BCH

Business Context and Reporting Period

Company: Banco de Chile (Foreign Private Issuer)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: First Quarter ended March 31, 2012

Submission Date: April 30, 2012

Currency: Millions of Chilean Pesos (MCh$)

Banco de Chile is a Chilean corporation regulated by the Superintendency of Banks and Financial Institutions (SBIF). The bank operates through four main segments: Retail, Wholesale, Treasury and money market operations, and Subsidiaries. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and Chilean banking regulations.

Key Financial Metrics

Material Changes vs. Prior Period

• Asset Growth: Total assets increased by approximately 13.2% year-over-year (YoY), driven primarily by a 20% increase in loans to customers (net) and growth in financial assets held-for-trading.
• Revenue Expansion: Total operating revenues rose 11.3% YoY to MCh$337.7 billion. Net interest income grew 21% to MCh$244.4 billion, while net fee income declined slightly by 3.5%.
• Provisioning Increase: Provisions for loan losses increased significantly by 79.7% YoY to MCh$46.95 billion, reflecting higher credit risk provisioning, particularly in commercial and consumer loan segments.
• Profitability: Despite higher provisions and operating expenses, Net Income increased 3.6% YoY to MCh$121.2 billion. However, Net Income Per Share decreased slightly from Ch$1.42 to Ch$1.39 due to share capitalization.
• Capitalization: Paid-in capital increased from MCh$1,225.9 billion in March 2011 to MCh$1,509.9 billion in March 2012, following the capitalization of retained earnings.

Guidance, Outlook, and Management Commentary

• Dividend Policy: The Board of Directors maintains a policy of distributing 70% of net income as minimum dividends. A provision of MCh$71.4 billion was recorded for minimum dividends for the 2012 period.
• Recent Dividend: Shareholders approved Dividend No. 200 on March 22, 2012, amounting to Ch$2.984740 per common share, representing 70% of the 2011 net income.
• Capital Increase: The bank executed a capital increase via the capitalization of 30% of 2011 net income, issuing new shares without nominal value.
• Accounting Changes: No significant changes in accounting policies occurred during the period. The bank is evaluating the impact of new IFRS standards (IFRS 9, 10, 11, 12, 13) effective in future periods.
• Legal Contingencies: Management believes that ongoing legal proceedings are not likely to have a material adverse effect on financial results. Provisions for legal contingencies were MCh$716 million as of March 31, 2012.
• Tax Rate: The effective tax rate for the period was 10.92%, down from 14.50% in the prior year, primarily due to changes in statutory tax rates (reduction from 20% to 18.5% in 2012).

Investor Verification Checklist

• Credit Quality: Verify the composition of the increased loan loss provisions (MCh$46.95 billion) and the specific segments (Commercial vs. Consumer) driving the 80% YoY increase.
• Asset Quality: Review the "Loans to Customers, net" breakdown to assess the ratio of substandard loans to total loans and the adequacy of individual vs. group provisions.
• Liquidity Position: Confirm the stability of the funding mix, noting the decrease in savings accounts and time deposits (MCh$9.14 billion) compared to the prior year, offset by growth in demand deposits.
• Derivative Exposure: Assess the fair value of derivative instruments (Assets: MCh$375 billion; Liabilities: MCh$394 billion) and the effectiveness of hedging strategies against interest rate and currency risks.
• Related Party Transactions: Review Note 38 for the volume of loans and off-balance sheet commitments to related parties (MCh$277 billion in net loans) to ensure compliance with regulatory limits.
• Capital Adequacy: Confirm the impact of the recent capitalization of retained earnings on the bank's Tier 1 capital ratio and overall leverage.