Edgar Filing: BANCO SANTANDER CHILE

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 Interim 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	6
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS	7

Notes to the Consolidated Interim Financial Statements

NOTE 01	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9
NOTE 02	ACCOUNTING CHANGES	38
NOTE 03	SIGNIFICANT EVENTS	39
NOTE 04	REPORTING SEGMENTS	41
NOTE 05	CASH AND CASH EQUIVALENTS	43
NOTE 06	TRADING INVESTMENTS	44
NOTE 07	DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING	45
NOTE 08	INTERBANK LOANS	52
NOTE 09	LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS	53
NOTE 10	AVAILABLE FOR SALE INVESTMENTS	60
NOTE 11	INTANGIBLE ASSETS	61
NOTE 12	PROPERTY, PLANT AND EQUIPMENT	63
NOTE 13	CURRENT AND DEFERRED TAXES	66
NOTE 14	OTHER ASSETS	69
NOTE 15	TIME DEPOSITS AND OTHER TIME LIABILITIES	70
NOTE 16	ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES	71
NOTE 17	MATURITY OF FINANCIAL ASSETS AND LIABILITIES	77
NOTE 18	PROVISIONS	79
NOTE 19	OTHER LIABILITIES	80
NOTE 20	CONTINGENCIES AND COMMITMENTS	81
NOTE 21	EQUITY	84
NOTE 22	CAPITAL REQUIREMENTS (BASEL)	87
NOTE 23	NON-CONTROLLING INTEREST	89
NOTE 24	INTEREST INCOME	91
NOTE 25	FEES AND COMMISSIONS	93
NOTE 26	NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS	95
NOTE 27	NET FOREIGN EXCHANGE INCOME	96
NOTE 28	PROVISIONS FOR LOAN LOSSES	97
NOTE 29	PERSONNEL SALARIES AND EXPENSES	98
NOTE 30	ADMINISTRATIVE EXPENSES	99
NOTE 31	DEPRECIATION, AMORTIZATION AND IMPAIRMENT	100
NOTE 32	OTHER OPERATING INCOME AND EXPENSES	101
NOTE 33	TRANSACTIONS WITH RELATED PARTIES	102
NOTE 34	FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES	106
NOTE 35	SUBSEQUENT EVENTS	113

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

		As of			As of
		September 30,			December 30,
		2018			2017
		(Unaudited)
	NOTE	MCh$			MCh$
ASSETS

Cash and deposits in banks	5		1,780,079			1,452,922
Cash items in process of collection	5		564,245			668,145
Trading investments	6		392,013			485,736
Investments under resale agreements			-			-
Financial derivative contracts	7		2,230,448			2,238,647
Interbank loans, net	8		14,307			162,599
Loans and accounts receivables from customers, net	9		29,153,327			26,747,542
Available for sale investments	10		2,495,623			2,574,546
Held to maturity investments			-			-
Investments in associates and other companies			32,498			27,585
Intangible assets	11		59,748			63,219
Property, plant, and equipment	12		240,002			242,547
Current taxes	13		18,149			-
Deferred taxes	13		388,289			385,608
Other assets	14		656,928			755,183
TOTAL ASSETS			38,025,656			35,804,279

LIABILITIES
Deposits and other demand liabilities	15		7,984,243			7,768,166
Cash items in process of being cleared	5		455,368			486,726
Obligations under repurchase agreements			180,001			268,061
Time deposits and other time liabilities	15		12,777,365			11,913,945
Financial derivative contracts	7		2,086,532			2,139,488
Interbank borrowing			1,793,188			1,698,357
Issued debt instruments	16		8,186,718			7,093,653
Other financial liabilities	16		240,902			242,030
Current taxes	13		-			6,435
Deferred taxes	13		33,037			9,663
Provisions	18		275,750			324,329
Other liabilities	19		883,071			745,363
TOTAL LIABILITIES			34,896,175			32,696,216

EQUITY
Attributable to the equity holders of the Bank			3,085,775			3,066,180
Capital	21		891,303			891,303
Reserves	21		1,923,022			1,781,818
Valuation adjustments	21		(33,231	)		(2,312	)
Retained earnings			304,681			395,371
Retained earnings from prior years			-			-
Income for the period			435,258			564,815
Minus: Provision for mandatory dividends			(130,577	)		(169,444	)
Non-controlling interest	23		43,706			41,883
TOTAL EQUITY			3,129,481			3,108,063

TOTAL LIABILITIES AND EQUITY			38,025,656			35,804,279

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 3

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD

For the periods ended

		As of September 30,
		(Unaudited)
		2018			2017
	NOTE	MCh$			MCh$

OPERATING INCOME

Interest income	24		1,656,904			1,534,147
Interest expense	24		(600,137	)		(553,957	)

Net interest income			1,056,767			980,190

Fee and commission income	25		365,154			343,250
Fee and commission expense	25		(141,707	)		(130,487	)

Net fee and commission income			223,447			212,763

Net income (expense) from financial operations	26		15,370			52,933
Net foreign exchange gain	27		53,942			58,645
Other operating income	32		28,757			67,939

Net operating profit before provision for loan losses			1,378,283			1,372,470

Provision for loan losses	28		(251,802	)		(222,400	)

NET OPERATING PROFIT			1,126,481			1,150,070

Personnel salaries and expenses	29		(297,692	)		(294,881	)
Administrative expenses	30		(183,080	)		(171,900	)
Depreciation and amortization	31		(57,738	)		(55,468	)
Impairment of property, plant, and equipment	31		(39	)		(5,644	)
Other operating expenses	32		(32,266	)		(72,671	)

Total operating expenses			(570,815	)		(600,564	)

OPERATING INCOME			555,666			549,506

Income from investments in associates and other companies			5,223			2,954

Income before tax			560,889			552,460

Income tax expense	13		(123,761	)		(105,622	)

NET INCOME FOR THE PERIOD			437,128			446,838

Attributable to:
Equity holders of the Bank			435,258			430,137
Non-controlling interest	23		1,870			16,701
Earnings per share attributable to Equity holders of the Bank:
(expressed in Chilean pesos)
Basic earnings	21		2.310			2.283
Diluted earnings	21		2.310			2.283

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 4

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE PERIOD

For the periods ended

		As of September 30,
		(Unaudited)
		2018			2017
	NOTE	MCh$			MCh$

NET INCOME FOR THE PERIOD			437,128			446,838

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

Available for sale investments	21		1,229			(1,961	)
Cash flow hedge	21		(43,686	)		(9,293	)

Other comprehensive income which may be reclassified subsequently to profit or loss, before tax			(42,457	)		(11,254	)

Income tax related to items which may be reclassified subsequently to profit or loss			11,489			2,725

Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax			(30,968	)		(8,529	)

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

TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD			406,160			438,309

Attributable to:
Equity holders of the Bank			404,339			421,207
Non-controlling interest	23		1,821			17,102

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 5

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended September 30, 2018 and 2017 (Unaudited)

			RESERVES					VALUATION ADJUSTMENTS									RETAINED EARNINGS
					Effects of
					merger of																					Total
			Reserves		companies																		Provision			attributable			(*)
			and other		under			Available for									Prior years			Income			for			to equity			Non-
			retained		common			sale			Hedge cash			Income			retained			for the			mandatory			holders of the			controlling
	Capital		earnings		control			investments			flow			tax effects			earnings			period			dividends			Bank			interest			Total Equity
	MCh$		MCh$		MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Equity as of December 31, 2016		891,303		1,642,336		(2,224	)		6,449			2,288			(2,097	)		-			472,351			(141,700	)		2,868,706			29,341			2,898,047
Distribution of income from previous period		-		-		-			-			-			-			472,351			(472,351	)		-			-			-			-
Equity as of January 1, 2017		891,303		1,642,336		(2,224	)		6,449			2,288			(2,097	)		472,351			-			(141,700	)		2,868,706			29,341			2,898,047
Increase or decrease of capital and reserves		-		-		-			-			-			-			-			-			-			-			-			-
Transactions with own shares		-		-		-			-			-			-			-			-			-			-			-			-
Dividends distributions/ withdrawals made		-		-		-			-			-			-			(330,645	)		-			-			(330,645	)		-			(330,645	)
Transfer of retained earnings to reserves		-		141,706		-			-			-			-			(141,706	)		-			-			-			-			-
Provision for mandatory dividends		-		-		-			-			-			-			-			-			12,659			12,659			-			12,659
Subtotals		-		141,706		-			-			-			-			(472,351	)		-			12,659			(317,986	)		-			(317,986	)
Other comprehensive income		-		-		-			(2,503	)		(9,293	)		2,877			-			-			-			(8,919	)		401			(8,518	)
Income for the period		-		-		-			-			-			-			-			430,137			-			430,137			16,701			446,838
Subtotals		-		-		-			(2,503	)		(9,293	)		2,877			-			430,137			-			421,218			17,102			438,320

Equity as of September 30, 2017		891,303		1,784,042		(2,224	)		3,946			(7,005	)		780			-			430,137			(129,041	)		2,971,938			46,443			3,018,381

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 year		-		-		-			-			-			-			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		-		-		-			-			-			-			-			-			-			-			-			-
Transactions with own shares		-		-		-			-			-			-			-			-			-			-			-			-
Dividend distributions/ withdrawals made		-		-		-			-			-			-			(423,611	)		-			-			(423,611	)		-			(423,611	)
Other equity movements		-		141,204		-			-			-			-			(141,204	)		-			-			-			2			2
Provision for mandatory dividends		-		-		-			-			-			-			-			-			38,867			38,867			-			38,867
Subtotals		-		141,204		-			-			-			-			(564,815	)		-			38,867			(384,744	)		2			(384,742	)
Other comprehensive income		-		-		-			1,267			(43,686	)		11,500			-			-			-			(30,919	)		(49	)		(30,968	)
Income for the period		-		-		-			-			-			-			-			435,258			-			435,258			1,870			437,128
Subtotals		-		-		-			1,267			(43,686	)		11,500			-			435,258			-			404,339			1,821			406,160

Equity as of September 30, 2018		891,303		1,925,246		(2,224	)		1,726			(47,248	)		12,291			-			435,258			(130,577	)		3,085,775			43,706			3,129,481

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

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

Year 2017 (Shareholders Meeting April 2018)		564,815		141,204		423,611		75		188,446,126,794		2.248

Year 2016 (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 September 2018 / Banco Santander-Chile 6

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

		As of September 30,
		(Unaudited)
		2018			2017
	NOTE	MCh$			MCh$

A – CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME FOR THE PERIOD			437,128			446,838
Debits (credits) to income that do not represent cash flows			(889,745	)		(753,577	)
Depreciation and amortization	31		57,738			55,468
Impairments of property, plant, and equipment and intangibles	31		39			5,644
Provision for loan losses	28		319,749			285,019
Provision from trading investments mark to market			1,438			114,989
Income from investments in associates and other companies			(5,223	)		(2,954	)
Net gain on sale of assets received in lieu of payment	32		(17,521	)		(22,733	)
Provision on assets received in lieu of payment	32		939			4,066
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		(318	)		(21,953	)
Charge off of assets received in lieu of payment	32		11,795			23,464
Net interest income	24		(1,056,767	)		(980,190	)
Net fee and commission income	25		(223,447	)		(212,763	)
Other debits (credits) to income that do not represent cash flows			(6,600	)		(8,553	)
Changes in deferred taxes	13		28,433			6,919
Increase/decrease in operating assets and liabilities			1,274,401			(344,956	)
Decrease (increase) of loans and accounts receivables from customers, net			(2,394,955	)		(549,746	)
Decrease (increase) of financial investments			172,646			1,177,665
Decrease (increase) due to resale agreements (assets)			-			6,736
Decrease (increase) of interbank loans			148,292			(5,411	)
Decrease (increase) of assets received or awarded in lieu of payment			1,427			12,674
Increase of debits in customers checking accounts			(68,790	)		(267,713	)
Increase (decrease) of time deposits and other time liabilities			863,420			(559,838	)
Increase (decrease) of obligations with domestic banks			(480	)		(365,436	)
Increase (decrease) of other demand liabilities or time obligations			284,867			(1,101	)
Increase (decrease) of obligations with foreign banks			95,312			(149,814	)
Increase (decrease) of obligations with Central Bank of Chile			(1	)		(1	)
Increase (decrease) of obligations under repurchase agreements			(88,060	)		(64,922	)
Increase (decrease) in other financial liabilities			(1,128	)		(14,196	)
Net increase of other assets and liabilities			129,322			(138,526	)
Redemption of letters of credit			(6,875	)		(5,716	)
Mortgage bond issuances			-			-
Senior bond issuances			1,225,191			263,480
Redemption of mortgage bonds and payments of interest			(5,527	)		(4,588	)
Redemption of senior bonds and payments of interest			(360,474	)		(871,518	)
Interest received			1,656,904			1,534,147
Interest paid			(600,137	)		(553,957	)
Dividends received from investments in other companies			-			62
Fees and commissions received	25		365,154			343,250
Fees and commissions paid	25		(141,707	)		(130,487	)
Total cash flow provided by (used in) operating activities			821,784			(651,695	)

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 7

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENT OF CASH FLOW

For the periods ended

		As of September 30,
		(Unaudited)
		2018			2017
	NOTE	MCh$			MCh$

B – CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property, plant, and equipment	12		(37,553	)		(26,159	)
Sales of property, plant, and equipment	12		157			17,340
Purchases of investments in associates and other companies			-			-
Sales of investments in associates and other companies			-			-
Purchases of intangible assets	11		(15,138	)		(22,567	)
Total cash flow provided by (used in) investment activities			(52,534	)		(31,386	)

C – CASH FLOWS FROM FINANCING ACTIVITIES:
From shareholder’s financing activities			(556,167	)		(338,751	)
Increase in other obligations			-			-
Subordinated bonds issuance			-			-
Redemption of subordinated bonds and payments of interest			(132,556	)		(8,106	)
Dividends paid			(423,611	)		(330,645	)
From non-controlling interest financing activities			-			-
Dividends and/or withdrawals paid			-			-
Total cash flow used in financing activities			(556,167	)		(338,751	)

D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD			(213,083	)		(1,021,832	)

E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS			41,532			(27,536	)

F – CASH AND CASH EQUIVALENTS INITIAL BALANCE	5		1,634,341			2,486,199

CASH AND CASH EQUIVALENTS FINAL BALANCE	5		1,888,956			1,436,831

		As of September 30,
		(Unaudited)
		2018			2017
Reconciliation of provisions for the Consolidated Interim Statement of Cash Flow for the periods		MCh$			MCh$

Provision for loan losses for cash flow purposes			319,749			285,019
Recovery of loans previously charged off			(67,947	)		(62,619	)
Provision for loan losses - net	28		251,802			222,400

						Changes other than cash
Reconciliation of liabilities arising from financing activities	December 31, 2017 MCh$		Cash Flow MCh$			Acquisition MCh$		Foreign Currency Movement MCh$		UF Movement MCh$		Fair Value Changes MCh$		September 30, 2018 MCh$

Subordinated Bonds		773,192		(132,556	)		-		-		148,351		-		788,987
Paid dividends		-		(423,611	)		-		-		-		-		(423,611	)
Other		-		-			-		-		-		-		-
Total liabilities from financing activities		773,192		(556,167	)		-		-		148,351		-		365,376

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 8

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 December 31, 2018, 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 September 30, 2018 and 2017 and December 31, 2017, 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, 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 the following 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.

