BANCO DE CHILE

CHILE
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Banco de Chile : Earnings Report 2Q19

07/29/2019 | 06:10pm

Banco de Chile

Earnings Report 2Q19

Key Highlights

'The 2Q19 was an excellent example of our ability to cope with a challenging environment. In figures, the quarter was simply unparalleled. We managed to return to ROAE levels in the range of 18-20% by recording an unprecedented bottom line of Ch$192 Bn. Both customer and non-customer income behaved positively by growing Ch$42 Bn. and 40 Bn., respectively. The former continued to be steered by a solid advance in income from loans, higher contribution of DDAs to our funding and, more importantly, strong fee-based income that rose by Ch$22 Bn. YoY reflecting the effectiveness of our cross-selling strategy that we carried out by means of offering traditional banking products as well as more sophisticated services through our subsidiaries. I would like to highlight, in this regard, that in the 2Q19 we put in place the strategic partnership achieved with an international insurance company, which will provide our customers with a broader value offering while enabling us to sustain further income growth in the mid-term. As for non-customer income we certainly benefited from both a normalized inflation within the period, which boosted the contribution of our consistent structural exposure to UF, and a sharp decrease in interest rates, nominal and real, that translated into higher gains from the management of trading and AFS positions for both the bank and some subsidiaries.

On the other hand, risk expenses remained healthy, as reflected by a very favorable LLP ratio of 1%. Even though provisions grew YoY, the net increment was mostly explained by a low comparison base driven by an extraordinary risk performance of the wholesale segment in the 2Q18. As for OpEx, as we have mentioned previously, we are working hard on streamlining processes while optimizing the way of providing services to our customers. As a result, over the last quarters we have incurred non-recurrent expenses in order to deploy an enlarged ATM network, redesign our branches to host a new service model, take first steps of an ambitious efficiency program, undertake a front-to-back digital transformation while restructuring part of the organization to be prepared for the future of banking. We are confident that all of these actions should bring about the efficiency and productivity we need to face coming challenges while sustaining long-term profitability.

Over the rest of the year, we will continue to deploy our strategy while implementing those initiatives that pursue to sustain long-term competitive capabilities. Even though expectations on the economic environment have been revised downwards, which could affect loan growth, we should benefit from liabilities repricing in the very short-term, inflation by the end of the year and our strong fee income generation capacity. Furthermore, unlike some other banks, we expect a significantly low impact of new credit risk requirements for SME loans on our P&L'

Eduardo Ebensperger-CEO

+18.2%

YoY growth in

Net Income

+11.5%

YoY increase in

Customer Income

~31,900

New Checking Account

Openings

Our bottom line increased 18.2% YoY by posting Ch$192.1 Bn. in the 2Q19, the highest amount achieved in our history.

Customer income recorded a strong increase of Ch$41.5 Bn. YoY, supported by solid fee-based income and higher income from loans.

Once again, we completed a record quarter in terms of checking account openings by adding ~31,900 new holders.

2

Financial Snapshot

(In billions of Ch$)

Net Income

+18.2%

39.5

(14.1)

(20.1)

41.5

(17.2)

192

163

Customer Income

Non-customer Income

Loan Loss Provisions

Op. Expenses

Income tax

& Others

2Q18

2Q19

Ratios

2Q19

1H19

ROAE

22.9%

17.6%

NIM

4.5%

4.2%

LLP / Avg. Loans

1.0%

1.1%

Efficiency Ratio

43.0%

46.0%

TIER I Ratio

11.0%

11.0%

~Ch$431 Bn.

~Ch$748 Bn.

~Ch$1,330Bn.

Quarterly Origination

Quarterly Origination

Quarterly Origination

of Mortgage Loans

of SME Loans in the 2Q19

of Middle Market

in the 2Q19

(+12.2% YoY)

Loans in the 1Q19

(+45.0% YoY)

(+6.8% QoQ)

~31,900

+12.8% YoY

+41.2% YoY

New Checking

in Leasing &

In transactions

Accounts in the 2Q19.

Factoring Loans

performed on our

Record Quarterly Amount.

as of June 2019

mobile apps in the 2Q19

(11.6 MM Transactions)

Alliance

#1 in AUM

+74% YoY

First time recognition of

Banchile Mutual Funds

Banchile Inversiones'

additional income from

remains leader with a market

Net Income

strategic alliance with

share of 21.5% as of June

in the 2Q19 (1)

Insurance partner

2019

(+49% YTD)

(1) Includes Banchile Mutual Funds Management and Banchile Stock Brokerage

3

Financial Snapshot

(In billions of Ch$)

Net Income

$192

Operating Revenues

$538

Provisions for Loan Losses

$68

Operating Expenses

$232

Total Loans

$28,834

2Q19

During the 2Q19 our net incomeincreased 18.2%

192

YoY, equivalent to Ch$29.6 Bn. This performance

1Q19

102

was mainly explained by a significant increase in

our top line equivalent to Ch$81.0 Bn. coming from

2Q18

163

both customer and non-customer income that

behaved very positively.

Operating revenuesrecorded an increment of

Ch$81.0 Bn. (or 17.7%) YoY and a strong recovery

2Q19

538

of 21.1% QoQ. This increase was related to both

customer income soaring 11.5% YoY, mainly

1Q19

445

explained by higher income from fees and

commissions, and non-customer income showing a

2Q18

457

sharp increase of 40.9% YoY. Unlike the 1Q19, this

quarter we benefited from inflation and the positive

impact of lower interest rates on financial assets.

Loan loss provisionsincreased Ch$14.1 Bn. or

2Q19

68

26.3% YoY, as a result of loan growth (mostly in the

Retail banking segment) and a net increase largely

1Q19

89

explained by a low comparison base. These effects

were partly offset by the positive impact of the

2Q18

54

exchange rate on our USD-denominated provisions.

LLP ratio stood at 0.96% which is still below mid-

term trend.

  • Operating expensesposted a 9.5% YoY rise in

2Q19

the 2Q19, mainly due to higher personnel

232

expenses, along with the implementation of diverse

1Q19

internal projects including; digital transformation,

221

the efficiency program, branch optimization and a

2Q18

212

larger ATM network. Based on this change, and

due to higher operating income, our efficiency ratio

registered a significant improvement from 46.3% in the 2Q18 to 43.0% in the 2Q19.

  • As of Jun19, ourTotal Loansposted an increment of 8.7% YoY and a solid QoQ growth of 2.3% (9.5% annualized). This increase was concentrated in the Retail banking segment, which grew 11.1% YoY in

2Q19

28,834

the 2Q19, given a 10.8% YoY growth in Personal

Banking, particularly in residential mortgage loans,

1Q19

28,186

and a 12.4% YoY expansion in SMEs. Last but not

2Q18

26,517

least, the wholesale banking segment recorded a

4.9% YoY increase in total loans. However, on a

QoQ basis, loans managed by this segment swelled 2.3%, fostered by an improved performance of the Multinational and Infrastructure banking unit that grew 22.5% YoY and 13.5% QoQ in loan balances.

