BCH

Business Context and Reporting Period

This Form 6-K filing by Banco de Chile (Bank of Chile) reports consolidated financial statements for the period ended December 31, 2008. The report was submitted to the SEC on February 11, 2009, and includes an English translation of statements originally filed with the Superintendency of Banks and Financial Institutions (SBIF) in Chile. The 2007 comparative figures have been restated for price-level changes (8.9%) to ensure comparability.

Key Financial Metrics

Liquidity and Debt: Cash and due from banks totaled 751,223 MM$. Borrowings from financial institutions increased to 1,498,549 MM$, and debt issued stood at 1,900,588 MM$. Total provisions (liabilities) rose significantly to 290,990 MM$.

Material Changes vs. Prior Period

• Asset Growth: Total assets increased by approximately 8.3% year-over-year, driven largely by a rise in loans and accounts receivables to customers (from 12,461,733 MM$ to 13,421,804 MM$) and a significant increase in derivative instruments (from 438,043 MM$ to 904,726 MM$).
• Revenue Composition: While Net Interest Revenue grew by 19.6%, the bank recorded a substantial loss in foreign exchange transactions of 353,012 MM$ in 2008, compared to a gain of 21,702 MM$ in 2007. Conversely, gains from trading and brokerage activities surged to 387,703 MM$ from 58,640 MM$.
• Expense Increases: Total operating expenses rose to 573,848 MM$ from 509,863 MM$, with staff expenses increasing by 10.8% and other operational expenses nearly doubling.
• Profitability Decline: Net income decreased by 5.4% to 272,427 MM$, primarily due to higher loan loss provisions (up 83.2%) and the foreign exchange loss, which offset gains in trading activities.
• Equity Reduction: Total equity decreased by 13.3% to 1,297,743 MM$. This decline includes a specific accounting adjustment of 190,698 MM$ reclassified from retained earnings to provisions for minimum dividends.

Guidance, Outlook, and Risks

Accounting Changes and Future Impact: The filing details significant accounting changes mandated by the SBIF to converge with International Financial Reporting Standards (IFRS). Effective January 1, 2009, the bank will suspend the price-level restatement mechanism and adopt new criteria for loan interest accrual and property revaluation. The bank is currently estimating the final adjustments required for 2009, which will affect future income determination and balance sheet presentation.

Merger Integration: The filing notes the ongoing homologation of financial instrument classification criteria following the merger with Citibank Chile, effective January 1, 2008. This process involved reclassifying 244,827 MM$ of instruments from "Trading Securities" to "Available for sale instruments."

Risks and Contingencies: The bank highlighted a significant increase in provisions for loan losses, reflecting a more cautious outlook on credit risk. Additionally, the volatility in foreign exchange transactions resulted in a material loss in 2008 compared to the prior year.

Investor Verification Checklist

• Verify the impact of the new IFRS convergence standards on 2009 financial reporting, specifically the suspension of price-level restatements.
• Confirm the final adjustments to equity and income resulting from the transition to new accounting criteria as of January 1, 2009.
• Review the full text of the external auditor's report available on the company website for qualifications or emphasis of matter.
• Assess the sustainability of the high gains from trading and brokerage activities (387,703 MM$) given the concurrent foreign exchange losses.
• Monitor the trend in loan loss provisions, which increased by over 80% year-over-year.