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

Rights arising from other contractual agreements.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 9

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

The consolidation of a subsidiary starts when the Bank obtains control over it and ends when the bank loses this control. So, the income and expenses from a subsidiary acquired or alienated during the period is included in the Consolidated Income Statement and the Consolidated Statement of Other Comprehensive Income from the date in which the Bank obtains control until the date in which the Bank ends its control over the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interest. 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 September 30,						As of December 31,						As of September 30,
		Place of	2018						2017						2017
		Incorporation	Direct		Indirect		Total		Direct		Indirect		Total		Direct		Indirect		Total
		and
Name of the Subsidiary	Main Activity	operation	%		%		%		%		%		%		%		%		%

Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile		99.75		0.01		99.76		99.75		0.01		99.76		99.75		0.01		99.76
Santander Corredores de Bolsa Limitada	Financial instruments brokerage	Santiago, Chile		50.59		0.41		51.00		50.59		0.41		51.00		50.59		0.41		51.00
Santander Agente de Valores Limitada (*)	Securities brokerage	Santiago, Chile		99.03		-		99.03		99.03		-		99.03		99.03		-		99.03
Santander S.A. Sociedad Securitizadora	Purchase of credits and issuance of debt instruments	Santiago, Chile		99.64		-		99.64		99.64		-		99.64		99.64		-		99.64

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

(*) On July 25, 2018, the entity has stopped carrying out buying and selling operations of foreign currency, the Bank will now take care of these operations.

ii.

Entities controlled by the Bank through other considerations

The following companies have been consolidated as of September 30, 2018 and 2017 and December 31, 2017 based on the fact that the activities relevant to 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)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 10

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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

			Percentage of ownership share
			As of		As of		As of
			September 30,		December 31,		September 30,
		Place of	2018		2017		2017
		Incorporation
		and
Associates	Main activity	operation	%		%		%
Redbanc S.A.	ATM services	Santiago, Chile		33.43		33.43		33.43
Transbank S.A.	Debit and credit card services	Santiago, Chile		25.00		25.00		25.00
Centro de Compensación Automatizado	Electronic fund transfer and compensation services	Santiago, Chile		33.33		33.33		33.33
Sociedad Interbancaria de Depósito de Valores S.A.	Repository of publically offered securities	Santiago, Chile		29.29		29.29		29.29
Cámara de Compensación de Pagos de Alto Valor S.A.	Payments clearing	Santiago, Chile		15.00		15.00		14.93
Administrador Financiero del Transantiago S.A.	Administration of boarding passes to public transportation	Santiago, Chile		20.00		20.00		20.00
Sociedad Nexus S.A.	Credit card processor	Santiago, Chile		12.90		12.90		12.90
Servicios de Infraestructura de Mercado OTC S.A.	Administration of the infrastructure for the financial market of derivative instruments	Santiago, Chile		12.48		12.48		12.07

During 2017, the entities Rabobank Chile in Liquidation and Banco París, ceded a portion of its participation to Banco Santander in "Sociedad Operadora de la Cámara de Compensación de pagos de Valores S.A.", increasing the Bank's participation to 15.00%.

In the case of Nexus S.A. and Cámara Compensación de Alto Valor 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 them.

In the case of Servicios de Infraestructura de Mercado 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 over 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

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

the nature of the products and services;

ii.

the nature of the production processes;

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 11

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

iii.

the methods used to distribute their products or services; and

iv.

if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

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

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.

The reporting segments that aren’t included in these thresholds could be considered as segments to be reported in these financial statements and if that’s the case, separate financial information will be revealed for these cases if the Board considers this information to be useful.

Information related to other economic characteristics that don’t correspond to any of the reportable segments is combined and revealed in the “Others” category.

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; and

iii.

for which discrete financial information is available.

Functional and presentation currency

In accordance with IAS 21 "Effects of Variations in Exchange Rates of the Foreign Currency", the “Bank” 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 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$656.74 per US$1 for September, 2018 (Ch$639.15 per US$1 for September, 2017 and Ch$616.85 per US$1 for December, 2017).

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 12

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 September 30, 2018 and 2017 and December 31, 2017, 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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 13

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 14

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 September 30, 2018 and December 31, 2017, 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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 15

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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 September 30, 2018, the CVA and DVA are Ch$ 7,515 million and Ch$ 16,135 million, respectively.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 16

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

ii.

Valuation techniques

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

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

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

The main techniques used as of September 30, 2018 and 2017 and as of December 31, 2017 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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 17

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 September 2018 / Banco Santander-Chile 18

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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. As of September 30, 2018 and 2017 and as of December 31, 2017, no offsetting exists for financial assets or liabilities.

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:

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 19

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 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.

These interests 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). When collected, this interest is recognized as income.

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.

Under IAS 18 “Revenue recognition”, fees and commission income and expense are recognized in according to their nature. The main criteria are:

Fee and commission income and expenses on financial assets and liabilities are recognized when they are earned.

Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services.

Those relating to services provided in a single transaction are recognized when the single transaction is performed.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 20

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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 programs associated to its credit cards services, for which it 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.

iv.

Comissions on loan formalization

Financial commissions that arise from loan formalization, fundamentally the commissions from the opening or study and information, are periodized and registered in the Consolidated Statement of Income throughout the life of the loan.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 21

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 22

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

ITEM	Useful life (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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 23

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 24

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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) 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 the following:

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

ii.

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

iii.

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 25

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Normal and Substandard Compliance Portfolio

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

Portfolio	Debtor’s Category	Probability of Non-Performance (%)		Severity (%)		Expected Loss (%)
Normal Portfolio	A1		0.04		90.0		0.03600
	A2		0.10		82.5		0.08250
	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
Substandard Portfolio	B1		15.00		92.5		13.87500
	B2		22.00		92.5		20.35000
	B3		33.00		97.5		32.17500
	B4		45.00		97.5		43.87500

The Bank first determines all credit exposures, which includes the accounting balances of loans and accounts receivable from customers plus contingent loans, less any amount recovered through executing the financial guarantees or collateral covering the operations. The percentages of expected loss are applied to this exposure. In the case of collateral, the Bank must demonstrate that the value assigned reasonably reflects the value obtainable on disposal of the assets or equity instruments. When the credit risk of the debtor is substituted for the credit quality of the collateral or guarantor, this methodology is applicable only when the guarantor or 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	%

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 26

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 27

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

LTV =Loan capital/Value of guarantee

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

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

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.

During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 28

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 29

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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 September 30, 2018 and 2017 and December 31, 2017, 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, 2017 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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 30

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 September 30, 2018 and December 31, 2017, 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”).

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 September 30, 2018 and December 31, 2017, 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 mix 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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 31

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Components of defined benefit cost include:

current service cost and any past service cost, which are recognized in profit or loss for the period;

net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;

new liability (asset) remeasurements for net defined benefit include:

(a)

actuarial gains and losses;

(b)

the performance of plan assets, and;

(c)

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

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

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

The Bank recognizes the present service cost and the net interest of the Personnel wages and expenses on the 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.

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

Bulletin N°3634 – Risk weighted assets, credit risk and credit limits that apply to derivatives compensated and liquidated by a clearing house-On March 9, 2018, the SBIF published this bulletin with the main objective being that Banks could recognize their own risk mitigation effects for derivatives that are compensated and liquidated by a clearing house, introducing an intermediate category to classify the credit risk equivalent for these derivatives, the risk weight granted for these assets will be 2%.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 32

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

In order to determine the credit risk equivalent for these derivatives compensated and liquidated by a clearing house, the type of relatonship and residual time between the bank and clearing house will have to be taken in consideration, as well as the corresponding safeguards and guarantees.

Aditionally, the SBIF considers that the derivative operations negotiated by Banks constituted in Chile, including foreign bank branches, this limit is applicable to interbank loans, even when these operations are later compensated and liquidated in a clearing house.

These modifications are applicable from June 30, 2018 onwards. The administartion has carried out the necessary adjustments to comply with this requirement in time and form. No relevant sitautions exist that indicate the contrary.

Accounting Standards issued by the International Accounting Standards Board

IFRS 15, Income from contracts with clients - On May 28, 2014, the IASB published IFRS 15, which aims to establish principles for reporting useful information to users of financial information about the nature, amount, timing and uncertainty of The income and cash flows generated from an entity's contracts with its customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18 Income, IFRIC 13 Loyalty Programs with Customers, IFRIC 15 Real Estate Construction Agreements, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue - Exchange of Advertising Services.

On April 12, 2016, the IASB issued "Clarifications to IFRS 15 Revenue from contracts with customers", this amendments do not change the underlying principles of the standard, just clarify and offer some additional transition relief. The main topics addressed by this amendment comprise: Indentifying performance obligations, Principal versus agent cosniderations and licensing in addition to transition relief.

This standard was applicable from January 1, 2018, with early application permitted. Management performed a detailed review of items under the scope and its adaptation to the new five-step model of revenue recognition, and conclude that this standard did not have material impact on the Bank's financial statement.

Amendments to IFRS 2 Classification and measurement of share-based payment transactions – These amendments were published on June 20, 2016, to address issues with:

The accounting of share- based payment transactions paid in cash that include a performance condition

The classification of share-based transactions

Accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

This standard was applicable from January 1, 2018, with early application permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4:

an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the "overlay approach");

an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the "deferral approach").

An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

IFRIC 22 Foreign Currency Transactions and Advance Consideration – This interpretations issued on December 8, 2016, clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income. It does not apply when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair value of the consideration received or payed at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability. Also, the Interpretation need not be applied to income taxes, insurance contracts or reinsurance contracts.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 33

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

IFRIC 22 was effective for annual reporting periods beginning on or after 1 January 2018. Earlier application was permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.

Annual Improvement 2014-2016

IFRS 1 First time adoption of IFRS - Deletion of short-term exemptions for first-time adopters.

IAS 28 Investments in Associates and Joint Ventures - Measuring an associate or joint venture at fair value.

The amendments to IFRS 1 and IAS 28 were effective for annual periods beginning on or after 1 January 2018. Management concluded that this amendment did not have a material impact on the Bank's financial statement.

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 September 30, 2018

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 September 30, 2018. 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

Bulletin N°3638- Establishes the standard provision method for commercial loans on a group portfolio- On July 6, 2018, the SBIF published this bulletin that establishes standard methods that must be utilized by banks for credit risk provisions directed for commercial loans on a group portfolio which are incorporated in Chapter B-1 of the Compendium of Accouting Standards.

Method used for the Commericial Leasing Portfolio: considers as overdue the asset type the lease (real-estate or not) and the current value-to-value relation of the asset (LTV) of the operation.

Method used for the Student Portfolio: considers the type of loan granted (whether it is CAE or not), the required payment and amount overdue, in case the loan has these characteristics.

Method used for the Generic Commercial Portfolio: considers as overdue and the existence of real guarantees that warrant the loan. In case of mediated guarantees, the relation between the loan and real value of the collateral is considered.

The use of the standard method to generate the provisions credits in the group commercial portfolio, will be mandatory starting on July 1, 2019, while the accounting effects of first application must be considered as a change in an accounting response according to IAS 8 , and therefore accounted in profit or loss. The Administration is evaluating the potential impact for the adoption of this modification.

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.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 34

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

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.

Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) - Issued on September 11, 2014, the IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:

requires full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations);

requires the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors’ interests in that associate or joint venture.

On December 17, 2015 the IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded. The Administration will be waiting for the new validity to evaluate the potential effects of this modification.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 35

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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, with early application permitted if IFRS 15 "Customer Contract Revenue" is applied. The Administration is evaluating the potential impact of the adoption of these regulations.

IFRS 17 Insurance contracts – This standard issued on May 18, 2017 replaces the current IFRS 4. IFRS 17 will mainly change accounting for all entities that issue insurance contracts and investment contracts with discretionary participation characteristics. The standard applies to annual periods beginning on or after January 1, 2021, with early application permitted provided IFRS 15, "Revenue from contracts with customers" and IFRS 9, "Financial instruments" is applied. This norm does not apply directly to the bank, but, the Bank participates in the insurance business and will make sure that this norm is correctly applied.

IFRIC 23 Uncertainty over Income Tax Treatments – This standard issued on June 7, 2017, clarifies how the recognition and measurement requirements of IAS 12 apply when there is uncertainty about tax treatments. The standard applies to annual periods beginning on or after January 1, 2019, with early application permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

Amendments to IAS 28 long-term interest in Associates and Joint Ventures - This standard was issued in October 12, 2017 to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted.

Annual Improvements to IFRS Standards 2015–2017 Cycle

This annual improvements issued in December 12, 2017, containing the following amendments:

IFRS 3 Business Combination and IFRS 11 Joint Arrangements – The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interest in that business.

IAS 12 Income taxes – The amendments clarify that all income tax consequences of dividends should be recognized in profit or loss, regardless of how the tax arises.

IAS 23 Borrowing cost – The amendments clarify that if any specific borrowing remain outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.

The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

Amendments to IAS 19: Plan amendment, curtailment or settlement - The amendment was issued on February 7, 2018 and include the following changes:

If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.

In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted, but must be disclosed. The Bank’s management is evaluating if these amendments will have material impact on the Bank's consolidated financial statements.

Conceptual framework for financial reporting - Issued on March 29, 2018, the purpose of the Conceptual Framework is to:

(a) assist the International Accounting Standards Board to develop IFRS Standards that are based on consistent concepts;

(b) assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy; and

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 36

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Conceptual Framework is not a Standard and not overrides any Standard or any requirement in a Standard. The revised Conceptual framework introduces the following main improvements:

Measurement: concepts on measurement, including factors to be considered when selecting a measurement basis

Presentation and disclosure: concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income

Derecognition: guidance on when assets and liabilities are removed from financial statements

This framework is effective for periods beginning on or after January 1, 2020. The The Bank’s management is evaluating if this conceptual framework will have material impact on the Bank's consolidated financial statements.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 37

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 02

ACCOUNTING CHANGES

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 no quantitative effects, however new disclosure requirements must be adopted. See Note 1 and Note 25.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 38

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 03

SIGNIFICANT EVENTS

As of September 30, 2018, the following significant events have occurred and affected the Bank’s operations and Consolidated Interim Financial Statements.

The Board

During Banco Santader Chile’s ordinary board session held on February 27, 2018, the board agreed on the following matters:

–

Due to Vittorio Corbo Lioi’s resignation from the board, who acted as the board’s President, Claudio Melandri Hinojosa has been appointed as Banco Santader Chile’s new board President. For the time being, Claudio Melandri Hinojosa will act as Chief Executive Officer until Februrary 28, 2018 inclusive, in accordance with article 49 N°8 of the General Law of Banks.

–

Miguel Mata Huerta has been named Chief Executive Officer, starting on March 1, 2018.

During Banco Santader Chile’s ordinary board session held on March 27, 2018, the board agreed on the following matters:

–

Due to Roberto Méndez Torres and Roberto Zahler Mayanz resignation from the board, Félix de Vicente Mingo and Alfonso Gómez Morales have been appointed as independent directors in the board.

–

Orlando Poblete Iturrate has been named First Vicepresident and Oscar Von Chrismar Carvajal has been named Second Vice President.

–

A shareholder’s meeting has been summoned for April 24, 2018.

During Banco Santander-Chile’s ordinary board session held on April 24, 2018, Claudio Melandri Hinojosa has definitely been established as Board President. Alfonso Gómez Morales and José Félix de Vicente Mingo have also definitely been appointed as independent directors of the board.

During Banco Santander-Chile’s ordinary board session held on July 12, 2018, the board agreed on the following matters:

–

Due to the resignation of the substitute director Mr. Raimundo Monge Zegers, the board of directors has appointed Mr. Oscar Von Chrismar Carvajal, who previously held the position of director.

–

Mr. Rodrigo Vergara Montes has been appointed as independent director.

–

Mr. Rodrigo Vergara Montes has been appointed as First Vice President and Mr. Orlando Poblete Iturrate has been appointed as Second Vice President.