4

Economic Outlook

GDP Growth

(YoY)

5.3

3.6

The GDP was up 2.2% on average between April and May, above the 1.6% of the 1Q19. On a sequential basis (adjusting by seasonality), the quarterly annualized growth increased to 3.4% in May, from the null expansion in the 1Q19. Despite this surge, the performance of the local economy remains below expectations observed early this year. However, rather than local factors, global slowdown seems to be the main underlying cause affecting the Chilean economy.

2.6

1.6 2.1

From the demand point of view, a significant slowdown of external demand on Chilean GDP has taken place, confirming the impact of deteriorated external conditions. In the 2Q19, for instance, exports fell 8.0% (-3.9% in 1Q19), steered by the 8.4% YoY decline in mining. The domestic demand, in turn, continued to be fostered by strong services

2Q18

3Q18

4Q18

1Q19

2Q19e

CPI & Unemployment Rate

(YoY)

7.27.1 6.76.9 7.2

2.5

3.1

2.6

2.0

2.3

2Q18

3Q18

4Q18

1Q19

2Q19e

CPI

Unemployment

Loan Growth(1,2,3)

(12m% change as of May19, in real terms)

7.7%

7.8%

7.2%

7.2%

7.4%

7.2%

6.7%

7.3%

7.0%

6.8%

6.8%

6.6%

6.5%

6.8%

6.6%

6.4%

5.9%

5.9%

5.5%

5.1%

2Q18

3Q18

4Q18

1Q19 may-19

Total Loans

Commercial

Mortgage

Consumer

  1. Figures do not include operations of subsidiaries abroad.
  2. 12-monthreal growth adjusted by the effect of the consolidation of CMR and Presto credit card loans for months before Dec-18.
  3. 2Q19 for the industry considers information as of May 2019 (latest available information).

that offset a lackluster expansion in durable goods. Even though gross investment has supported growth since last year, the decline in both capital goods imports and business confidence have lifted some doubts regarding the evolution of total investment over the rest of the year.

The unemployment rate has been hovering around 7.0%. In the quarter ended in May, salaried workforce increased 1.3%, while nominal and real wages grew 5.1% and 2.3% YoY, respectively. Consequently, the real wage bill improved to 3.6%, growing faster in recent months and suggesting the labor market is backing overall growth, mitigating the negative spillover coming from the global economy.

Following the previous quarters' trend, the CPI has remained in the lower boundary of the Central Bank target. In June, CPI did not change at all, resulting in a 2.3% YoY increase. Amid this scenario, the Central Bank hit the market by cutting the reference rate 50 bp. in June to 2.5%. According to the Central Bank's board, the decision was made in light of an upward revision of potential growth estimate and a higher than expected slack in the economy. It should be noted that Chile has been the only country that has reduced the policy rate this year, reflecting the ability to implement counter-cyclical policies.

Looking ahead, the Economic Expectation Survey conducted by the Central Bank revealed that GDP is expected to continue growing slower than its potential until 2020. Specifically, the economy would grow 2.8% and 3.2% in 2019 and 2020, respectively, while inflation would converge to the 3.0% target next year. In regards to monetary policy, market consensus suggests there would be an additional 25 bp. cut over the next two quarters. The policy rate would normalize in 2020.

As for the banking industry, it recorded an annual real growth of 6.8% in total loans as of May19, 0.6% lower than the 1Q19. Unlike the trend seen over the last quarters, the quarterly drop was primarily influenced by a deceleration in commercial loans, whose 12-month change went down 120 bp. (real) as compared to the 1Q19. Nevertheless, 2Q19 change in commercial loans continued to positively compare to the figure posted a year ago (5.1% real). Instead, 12-month growth in mortgage loans continued to steepening thanks to a strengthened demand for housing (including trends in the rental market) in the last quarters, effect that has been amplified by a low interest rate scenario. As a result, mortgage loans increased 7.0% (real) YoY as of May19. Lastly, consumer loans increased 7.2% YoY and remained almost flat when compared to the figure posted in the 1Q19. To some degree, this trend could be reflecting the behavior of domestic demand and data recently unveiled illustrating a decrease in retail sales.

As of May 2019, the industry recorded a bottom line of Ch$1,179 Bn., denoting a YoY growth of 9.3% when compared to a year earlier. The change was mostly attributable to the incorporation of new businesses (CMR and Presto) to the banking industry, which caused an increase in operating revenues (Ch$526 Bn.), that was partly offset by higher loan loss provisions (Ch$161 Bn. YoY) and growth in OpEx (Ch$171 Bn.).

5

Second Quarter Results

Operating Revenues

Operating Revenues

(In billions of Ch$)

Quarters

Year End

2Q18 2Q19

Jun-18Jun-19

Net Interest Income

331.0

366.1

647.5

667.1

Net Fees and Commissions

90.1

112.2

179.2

215.6

Net Financial Operating Income

50.0

34.9

52.1

43.4

Foreign Exchange Transactions

-18.2

16.3

7.3

32.4

Other Operating Income

4.4

8.8

16.1

24.3

Total

457.3

538.3

902.2

982.9

Customer / Non Customer Income

(In billions of Ch$)

+17.7%

538

506

457

465

445

137

136

99

61

97

361

366

370

384

402

2Q18

3Q18

4Q18

1Q19

2Q19

Customer Income

Non-Customer Income

Operating Margin(1)

Operating Revenues / Avg. Interest Earning Assets

6.49%

6.67%

6.16%

6.10%

5.59%

5.22%

5.34%

5.67%*

5.05%

4.51%

BCH

Industry

2Q18

3Q18

4Q18

1Q19

2Q19

  1. 2Q19 for the industry considers months of April and May only (latest available information).

Our top line showed a significant improvement in the 2Q19 by posting a QoQ rise of 21.1% and a YoY increase of 17.7%. This change was influenced by customer income climbing Ch$41.5 Bn. YoY and non- customer income boosting Ch$39.5 Bn. when compared to the 2Q18.

Main effects benefiting our revenues were, as follows:

  • An increase of ~Ch$28.9 Bn. YoY explained by the contribution of our UF net asset exposure, due to the positive impact of an UF increment of 1.22% in this quarter, as compared to the 0.71% increase seen in the 2Q18.
  • Fee income growing Ch$22.2 Bn. YoY due to higher revenues from:
    1. insurance brokerage that posted a 33.3% or Ch$9.2 Bn. YoY increase, attributable to a 19.0% annual increase in written premiums and thefirst-time recognition of income related to the 15- year joint venture signed with an international insurer, (ii) transactional services going up Ch$9.1 Bn. owing to rises in both fees from credit cards (Ch$5.3 Bn.) and ATMs (Ch$3.4 Bn.), and (iii) mutual funds management that showed higher revenues by Ch$2.6 Bn. when compared to the 2Q18 due to portfolio rebalancing and higher revenues from fixed-income funds.
  • Higher income from loans by Ch$9.6 Bn. YoY, in line with an 8.7% YoY expansion in average loans, primarily focused on retail banking, which posted an 11.2% YoY growth. Also, worth noting is the 5.0% YoY growth in wholesale banking.
  • Higher net financial income from subsidiaries by ~Ch$9.0 Bn., due to a positive effect of decreasing local interest rates on the fixed- income portfolio of our Securities Brokerage subsidiary.
  • An increase of Ch$7.3 Bn. in income from Trading and Investment Portfolio. In the 2Q19 we benefited from a sharp decrease in interest rates following the 50 bps. cut in the reference rate by the Central Bank and the effect of higher than expected inflation on real rates. Also, our Sales & Structuring unit closed important deals in the period that resulted in further income of Ch$3.7 Bn. YoY.
  • A Ch$6.2 Bn. YoY rise in the contribution of demand deposits to our funding. The increase was related to: (i) higher interest rates, particularly in foreign currency, which grew around 89 bp. YoY on average, and (ii) a 3.3% YoY growth in average balances.

