their short maturity term. To estimate the fair value of debt investments or representative values in these lines of businesses, we take into consideration additional variables and elements, as long as they apply, including the estimate of prepayment rates and credit risk of issuers.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 105

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

Loans and accounts receivable from customers and interbank loans

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

Deposits

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

Short and long term issued debt instruments

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

Financial derivative contracts

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

The fair value of interest rate swaps represents the estimated amount that the Bank expects to receive to cancel the contracts or agreements, considering the term structures of the interest curve, volatility of the underlying asset and credit risk of counterparties.

If there are no quoted prices from the market (either direct or indirect) for any derivative instrument, the respective fair value estimates have been calculated by using models and valuation techniques such as Black-Scholes, Hull, and Monte Carlo simulations, taking into consideration the relevant inputs/outputs such as volatility of options, observable correlations between underlying assets, counterparty credit risk, implicit price volatility, the velocity with which the volatility reverts to its average value, and the straight-line relationship (correlation) between the value of a market variable and its volatility, among others.

Fair value and hierarchy measurement

IFRS 13 - Fair Value Measurement, provides a hierarchy of reasonable values which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. The three levels of the hierarchy of fair values are the following:

• Level 1: the inputs are quoted prices (unadjusted) on active markets for identical assets and liabilities that the Bank can access on the measurement date.

• Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: inputs are unobservable inputs for the asset or liability.

The hierarchy level within which the fair value measurement is categorized in its entirety is determined based on the lowest level of input that is significant to the fair value measurement in its entirety.

The best evidence of a financial instrument’s fair value at the initial time is the transaction price (Level 1).

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 106

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

In cases where quoted market prices cannot be observed, Management makes its best estimate of the price that the market would set using its own internal models which in most cases use data based on observable market parameters as a significant input (Level 2) and, in very specific cases, significant inputs not observable in market data (Level 3). Various techniques are employed to make these estimates, including the extrapolation of observable market data.

Financial instruments at fair value and determined by quotations published in active markets (Level 1) include:

Chilean Government and Department of Treasury bonds

Instruments which cannot be 100% observable in the market are valued according to other inputs observable in the market (Level 2).

The following financial instruments are classified under Level 2:

Type of financial instrument	Model used in valuation	Description
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 2019 / Banco Santander Chile 107

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

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

The following table presents the assets and liabilities that are measured at fair value on a recurring basis, as of March 31, 2019 and December 31, 2018.

	Fair value measurement
	2019		Level 1		Level 2		Level 3
As of March 31,	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		94,808		94,808		-		-
Available for sale investments		2,799,044		2,776,249		22,144		651
Derivatives		2,983,230		-		2,972,777		10,453
Guarantee deposits (margin accounts)		233,175		-		233,175		-
Total		6,110,257		2,871,057		2,228,096		11,104

Liabilities
Derivatives		2,546,341		-		2,546,341		-
Guarantees received (margin accounts)		512,903		-		512,903		-
Total		3,059,244		-		3,059,244		-

	Fair value measurement
	2018		Level 1		Level 2		Level 3
As of December 31,	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		77,041		71,158		5,883		-
Available for sale investments		2,394,323		2,368,768		24,920		635
Derivatives		3,100,635		-		3,089,077		11,558
Guarantee deposits (margin accounts)		170,232		-		170,232		-
Total		5,742,321		2,439,926		3,290,112		12,193

Liabilities
Derivatives		2,517,728		-		2,516,933		795
Guarantees received (margin accounts)		371,512		-		371,512		-
Total		2,889,240		-		2,888,445		795

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 108

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

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, 2019 and 2018:

	Assets			Liabilities
	MCh$			MCh$

As of January 1, 2019		12,193			795
Total realized and unrealized profits (losses)
Included in statement of income		(1,089	)		(795	)
Included in other comprehensive income		-			-
Purchases, issuances, and loans (net)		-			-

As of March 31, 2019		11,104			-

Total profits or losses included in comprehensive income at March 31, 2019 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2018		(1,089	)		(795	)

	Assets			Liabilities
	MCh$			MCh$

As of January 1, 2018		22,987			7

Total realized and unrealized profits (losses)
Included in statement of income		(8,367	)		156,991
Included in other comprehensive income		23			-
Purchases, issuances, and loans (net)		-			-

As of March 31, 2018		14,643			156,998

Total profits or losses included in comprehensive income at March 31, 2018 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2016		(8,344	)		156,991

The realized and unrealized profits (losses) included in comprehensive income for 2019 and 2018, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the Interim Statement of Comprehensive Income in the associate line item.

The potential effect as of March 31, 2019 and 2018 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.

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 109

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

The following tables show the financial instruments subject to compensation in accordance with IAS 32, for 2019 and 2018:

	As of March 31, 2019
	Linked financial instruments, compensated in balance
Financial instruments	Gross amounts		Compensated in balance		Net amount presented in balance		Remains of unrelated and / or unencumbered financial instruments		Amount in Statements of Financial Position
Assets	Ch$ Million		Ch$ Million		Ch$ Million		Ch$ Million
Financial derivative contracts		2,829,646		-		2,829,646		153,584		2,983,230
Investments under resale agreements		5,015		-		5,015		-		5,015
Loans and accounts receivable from customers, and Interbank loans, net		-		-		-		29,805,701		29,805,701
Total		2,834,661		-		2,834,661		29,959,285		32,793,946

Liabilities
Financial derivative contracts		2,413,564		-		2,413,564		132,777		2,546,341
Investments under resale agreements		120,935		-		120,935		-		120,935
Déposits and interbank borrowings		-		-		-		23,196,909		23,196,909
Total		2,534,499		-		2,534,499		23,329,686		25,864,185

	As of December 31, 2018
	Linked financial instruments, compensated in balance
Financial instruments	Gross amounts		Compensated in balance		Net amount presented in balance		Remains of unrelated and / or unencumbered financial instruments		Amount in Statements of Financial Position
Assets	Ch$ Million		Ch$ Million		Ch$ Million		Ch$ Million
Financial derivative contracts		1,947,726		-		1,947,726		1,152,909		3,100,635
Investments under resale agreements		-		-		-		-		-
Loans and accounts receivable from customers, and Interbank loans, net		-		-		-		29,485,435		29,485,435
Total		1,947,726		-		1,947,726		30,683,344		32,586,070
Liabilities
Financial derivative contracts		1,735,555		-		1,735,555		782,173		2.517,728
Investments under resale agreements		48,545		-		48,545		-		48,545
Déposits and interbank borrowings		-		-		-		23,597,862		23,597,862
Total		2,195,715		-		2,195,715		24,380,035		26,164,135

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 110

Banco Santander Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF MARCH 31, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 35

SUBSEQUENT EVENTS

During an extraordinary session held on April 2, 2019, the board agreed to propose to the Common Shareholders on a meeting held on April 21, 2019 a dividend distribution equivalent to Ch$2.24791611 per share, corresponding to 75% of the net income for the year ended 2018. The remainding 25% will be destined to increase the Bank’s reserves.

There are no other subsequent events to be disclosed that occurred between April 1, 2018 and the date of issuance of these Financial Statements (April 17, 2018).

FELIPE CONTRERAS FAJARDO

Chief Accounting Officer

MIGUEL MATA HUERTA

Chief Executive Officer

Consolidated Interim Financial Statements March 2019 / Banco Santander Chile 111

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: May 16, 2019