Use profit and Distribution of Dividends

During a ordinary board session held on April 24, 2018, together with approving the financial statements corresponding to the year 2017, it was agreed to distribute 75% of the Net Income generated during the period (which in the financial statements is reffered to as “Net Income Attributable to Equity holders of the Bank”), which amounted to Ch$564,815 million. This dividend is equivalent to Ch$2.24791611 per share. Likewise, it was approved that the remaining 25% of the net income be destined to increase the Bank's reserves.

External Auditor Appointment

During the board session mentioned previously, it was agreed to name PricewaterhouseCoopers LLC, as the Bank’s and Subsidiaries external auditor for the 2018 period.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 39

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 03

SIGNIFICANT EVENTS, continued

Issuance and repurchase of bank bonds – As of September 30, 2018

d.1)

Senior bonds

As of September 30, 2018, the bank has placed senior bonds for 66,000,000 EUR, 115,000,000 CHF, and 4,000,000 JPY. The detail for this bond placement is included in Note 16.

Series	Currency	Original Term	Anual Rate Yearly			Placement Date	Amount		Expiration Date

EUR	EUR	7.0 years		1.00	%	05-04-2018		26,000,000	05-28-2025
EUR	EUR	12.0 years		1.78	%	06-08-2018		40,000,000	06-15-2030

Total	EUR							66,000,000
CHF	CHF	5 years & 3 months		0.441	%	09-21-2018		115,000,000	12-21-2023

Total	CHF							115,000,000

JPY	JPY	10 years & 6 months		0.65	%	07-13-2018		4,000,000,000	01-13-2029

Total	JPY							4,000,000,000

d.2)

Subordinated bonds

As of September 30, 2018, the Bank has not issued subordinated bonds.

d.3)

Mortgage bonds

As of September 30, 2018, the Bank has not issued mortgage bonds.

d.4)

Repurchased bonds

During 2018 the Bank has repurchased the following bonds:

Date	Type	Currency	Amount
01-04-2018	Senior	CLP		12,890,000,000
01-05-2018	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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 40

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018. Regarding the information corresponding to the year 2017, 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 September 2018 / Banco Santander-Chile 41

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and 2017:

	September 30, 2018
	(Unaudited)
	Loans and
	accounts
	receivable						Financial
	from				Net fee and		transactions,		Provision			Support			Segment’s
	customers		Net interest		commission		net		for loan			expenses			net
	(1)		income		income		(2)		losses			(3)			contribution
	MCh$		MCh$		MCh$		MCh$		MCh$			MCh$			MCh$
Segment
Retail Banking		20,187,324		708,616		165,375		14,826		(208,663	)		(410,417	)		269,737
Middle-market		7,613,641		201,095		27,448		11,350		(17,998	)		(68,331	)		153,564
Commercial Banking		27,800,965		909,711		192,823		26,176		(226,661	)		(478,748	)		423,301

Global Corporate Banking		2,028,092		72,732		27,693		35,649		226			(48,493	)		87,807
Other		143,462		74,324		2,931		7,487		(25,367	)		(11,269	)		48,106
Total		29,972,519		1,056,767		223,447		69,312		(251,802	)		(538,510	)		559,214
Other operating income																28,757
Other operating expenses																(32,305	)
Income from investments in associates and other companies																5,223
Income tax expense																(123,761	)
Net income for the period																437,128

(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.

	September 30, 2017
	(Unaudited)
	Loans and
	accounts							Financial
	receivable from					Net fee and		transactions,					Support			Segment`s
	customers		Net interest			commission		net		Provision for			expenses			net
	(1)		income			income		(2)		loan losses			(3)			contribution
	MCh$		MCh$			MCh$		MCh$		MCh$			MCh$			MCh$
Segment
Retail Banking		18,888,640		731,791			155,186		14,743		(212,175	)		(398,444	)		291,101
Middle-market		6,616,905		196,889			27,263		10,537		(13,803	)		(68,642	)		152,244
Commercial Banking		25,505,545		928,680			182,449		25,280		(225,978	)		(467,086	)		443,345

Global Corporate Banking		2,068,780		74,519			22,103		42,664		2,352			(44,671	)		96,967
Other		187,260		(23,009	)		8,211		43,634		1,226			(10,492	)		19,570
Total		27,761,585		980,190			212,763		111,578		(222,400	)		(522,249	)		559,882
Other operating income																	67,939
Other operating expenses																	(78,315	)
Income from investments in associates and other companies																	2,954
Income tax expense																	(105,622	)
Net income for the period																	446,838

(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 September 2018 / Banco Santander-Chile 42

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 05

CASH AND CASH EQUIVALENTS

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

	As of		As of
	September 30,		December 31,
	2018		2017
	(Unaudited)
	MCh$		MCh$
Cash and deposits in banks
Cash		691,614		613,361
Deposits in the Central Bank of Chile		728,390		441,683
Deposits in domestic banks		142		393
Deposits in foreign banks		359,933		397,485
Subtotal		1,780,079		1,452,922

Cash in process of collection, net		108,877		181,419

Cash and cash equivalents		1,888,956		1,634,341

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		As of
	September 30,		December 31,
	2018		2017
	(Unaudited)
	MCh$		MCh$
Assets
Documents held by other banks (document to be cleared)		180,004		199,619
Funds receivable		384,241		468,526
Subtotal		564,245		668.145
Liabilities
Funds payable		455,368		486,726
Subtotal		455,368		486,726

Cash in process of collection, net		108,877		181.419

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 43

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 06

TRADING INVESTMENTS

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

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Chilean Central Bank and Government securities
Chilean Central Bank Bonds		94,117		272.272
Chilean Central Bank Notes		-		-
Other Chilean Central Bank and Government securities		150,261		209.370
Subtotal		244,378		481,642
Other Chilean securities
Time deposits in Chilean financial institutions		-		-
Mortgage finance bonds of Chilean financial institutions		-		-
Chilean financial institutions bonds		-		-
Chilean corporate bonds		6,535		-
Other Chilean securities		18,741		-
Subtotal		25,276		-
Foreign financial securities
Foreign Central Banks and Government securities		93,075		-
Other foreign financial instruments		22,917		-
Subtotal		155,992		-
Investments in mutual funds
Funds managed by related entities		6,367		4,094
Funds managed by third parties		-		-
Subtotal		6,367		4,094

Total		392,013		485,736

As of September 30, 2018 and December 31, 2017, there were no trading investments sold under contracts to resell to clients and financial institutions.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 44

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of September 30, 2018 and December 31, 2017, the Bank holds the following portfolio of derivative instruments:

	As of September 30, 2018
	(Unaudited)
	Notional amount								Fair value
			More than 3
	Up to 3		months to		More than
	Months		1 year		1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Fair value hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		30,000		504,000		1,170,641		1,704,641		14,785		1,993
Cross currency swaps		16,187		995,451		5,892,961		6,904,599		38,838		69,743
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		46,187		1,499,451		7,063,602		8,609,240		53,623		71,736

Cash flow hedge derivatives
Currency forwards		446,525		366,874		-		813,399		3,109		3,411
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		1,295,968		2,764,142		8,803,400		12,863,510		21,708		96,635
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		1,742,493		3,131,016		8,803,400		13,676,909		24,817		100,046

Trading derivatives
Currency forwards		14,883,107		13,339,535		5,393,087		33,615,729		416,806		297,196
Interest rate swaps		6,380,009		19,027,598		62,132,142		87,539,749		701,834		546,263
Cross currency swaps		3,608,293		5,555,915		60,781,883		69,946,091		1,030,304		1,067,055
Call currency options		52,101		51,593		53,479		157,173		2,831		1,830
Call interest rate options		-		-		-		-		-		-
Put currency options		87,502		49,213		53,479		190,194		233		2,406
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		25,011,012		38,023,854		128,414,070		191,448,936		2,152,008		1,914,750

Total		26,799,692		42,654,321		144,281,072		213,735,085		2,230,448		2,086,532

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 45

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	As of December 31, 2017
	Notional amount								Fair value
			More than 3
	Up to 3		months to		More than
	months		1 year		1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Fair value hedge derivatives
Currency forwards		-		-		-		-		-		-
Interest rate swaps		-		162,985		1,554,171		1,717,156		23,003		1,424
Cross currency swaps		-		715,701		5,362,772		6,078,473		15,085		65,724
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		-		878,686		6,916,943		7,795,629		38,088		67,148

Cash flow hedge derivatives
Currency forwards		801,093		218,982		-		1,020,075		39,233		59
Interest rate swaps		-		-		-		-		-		-
Cross currency swaps		421,428		1,637,604		6,672,566		8,731,598		36,403		128,355
Call currency options		-		-		-		-		-		-
Call interest rate options		-		-		-		-		-		-
Put currency options		-		-		-		-		-		-
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		1,222,521		1,856,586		6,672,566		9,751,673		75,636		128,414

Trading derivatives
Currency forwards		17,976,683		10,679,327		3,091,393		31,747,403		412,994		502,555
Interest rate swaps		9,069,964		14,389,389		46,342,779		69,802,132		467,188		392,366
Cross currency swaps		2,963,641		7,503,144		47,111,371		57,578,156		1,241,632		1,042,120
Call currency options		190,386		37,099		49,853		277,338		1,322		1,950
Call interest rate options		-		-		-		-		-		-
Put currency options		192,722		28,616		50,470		271,808		1,787		4,935
Put interest rate options		-		-		-		-		-		-
Interest rate futures		-		-		-		-		-		-
Other derivatives		-		-		-		-		-		-
Subtotal		30,393,396		32,637,575		96,645,866		159,676,837		2,124,923		1,943,926

Total		31,615,917		35,372,847		110,235,375		177,224,139		2,238,647		2,139,488

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 September 2018 / Banco Santander-Chile 46

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

The hedged items and hedge instruments under fair value hedges as of September 30, 2018 and December 31, 2017, classified by term to maturity are as follows:

			Between 1 and 3		Between 3 and 6
As of September 30, 2018	Within 1 year		years		years		Over 6 years		Total
(Unaudited)	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Credits and accounts receivable from customers
Mortgage loan		431,730		1,020,056		165,732		-		1,617,518
Available for sale investments
Yankee bond		-		-		-		161,956		161,956
Mortgage finance bonds		-		-		4,026		-		4,026
American treasury bonds		-		-		-		164,185		164,185
Chilean General treasury bonds		-		439,492		-		339,040		778,532
Central bank bonds (BCP)		16,187		448,000		-		-		464,187
Time deposits and other demand liabilities
Time deposits		447,788		-		-		-		447,788
Issued debt instruments
Senior bonds		649,933		1,085,934		1,140,126		2,095,055		4,971,048
Subordinated bonds		-		-		-		-		-
Obligations with Banks:
Interbank loans		-		-		-		-		-
Total		1,545,638		2,993,482		1,309,884		2,760,236		8,609,240
Hedging instrument
Cross currency swaps		1,011,638		2,668,482		934,884		2,289,595		6,904,599
Interest rate swaps		534,000		325,000		375,000		470,641		1,704,641
Total		1,545,638		2,993,482		1,309,884		2,760,236		8,609,240

			Between 1 and 3		Between 3 and 6
	Within 1 year		years		years		Over 6 years		Total
As of December 31, 2017	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Credits and accounts receivable from customers
Mortgage loan		587,412		801,230		106,910		-		1,495,552
Available for sale investments
Yankee bonds		-		-		6,169		64,769		70,938
Mortgage financing bonds		-		-		4,738		-		4,738
American treasury bonds		-		-		-		129,539		129,539
Chilean General treasury bonds		-		21,377		762,727		-		784,104
Central bank bonds (BCP)		128,289		218,640		443,357		-		790,286
Time deposits and other demand liabilities
Time deposits		137,985		-		-		-		137,985
Issued debt instruments
Senior bonds		25,000		1,399,686		670,488		2,287,313		4,382,487
Subordinated bonds		-		-		-		-		-
Obligations with Banks:
Interbank loans		-		-		-		-		-
Total		878,686		2,440,933		1,994,389		2,481,621		7,795,629
Hedging instrument
Cross currency swaps		715,701		1,512,238		1,813,221		2,037,313		6,078,473
Interest rate swaps		162,985		928,695		181,168		444,308		1,717,156
Total		878,686		2,440,933		1,994,389		2,481,621		7,795,629

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 47

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and December 31, 2017, and the periods when the cash flows will be generated are as follows:

			Between 1 and 3		Between 3 and 6
As of September 30, 2018	Within 1 year		years		years		Over 6 years		Total
(Unaudited)	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivables from customers
Mortgage loan		2,718,198		2,657,949		1,800,858		2,233,783		9,410,788
Commercial loans		304,135		-		-		-		304,135
Available for sale investments
Time deposits (ASI)		-		-		-		-		-
Yankee bond		-		-		245,359		-		245,359
Chilean Central Bank bonds		-		-		165,992		-		165,992
Time deposits and other time liabilities
Time deposits		-		-		-		-		-
Issued debt instruments
Senior bonds (variable rate)		344,875		370,621		273,923		-		989,419
Senior bonds (fixed rate)		834,472		94,151		535,275		425,489		1,889,387
Interbank borrowings
Interbank loans		671,829		-		-		-		671,829
Total		4,873,509		3,122,721		3,021,407		2,659,272		13,676,909
Hedging instrument
Cross currency swaps		4,060,110		3,122,721		3,021,407		2,659,272		12,863,510
Currency forwards		813,399		-		-		-		813,399
Total		4,873,509		3,122,721		3,021,407		2,659,272		13,676,909

			Between 1 and 3		Between 3 and 6
	Within 1 year		years		years		Over 6 years		Total
As of December 31, 2017	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivables from customers
Mortgage loan		1,153,348		583,061		1,335,141		2,353,871		5,425,421
Commercial loans		644,608		-		-		-		644,608
Available for sale investments
Time deposits (ASI)		-		-		25,290		132,572		157,862
Yankee bond		-		-		242,819		-		242,819
Chilean Central Bank bonds		-		-		-		-		-
Time deposits and other time liabilities
Time deposits		-		-		-		-		-
Issued debt instruments
Senior bonds (variable rate)		120,520		647,550		302,454		-		1,070,524
Senior bonds (fixed rate)		241,183		121,619		224,401		300,874		888,077
Interbank borrowings
Interbank loans		919,448		402,914		-		-		1,322,362
Total		3,079,107		1,755,144		2,130,105		2,787,317		9,751,673
Hedging instrument
Cross currency swaps		2,059,032		1,755,144		2,130,105		2,787,317		8,731,598
Currency forwards		1,020,075		-		-		-		1,020,075
Total		3,079,107		1,755,144		2,130,105		2,787,317		9,751,673

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 48

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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			Between 1 and 3			Between 3 and 6
As of September 30, 2018	year			years			years			Over 6 years			Total
(Unaudited)	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			Between 1 and 3			Between 3 and 6
	year			years			years			Over 6 years			Total
As of December 31, 2017	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		308,737			60,515			13,780			2,594			385,626
Outflows		(60,733	)		(43,507	)		(7,757	)		(878	)		(112,875	)
Net flows		248,004			17,008			6,023			1,716			272,751

Hedging instrument
Inflows		60,733			43,507			7,757			878			112,875
Outflows (*)		(308,737	)		(60,515	)		(13,780	)		(2,594	)		(385,626	)
Net flows		(248,004	)		(17,008	)		(6,023	)		(1,716	)		(272,751	)

(*)

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			Between 1 and 3			Between 3 and 6
As of September 30, 2018	year			years			years			Over 6 years			Total
(Unaudited)	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		69,820			91,807			166,291			318,474			646,392
Outflows		(239,263	)		-			-			-			(239,263	)
Net flows		(169,443	)		91,807			166,291			318,474			407,129

Hedging instrument
Inflows		239,263			-			-			-			239,263
Outflows		(69,820	)		(91,807	)		(166,291	)		(318,474	)		(646,392	)
Net flows		169,443			(91,807	)		(166,291	)		(318,474	)		(407,129	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 49

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

	Within 1			Between 1 and 3			Between 3 and 6
	year			years			years			Over 6 years			Total
As of December 31, 2017	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		20,300			29,008			103,544			286,471			439,323
Outflows		(1,645	)		-			-			-			(1,645	)
Net flows		18,655			29,008			103,544			286,471			437,678

Hedging instrument
Inflows		1,645			-			-			-			1,645
Outflows		(20,300	)		(29,008	)		(103,544	)		(286,471	)		(439,323	)
Net flows		(18,655	)		(29,008	)		(103,544	)		(286,471	)		(437,678	)

b.3)

Forecasted cash flows for exchange rate risk:

As of September 30, 2018 and December 31, 2017, 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 September 30, 2018 and December 31, 2017, and is as follows:

	As of September 30,
	(Unaudited)
	2018			2017
Hedged item	MCh$			MCh$

Interbank loans		(3,344	)		(4,824	)
Time deposits and other time liabilities		-			-
Issued debt instruments		(9,908	)		(9,565	)
Available for sale investments		(4,152	)		1,035
Loans and accounts receivable from customers		(29,844	)		6,349
Net flows		(47,248	)		(7,005	)

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 September 30, 2018 and 2017 due to inneficiencies Ch$481 million and Ch$2,579 million were transferred to profit/loss respectively.