These factors were partially counterbalanced by:

  • A decrease of Ch$11.7 Bn. YoY in operating revenues due to the negative impact of 0.1% Ch$ appreciation in the 2Q19 as compared to the depreciation of 8.1% in the 2Q18 on the USD asset position that hedges our exposure toUSD-denominated expenses.

On a YTD basis, our operating revenues increased roughly 8.9% YoY, or Ch$80.7 Bn., which was mainly associated with an expansion in customer income (Ch$74.2 Bn.). The main factors behind this change were: (i) higher fee income by Ch$36.4 Bn. steered by insurance brokerage and transactional services, (ii) higher income from loans by Ch$18.7 Bn. related to the increase in average balances that offset a tempered drop in spreads as a result of higher competition, (iii) DDAs' contribution growing Ch$14.7 Bn. due to increasing foreign interest rates and higher balances, (iv) higher financial revenues from our subsidiaries by Ch$11.6 Bn. due to positive results on the fixed-income portfolio of our Securities Brokerage subsidiary, and (v) higher income from Trading, Investment and Sales & Structuring amounting Ch$8.5 Bn. These results were partially counterbalanced by (i) lower revenues due to FX trends on our USD hedging position by Ch$11.8 Bn. YoY, (ii) a negative impact of Ch$6.2 Bn. related to the CVA for derivatives.

6

Second Quarter Results

Loan Loss Provisions & Allowances

Loan Loss Provisions & Allowances

(In billions of Ch$)

Quarters

Year End

2Q18

2Q19

Jun-18

Jun-19

Loan Loss Allowances

Initial Allowances

-564.7

-629.5

-558.2

-607.1

Charge-offs

69.0

77.2

145.3

155.4

Sales of Loans

0.0

2.5

0.0

2.5

Provisions established, net

-64.3

-78.5

-147.2

-179.0

Final Allowances

-560.1

-628.2

-560.1

-628.2

Provisions Established

-64.3

-78.5

-147.2

-179.0

Prov. Financial Guarantees

-3.0

-1.7

-3.7

-2.4

Additional Provisions

0.0

0.0

0.0

0.0

Recoveries

13.6

12.2

26.2

24.4

Loan Loss Provisions

-53.8

-68.0

-124.8

-157.1

Credit Quality Ratios

Allowances / Total loans

2.11%

2.18%

2.11%

2.18%

Allowances / Total Past Due

1.77x

1.94x

1.77x

1.94x

Provisions / Avg. Loans

0.82%

0.96%

0.97%

1.12%

Charge-offs / Avg. Loans

1.06%

1.09%

1.13%

1.10%

Total Past Due / Total Loans

1.19%

1.12%

1.19%

1.12%

Recoveries / Avg. Loans

0.21%

0.17%

0.20%

0.17%

Provisions / Average Loans(1)

During the 2Q19, loan loss provisions recorded a YoY increment of Ch$14.1 Bn. or 26.3%. Even though this change seems to be significant, it is basically explained by a low basis for comparison. Actually loan loss provisions posted Ch$53.8 Bn. in the 2Q18, which was fairly lower than the average of the last eight quarters (Ch$67.8 Bn.). In this regard, the figure posted this quarter, which amounted to Ch$68.0 Bn. and resulted in a LLP ratio of 0.96%, positively compares to the Ch$89.2 Bn. registered in the 1Q19, by reflecting a decrease of Ch$21.2 Bn. or 23.8%. As we mentioned in the 1Q19, the risk expense posted that quarter was mostly explained by non-recurrent factors.

The YoY increment in overall loan loss provisions in the 2Q19 was mainly supported by:

  • A net increase of approximately Ch$15.6 Bn. mainly concentrated in the wholesale banking segment. Nevertheless, this increment was largely associated with a better than expected credit behaviour of wholesale customers in the 2Q18. That quarter, when adjusting by FX impact, we had a net release of approximately Ch$13.2 Bn. in wholesale loan loss allowances, of which Ch$11.7 Bn. were explained by two counterparties.
  • An increase in loan loss provisions of approximately Ch$6.8 Bn. explained by loan growth (volume and mix effects altogether). This effect was concentrated in the retail banking segment, which posted an increment of 11.2% in average loan balances.

The previous effects were partly counterbalanced by a positive FX impact on USD-denominated loan loss allowances by roughly Ch$8.2 Bn. YoY, as a consequence of a 0.1% appreciation of the Ch$ in the 2Q19 as compared to an 8.1% depreciation in the 2Q18.

1.43%

1.10%

1.09%

0.82%

1.17%

1.27%

1.22%

1.15%

0.90%0.96%

As we mentioned previously, our ratio of LLP to average loans reached 0.96% in the 2Q19, which compares to the 0.82% posted a year ago. However, when compared to the 1Q19, this ratio shows an important advance of 31 bp., from the 1.27% recorded in the previous quarter.

On a YTD basis, our loan loss provisions registered an increment of Ch$32.4 Bn., as a result of:

A net increase of Ch$25.2 Bn. focused on the retail banking

BCH

Industry

2Q18

3Q18

4Q18

1Q19

2Q19

Total Past Due / Total Loans(1)

2.00%

1.95%

1.97%

1.95%

1.98%

1.96%

1.17%

1.19%

1.15%

1.09%

1.18%

1.12%

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

BCH

Industry

  1. 2Q19 for the industry considers months of April and May only (latest available information).

segment, which had an increment of Ch$15.0 Bn. This surge was

deeply linked to the non-recurrent effects mentioned in the 1Q19 for

the retail segment, related to an increase in NPLs and new

indebtedness information of current and new debtors that arose as a

result of new players entering into the banking system. In addition,

the wholesale segment had an increase of Ch$9.9 Bn. YoY given the

excellent credit behaviour of some customers in 2018, as mentioned

above.

In addition, there was an effect of loan growth and change in mix that

resulted in increased loan loss provisions by roughly Ch$15.3 Bn.,

mostly explained by a 10.8% YoY expansion in average balances of

loans managed by the retail banking segment.

Both effects were partially offset by the impact of exchange rates that amounted to Ch$8.2 Bn. YoY.

As a result, our ratio of loan loss provisions to average loans registered an increment of 15 bp., from the 0.97% as of Jun18 to 1.12% as of Jun19, while the industry ratio posted 1.17%.

7

Second Quarter Results

Operating Expenses

Operating Expenses

(In billions of Ch$)

Quarters

Year End

2Q18

2Q19

Jun-18

Jun-19

Personnel expenses

-102.1

-115.4

-209.9

-228.9

Administrative expenses

-82.8

-87.3

-162.2

-166.3

Depreciation and Amort.