During the period, 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 September 30,
	(Unaudited)
	2018			2017
	MCh$			MCh$

Bond hedging derivatives		-			111
Interbank loans hedging derivatives		(356	)		-

Cash flow hedge net income		(356	)		111

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 50

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

Net investment hedges in foreign operations:

As of September 30, 2018 and December 31, 2017, the Bank does not have any net foreign investment hedges in its hedge accounting portfolio.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 51

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 08

INTERBANK LOANS

As of September 30, 2018 and December 31, 2017, the balances for “Interbank loans” are as follows:

	As of			As of
	September 30,			December 31,
	2018			2017
	(Unaudited)
	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		-			-
Allowances and impairment for domestic bank loans		-			-
Foreign interbank loans
Interbank loans – Foreign		14,335			162,685
Overdrafts in checking accounts		-			-
Non-transferable foreign bank deposits		-			-
Other foreign bank loans		-			-
Provisions and impairment for foreign bank loans		(28	)		(86	)

Total		14,307			162,599

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

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	Domestic		Foreign						Domestic			Foreign
	banks		banks			Total			banks			banks			Total
	MCh$		MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of January 1		-		86			86			-			172			172
Charge-offs		-		-			-			-			-			-
Provisions established		-		43			43			251			56			307
Provisions released		-		(101	)		(101	)		(251	)		(142	)		(393	)

Total		-		28			28			-			86			86

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 52

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

Loans and accounts receivable from customers

As of September 30, 2018 and December 31, 2017, the composition of the loan portfolio is as follows:

	Assets before allowances								Established Allowances
					Non-										Assets
	Normal		Substandard		compliance				Individual		Group				Net
As of September 30, 2018	portfolio		portfolio		portfolio		Total		allowances		allowances		Total		Balances
(Unaudited)	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Commercial loans
Commercial loans		10,091,216		494,283		657,206		11,242,705		159,225		175,242		334,467		10,908,238
Foreign trade loans		1,715,786		36,751		47,544		1,800,081		46,738		1,568		48,306		1,751,775
Checking accounts debtors		202,297		10,058		16,025		228,380		4,101		12,798		16,899		211,481
Factoring transactions		453,842		4,893		5,118		463,853		5,710		901		6,611		457,242
Student Loans		72,472		-		11,202		83,674		-		6,111		6,111		77,563
Leasing transactions		1,256,617		127,310		92,327		1,476,254		18,511		11,063		29,574		1,446,680
Other loans and account receivable		120,518		2,246		38,539		161,303		12,891		18,677		31,568		129,735
Subtotal		13,912,748		675,541		867,961		15,456,250		247,176		226,360		473,536		14,982,714

Mortgage loans
Loans with mortgage finance bonds		17,681		-		1,305		18,986		-		119		119		18,867
Mortgage mutual loans		106,036		-		4,370		110,406		-		548		548		109,858
Other mortgage mutual loans		9,217,898		-		470,301		9,688,199		-		65,637		65,637		9,622,562
Subtotal		9,341,615		-		475,976		9,817,591		-		66,304		66,304		9,751,287

Consumer loans
Installment consumer loans		2,825,020		-		257,609		3,082,629		-		228,704		228,704		2,853,925
Credit card balances		1,313,250		-		18,916		1,332,166		-		27,533		27,533		1,304,633
Leasing transactions		4,106		-		47		4,153		-		51		51		4,102
Other consumer loans		260,853		-		4,542		265,395		-		8,729		8,729		256,666
Subtotal		4,403,229		-		281,114		4,684,343		-		265,017		265,017		4,419,326

Total		27,657,592		675,541		1,625,051		29,958,184		247,176		557,681		804,857		29,153,327

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 53

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

	Assets before allowances								Established Allowances
					Non-										Assets
	Normal		Substandar		compliance				Individual		Group				Net
	portfolio		portfolio		portfolio		Total		allowances		allowances		Total		Balances
As of December 31, 2017	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Commercial loans
Commercial loans		8,998,957		369,830		621,869		9,990,656		148,482		168,736		317,218		9,673,438
Foreign trade loans		1,464,754		44,830		64,929		1,574,513		54,628		1,444		56,072		1,518,441
Checking accounts debtors		174,162		6,189		15,345		195,696		3,037		11,740		14,777		180,919
Factoring transactions		441,437		3,279		5,174		449,890		5,335		1,207		6,542		443,348
Student Loans		77,226		-		11,064		88,290		-		5,922		5,922		82,368
Leasing transactions		1,242,713		113,629		100,662		1,457,004		19,532		12,793		32,325		1,424,679
Other loans and account receivable		113,672		1,318		37,603		152,593		12,778		17,231		30,009		122,584
Subtotal		12,512,921		539,075		856,646		13,908,642		243,792		219,073		462,865		13,445,777

Mortgage loans
Loans with mortgage finance bonds		22,620		-		1,440		24,060		-		123		123		23,937
Mortgage mutual loans		110,659		-		4,419		115,078		-		594		594		114,484
Other mortgage mutual loans		8,501,072		-		456,685		8,957,757		-		68,349		68,349		8,889,408
Subtotal		8,634,351		-		462,544		9,096,895		-		69,066		69,066		9,027,829

Consumer loans
Installment consumer loans		2,613,041		-		297,701		2,910,742		-		240,962		240,962		2,669,780
Credit card balances		1,341,098		-		23,882		1,364,980		-		33,401		33,401		1,331,579
Leasing transactions		4,638		-		77		4,715		-		62		62		4,653
Other consumer loans		271,790		-		5,465		277,255		-		9,331		9,331		267,924
Subtotal		4,230,567		-		327,125		4,557,692		-		283,756		283,756		4,273,936

Total		25,377,839		539,075		1,646,315		27,563,229		243,792		571,895		815,687		26,747,542

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 54

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio characteristics

As of September 30, 2018 and December 31, 2017, the portfolio before allowances is as follows, by customer’s economic activity:

	Domestic loans				Foreign interbank loans (*)				Total loans				Distribution percentage
	As of		As of		As of		As of		As of		As of		As of		As of
	September		December		September 30		December		September		December		September		December
	30		31				31		30		31		30		31
	2018		2017		2018		2017		2018		2017		2018		2017
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		%		%
Commercial loans
Manufacturing		1,109,959		1,218,232		-		-		1,109,959		1,218,232		3.70		4.39
Mining		206,728		302,037		-		-		206,728		302,037		0.69		1.09
Electricity, gas,		540,425		336,048		-		-		540,425		336,048		1.80		1.21
and water

Agriculture and		1,188,934		1,114,597		-		-		1,188,934		1,114,597		3.97		4.02
livestock

Forest		122,454		98,941		-		-		122,454		98,941		0.41		0.36
Fishing		273,269		215,994		-		-		273,269		215,994		0.91		0.78
Transport		904,955		697,948		-		-		904,955		697,948		3.02		2.52
Communications		230,401		168,744		-		-		230,401		168,744		0.77		0.61
Construction		876,018		1,977,417		-		-		876,018		1,977,417		2.92		7.13
Commerce		3,303,271		3,131,870		14,335		162,685		3,317,606		3,294,555		11.07		11.88
Services		1,815,118		467,747		-		-		1,815,118		467,747		6.06		1.69
Other		4,884,718		4,179,067		-		-		4,884,718		4,179,067		16.30		15.07

Subtotal		15,456,250		13,908,642		14,335		162,685		15,470,585		14,071,327		51.62		50.75

Mortgage loans		9,817,591		9,096,895		-		-		9,817,591		9,096,895		32.76		32.81

Consumer loans		4,684,343		4,557,692		-		-		4,684,343		4,557,692		15.62		16.43

Total		29,958,184		27,563,229		14,335		162,685		29,972,519		27,725,914		100.0		100.00

(*)

Includes foreign interbank loans for Ch$14,335 million as of September 30, 2018 (Ch$162,685 million as of December 31, 2017), see Note 8.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 55

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Interim Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Impaired portfolio (*)

As of September 30, 2018 and December 31, 2017, the impaired portfolio is the following:

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Individually impaired portfolio		424,062		-		-		424,062		427,890		-		-		427,890

Non-performing loans (collectively evaluated)		404,349		165,547		91,469		661,365		368,522		161,768		103,171		633,461

Other impaired portfolio		210,504		310,429		189,645		710,578		217,091		300,776		223,954		741,821
Total		1,038,915		475,976		281,114		1,796,005		1,013,503		462,544		327,125		1,803,172

(*)

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 September 30, 2018 and December 31, 2017 is the following:

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		599,431		430,696		31,586		1,061,713		582,557		413,716		34,260		1,030,533
Unsecured debt		439,484		45,280		249,528		734,292		430,946		48,828		292,865		772,639
Total		1,038,915		475,976		281,114		1,796,005		1,013,503		462,544		327,125		1,803,172

iii) The portfolio of non-performing loans (due for 90 days or longer) as of September 30, 2018 and December 31, 2017 is the following:

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	Commercial		Mortgage		Consumer		Total		Commercial		Mortgage		Consumer		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Secured debt		189,382		149,582		8,761		347,725		167,909		141,413		8,896		318,218
Unsecured debt		214,967		15,965		82,708		313,640		200,613		20,355		94,275		315,243
Total		404,349		165,547		91,469		661,365		368,522		161,768		103,171		633,461

iv)

Reconciliation of loans (with arrears equal to or greater than 90 days), with past due loans as of September 30, 2018 and December 31, 2017, is the following:

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	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		402,688		162,376		88,752		653,816		362,968		159,265		92,541		614,774
With defaults up to 89 days, classified in past due portfolio		1,661		3,171		2,717		7,549		5,554		2,503		10,630		18,687
Total		404,349		165,547		91,469		661,365		368,522		161,768		103,171		633,461

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 56

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Allowances

The changes in allowances balances during 2018 and 2017 is the following:

	Commercial						Mortgage			Consumer
	loans						loans			loans
Activity as of September 30, 2018	Individual			Group			Group			Group			Total
(Unaudited)	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of January 01, 2018		243,792			219,073			69,066			283,756			815,687

Allowances established		49,882			64,624			11,969			145,175			271,650
Allowances released		(23,147	)		(6,556	)		(5,471	)		(31,521	)		(66,695	)
Allowances released due to charge-off		(23,351	)		(50,781	)		(9,260	)		(132,393	)		(215,785	)
Balance as of September 30, 2018		247,176			226,360			66,304			265,017			804,857

	Commercial						Mortgage			Consumer
	loans						loans			loans
	Individual			Group			Group			Group			Total
Activity as of December 31, 2017	MCh$			MCh$			MCh$			MCh$			MCh$

Balance as of January 01, 2017		275,973			183,106			61,041			300,019			820,139

Allowances established		60,023			99,407			22,163			157,595			339,188
Allowances released		(55,925	)		(20,491	)		(11,426	)		(46,089	)		(133,932	)
Allowances released due to charge-off		(36,279	)		(42,949	)		(2,712	)		(127,769	)		(209,708	)
Balance as of December 31, 2017		243,792			219,073			69,066			283,756			815,687

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 September 30, 2018 and December 31, 2017 are Ch$680 million and Ch$599 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 September 30, 2018 and December 31, 2017 are Ch$15,511 million and Ch$15,103 million, respectively, and are presented as “Allowances” in the liabilities section of the “Consolidated Interim Statement of Financial Position”.

Allowances established

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

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Customers loans		271,650		339,188
Interbank loans		43		307

Total		271,693		339,495

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 57

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio by its impaired and non-impaired condition

	As of September 30, 2018
	(Unaudited)
	Non-impaired												Impaired												Total portfolio
										Total non-												Total												Total
	Commercial			Mortgage			Consumer			impaired			Commercial			Mortgage			Consumer			impaired			Commercial			Mortgage			Consumer			portfolio
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Current portfolio		14,192,984			9,023,294			4,162,202			27,378,480			436,198			149,937			92,658			678,793			14,629,182			9,173,231			4,254,860			28,057,273
Overdue for 1-29 days		156,077			215,591			149,459			521,127			97,745			85,514			37,950			221,209			253,822			301,105			187,409			742,336
Overdue for 30-89 days		68,274			102,730			91,568			262,572			102,284			78,149			61,754			242,187			170,558			180,879			153,322			504,759
Overdue for 90 days or more		-			-			-			-			402,688			162,376			88,752			653,816			402,688			162,376			88,752			653,816

Total portfolio before allowances		14,417,335			9,3\41,615			4,403,229			28,162,179			1,038,915			475,976			281,114			1,796,005			15,456,250			9,817,591			4,684,343			29,958,184

Overdue loans (less than 90 days) presented as portfolio percentage		1.56	%		3.41	%		5.47	%		2.78	%		19.25	%		34.38	%		35.47	%		25.80	%		2.75	%		4.91	%		7.27	%		4.16	%

Overdue loans (90 days or more) presented as portfolio percentage		0.00	%		0.00	%		0.00	%		0.00	%		38.76	%		34.11	%		31.57	%		36.40	%		2.61	%		1.65	%		1.89	%		2.18	%

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 58

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued

Portfolio by its impaired and non-impaired condition, continued

	As of December 31, 2017
	Non-impaired												Impaired												Total portfolio
										Total non-												Total												Total
	Commercial			Mortgage			Consumer			impaired			Commercial			Mortgage			Consumer			impaired			Commercial			Mortgage			Consumer			portfolio
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Current portfolio		12,737,508			8,357,733			4,012,489			25,107,730			449,895			158,770			110,184			718,849			13,187,403			8,516,503			4,122,673			25,826,579
Overdue for 1-29 days		103,908			180,294			132,136			416,338			110,834			74,072			46,283			231,189			214,742			254,366			178,419			647,527
Overdue for 30-89 days		53,723			96,324			85,941			235,988			89,806			70,437			78,118			238,361			143,529			166,761			164,059			474,349
Overdue for 90 days or more		-			-			-			-			362,968			159,265			92,541			614,774			362,968			159,265			92,541			614,774

Total portfolio before allowances		12,895,139			8,634,351			4,230,566			25,760,056			1,013,503			462,544			327,126			1,803,173			13,908,642			9,096,895			4,557,692			27,563,229

Overdue loans (less than 90 days) presented as portfolio percentage		1.22	%		3.20	%		5.15	%		2.53	%		19.80	%		31.24	%		38.03	%		26.04	%		2.58	%		4.63	%		7.51	%		4.07	%

Overdue loans (90 days or more) presented as portfolio percentage		-			-			-			-			35.81	%		34.43	%		28.29	%		34.09	%		2.61	%		1.75	%		2.03	%		2.23	%

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 59

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 10

AVAILABLE FOR SALE INVESTMENTS

As of September 30, 2018 and December 31, 2017, details of instruments defined as available for sale investments are as follows:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Chilean Central Bank and Government securities
Chilean Central Bank Bonds		558,443		816,331
Chilean Central Bank Notes		274,394		330,952
Other Chilean Central Bank and Government securities		1,346,753		1,115,518
Subtotal		2,179,590		2,262,801
Other Chilean securities
Time deposits in Chilean financial institutions		1,376		2,361
Mortgage finance bonds of Chilean financial institutions		19,980		22,312
Chilean financial institution bonds		-		-
Chilean corporate bonds		-		-
Other Chilean securities		3,000		3,000
Subtotal		24,356		27,673
Foreign financial securities
Foreign Central Banks and Government securities		135,381		132,822
Other foreign financial securities		156,296		151,250
Subtotal		291,677		284,072

Total		2,495,623		2,574,546

As of September 30, 2018 and December 31, 2017, the item Chilean Central Bank and Government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$117,314 million and Ch$241,995 million, respectively. 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 September 30, 2018 and December 31 of 2017.

As of September 30, 2018 and December 31, 2017, the item Other Chilean Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$0 and Ch$1,156 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 September 30, 2018 and December 31, 2017. 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 September 30, 2018 and December 31, 2017. 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 September 30, 2018 and December 31, 2017.

As of September 30, 2018 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, 2017 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 September 2018 / Banco Santander-Chile 60

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 11

INTANGIBLE ASSETS

As of September 30, 2018 and December 31, 2017 the composition of intangible assets is as follows:

					As of September 30, 2018
					(Unaudited)
			Net opening
	Years of	Average	balance as of					Accumulated
	useful	remaining	January 1, 2018		Gross balance			amortization			Net balance
	life	useful life	MCh$		MCh$			MCh$			MCh$

Licenses	3	1		1,200		10,932			(9,899	)		1,033
Software development	3	2		62,019		328,450			(269,735	)		58,715

Subtotal				63,219		339,382			(279,634	)		59,748
Fully amortized assets				-		(200,774	)		200,774			-
Total				63,219		138,608			(78,860	)		59,748

					As of December 31, 2017
			Net opening
	Years of	Average	balance as of					Accumulated
	useful	remaining	January 1, 2017		Gross balance			amortization			Net balance
	life	useful life	MCh$		MCh$			MCh$			MCh$

Licenses	3	2		1,656		10,932			(9,732	)		1,200
Software development	3	2		56,429		314,115			(252,096	)		62,019

Subtotal				58,085		325,047			(261,828	)		63,219
Fully amortized assets				-		(200,774	)		200,774			-
Total				58,085		124,273			(61,054	)		63,219

The changes in the value of intangible assets during the periods of September 30, 2018 and December 31, 2017 is as follows:

b.1)

Gross balance

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

Balances as of January 1, 2018		10,932		314,115			(200,774	)		124,273
Acquisitions		-		15,138			-			15,138
Disposals and impairment (*)		-		(651	)		-			(651	)
Other		-		(152	)		-			(152	)
Balances as of September 30, 2018 (Unaudited)		10,932		328,450			(200,774	)		138,608

Balances as of January 1, 2017		10,932		286,781			(200,774	)		96,939
Acquisitions		-		32,624			-			32,624
Disposals and impairment		-		(5,290	)		-			(5,290	)
Other		-		-			-			-
Balances as of December 31, 2017		10,932		314,115			(200,774	)		124,273

(*)

See Note 31 a).

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 61

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 11

INTANGIBLE ASSETS, continued

b.2)

Accumulated amortization

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

Balances as of January 1, 2018		(9,732	)		(252,096	)		200,774		(61,054	)
Amortization for the period		(112	)		(11,919	)		-		(12,031	)
Other changes		-			-			-		-
Balances as of September 30, 2018 (Unaudited)		(9,844	)		(264,015	)		200,774		(73,085	)

Balances as of January 1, 2017		(9.276	)		(230.352	)		200.774		(38.854	)
Amortization for the period		(456	)		(21.744	)		-		(22.200	)
Other changes		-			-			-		-
Balances as of December 31, 2017		(9.732	)		(252.096	)		200.774		(61.054	)

The Bank has no restriction on intangible assets as of September 30, 2018 and December 31, 2017. 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 September 2018 / Banco Santander-Chile 62

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 12

PROPERTY, PLANT AND EQUIPMENT

As of September 30, 2018 and December 31, 2017 the property, plant and equipment balances is as follows:

			As of September 30, 2018
			(Unaudited)
	Net opening
	balance as of		Gross			Accumulated			Net
	January 1, 2018		balance			depreciation			balance
	MCh$		MCh$			MCh$			MCh$

Land and building		159,352		296,860			(128,120	)		168,740
Equipment		63,516		205,403			(151,139	)		54,264
Ceded under operating leases		4,221		4,888			(667	)		4,221
Other		15,458		63,684			(50,907	)		12,777
Subtotal		242,547		570,835			(330,833	)		240,002
Fully depreciated assets		-		(65,159	)		65,159			-
Total		242,547		505,676			(265,674	)		240,002

			As of December 31, 2017
	Net opening
	balance as of		Gross			Accumulated			Net
	January 1, 2017		balance			depreciation			balance
	MCh$		MCh$			MCh$			MCh$

Land and building		169,809		274,079			(114,727	)		159,352
Equipment		66,506		193,689			(130,173	)		63,516
Ceded under operating leases		4,230		4,888			(667	)		4,221
Other		16,834		60,822			(45,364	)		15,458
Subtotal		257,379		533,478			(290,931	)		242,547
Fully depreciated assets		-		(59,045	)		59,045			-
Total		257,379		474,433			(231,886	)		242,547

The changes in the value of property, plant and equipment as of September 30, 2018 and December 31, 2017 is the following:

b.1)

Gross balance

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

Balances as of January 1, 2018		274,079		193,689			4,888		60,822			(59,045	)		474,433
Additions		22,781		11,876			-		2,896			-			37,553
Disposals		-		(123	)		-		(34	)		-			(157	)
Impairment due to damage (*)		-		(39	)		-		-			-			(39	)
Other		-		-			-		-			(6,114	)		(6,114	)
Balances as of September 30, 2018 (Unaudited)		296,860		205,403			4,888		63,684			(65,159	)		505,676

(*)

Banco Santander-Chile has recognized for September 30, 2017 impairment for Ch$39 million due to looting in ATM’s.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 63

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 12

PROPERTY, PLANT AND EQUIPMENT, continued

												Fully
	Land and						Operating					depreciated
	buildings			Equipment			leases		Other			assets			Total
2017	MCh$			MCh$			MCh$		MCh$			MCh$			MCh$

Balances as of January 1, 2017		264,016			168,124			4,888		55,973			(39,958	)		453,043
Additions		27,592			26,278			-		4,901			-			58,771
Disposals		(17,529	)		(359	)		-		(52	)		-			(17,940	)
Impairment due to damage (*)		-			(354	)		-		-			-			(354	)
Other		-			-			-		-			(19,087	)		(19,087	)
Balances as of December 31, 2017		274,079			193,689			4,888		60,822			(59,045	)		474,433

(*)

Banco Santander-Chile has had to recognize in its financial statements as of December 31, 2017 impairment by 354 million, corresponding to looting in ATM’s. Compensation charged for insurance concepts involved, amounted to Ch$1,238 million, which are presented in “Other income and operational expenses”.

b,2)

Accumulated depreciation

													Fully
	Land and						Operating						depreciated
	buildings			Equipment			leases			Other			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		(13,396	)		(20,971	)		-			(5,565	)		-		(39,932	)
Sales and disposals in the period		3			5			-			22			-		30
Transfers		-			-			-			-			-		-
Others		-			-			-			-			6,114		6,114
Balances as of September 30, 2018 (Unaudited)		(128,120	)		(151,139	)		(667	)		(50,907	)		65,159		(265,674	)

													Fully
	Land and						Operating						depreciated
	buildings			Equipment			leases			Other			assets		Total
2017	MCh$			MCh$			MCh$			MCh$			MCh$		MCh$

Balances as of January 1, 2017		(94,207	)		(101,618	)		(658	)		(39,139	)		39,958		(195,664	)
Depreciation in the period		(20,744	)		(28,592	)		(9	)		(6,276	)		-		(55,622	)
Sales and disposals in the period		224			38			-			51			-		313
Transfers		-			-			-			-			-		-
Others		-			-			-			-			19,087		19,087
Balances as of December 31, 2017		(114,727	)		(130,173	)		(667	)		(45,364	)		59,045		(231,886	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 64

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 12

PROPERTY, PLANT AND EQUIPMENT, continued

Operational leases - Lessor

As of September 30, 2018 and December 31, 2017, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

	As of		As of
	September 30,		December 31,
	2018		2017
	(Unaudited)
	MCh$		MCh$
Due within 1 year		1,539		567
Due after 1 year but within 2 years		722		749
Due after 2 years but within 3 years		481		480
Due after 3 years but within 4 years		390		348
Due after 4 years but within 5 years		314		308
Due after 5 years		1,909		1,792

Total		5,355		4,244

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		As of
	September 30,		December 31,
	2018		2017
	(Unaudited)
	MCh$		MCh$
Due within 1 year		22,437		26,059
Due after 1 year but within 2 years		19,218		21,343
Due after 2 years but within 3 years		17,169		18,091
Due after 3 years but within 4 years		14,741		15,736
Due after 4 years but within 5 years		12,290		12,734
Due after 5 years		48,194		51,502
Total		134,049		145,465

As of September 30, 2018 and December 31, 2017 the Bank has no finance leases which cannot be unilaterally cancelled.

The Bank has no restriction on property, plant and equipment as of September 30, 2018 and December 31, 2017. 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 September 2018 / Banco Santander-Chile 65

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 13

CURRENT AND DEFERRED TAXES

Current taxes

As of December 31, 2017 and 2016, 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			As of
	September 30, 2018			December 31, 2017
	(Unaudited)
	MCh$			MCh$
Summary of current tax liabilities (assets)
Current tax (assets)		(18,149	)		-
Current tax liabilities		-			6,435

Total tax payable (recoverable)		(18,149	)		6,435
(Assets) liabilities current taxes detail (net)
Income tax (*)		95,465			145,112
Less:
Provisional monthly payments		(113,112	)		(136,562	)
Credit for training expenses		(790	)		(1,768	)
Grant credits		-			(968	)
Other		(556	)		621
		844
Total tax payable (recoverable)		(18,149	)		6,435

(*)

For 2018 the tax rate was 27% and 25.5% for 2017

Income tax

The effect tax expense has on income for the period ended September 30, 2018 and 2017 is comprised of the following items:

	As of September 30,
	(Unaudited)
	2018			2017
	MCh$			MCh$
Income tax expense
Current tax		95,464			110,991
Credits (debits) for deferred taxes
Origination and reversal of temporary differences		28,433			6,919
Provision due to valuation		-			-
Subtotal		123,897			104,072

Tax for rejected expenses (Article N°21)		1,045			396
Other		(1,181	)		1,154
Net income tax expense		123,761			105,622

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 66

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and 2017 is as follows:

	As of September 30,
	(Unaudited)
	2018						2017
	Tax rate			Amount			Tax rate			Amount
	%			MCh$			%			MCh$
Tax calculated over profit before tax		27.00			151,440			25.50			140,878
Permanent differences (1)		(5.28	)		(29,604	)		(2.66	)		(14,708	)
Penalty tax (rejected expenses)		0.19			1,045			0.07			396
Rate change effect (2)		-			-			(3.76	)		(20,750	)
Other		0.16			880			(0.04	)		(194	)
Effective rates and expenses for income tax		22.07			123,761			19.11			105,622

(1)

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

(2)

On September 29, 2014, the established law 20.780 increased the tax rate from 25.5% in 2017 to 27% permanently from 2018.

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 September 30, 2018 and December 31, 2017 is the following:

	As of			As of
	September 30,			December 31,
	2018			2017
	(Unaudited)
	MCh$			MCh$
Deferred tax assets
Available for sale investments		922			368
Cash flow hedges		12,757			908
Total deferred tax assets recognized through other comprehensive income		13,679			1,276
Deferred tax liabilities
Available for sale investments		(1,755	)		(841	)
Cash flow hedges		-			-
Total deferred tax liabilities recognized through other comprehensive income		(1,755	)		(841	)

Net deferred tax balances in equity		11,924			435
Deferred taxes in equity attributable to equity holders of the bank		12,291			791
Deferred tax in equity attributable to non-controlling interests		(367	)		(356	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 67

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 13

CURRENT AND DEFERRED TAXES, continued

Effect of deferred taxes on income

During 2018 and 2017, 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			As of
	September 30, 2018			December 31, 2017
	(Unaudited)
	MCh$			MCh$
Deferred tax assets
Interests and adjustments		9,064			8,645
Non-recurring charge-offs		13,361			11,651
Assets received in lieu of payment		2,640			4,073
Exchange rate adjustment		-			882
Property, plant and equipment		5,455			4,410
Provision for loan losses		169,106			172,386
Provision for expenses		63,380			73,518
Derivatives		-			5,243
Leased assets		105,708			98,090
Subsidiaries tax losses		5,896			5,277
Anticipated expenses		-			151
Investment valuation		-			-
Others (*)		-			5,249
Total deferred tax assets		374,610			384,332
Deferred tax liabilities
Valuation of investments		(13,340	)		(1,911	)
Depreciation		-			(532	)
Anticipated expenses		(33	)		(5,955	)
Valuation allowances		(6,613	)
Derivatives		(7,922	)
Exchange rate adjustment		(3,354	)
Others		(20	)		(424	)
Total deferred tax liabilities		(31,282	)		(8,822	)

(*)

Includes the asset from deffered income due to temporary differences in derivative contracts.