-9.3

-17.5

-18.5

-34.7

Impairments

0.0

-0.8

0.0

-0.8

Other Oper. Expenses

-17.4

-10.7

-25.3

-21.8

Total Oper. Expenses

-211.6

-231.7

-415.9

-452.5

Additional Information

Op. Exp. / Op. Rev.

46.3%

43.0%

46.1%

46.0%

Op. Exp. / Avg. Assets

2.5%

2.5%

2.5%

2.5%

Headcount (#)

13,964

13,807

13,964

13,807

Branches (#)

396

382

396

382

Efficiency Ratio(1)

Operating Expenses/Operating Revenues

50.2%

50.7%

52.6%

51.3%

46.7%

46.3%

49.7%

45.5%

43.5%

43.0%

BCH

Industry

2Q18

3Q18

4Q18

1Q19

2Q19

  1. 2Q19 for the industry includes months of April and May only (latest available information)

During the 2Q19, our operating expenses totaled Ch$231.7 Bn., representing an increase of Ch$20.1 Bn. or 9.5% YoY when compared to the 2Q18. Main underlying causes for this expansion were:

  • An increase of Ch$13.2 Bn. in personnel expenses, representing a 13.0% expansion when compared to the 2Q18. This YoY increment was mostly explained by: (i) a growth in bonuses and incentives related to a low comparison base due to the reversal of bonuses incurred in the 1Q18 for the completion of collective bargaining processes, which were subsequently deferred since the 2Q18, (ii) higher severance payments given organizational restructuring that pursues to adapt the corporation to new internal challenges, and (iii) greater expenses in salaries and other benefits, attributable to both the impact of inflation effect and benefits negotiated with unions in last year's collective bargaining processes.
  • A YoY increase of Ch$8.2 Bn. in depreciations and amortizations, mainly explained by the adoption of IFRS 16 (Leases). As explained in the 1Q19, leases must be recognized as an asset in use while expenses that used to be accounted for as rentals (administrative expenses) are booked now as a sort of intangible asset. Adjusting by this effect, depreciations and amortizations would have only increased Ch$1.5 Bn. YoY, well explained by IT projects, such as the expansion of our ATM network.
  • An increment of Ch$4.5 Bn. in administrative expenses when compared to the 2Q18. If we adjust by the effectabove-explained treatment for rentals, this line-item would have increased Ch$11.3 Bn. YoY. The underlying causes of this growth were: (i) an increase in outsourced services, mainly explained by non-recurrent costs related to restructuring of our salesforce, as mentioned in previous quarters, (ii) higher maintenance expenses explained by both the commercial partnership achieved with a local retailer that resulted in an enlargement of our ATM network and our new service model that continues to be deployed in our branch network, (iii) a YoY rise in IT and Communication expenses linked to disbursements aimed at streamlining our internal processes and procedures in order to improve efficiency, and (iv) higher marketing expenses, due to communication and commercial campaigns as well as seasonality effects in payments.

These factors were partly counterbalanced by a YoY decrease of Ch$6.7 Bn. in other operating expenses in the 2Q19, due to higher operational charge-offs in the 2Q18 related to the cyber-security incident occurred in May 2018. When isolating this effect, other operating expenses would have tepidly increased Ch$0.2 Bn. YoY.

Based on the above, and considering the expansion of Ch$81.0 Bn. in operating revenues, our efficiency improved 33 bp. YoY, from 46.3% in the 2Q18 to 43.0% in the 2Q19. This ratio continued to positively compare to the industry's ratio, which amounted to 46.7%.

On a YTD basis, our cost base amounted to Ch$452.5 Bn., posting an increase of 8.8% or Ch$36.6 Bn. YoY, mainly due to: (i) higher personnel expenses by Ch$19.0 Bn. given increases in bonuses, salaries and severance payments for the reasons mentioned above, (ii) an increment of Ch$16.2 Bn. (Ch$2.3 Bn. adjusted by IFRS16) in depreciations and amortizations as a result of IT projects, (iii) a rise of Ch$4.2 Bn. (Ch$17.7 Bn. adjusted by IFRS16) in administrative expenses, mainly attributable to IT, commercial and efficiency projects. These effects were partially counterbalanced by a decrease of Ch$3.5 Bn. in other operating expenses, largely explained by lower operational charge-offs.

8

Second Quarter Results

Results by Business Segments

Income before Income Tax

Contribution by Business Segment (%)

10.5%

4.5%

33.4%

2Q19

51.6%

Retail Banking

Wholesale Banking

Treasury

Subsidiaries

Income before Income Tax

Change by Business Segment

(In billions of Ch$)

23.9%

242

25

195

11

17

481

80

125

94

2Q18

2Q19

Subsidiaries

Treasury

Wholesale Banking

Retail Banking

During this quarter we registered a YoY increase of Ch$46.6 Bn. in income before income tax, from Ch$194.9 Bn. in the 2Q18 to Ch$241.5 Bn. in the 2Q19. The highest contribution to our pre-tax income came from the Retail Banking segment, which concentrated a 51.6% of the total amount, comparing positively to the 42.7% shown in the previous quarter. It was followed by the Wholesale Banking segment, which explained 33.4% of our bottom line. Lastly, our Subsidiaries and Treasury contributed 10.5% and 4.5%, respectively, to the total amount posted this quarter. The main drivers supporting the performance of each segment were, as follows:

The Retail Banking segment improved 33.0% YoY in terms of income before income tax in the 2Q19, equivalent to an increase of Ch$30.1 Bn. when compared to the 2Q18. This change was primarily explained by an increment of Ch$58.7 Bn. YoY in operating revenues, influenced by: (i) fee-based income growing Ch$18.7 Bn. YoY, mainly prompted by insurance brokerage and transactional services fees as mentioned earlier, (ii) higher income from loans due to an expansion in loan balances that offset a decrease in lending spreads, (iii) additional revenues from demand deposits primarily given an increase in average balances, and (iv) higher contribution of the UF gap allocated to this segment. These effects were to some extent counterbalanced by higher loan loss provisions as a consequence of loan growth of 11.2% YoY when compared to the 2Q18.

As for the Wholesale Banking segment, it posted a moderate 0.3% YoY increase, or Ch$0.3 Bn., in income before income tax. This variation was explained by two opposite effects. First, an increase in operating revenues by Ch$4.7 Bn. associated with (i) higher income from demand deposits given an increase in interest rates, particularly in foreign currency within the period, (ii) a rise in fees and commissions due to higher commercial activity related to investment banking, cash management services and contingent loans, and (iii) improved income from loans, based on average loans growing 5.0% YoY. These factors were partly offset by the negative effect to FX on the hedge of USD- denominated loan loss allowances by roughly Ch$7.7 Bn. The whole increase in operating revenues was almost completely offset by growth in loan loss provisions, largely backed by better than expected credit behavior of some wholesale customers in the 2Q18, pulling the basis for comparison down, which was partly offset by a positive FX effect.