Summary of deferred tax assets and liabilities

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

	As of			As of
	September 30,			December 31, 2017
	(Unaudited)
	MCh$			MCh$
Deferred tax assets
Recognized through other comprehensive income		13,679			1,276
Recognized through profit or loss		374,610			384,332
Total deferred tax assets		388,289			385,608
Deferred tax liabilities
Recognized through other comprehensive income		(1,755	)		(841	)
Recognized through profit or loss		(31,282	)		(8,822	)
Total deferred tax liabilities		(33,037	)		(9,663	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 68

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 14

OTHER ASSETS

The composition of other assets is the following:

	As of			As of
	September 30,			December 31, 2017
	(Unaudited)
	MCh$			MCh$
Assets for leasing (1)		32,320			48,099

Assets received or awarded in lieu of payment (2)
Assets received in lieu of payment		8,855			11,677

Assets awarded at judicial sale		26,195			24,800
Provision on assets received in lieu of payment or awarded		(1,059	)		(1,440	)

Subtotal		33,991			35,037
Other assets
Guarantee deposits (margin accounts) (3)		237,380			323,767

Investments in gold		455			478

VAT credit tax		10,207			9,570

Income tax recoverable		1,757			1,381

Prepaid expenses		80,655			116,512

Plant, Property and Equipment held for sale		663			663

Assets recovered from leasing held for sale		6,541			4,235

Macro-hedging valuation adjustment		6,492			160

Pension plan assets		877			921

Accounts and notes receivable		72,847			59,574

Notes receivable through brokerage and simultaneous transactions		94,923			68,272

Other receivable accounts		38,448			53,500

Other assets		39,372			33,837

Subtotal		590,617			672,047

Total		656,928			755,183

(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 0.22% (0.30% as of December 31, 2017) 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 September 2018 / Banco Santander-Chile 69

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 15

TIME DEPOSITS AND OTHER TIME LIABILITIES

As of September 30, 2018 and December 31, 2017, the composition of the item time deposits and other liabilities is as follows:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Deposits and other demand liabilities
Checking accounts		6,203,866		6,272,656
Other deposits and demand accounts		614,492		590,221
Other demand liabilities		1,165,885		905,289

Total		7,984,243		7,768,166

Time deposits and other time liabilities
Time deposits		12,653,952		11,792,466
Time savings account		118,806		116,179
Other time liabilities		4,607		5,300

Total		12,777,365		11,913,945

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 70

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

As of September 30, 2018 and December 31, 2017, the composition for this item is as follows:

	As of September 30,		As of December 31, 2017
	(Unaudited)
	MCh$		MCh$
Other financial liabilities
Obligations to public sector		59,307		59,470
Other domestic obligations		167,800		175,389
Foreign obligations		13,795		7,171
Subtotal		240,902		242,030
Issued debt instruments
Mortgage finance bonds		27,604		34,479
Senior bonds		7,275,116		6,186,760
Mortgage Bonds		95,011		99,222
Subordinated bonds		788,987		773,192
Subtotal		8,186,718		7,093,653

Total		8,427,620		7,335,683

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 September 30, 2018
	(Unaudited)
	Current		Non-current		Total
	MCh$		MCh$		MCh$
Mortgage finance bonds		7,281		20,323		27,604
Senior bonds		1,154,770		6,120,346		7,275,116
Mortgage Bonds		6,283		88,728		95,011
Subordinated bonds		2		788,985		788,987
Issued debt instruments		1,168,336		7,018,382		8,186,718

Other financial liabilities		207,181		33,721		240,902

Total		1,375,517		7,052,103		8,427,620

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 71

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

	As of December 31, 2017
	Current		Non-current		Total
	MCh$		MCh$		MCh$
Mortgage finance bonds		8,691		25,788		34,479
Senior bonds		337,166		5,849,594		6,186,760
Mortgage Bonds		4,541		94,681		99,222
Subordinated bonds		3		773,189		773,192
Issued debt instruments		350,401		6,743,252		7,093,653

Other financial liabilities		212,825		29,205		242,030

Total		563,226		6,772,457		7,335,683

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 5.30% as of September 30, 2018 (5.39% as of December 31, 2017).

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Due within 1 year		7,281		8,691
Due after 1 year but within 2 years		6,097		6,744
Due after 2 years but within 3 years		5,334		6,096
Due after 3 years but within 4 years		4,288		5,155
Due after 4 years but within 5 years		2,900		4,101
Due after 5 years		1,704		3,692
Total mortgage finance bonds		27,604		34,479

Senior bonds

The following table shows senior bonds by currency:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Santander bonds in UF		4,020,850		3,542,006
Santander bonds in USD		1,405,706		1,045,465
Santander bonds in CHF		368,744		268,281
Santander bonds in Ch$		1,199,032		1,135,527
Santander bonds in AUD		14,465		14,534
Santander bonds in JPY		157,947		126,059
Santander bonds in EUR		108,372		54,888
Total senior bonds		7,275,116		6,186,760

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 72

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Placement of senior bonds:

As of September 30, 2018 the Bank has placed bonds for 21,000,000 UF, 150,000,000,000 CLP, 66,000,000 EUR, 115,000,000 CHF and 4,000,000,000 JPY detailed as follows:

					Issuance rate
Series	Currency	Amount placed		Term	(Annual)		Issue date	Amount		Maturity date
T1	UF		4,000,000	2 years		2.20%	02-01-2016		7,000,000	02-01-2020
T4	UF		2,000,000	3 years		2.35%	02-01-2016		8,000,000	08-01-2021
T11	UF		5,000,000	7 years		2.65%	02-01-2016		5,000,000	02-01-2025
T12	UF		5,000,000	7 years		2.70%	02-01-2016		5,000,000	08-01-2025
T15	UF		5,000,000	11 years		3.00%	02-01-2016		5,000,000	08-01-2028
Total	UF		21,000,000						30,000,000
P5	CLP		75.000.000.000	4 years		5.30%	03-05-2015		150.000.000.000	03-01-2022
U4	CLP		75.000.000.000	3 years & 4 months		ICP + 1.00%	01-10-2017		75.000.000.000	01-10-2022
Total	CLP		150,000,000,000						225,000,000,000
EUR	EUR		26,000,000	7 years		1.00%	05-04-2018		26,000,000	05-28-2025
EUR	EUR		40,000,000	12 years		1.78%	06-08-2018		40,000,000	06-15-2030
Total	UF		66,000,000						66,000,000
CHF	CHF		115,000,000	5 years & 3 months		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 years & 6 months		0.65%	07-13-2018		4,000,000,000	01-13-2029
Total	JPY		4,000,000,000						4,000,000,000

During 2018, the Bank partially repurchased the following bonds:

Date	Type	Currency	Amount
01-04-2018	Senior	CLP		12,890,000,000
01-05-2018	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

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 73

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

During 2017 the Bank placed bonds for 10,000,000 UF, 160,000,000,000 CLP, 770,000,000 USD, and 30,000,000 AUD, detailed as follows:

				Term		Issuance rate					Maturity
Series	Currency	Amount Placed		(Years)		(Annual)		Issue date	Amount		date
T9	UF		5,000,000		7		2.60%	02-01-2016		5,000,000	02-01-2024
T13	UF		5,000,000		9		2.75%	02-01-2016		5,000,000	02-01-2026
Total	UF		10,000,000							10,000,000
SD	CLP		60,000,000,000		5		5.50%	06-01-2014		200,000,000,000	06-01-2019
T16	CLP		100,000,000,000		6		5.20%	02-01-2016		100,000,000,000	08-01-2021
Total	CLP		160,000,000,000							300,000,000,000
DN	USD		100,000,000		3		Libor-USD 3M+0.80%	07-20-2017		100,000,000	07-27-2020
DN	USD		50,000,000		3		Libor-USD 3M+0.80%	07-20-2017		50,000,000	07-27-2020
DN	USD		50,000,000		3		Libor-USD 3M+0.80%	07-24-2017		50,000,000	07-27-2020
DN	USD		10,000,000		4		Libor-USD 3M+0.80%	08-23-2017		10,000,000	11-23-2021
DN	USD		10,000,000		4		Libor-USD 3M+0.80%	08-23-2017		11-23-2021	10,000,000
DN	USD		50,000,000		3		Libor-USD 3M+0.80%	09-14-2017		09-15-2020	50,000,000
DN	USD		500,000,000		3		2.50%	12-12-2017		500,000,000	12-15-2020
Total	USD		770,000,000							770,000,000
AUD	AUD		30,000,000		10		3.96%	12-05-2017		30,000,000	12-12-2027
Total	AUD		30,000,000							30,000,000

During 2017, the Bank partially repurchased the following bonds:

Date	Type	Currency	Amount
03-06-2017	Senior	USD		6,900,000
05-12-2017	Senior	UF		1,000,000
05-16-2017	Senior	UF		690,000
05-17-2017	Senior	UF		15,000
05-26-2017	Senior	UF		340,000
06-01-2017	Senior	UF		590,000
06-02-2017	Senior	UF		300,000
06-05-2017	Senior	UF		130,000
06-19-2017	Senior	UF		265,000
07-10-2017	Senior	UF		770,000
07-21-2017	Senior	UF		10,000
08-28-2017	Senior	UF		200,000
08-28-2017	Senior	UF		200,000
08-29-2017	Senior	UF		2,000
08-29-2017	Senior	UF		270,000
11-03-2017	Senior	UF		14,000
11-29-2017	Senior	UF		400,000
12-06-2017	Senior	UF		20,000
12-12-2017	Senior	CLP		10,990,000,000

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 74

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

ii.

Maturities for senior bonds are the following:

	As of		As of
	September 30,		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Due within 1 year		1,154,770		337,166
Due between 1 and 2 years		1,008,604		866,936
Due between 2 and 3 years		1,132,100		832,978
Due between 3 and 4 years		800,211		1,177,081
Due between 4 and 5 years		828,670		902,647
Due after 5 years		2,350,761		2,069,952
Total senior bonds		7,275,116		6,186,760

Mortgage bonds

The detail of mortgage bonds per currency is the following:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Mortgage bonds in UF		95,011		99,222
Total mortgage bonds		95,011		99,222

Placement of Mortgage bonds

As of September 30, 2018 and during 2017 the Bank has not placed any mortgage bonds.

ii.

Maturities of mortgage bonds are the following:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Due within 1 year		6,283		4,541
Due between 1 and 2 years\		7,519		7,291
Due between 2 and 3 years		7,761		7,526
Due between 3 and 4 years		8,012		7,769
Due between 4 and 5 years		8,270		8,019
Due after 5 years		57,166		64,076
Total mortgage bonds		95,011		99,222

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 75

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 16

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued

Subordinated bonds

Detail of subordinated bonds per currency is as follows:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Subordinated bonds denominated in Ch$		2		3
Subordinated bonds denominated in USD		-		-
Subordinated bonds denominated in UF		788,985		773,189
Total subordinated bonds		788,987		773,192

Placement of subordinated bonds

As of September 30, 2018 and during 2017, the Bank has not placed any subordinated bonds.

ii.

Maturity of subordinated bonds are the following:

The maturity of subordinated bonds considered long-term are the following:

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Due within 1 year		2		3
Due between 1 and 2 years		-		-
Due between 2 and 3 years		-		-
Due between 3 and 4 years		-		-
Due between 4 and 5 years		-		-
Due after 5 years		788,985		773,189
Total subordinated bonds		788,987		773,192

Other financial liabilities

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

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$
Non-current portion:
Due between 1 and 2 years		32,030		23,401
Due between 2 and 3 years		209		4,181
Due between 3 and 4 years		228		194
Due between 4 and 5 years		250		210
Due after 5 years		1,004		1,219
Non-current portion subtotal		33,721		29,205

Current portion:
Amounts due to credit card operators		164,214		173,271
Acceptance of letters of credit		8,445		2,780
Other long-term financial obligations (short-term portion)		34,522		36,774
Current portion subtotal		207,181		212,825

Total other financial liabilities		240,902		242,030

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 76

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

As of September 30, 2018 and December 31, 2017, the detail of the maturities of assets and liabilities is as follows:

					Between 1		Between 3				Between 1		Between 3				More than 1
As of September 30, 2018			Up to		and		and		Up to 1 year		and		and		More than		year
(Unaudited)	Demand		1 month		3 months		12 months		Subtotal		3 years		5 years		5 years		Subtotal		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		1,780,079		-		-		-		1,780,079		-		-		-		-		1,780,079
Cash items in process of collection		564,245		-		-		-		564,245		-		-		-		-		564,245
Trading investments		-		6,820		-		1,550		8,370		266,617		38,827		78,199		383,643		392,013
Investments under resale agreements		-		-		-		-		-		-		-		-		-		-
Financial derivatives contracts		-		123,034		135,082		295,585		553,701		413,122		454,937		808,688		1,676,747		2,230,448
Interbank loans (1)		-		7,162		3,956		3,217		14,335		-		-		-		-		14,335
Loans and accounts receivables from customers(2)		251,950		3,258,077		2,748,556		4,591,291		10,849,874		5,436,005		3,153,108		10,519,197		19,108,310		29,958,184
Available for sale investments		-		10,459		116,911		156,838		284,208		859,023		434,341		918,051		2,211,415		2,495,623
Held to maturity investments		-		-		-		-		-		-		-		-		-		-
Guarantee deposits (margin accounts)		237,380		-		-		-		237,380		-		-		-		-		237,380
Total financial assets		2,833,654		3,405,552		3,004,505		5,048,481		14,292,192		6,974,767		4,081,213		12,324,135		23,380,115		37,672,307

Liabilities
Deposits and other demand liabilities		7,984,243		-		-		-		7,984,243		-		-		-		-		7,984,243
Cash items in process of collection		455,368		-		-		-		455,368		-		-		-		-		455,368
Obligations under repurchase agreements		-		180,001		-		-		180,001		-		-		-		-		180,001
Time deposits and other time liabilities		123,413		5,475,168		3,543,358		3,407,226		12,549,165		159,411		5,954		62,835		228,200		12,777,365
Financial derivatives contracts		-		110,190		105,481		247,635		463,306		427,728		402,622		792,876		1,623,226		2,086,532
Interbank borrowings		1		24,294		390,868		1,203,983		1,619,146		174,042		-		-		174,042		1,793,188
Issued debts instruments		-		158,128		212,687		797,521		1,168,336		2,167,415		1,652,351		3,198,616		7,018,382		8,186,718
Other financial liabilities		171,107		19,058		16,092		924		207,181		32,239		478		1,004		33,721		240,902
Guarantees received (margin accounts)		371,516		-		-		-		371,516		-		-		-		-		371,516
Total financial liabilities		9,105,648		5,966,839		4,268,486		5,657,289		24,998,262		2,960,835		2,061,405		4,055,331		9,077,571		34,075,833

(1)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$28 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$473,536 million, Mortgage loans Ch$66,304 million and Consumer loans Ch$265,017 million.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 77

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 17

MATURITY OF FINANCIAL ASSETS AND LIABILITIES, continued

					Between 1		Between 3				Between 1		Between 3				More than 1
			Up to		and		and		Up to 1 year		and		and		More than		year
As of December 31, 2017	Demand		1 month		3 months		12 months		Subtotal		3 years		5 years		5 years		Subtotal		Total
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Financial Assets
Cash and deposits in banks		1,452,922		-		-		-		1,452,922		-		-		-		-		1,452,922
Cash items in process of collection		668,145		-		-		-		668,145		-		-		-		-		668,145
Trading investments		-		72,983		4,024		68,277		145,284		110,824		90,507		139,121		340,452		485,736
Investments under resale agreements		-		-		-		-		-		-		-		-		-		-
Financial derivatives contracts		-		135,780		198,876		410,415		745,071		385,428		371,090		737,058		1,493,576		2,238,647
Interbank loans (1)		-		6,064		152,911		3,710		162,685		-		-		-		-		162,685
Loans and accounts receivables from customers(2)		769,823		2,206,734		2,288,372		4,348,975		9,613,904		5,187,501		2,938,326		9,823,498		17,949,325		27,563,229
Available for sale investments		-		58,850		11,788		102,600		173,238		556,289		975,372		869,647		2,401,308		2,574,546
Held to maturity investments		-		-		-		-		-		-		-		-		-		-
Guarantee deposits (margin accounts)		323,767		-		-		-		323,767		-		-		-		-		323,767
Total financial assets		3,214,657		2,480,411		2,655,971		4,933,977		13,285,016		6,240,042		4,375,295		11,569,324		22,184,661		35,469,677

Financial Liabilities
Deposits and other demand liabilities		7,768,166		-		-		-		7,768,166		-		-		-		-		7,768,166
Cash items in process of collection		486,726		-		-		-		486,726		-		-		-		-		486,726
Obligations under repurchase agreements		-		268,061		-		-		268,061		-		-		-		-		268,061
Time deposits and other time liabilities		121,479		5,120,171		4,201,271		2,299,018		11,741,939		106,833		2,811		62,362		172,006		11,913,945
Financial derivatives contracts		-		144,410		196,444		356,288		697,142		378,582		358,358		705,406		1,442,346		2,139,488
Interbank borrowings		4,130		46,013		397,419		1,030,241		1,477,803		220,554		-		-		220,554		1,698,357
Issued debts instruments		-		21,043		55,119		274,239		350,401		1,727,571		2,104,771		2,910,910		6,743,252		7,093,653
Other financial liabilities		177,663		701		2,583		31,879		212,826		27,581		404		1,219		29,204		242,030
Guarantees received (margin accounts)		408,313		-		-		-		408,313		-		-		-		-		408,313
Total financial liabilities		8,966,477		5,600,399		4,852,836		3,991,665		23,411,377		2,461,121		2,466,344		3,679,897		8,607,362		32,018,739

(1)

Interbank loans are presented on a gross basis. The amount of allowances is Ch$86 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$462,865 million, Mortgage loans for Ch$69,066 million and Consumer loans for Ch$283,756 million.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 78

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 18

PROVISIONS

As of September 30, 2018 and December 31, 2017, the detail for the provisions is as follows:

	As of September 30,		As of December 31, 2017
	(Unaudited)
	MCh$		MCh$

Provision for employee salaries and expenses		86,114		97,576
Provision for mandatory dividends		130,577		169,444
Provision for contingent loan risks:
Provision for lines of credit of immediate disponibility		14,967		15,103
Other provisions for contingent loans		14,355		14,304
Provision for contingencies		9,057		27,303
Additonal provisions		20,000		-
Provision for foreign bank loans		680		599
Total		275,750		324,329

(*)

During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 79

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 19

OTHER LIABILITIES

Other liabilities consist of:

	As of		As of
	September 30,		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Accounts and notes payable		168,120		196,965
Income received in advance		612		601
Adjustment due to macro-hedging valuation		3,998		-
Guarantees received (margin accounts) (1)		371,516		408,313
Notes payable through brokerage and simultaneous transactions		13,251		17,799
Other payable obligations		248,290		58,921
Withheld VAT		2,299		1,887
Accounts payable by insurance companies		7,729		13,873
Other liabilities		67,256		47,004
Total		883,071		745,363

(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 September 2018 / Banco Santander-Chile 80

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018, the Bank and its subsidiaries have provisions for this item for Ch$923 million and Ch$0 million, respectively (Ch$1,214 million and Ch$0 million as of December 31, 2017) which is included in “Provisions” in the Consolidated Statement of Financial Position as provisions for contingencies.