Our Treasury segment recorded a significant increment in pre-tax income of Ch$6.8 Bn. YoY (or 164.9%). The improvement was mainly influenced by higher gains of approximately Ch$7.3 Bn. associated with the management of our Trading and Investment portfolios, mainly explained by the positive impact of a sharp decrease in interest rates on the fair value of our financial positions. Main drivers for these movements in rates were: (i) the Central Bank's decision of lowering the reference rate (-50bps.) last June and (ii) higher than expected inflation of May that pushed down real rates.

Finally, our Subsidiaries showed a YoY increment of 52.1% or Ch$8.7 Bn. in pre-tax income. The main factor supporting this change was a Ch$10.5 Bn. YoY surge in the top line, fostered by higher income from the Securities Brokerage subsidiary, given the favorable effect lower interest rates on its fixed-income portfolio. To a lesser extent, the Securities Brokerage and Investment Banking subsidiaries took part of important equity deals in the local market that also contributed to the segment's performance. The above was partly offset by an increase in administrative expenses of our Insurance Brokerage subsidiary.

9

Second Quarter Results

Loan Portfolio

Loans by Segment

(In Billions of Ch$ and %)

8.7%

2.3%

28,186

28,834

26,517

e

+2.3%

esall

37%

10,547

10,789

10,282

Wh o

+2.3%

l

63%

Retai

18,044

16,235

17,638

2Q181Q192Q19

Retail Wholesale

Market Share in Loans (1)

Our loan portfolio amounted to Ch$28,834 Bn. in the 2Q19, reflecting an 8.7% annual expansion when compared to the 2Q18 and a positive 2.3% QoQ advance in comparison with the 1Q19 (or 9.5% annualized). The QoQ trend was mainly influenced by a boost in commercial loans. The performance by business segment was, as follows:

The Retail Banking segment grew 11.1% YoY and 2.3% QoQ by posting Ch$18,044 Bn. in the 2Q19. These figures were mainly due to:

  • Personal banking loans (including consumer finance) that continued to show adouble-digit expansion of 10.8% YoY. On a QoQ basis, this banking unit posted a 2.3% increase in balances. Most of the growth recorded in personal banking relied on the dynamism shown by residential mortgage loans, which boosted 11.6% or Ch$822 Bn. YoY and, more importantly, 3.8% or Ch$291 Bn. QoQ. A strong demand for housing and the heating up seen in the rental market has encouraged investors to increase borrowing. This trend was ratified by the last credit survey released by the Central Bank, which revealed a strenghtened demand for mortgage loans. These dynamics have also been fostered by an interest rate scenario in unprecedented lows, supported by the
    Central Bank's decision of cutting the reference rate by 50 bps. in
    June. Thus, our quarterly origination peaked to the highest level of Ch$431 Bn., which was up 45.0% YoY and 11.4% QoQ, while being accompanied by higher lending spreads. Instead, consumer loans recorded a tempered slowdown by growing 7.1% (Ch$281 Bn.) YoY and declining 0.3% QoQ. The decrease is consistent with figures released by the National Chamber of Commerce showing a YoY slide of 5% (real terms) in retail sales last May.
  • SME loans that remained strong by growing 12.4% YoY and 2.0% QoQ. We have continued to increase the share of wallet in this segment, as reflected by a 9.7% YoY surge in the average ticket. This achievement has been possible thanks to both campaigns pursuing to increase customer proximity and the recently activatedpre-approved program. In the 2Q19, loan origination in this segment peaked to Ch$748 Bn. (+12.2% YoY and +5.2% QoQ).

19.8%

20.0%

17.1%

17.1%

16.7%

16.6%

16.7%

16.7%

17.9%

17.8%

17.6%

16.9%

16.9%

16.9%

16.8%

16.9%

16.8%16.6% 16.7%

16.7%

The 2Q19 was positive for our Wholesale segment by experiencing a YoY increase of 4.9%. Moreover, there was a significant QoQ surge in the 2Q19 with loans balances growing 2.3%.

The YoY increase was concentrated in Corporate Banking, due to:

Certain lending operations originated in the Multinational and

Infrastructure banking unit, which has presented a solid

upward trend in quarterly loan origination over the last three

quarters by averaging a 16.1% QoQ growth since the 3Q18.

On a YoY basis, the unit grew 25.4% (Ch$101 Bn.) in quarterly

loan origination and 22.5% (Ch$189 Bn.) in loans balances.

Other corporate banking units that managed to grow 1.2% YoY

in loan balances. After a period of apparent reversal in the

1Q19, these units posted a 1.2% (Ch$83 Bn.) QoQ increase in

2Q18 3Q18 4Q18 1Q19 May-19

Total Loans

Commercial loans

Mortgage loans

Consumer Loans

  1. Excluding operations of subsidiaries abroad.

loan balances, supported by advances of 15.4% (Ch$370 Bn.)

YoY and 13.0% (Ch$319 Bn.) QoQ in quarterly origination.

Middle Market loans grew 8.6% YoY and 1.2% QoQ. We keep on

strengthening the value offering for this segment, primarily by

improving customer proximity. Consequently, loan origination rose

5.5% YoY and, more importantly, 6.8% QoQ in the 2Q19.

All in all, in the 2Q19, we remained as the second largest bank in total loans with a market stake of 16.9%. As mentioned in the past, the YoY drop in market share is well explained by the consolidation of lending credit card loans (formerly managed by retailers) into the industry for an amount of approximately ~2,530 Bn. in the 4Q18.

10

Funding & Capital

Annualized Cost of Funding by Currency (1)

(As of May31, 2019)

3.4%

3.7%

2.3% 2.1%2.5%

2.4%

2.8%

2.9%

2.6%

2.0%

BCH

Bank 2

Bank 3

Bank 4

Industry

Ex BCH

Local Currency

Foreign Currency

(1) Excludes the effect of results from hedge accounting

Funding by Type of Lender

15%

Jun19 46%

39%

Financial Lenders

Retail Lenders

Non-Financial Lenders

Capital Adequacy Ratios

(11)bp (6)bp (14)bp (37)bp

9.2%

9.1%

8.3%

8.2%

11.2%

11.0%

14.1%

13.7%

Jun-18

Jun-19

Shareholders

Tier I

Tier I

(BIS Ratio)

Equity

(Basic Capital)

(Basic Capital)

Total Capital

Assets

Assets

RWA

RWA

Funding Structure

In the 2Q19, we have continued to be one of the leading banks in the local banking industry in terms of funding, particularly in local currency, by reaching an average cost of funds of 2.3% as of May 31, mainly supported by our strong customer base that provides us with a very stable source of funding from demand and time deposits. In fact, 55% of our DDA balances (as of Jun19) come from our personal banking and SMEs businesses. We believe this characteristic, along with our 26.9% market share in terms of personal banking DDAs in the same period, supported by our excellent enrollment rate of new account holders that achieved a maximum quarterly figure of ~31,900 in the 2Q19, fosters our ability to remain leaders in funding within the Chilean banking industry.

Beyond DDAs, 39% of our funding comes from retail lenders as DDAs or TDs, providing us with a solid source of core funding, which is reflected by a 30-day moving average renewal rate of retail time deposits that hovers around 75% in the mid-term.

As for long-term debt placements, we have been less active than previous quarters, although we keep on looking out opportunities. In the 2Q19, we carried out two debt issuances denominated in UF in the local market amounting to Ch$141.5 Bn. (~USD208 million), both with two-year maturities. Also, we carried out a debt placement overseas by ~USD93 million (JPY-denominated bond).

Capital Adequacy

As of June 30, 2019, our equity accounted for Ch$3,392 Bn., which represented a 7.1% (Ch$225 Bn.) YoY increase. This variation was mainly explained by:

  • An increase of approximately Ch$154.1 Bn. in retained earnings, explained by the retention of 30% of the net distributable earnings obtained in 2018, as explained in the 1Q19 Earnings Report.
  • A YoY growth of 13.9%, equivalent to Ch$85.7 Bn., in reserves. This increase was mostly due to our practice of retaining the equivalent to the effect of inflation (2018) on our shareholders' equity. This rule was reaffirmed for 2019 in the shareholders' annual meeting held in
    March 2019.

These factors were partly offset by: (i) a decrease of Ch$4.7 Bn. in YTD earnings, net of provisions for minimum dividends, when compared to the 2Q18, and (ii) a YoY drop of Ch$10.1 Bn. in other equity accounts, largely explained by the impact of interest rate shifts, particularly due to the decrease in CLF rates, on our hedge accounting structures, which was partly offset by fair value gains associated with our AFS portfolio, as a result of lower credit spreads on bonds issued off-shore by Chilean issuers.

As for capital adequacy ratios, despite the positive changes in our equity accounts, the positive expansion shown by our balance sheet in the last two quarters of 2018 and 2019 year-to-date, particularly in loans, prompted a YoY decrease of 37 bp. in our BIS Ratio, from 14.1% in the 2Q18 to 13.7% in the 2Q19. Similarly, our Tier I ratio (on RWA) stood at 11.0% in June19, denoting a YoY contraction of 14 bp.

All of our capital indicators, including the leverage ratio (8.2% in the 2Q19), remained well above the regulatory thresholds.

11

Consolidated Statement of Income

(Chilean GAAP- In millions of Chilean pesos (MCh$) and US dollars (MUS$))

Quarters

Year Ended

2Q18

1Q19

2Q19

2Q19

% Change

Jun-18

Jun-19

Jun-19

% Change

MCh$

MCh$

MCh$

MUS$

2Q19/2Q18

2Q19/1Q19

MCh$

MCh$

MUS$

Jun-19/Jun-18

Interest revenue and expense

Interest revenue

495,953

430,654

601,029

885.5

21.2 %

39.6 %

965,831

1,031,683

1,520.0

6.8 %

Interest expense

(164,940)

(129,684)

(234,899)

(346.1)

42.4 %

81.1 %

(318,301)

(364,583)

(537.2)

14.5 %

Net interest income

331,013

300,970

366,130

539.4

10.6 %

21.6 %

647,530

667,100

982.9

3.0 %

Fees and commissions

Income from fees and commissions

126,693

134,223

145,448

214.3

14.8 %

8.4 %

249,198

279,671

412.1

12.2 %

Expenses from fees and commissions

(36,630)

(30,813)

(33,214)

(48.9)

(9.3) %

7.8 %

(69,974)

(64,027)

(94.3)

(8.5) %

Net fees and commissions income

90,063

103,410

112,234

165.4

24.6 %

8.5 %

179,224

215,644

317.7

20.3 %

Net Financial Operating Income

50,035

8,566

34,865

51.4

(30.3) %

307.0 %

52,141

43,431

64.0

(16.7) %

Foreign exchange transactions, net

(18,210)

16,117

16,274

24.0

-

1.0 %

7,273

32,391

47.7

345.4 %

Other operating income

4,412

15,533

8,813

13.0

99.8 %

(43.3) %

16,064

24,346

35.9

51.6 %

Total Operating Revenues

457,313

444,596

538,316

793.1

17.7 %

21.1 %

902,232

982,912

1,448.2

8.9 %

Provisions for loan losses

(53,810)

(89,156)

(67,959)

(100.1)

26.3 %

(23.8) %

(124,755)

(157,115)

(231.5)

25.9 %

Operating revenues, net of

403,503

355,440

470,357

693.0

16.6 %

32.3 %

777,477

825,797

1,216.7

6.2 %

provisions for loan losses

Operating expenses

Personnel expenses

(102,132)

(113,555)

(115,372)

(170.0)

13.0 %

1.6 %

(209,898)

(228,927)

(337.3)

9.1 %

Administrative expenses

(82,825)

(78,994)

(87,329)

(128.7)

5.4 %

10.6 %

(162,173)

(166,323)

(245.1)

2.6 %

Depreciation and amortization

(9,300)

(17,203)

(17,462)

(25.7)

87.8 %

1.5 %

(18,471)

(34,665)

(51.1)

87.7 %

Impairments

-

(6)

(816)

(1.2)

-

13,500.0 %

(11)

(822)

(1.2)

7,372.7 %

Other operating expenses

(17,375)

(11,066)

(10,720)

(15.8)

(38.3) %

(3.1) %

(25,326)

(21,786)

(32.1)

(14.0) %

Total operating expenses

(211,632)

(220,824)

(231,699)

(341.4)

9.5 %

4.9 %

(415,879)

(452,523)

(666.7)

8.8 %

Net operating income

191,871

134,616

238,658

351.6

24.4 %

77.3 %

361,598

373,274

550.0

3.2 %

Income attributable to affiliates

2,991

1,110

2,863

4.2

(4.3) %

157.9 %

4,148

3,973

5.9

(4.2) %

Income before income tax

194,862

135,726

241,521

355.8

23.9 %

77.9 %

365,746

377,247

555.8

3.1 %

Income tax

(32,299)

(34,189)

(49,395)

(72.8)

52.9 %

44.5 %

(60,532)

(83,584)

(123.1)

38.1 %

Net Income for the period

162,563

101,537

192,126

283.1

18.2 %

89.2 %

305,214

293,663

432.7

(3.8) %

Non-Controlling interest

-

-

-

-

-

-

-

-

-

-

Net Income attributable to bank's

162,563

101,537

192,126

283.1

18.2 %

89.2 %

305,214

293,663

432.7

(3.8) %

owners

These results have been prepared in accordance with Chilean GAAP on an unaudited, consolidated basis.

All figures are expressed in nominal Chilean pesos (historical pesos), unless otherwise stated. All figures expressed in US dollars (except earnings per ADR) were converted using the exchange rate of Ch$ 678.7 per US$1.00 as of June 30, 2019. Earnings per ADR were calculated considering the nominal net income, the exchange rate and the number of shares outstanding at the end of each period.

Banco de Chile files its consolidated financial statements, together with those of its subsidiaries, with the Chilean Superintendency of Banks and Financial Institutions, on a monthly basis. In addition, Banco de Chile files its quarterly financial statements (notes included) with the SEC in form 6K, simultaneously or previously to file this quarterly earnings report. Such documentation is equally available at Banco de Chile's website both in Spanish and English.