As of September 30, 2018, 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, 2017, 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 9,475 UF 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		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Letters of credit issued		203,228		201,699
Foreign letters of credit confirmed		77,428		75,499
Performance guarantees		1,915,970		1,823,793
Personal guarantees		123,749		81,577
Subtotal		2,320,375		2,182,568
On demand credit lines		8,807,046		8,135,489
Other irrevocable credit commitments		325,175		260,691
Total		11,452,596		10,578,748

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 81

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 20

CONTINGENCIES AND COMMITMENTS, continued

Held securities

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

	As of		As of
	September 30, 2018		December 31, 2017
	(Unaudited)
	MCh$		MCh$

Third party operations
Collections		171,259		175,200
Transferred financial assets managed by the Bank		27,111		33,278
Assets from third parties managed by the Bank and its affiliates (1)		1,661,793		1,660,804
Subtotal		1,860,163		1,869,282
Custody of securities
Securities held in custody		9,072,479		383,002
Securities held in custody deposited in other entity		835,296		760,083
Issued securities held in custody		12,049,209		22,046,700
Subtotal		21,956,984		23,189,785
Total		23,817,147		25,059,067

(1) The Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates”, as of September 30, 2018, the balance for this was Ch$1,661,758 million (Ch$1,660,768 million at December 31, 2017).

Guarantees

Banco Santander-Chile has an integral bank policy of coverage of Official Loyalty N°4668409 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° 217112981 taken with the Insurance Company of Crédito Continental S.A. and whose maturity is December 19, 2018.

Santander Corredores de Bolsa Limitada

i) As of September 30, 2018, 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$ 33,266,104 (Ch$ 25,218,779 as of December 31, 2017).

ii) Additionally, as of September 30, 2018, the Company holds a guarantee in CCLV Contraparte Central S.A., in cash, for an amount of Ch$ 5,000,000 (Ch$ 5,000,000 as of December 31, 2017).

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$ 1,017,360 as of September 30, 2018 (Ch$ 1,014,400 as of December 31, 2017).

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 82

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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° 4461903, which covers 500 UF, and the professional liability policy for insurance brokers N°4462082 for an amount equivalent to UF 60,000, 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 3,000 UF with the same financial institution, both with an expiration date as of December 31, 2018.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 83

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 21

EQUITY

Capital

As of September 30, 2018 and December 31, 2017 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 September 30, 2018 and December 31, 2017 is the following:

	Shares
	As of September 30,		As of December 31,
	2018		2017

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 September 30, 2018 and December 31, 2017 the Bank does not own any of its shares in treasury, nor do any of the consolidated companies.

As of September 30, 2018 the shareholder composition is the following:

							% of equity
Corporate Name or Shareholder`s Name	Shares		ADRs (*)		Total		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 September 2018 / Banco Santander-Chile 84

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 21

EQUITY, continued

As of December 31, 2017 the shareholder composition is the following:

							% of equity
Corporate Name or Shareholder`s Name	Shares		ADRs (*)		Total		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		-		31,238,866,071		31,238,866,071		16.58
Banks on behalf of third parties		13,892,691,988		-		13,892,691,988		7.37
Pension fund (AFP) on behalf of third parties		6,896,552,755		-		6,896,552,755		3.66
Stock brokers on behalf of third parties		3,762,310,365		-		3,762,310,365		2.00
Other minority holders		6,062,704,347		-		6,062,704,347		3.21
Total		157,207,260,723		31,238,866,071		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 September 30, 2018 and December 31, 2017, the composition of diluted earnings per share and basic earnings per share are as follows:

	As of September 30,
	(Unaudited)
	2018		2017
	MCh$		MCh$

a) Basic earnings per share
Total attributable to equity holders of the Bank		435,258		430,137
Weighted average number of outstanding shares		188,446,126,794		188,446,126,794
Basic earnings per share (in Ch$)		2.310		2.283

b) Diluted earnings per share

Total attributable to equity holders of the Bank		435,258		430,137
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$)		2.310		2.283

As of September 30, 2018 and 2017, the Bank does not own instruments with dilutive effects.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 85

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 21

EQUITY, continued

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

	As of			As of
	September 30,			December 31,
	2018			2017
	(Unaudited)
	MCh$			MCh$

Available for sale investments
As of January 1,		1,855			7,375
Gain (losses) on the re-valuation of available for sale investments, before tax		2,271			(10,384	)
Reclassification from other comprehensive income to net income for the year		-			-
Net income realized		(1,042	)		4,864
Subtotal		1,229			(5,520	)
Total		3,084			1,855

Cash flow hedges
As of January 1,		(3,562	)		2,288
Gains (losses) on the re-valuation of cash flow hedges, before tax		(43,330	)		(5,850	)
Reclassification and adjustments on cash flow hedges, before tax		(356	)		-
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		(43,686	)		(5,850	)
Total		(47,248	)		(3,562	)

Other comprehensive income, before tax		(44,164	)		(1,707	)

Income tax related to other comprehensive income components
Income tax relating to available for sale investments		(833	)		(473	)
Income tax relating to cash flow hedges		12,757			908
Total		11,924			435

Other comprehensive income, net of tax		(32,240	)		(1,272	)
Attributable to:
Equity holders of the Bank		(33,231	)		(2,312	)
Non-controlling interest		991			1,040

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 September 2018 / Banco Santander-Chile 86

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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. Derivative contracts (asset) that are included in the Consolidated Statement of Financial Position are also considered to have a “risk equivalence” in their risk weight.

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 September 2018 / Banco Santander-Chile 87

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 22

CAPITAL REQUIREMENTS (BASEL), continued

The levels of basic capital and effective net equity as of September 30, 2018 and December 31, 2017, are the following:

	Consolidated assets				Risk-weighted assets
	As of		As of		As of		As of
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
	(Unaudited)				(Unaudited)
	MCh$		MCh$		MCh$		MCh$

Balance-sheet assets (net of allowances)
Cash and deposits in banks		1,780,079		1,452,922		-		-
Cash in process of collection		564,245		668,145		178,455		300,302
Trading investments		392,013		485,736		63,900		25,031
Investments under resale agreements		-		-		-		-
Financial derivative contracts (*)		1,385,650		1,014,070		954,910		718,426
Interbank loans, net		14,307		162,599		14,307		162,598
Loans and accounts receivables from customers, net		29,153,327		26,747,542		25,218,760		23,102,177
Available for sale investment		2,495,623		2,574,546		230,195		147,894
Investments in associates and other companies		32,498		27,585		32,498		27,585
Intangible assets		59,748		63,219		59,748		63,219
Property, plant, and equipment		240,002		242,547		240,002		242,547
Current taxes		18,149		-		1,815		-
Deferred taxes		388,289		385,608		38,829		38,561
Other assets		656,928		755,184		651,293		722,617
Off-balance-sheet assets
Contingent loans		4,525,598		4,133,897		2,589,945		2,360,877
Total		41,706,456		38,713,600		30,274,657		27,911,834

(*)

“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		As of		As of		As of
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
	(Unaudited)				(Unaudited)
	MCh$		MCh$		%		%

Basic capital		3,085,775		3,066,180		7.40		7.92
Effective net equity		3,938,465		3,881,252		13.01		13.91

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 88

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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
As of September 30, 2018	Non						Available for						Total other
(Unaudited)	controlling						sale			Deferred			comprehensive			Comprehensive
	interest		Equity		Income		investments			tax			income			income
	%		MCh$		MCh$		MCh$			MCh$			MCh$			MCh$

Subsidiaries:
Santander Corredora de Seguros Limitada		0.25		171		3		(2	)		-			(2	)		1
Santander Corredores de Bolsa Limitada		49.41		21,594		643		(36	)		(11	)		(47	)		596
Santander Agente de Valores Limitada		0.97		486		97		-			-			-			97
Santander S.A. Sociedad Securitizadora		0.36		1		-		-			-			-			-
Subtotal				22,252		743		(38	)		(11	)		(49	)		694

Entities controlled through other considerations:
Santander Gestión de Recaudación y
Cobranzas Limitada		100.00		3,626		701		-			-			-			701
Bansa Santander S.A.		100.00		17,828		426		-			-			-			426
Subtotal				21,454		1,127		-			-			-			1,127

Total				43,706		1,870		(38	)		(11	)		(49	)		1,821

							Other comprehensive income
	Non-						Available for					Total other
	controlling						sale		Deferred			comprehensive		Comprehensive
As of September 30, 2017	Interest		Equity		Income		investments		tax			income		income
	%		MCh$		MCh$		MCh$		MCh$			MCh$		MCh$

Subsidiaries:
Santander Corredora de Seguros Limitada		0.25		167		3		-		-			-		3
Santander Corredores de Bolsa Limitada		49.41		20,865		497		542		(141	)		401		898
Santander Agente de Valores Limitada		0.97		587		95		-		-			-		95
Santander S.A. Sociedad Securitizadora		0.36		1		-		-		-			-		-
Subtotal				21,620		595		542		(141	)		401		996

Entities controlled through other considerations:
Santander Gestión de Recaudación y		100.00		2,597		413		-		-			-		413
Cobranzas Limitada
Bansa Santander S.A. (1)		100.00		22,226		15,693		-		-			-		15,693
Subtotal				24,823		16,106		-		-			-		16,106

Total				46,443		16,701		542		(141	)		401		17,102

(1)

In September 2017, Bansa Santander S.A., held a legal assignment of rights by leasing contract, which resulted in a result of $ 20,663 million before taxes ($15,197 million net of taxes).

According to what is indicated in note 1 ii) Bansa Santander S.A. is an entity controlled by the Bank for reasons other than its participation in equity, therefore the income from this company is assigned entirely to non-controlling interest.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 89

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018									As of December 31, 2017
	(Unaudited)
							Net									Net
	Assets		Liabilities		Capital		Income			Assets		Liabilities		Capital		Income
	MCh$		MCh$		MCh$		MCh$			MCh$		MCh$		MCh$		MCh$

Santander Corredora de Seguros Limitada		77,473		9,817		66,374		1,282			76,177		9,803		64,937		1,437
Santander Corredores de Bolsa Limitada		124,367		80,296		42,761		1,310			88,711		45,855		41,424		1,432
Santander Agente de Valores Limitada		53,738		3,518		40,177		10,043			44,910		4,732		26,569		13,609
Santander S.A. Sociedad Securitizadora		367		76		350		(59	)		400		50		432		(82	)
Santander Gestión de Recaudación y Cobranzas Ltda.		6,505		2,879		2,925		701			10,826		7,901		2,184		741
Bansa Santander S.A.		25,508		7,680		17,401		427			25,535		8,134		6,533		10,868
Total		287,958		104,266		169,988		13,704			246,559		76,475		142,079		28,005

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 90

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and 2017, the income from interest income, not including income from hedge accounting, is attributable to the following items:

	As of September 30,
	(Unaudited)
	2018								2017
			Inflation		Prepaid						Inflation		Prepaid
	Interest		adjustments		fees		Total		Interest		adjustments		fees		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Resale agreements		712		-		-		712		744		-		-		744
Interbank loans		812		-		-		812		466		-		-		466
Commercial loans		570,396		110,433		8,330		689,159		563,998		57,795		7,791		629,584
Mortgage loans		244,992		192,089		334		437,415		239,724		102,149		311		342,184
Consumer loans		435,048		325		4,474		439,847		463,178		269		3,559		467,006
Investment instruments		55,116		19,601		-		74,717		58,863		1,105		-		59,968
Other interest income		11,065		2,983		-		14,048		9,257		821		-		10,078

Interest income without income from hedge accounting		1,318,141		325,431		13,138		1,656,710		1,336,230		162,139		11,661		1,510,030

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 September 30, 2018 and December 31, 2017, the suspended interest and adjustments income consists of the following:

	As of September 30, 2018						As of December 31, 2017
	(Unaudited)
			Inflation						Inflation
	Interest		adjustments		Total		Interest		adjustments		Total
Items	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Commercial loans		13,468		7,900		21,368		12,709		7,703		20,412
Mortgage loans		3,006		5,909		8,915		2,871		4,999		7,870
Consumer loans		4,317		342		4,659		5,084		377		5,461

Total		20,791		14,151		34,942		20,664		13,079		33,743

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 91

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 24

INTEREST INCOME, continued

As of September 30, 2018 and 2017, the expenses from interest expense, excluding expense from hedge accounting, are as follows:

	As of September 30,
	(Unaudited)
	2018									2017
				Inflation									Inflation
	Interest			adjustments			Total			Interest			adjustments			Total
Items	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Demand deposits		(9,573	)		(889	)		(10,462	)		(9,178	)		(476	)		(9,654	)
Repurchase agreements		(3,459	)		-			(3,459	)		(5,187	)		-			(5,187	)
Time deposits and liabilities		(232,528	)		(26,214	)		(258,742	)		(262,196	)		(14,079	)		(276,275	)
Interbank borrowings		(26,991	)		-			(26,991	)		(19,216	)		-			(19,216	)
Issued debt instruments		(178,376	)		(96,948	)		(275,324	)		(165,996	)		(53,133	)		(219,129	)
Other financial liabilities		(2,174	)		(81	)		(2,255	)		(2,205	)		(274	)		(2,479	)
Other interest expense		(4,953	)		(7,375	)		(12,328	)		(4,289	)		(3,192	)		(7,481	)
Interest expense without expenses from hedge accounting		(458,054	)		(131,507	)		(589,561	)		(468,267	)		(71,154	)		(539,421	)

As of September 30, 2018 and 2017, the income and expense from interest is as follows:

	As of September 30,
	(Unaudited)
	2018			2017
Items	MCh$			MCh$

Interest income less income from hedge accounting		1,656,710			1,510,030
Interest expense less expense from hedge accounting		(589,561	)		(539,421	)

Net Interest income (expense) from hedge accounting		1,067,149			970,609

Hedge accounting (net)		(10,382	)		9,581

Total net interest income		1,056,767			980,190

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 92

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30,
	(Unaudited)
	2018		2017
	MCh$		MCh$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		4,851		4,397
Fees and commissions for guarantees and letters of credit		25,017		26,964
Fees and commissions for card services		163,574		150,580
Fees and commissions for management of accounts		25,156		23,695
Fees and commissions for collections and payments		32,355		34,568
Fees and commissions for intermediation and management of securities		7,631		7,415
Fees and commissions for insurance marketing		28,646		27,796
Office banking		12,264		11,610
Fees for other services rendered		34,289		32,066
Other fees earned		31,371		24,159
Total		365,154		343,250

	As of September 30,
	(Unaudited)
	2018			2017
	MCh$			MCh$

Fee and commission expense
Compensation for card operations		(121,371	)		(110,957	)
Fees and commissions for securities transactions		(698	)		(624	)
Office banking		(4,096	)		(11,556	)
Other fees		(15,542	)		(7,350	)
Total		(141,707	)		(130,487	)

Net fees and commissions income		223,447			212,763

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 September 2018 / Banco Santander-Chile 93

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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.