12

Selected Financial Information

(Chilean GAAP- In millions of Chilean pesos (MCh$) and US dollars (MUS$))

ASSETS

Jun-18

Mar-19

Jun-19

Jun-19

% Change

MCh$

MCh$

MCh$

MUS$

Jun-19/Jun-18Jun-19/Mar-19

Cash and due from banks

1,011,646

993,892

1,150,682

1,695.4

13.7 %

15.8 %

Transactions in the course of collection

604,874

824,271

1,023,491

1,508.0

69.2 %

24.2 %

Financial Assets held-for-trading

1,299,202

1,913,981

1,550,158

2,283.9

19.3 %

(19.0) %

Receivables from repurchase agreements and

94,300

90,259

93,982

138.5

(0.3) %

4.1 %

security borrowings

Derivate instruments

1,368,981

1,168,896

1,435,764

2,115.4

4.9 %

22.8 %

Loans and advances to Banks

1,301,776

914,911

1,191,846

1,756.0

(8.4) %

30.3 %

Loans to customers, net

Commercial loans

14,717,793

15,492,228

15,839,127

23,336.4

7.6 %

2.2 %

Residential mortgage loans

7,654,225

8,224,726

8,538,974

12,580.8

11.6 %

3.8 %

Consumer loans

4,145,026

4,468,810

4,455,708

6,564.8

7.5 %

(0.3) %

Loans to customers

26,517,044

28,185,764

28,833,809

42,482.0

8.7 %

2.3 %

Allowances for loan losses

(560,059)

(629,474)

(628,209)

(925.6)

12.2 %

(0.2) %

Total loans to customers, net

25,956,985

27,556,290

28,205,600

41,556.4

8.7 %

2.4 %

Financial Assets Available-for-Sale

1,437,807

1,312,347

1,243,177

1,831.6

(13.5) %

(5.3) %

Financial Assets Held-to-maturity

-

-

-

-

-

-

Investments in other companies

41,588

45,714

47,694

70.3

14.7 %

4.3 %

Intangible assets

45,542

53,025

54,423

80.2

19.5 %

2.6 %

Property and Equipment

212,743

220,372

218,525

322.0

2.7 %

(0.8) %

Leased assets

-

155,502

156,671

230.8

-

0.8 %

Current tax assets

19,074

524

388

0.6

(98.0) %

(26.0) %

Deferred tax assets

260,356

276,563

319,922

471.4

22.9 %

15.7 %

Other assets

705,971

565,812

562,342

828.5

(20.3) %

(0.6) %

Total Assets

34,360,845

36,092,359

37,254,665

54,888.8

8.4 %

3.2 %

LIABILITIES & EQUITY

Jun-18

Mar-19

Jun-19

Jun-19

% Change

MCh$

MCh$

MCh$

MUS$

Jun-19/Jun-18

Jun-19/Mar-19

Liabilities

Current accounts and other demand deposits

9,290,377

9,600,304

9,600,788

14,145.2

3.3 %

0.0 %

Transactions in the course of payment

384,199

578,260

727,547

1,071.9

89.4 %

25.8 %

Payables from repurchase agreements and

304,543

281,042

261,120

384.7

(14.3) %

(7.1) %

security lending

Saving accounts and time deposits

10,482,294

11,263,020

10,798,909

15,910.5

3.0 %

(4.1) %

Derivate instruments

1,465,975

1,259,524

1,572,621

2,317.0

7.3 %

24.9 %

Borrowings from financial institutions

1,177,292

1,375,919

1,596,655

2,352.4

35.6 %

16.0 %

Debt issued

6,963,467

7,405,294

7,863,807

11,586.1

12.9 %

6.2 %

Other financial obligations

144,150

110,793

171,284

252.4

18.8 %

54.6 %

Lease liabilities

-

153,896

155,373

228.9

-

1.0 %

Current tax liabilities

1,706

30,670

74,389

109.6

4,260.4 %

142.5 %

Deferred tax liabilities

-

25

-

-

-

(100.0) %

Provisions

510,201

399,679

506,928

746.9

(0.6) %

26.8 %

Other liabilities

468,947

332,983

532,593

784.7

13.6 %

59.9 %

Total liabilities

31,193,151

32,791,409

33,862,014

49,890.3

8.6 %

3.3 %

Equity of the Bank's owners

Capital

2,418,833

2,418,833

2,418,833

3,563.8

0.0 %

0.0 %

Reserves

617,689

703,453

703,317

1,036.2

13.9 %

(0.0) %

Other comprehensive income

(34,705)

(32,140)

(44,824)

(66.0)

29.2 %

39.5 %

Retained earnings from previous periods

16,060

170,188

170,171

250.7

959.6 %

(0.0) %

Income for the period

305,214

101,537

293,663

432.7

(3.8) %

189.2 %

Provisions for minimum dividends

(155,398)

(60,922)

(148,510)

(218.8)

(4.4) %

143.8 %

Non-Controlling Interest

1

1

1

0.00

0.0 %

0.0 %

Total equity

3,167,694

3,300,950

3,392,651

4,998.5

7.1 %

2.8 %

Total Liabilities & Equity

34,360,845

36,092,359

37,254,665

54,888.8

8.4 %

3.2 %

These results have been prepared in accordance with Chilean GAAP on an unaudited, consolidated basis.

All figures are expressed in nominal Chilean pesos (historical pesos), unless otherwise stated. All figures expressed in US dollars (except earnings per ADR) were converted using the exchange rate of Ch$ 678.7 per US$1.00 as of June 30, 2019. Earnings per ADR were calculated considering the nominal net income, the exchange rate and the number of shares outstanding at the end of each period.

Banco de Chile files its consolidated financial statements, together with those of its subsidiaries, with the Chilean Superintendency of Banks and Financial Institutions, on a monthly basis. In addition, Banco de Chile files its quarterly financial statements (notes included) with the SEC in form 6K, simultaneously or previously to file this quarterly earnings report. Such documentation is equally available at Banco de Chile's website both in Spanish and English.

13

Selected Financial Information

(Chilean GAAP- In millions of Chilean pesos (MCh$) and US dollars (MUS$))

Key Performance Ratios

Quarter

Year Ended

2Q18

1Q19

2Q19

Jun-18

Mar-19

Jun-19

Earnings per Share (1) (2)

Net income per Share (Ch$)

1.63

1.01

1.90

3.07

1.01

2.91

Net income per ADS (Ch$)

326.94

201.03

380.38

613.84

201.03

581.41

Net income per ADS (US$)

0.50

0.30

0.56

0.94

0.30

0.86

Book value per Share (Ch$)

31.85

32.68

33.58

31.85

32.68

33.58

Shares outstanding (Millions)

99,444

101,017

101,017

99,444

101,017

101,017

Profitability Ratios (3)(4)

Net Interest Margin

4.46%

3.79%

4.54%

4.37%

3.79%

4.16%

Net Financial Margin

4.88%

4.10%

5.17%

4.77%

4.10%

4.64%

Fees & Comm. / Avg. Interest Earnings Assets

1.21%

1.30%

1.39%

1.21%

1.30%

1.35%

Operating Revs. / Avg. Interest Earnings Assets

6.16%

5.59%

6.67%

6.08%

5.59%

6.14%

Return on Average Total Assets

1.93%

1.13%

2.11%

1.82%

1.13%

1.63%

Return on Average Equity

20.75%

12.21%

22.94%

19.48%

12.21%

17.59%

Capital Ratios

Equity / Total Assets

9.22%

9.15%

9.11%

9.22%

9.15%

9.11%

Tier I (Basic Capital) / Total Assets

8.26%

8.17%

8.20%

8.26%

8.17%

8.20%

Tier I (Basic Capital) / Risk-Wighted Assets

11.16%

11.03%

11.02%

11.16%

11.03%

11.02%

Total Capital / Risk- Weighted Assets

14.05%

13.74%

13.68%

14.05%

13.74%

13.68%

Credit Quality Ratios

Total Past Due / Total Loans to Customers

1.19%

1.18%

1.12%

1.19%

1.18%

1.12%

Allowance for Loan Losses / Total Past Due

176.99%

189.87%

193.93%

176.99%

189.87%

193.93%

Impaired Loans / Total Loans to Customers

2.93%

2.82%

2.80%

2.93%

2.82%

2.80%

Loan Loss Allowances / Impaired Loans

71.97%

79.23%

77.73%

71.97%

79.23%

77.73%

Loan Loss Allowances / Total Loans to Customers

2.11%

2.23%

2.18%

2.11%

2.23%

2.18%

Loan Loss Provisions / Avg. Loans to Customers (4)

0.82%

1.27%

0.96%

0.97%

1.27%

1.12%

Operating and Productivity Ratios

Operating Expenses / Operating Revenues

46.28%

49.67%

43.04%

46.09%

49.67%

46.04%

Operating Expenses / Average Total Assets (3) (4)

2.51%

2.47%

2.54%

2.49%

2.47%

2.51%

Balance Sheet Data (1)(3)

Avg. Interest Earnings Assets (million Ch$)

29,716,087

31,790,283

32,278,553

29,662,680

31,790,283

32,034,418

Avg. Assets (million Ch$)

33,752,463

35,787,962

36,470,845

33,449,929

35,787,962

36,129,404

Avg. Equity (million Ch$)

3,134,165

3,326,266

3,350,309

3,133,124

3,326,266

3,338,288

Avg. Loans to customers (million Ch$)

26,094,972

27,984,582

28,360,215

25,722,993

27,984,582

28,172,399

Avg. Interest Bearing Liabilities (million Ch$)

18,531,308

20,042,097

20,195,670

18,265,831

20,042,097

20,118,884

Risk-Weighted Assets (Million Ch$)

28,371,694

29,920,435

30,776,987

28,371,694

29,920,435

30,776,987

Additional Data

Exchange rate (Ch$/US$)

653.90

679.72

678.73

653.90

679.72

678.73

Employees (#)

13,964

13,837

13,807

13,964

13,837

13,807

Branches (#)

396

389

382

396

389

382

Notes

  1. Figures are expressed in nominal Chilean pesos.
  2. Figures are calculated considering nominal net income, the shares outstanding and the exchange rate existing at the end of each period.
  3. Ratios consider daily average balances.
  4. Annualized data.

These results have been prepared in accordance with Chilean GAAP on an unaudited, consolidated basis.

All figures are expressed in nominal Chilean pesos (historical pesos), unless otherwise stated. All figures expressed in US dollars (except earnings per ADR) were converted using the exchange rate of Ch$ 678.7 per US$1.00 as of June 30, 2019. Earnings per ADR were calculated considering the nominal net income, the exchange rate and the number of shares outstanding at the end of each period.

Banco de Chile files its consolidated financial statements, together with those of its subsidiaries, with the Chilean Superintendency of Banks and Financial Institutions, on a monthly basis. In addition, Banco de Chile files its quarterly financial statements (notes included) with the SEC in form 6K, simultaneously or previously to file this quarterly earnings report. Such documentation is equally available at Banco de Chile's website both in Spanish and English.

14

Summary of differences between Chile GAAP and IFRS

The most significant differences are as follows:

  • Under Chilean GAAP, the merger of Banco de Chile and Citibank Chile was accounted for under thepooling-of-interest method, while under IFRS, and for external financial reporting purposes, the merger of the two banks was accounted for as a business combination in which the
    Bank is the acquirer as required by IFRS 3 "Business Combinations". Under IFRS 3, the Bank recognised all acquired net assets at fair value as determined at the acquisition date, as well as the goodwill resulting from the purchase price consideration in excess of net assets recognised.
  • Allowances for loan losses are calculated based on specific guidelines set by the Chilean Superintendency of Banks based on an expected losses approach. Under IFRS 9 "Financial instruments" allowances for loan losses should be calculated on a discounted basis under the
    "expected credit loss" model that focuses on the risk that an asset will default rather than whether a loss has actually been incurred or not.
  • Assets received in lieu of payments are measured at historical cost or fair value, less cost to sell, if lower, on a portfolio basis andwritten-off if not sold after a certain period in accordance with specific guidelines set by the Chilean Superintendency of Banks. Under IFRS, these assets are deemed non-current assets held-for-sale and their accounting treatment is set by IFRS 5 "Non-current assets held for sale and
    Discontinued operations". In accordance with IFRS 5 these assets are measured at historical cost or fair value, less cost to sell, if lower. Accordingly, under IFRS these assets are not written off unless impaired.
  • Chilean companies are required to distribute at least 30% of their net income to shareholders unless a majority of shareholders approve the retention of profits. In accordance with Chilean GAAP, the Bank records a minimum dividend allowance based on its distribution policy, which requires distribution of at least 60% of the period net income, as permitted by the Chilean Superintendency of Banks. Under IFRS, only the portion of dividends that is required to be distributed by Chilean Law must be recorded, i.e., 30% as required by Chilean Corporations Law.

Forward - Looking Information

The information contained herein incorporates by reference statements which constitute ''forward-looking statements,'' in that they include statements regarding the intent, belief or current expectations of our directors and officers with respect to our future operating performance. Such statements include any forecasts, projections and descriptions of anticipated cost savings or other synergies. You should be aware that any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties, and that actual results may differ from those set forth in the forward-looking statements as a result of various factors (including, without limitations, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates, and operating and financial risks related to managing growth and integrating acquired businesses), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements.

Factors that could cause actual results to differ materially and adversely include, but are not limited to:

  • changes in general economic, business or political or other conditions in Chile or changes in general economic or business conditions in Latin America;
  • changes in capital markets in general that may affect policies or attitudes toward lending to Chile or Chilean companies;
  • unexpected developments in certain existing litigation;
  • increased costs;
  • unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms.

Undue reliance should not be placed on such statements, which speak only as of the date that they were made. Our independent public accountants have not examined or compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

Contacts

Pablo Mejia

Head of Investor Relations Investor Relations | Banco de Chile

  • (56-2)2653.3554
    pmejiar@bancochile.cl

Daniel Galarce

Head of Financial Control

Financial Control Area | Banco de Chile

  • (56-2)2653.0667
  • dgalarce@bancochile.cl

Disclaimer

Banco de Chile published this content on 29 July 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 July 2019 22:09:06 UTC

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