																Calendar recognizing ordinary activity
	Segments															Income
							Global									Transfered		Transfered
As of September 30, 2018				Middle			Corporate									through		in an exact			Accrual
(Unaudited)	Retail Banking			Market			Banking			Others			Total			time		moment			model
	MM$			MM$			MM$			MM$			MM$			MM$		MM$			MM$

Fee and commission income
Fees and commissions for lines of credits and overdrafts		4,388			186			278			(1	)		4,851			4,851		-			-
Fees and commissions for guarantees and letters of credit		8,282			11,929			4,775			31			25,017			25,017		-			-
Fees and commissions for card services		157,897			4,810			820			47			163,574			25,539		138,035			-
Fees and commissions for management of accounts		22,544			2,010			600			2			25,156			25,156		-			-
Fees and commissions for collections and payments		48,467			1,190			348			(17,650	)		32,355			-		12,300			20,055
Fees and commissions for intermediation and management of securities		3,135			27			5,202			(733	)		7,631			-		7,631			-
Fees and commissions for insurance marketing		-			-			-			28,646			28,646			-		-			28,646
Office banking		8,954			2,868			439			3			12,264			-		12,264			-
Fees for other services rendered		30,751			2,881			617			40			34,289			-		34,289			-
Other fees earned		4,525			7,456			19,115			275			31,371			-		31,371			-
Totals		288,943			33,357			32,194			10,660			365,154			80,563		235,890			48,701

Fee and commission expense
Compensation for card operations		(118,466	)		(2,428	)		(231	)		(246	)		(121,371	)		-		(121,371	)		-
Fees and commissions for securities transactions		(169	)		(3	)		(388	)		(138	)		(698	)		-		(698	)		-
Office banking		(2,535	)		(892	)		(655	)		(14	)		(4,096	)		-		(4,096	)		-
Other fees		(2,398	)		(2,586	)		(3,227	)		(7,331	)		(15,542	)		-		(15,542	)		-
Totals		(123,568	)		(5,909	)		(4,501	)		(7,729	)		(141,707	)		-		(141,707	)		-
Net fees and commissions income		165,375			27,448			27,693			2,931			223,447			80,563		94,183			48,701

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 94

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and 2017, the detail of income from financial operations is as follows:

	As of September 30,
	(Unaudited)
	2018			2017
	MCh$			MCh$

Profit and loss from financial operations
Trading derivatives		3,354			37,525
Trading investments		9,265			5,689
Sale of loans and accounts receivables from customers
Current portfolio		70			2,680
Charged-off portfolio		722			1,587
Available for sale investments		3,341			7,879
Repurchase of issued bonds (1)		(334	)		(323	)
Other profit and loss from financial operations		(1,048	)		(2,104	)
Total		15,370			52,933

(1)

During 2018 the Bank hasn’t repurchased any bonds, see Note 3.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 95

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and 2017, net foreign exchange income is as follows:

	As of September 30, (Unaudited)
	2018			2017
	MCh$			MCh$
Net foreign exchange gain (loss)
Net gain (loss) from currency exchange differences		(85,994	)		(15,718	)
Hedging derivatives		133,035			79,869
Income from assets indexed to foreign currency		6,959			(5,582	)
Income from liabilities indexed to foreign currency		(58	)		76
Total		53,942			58,645

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 96

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 28

PROVISIONS FOR LOAN LOSSES

The movement in provisions for loan losses registered for September 30, 2018 and 2017 is the following:

				Loans and accounts receivable from customers
	Interbank			Commercial						Mortgage			Consumer									Additional
As of September 30, 2018	loans			loans						loans			loans			Contingent loans						Provisions
(Unaudited)	Individual			Individual			Group			Group			Group			Individual			Group			(*)			Total
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Charge-off of loans net of provisions		-			(9,613	)		(15,834	)		(8,158	)		(61,331	)		-			-			-			(94,936	)
Provisions established (*)		(43	)		(49,882	)		(64,624	)		(11,969	)		(145,175	)		(3,492	)		(1,509	)		(20,000	)		(296,694	)
Total provisions and charge-offs		(43	)		(59,495	)		(80,458	)		(20,127	)		(206,506	)		(3,492	)		(1,509	)		(20,000	)		(391,630	)
Provisions released		101			23,147			6,556			5,471			31,521			3,155			1,930			-			71,881
Recovery of loans previously charged-off		-			8,598			14,539			14,415			30,395			-			-			-			67,947
Net charge to income		58			(27,750	)		(59,363	)		(241	)		(144,590	)		(337	)		421			(20,000	)		(251,802	)

(*)

During the third quarter, the bank has established additional provisions amouting to Ch$20,000 million associated to consumer loans which have been approved by the Bank’s Board (Note 28).

				Loans and accounts receivable from customers
	Interbank			Commercial						Mortgage			Consumer									Additional
As of September 30, 2017	loans			loans						loans			loans			Contingent loans						Provisions
(Unaudited)	Individual			Individual			Group			Group			Group			Individual			Group			(*)		Total
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$					MCh$
Charge-off of loans net of provisions		-			(11,115	)		(39,980	)		(13,839	)		(75,385	)		-			-			-		(140,319	)
Provisions established		(297	)		(48,319	)		(79,556	)		(20,765	)		(115,367	)		(6,481	)		(3,676	)		-		(274,461	)
Total provisions and charge-offs		(297	)		(59,434	)		(119,536	)		(34,604	)		(190,752	)		(6,481	)		(3,676	)		-		(414,780	)
Provisions released (*)		300			48,593			17,963			11,139			40,471			9,941			1,354			-		129,761
Recovery of loans previously charged-off		-			8,920			14,584			8,420			30,695			-			-			-		652,619
Net charge to income		3			(1,921	)		(86,989	)		(15,045	)		(119,586	)		3,460			(2,322	)		-		(222,400	)

The detail for Charge-off to individually significant loans, is the following:

	Loans and accounts receivable from customers
	Commercial						Mortgage			Consumer
As of September 30, 2018	loans						loans			loans
(Unaudited)	Individual			Group			Group			Group			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Charge-off of loans		32,964			66,615			17,418			193,724			310,721
Provision applied		(23,351	)		(50,781	)		(9,260	)		(132,393	)		(215,785	)
Net charge offs of individually significant loans		9,613			15,834			8,158			61,331			94,936

	Loans and accounts receivables from customers
	Commercial						Mortgage			Consumer
As of September 30, 2017	loans						loans			loans
(Unaudited)	Individual			Group			Group			Group			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Loan charge-off		41,290			71,078			16,127			168,951			297,446
Provision applied		(30,175	)		(31,098	)		(2,288	)		(93,566	)		(157,127	)
Net charge offs of individually significant loans		11,115			39,980			13,839			75,385			140,319

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 97

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 29

PERSONNEL SALARIES AND EXPENSES

Composition of personnel salaries and expenses:

As of September 30, 2018 and 2017, the composition for personnel salaries and expenses is the following:

	As of September 30,
	(Unaudited)
	2018		2017
	MCh$		MCh$
Personnel compensation		192,275		185,106
Bonuses or gratuities		57,443		56,546
Stock-based benefits		146		1,822
Seniority compensation		11,796		18,766
Pension plans		872		512
Training expenses		2,969		2,293
Day care and kindergarden		2,372		2,035
Health and welfare funds		4,500		4,210
Other personnel expenses		25,319		23,591
Total		297,692		294,881

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 September 2018 / Banco Santander-Chile 98

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 30

ADMINISTRATIVE EXPENSES

As of September 30, 2018 and 2017, the composition for administrative expenses is the following:

	As of September 30, (Unaudited)
	2018		2017
	MCh$		MCh$

General administrative expenses		109,048		105,925
Maintenance and repair of property, plant and equipment		16,059		15,733
Office lease		21,934		19,867
Equipment lease		101		137
Insurance premiums		2,399		2,547
Office supplies		4,676		5,801
IT and communication expenses		31,689		28,626
Lighting, heating, and other utilities		3,761		4,011
Security and valuables transport services		9,573		9,505
Representation and personnel travel expenses		3,035		3,703
Judicial and notarial expenses		734		783
Fees for technical reports and auditing		7,024		7,626
Other general administrative expenses		8,063		7,586
Outsourced services		49,286		41,045
Data processing		25,145		26,616
Archive service		2,235		2,895
Valuation service		2,188		1,749
Outsourced staff		7,652		4,497
Other		12,066		5,288
Board expenses		959		972
Marketing expenses		13,482		13,884
Taxes, payroll taxes, and contributions		10,305		10,074
Real estate taxes		1,299		1,245
Patents		1,345		1,330
Other taxes		10		22
Contributions to SBIF		7,651		7,477
Total		183,080		171,900

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 99

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 31

DEPRECIATION, AMORTIZATION AND IMPAIRMENT

The values of depreciation and amortization during September 30, 2018 and 2017 are detailed below:

	As September 30,
	(Unaudited)
	2018			2017
	MCh$			MCh$

Depreciation and amortization
Property, plant, and equipment depreciation		(39,932	)		(39,217	)
Intangible assets amortization		(17,806	)		(16,251	)
Total depreciation and amortization		(57,738	)		(55,468	)
Property, plant and equipment impairment		(39	)		(354	)
Intangible impairment		-			(5,290	)
Totales		(57,777	)		(61,112	)

As of September 30, 2018, the impairment amount of fixed assets amounts to Ch$39 million (Ch$354 million as of September 30, 2017), mainly due to ATM looting. The imparment for intangibles amounts to Ch$5,290 as of September 30, 2017 due to project obsolescence.

The changes in book value due to depreciation and amortization for September 30, 2018 and 2017 are the following:

	Depreciation and amortization
	Property, plant,			Intangible
	and equipment			assets			Total
	MCh$			MCh$			MCh$

Balances as of January 1, 2018		(290,931	)		(261,828	)		(552,759	)
Depreciation and amortization for the period		(39,932	)		(17,806	)		(57,738	)
Sales and disposals in the period		30			-			30
Other		-			-			-
Balance as of September 30, 2018 (Unaudited)		(330,833	)		(279,634	)		(610,467	)

	Depreciation and amortization
	Property, plant,			Intangible
	and equipment			assets			Total
	MCh$			MCh$			MCh$

Balances as of January 1, 2017		(235,622	)		(239,628	)		(475,250	)
Depreciation and amortization for the period		(39,217	)		(16,251	)		(55,468	)
Sales and disposals in the period		270			-			270
Other		-			-			-
Balance as of September 30, 2017 (Unaudited)		(274,569	)		(255,879	)		(530,448	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 100

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 32

OTHER OPERATING INCOME AND EXPENSES

Other operating income is conformed by the following concepts:

	As of September 30,
	(Unaudited)
	2018		2017
	MCh$		MCh$

Income from assets received in lieu of payment
Income from sale of assets received in lieu of payment		4,540		2,633
Recovery of charge-offs and income from assets received in lieu of payment		11,798		13,279
Other income from assets received in lieu of payment		1,183		6,821
Subtotal		17,521		22,733
Provisions released due to contingencies (1)
Subtotal		10,349		17,799
Other income
Leases		170		199
Income from sale of property, plant and equipment		318		21,953
Recovery of provisions for contingencies		-		-
Compensation from insurance companies due to damages		144		1,212
Other		255		4,043
Subtotal		887		27,047

Total		28,757		67,939

(1)

The bank maintained provisions due to contingencies according to IAS 37, which resulted in favor of the bank.

Other operating expenses is conformed by the following concepts:

	As of September 30, (Unaudited)
	2018		2017
	MCh$		MCh$
Allowances and expenses for assets received in lieu of payment
Charge-offs of assets received in lieu of payment		11,795		23,464
Provisions on assets received in lieu of payment		939		4,066
Expenses for maintenance of assets received in lieu of payment		1,062		1,516
Subtotal		13,796		29,046

Credit card expenses		2,620		2,159
Customer services		2,593		2,329
Other expenses
Operating charge-offs		365		1,513
Life insurance and general product insurance policies		5,531		18,026
Additional tax on expenses paid overseas		-		-
Gain (Loss) for sale of PP&E		21		-
Provisions for contingencies		82		-
Retail association expense		669		620
Other		6,589		18,978
Subtotal		13,257		39,137

Total		32,266		72,671

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 101

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 2018 / Banco Santander-Chile 102

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018											As of December 31, 2017
	(Unaudited)
	Companies											Companies
	with											with
	relation to											relation to
	the											the
	Santander			Associated		Key						Santander			Associated			Key
	Group			companies		personnel			Other			Group			companies			personnel			Other
	MCh$			MCh$		MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Loans and accounts receivable
Commercial loans		141,592			434		2,990			7,831			80,076			771			3,947			7,793
Mortgage loans		-			-		20,086			-			-			-			18,796			-
Consumer loans		-			-		5,076			-			-			-			4,310			-
Loans and account receivable		141,592			434		28,152			7,831			80,076			771			27,053			7,793

Provision for loan losses		(329	)		-		(87	)		(29	)		(209	)		(9	)		(177	)		(18	)
Net loans		141,263			434		28,065			7,802			79,867			762			26,876			7,775

Guarantees		441,312			-		23,296			6,064			361,452			-			23,868			7,164

Contingent loans
Personal guarantees		-			-		-			-			-			-			-			-
Letters of credit		7,240			-		-			125			19,251			-			-			33
Performance guarantees		444,689			-		-			-			377,578			-			-			-
Contingent loans		451,929			-		-			125			396,829			-			-			33

Provision for contingent loans		(2	)		-		-			-			(4	)		-			-			1

Net contingent loans		451,927			-		-			125			396,825			-			-			34

Loans regarding activity with related parties during the periods of 2018 and is the following:

	As of September 30, 2018												As of December 31, 2017
	(Unaudited)
	Santander												Santander
	Group			Associated			Key						Group			Associated			Key
	companies			companies			personnel			Other			companies			companies			personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Opening balances as of January 1,		476,906			771			27,051			7,826			546,058			532			26,423			7,100
Loans granted		179,828			13			8,623			742			78,214			318			7,777			1,050
Loan payments		(60,214	)		(350	)		(7,523	)		(611	)		(147,366	)		(79	)		(7,149	)		(324	)

Total		593,520			434			28,151			7,957			476,906			771			27,051			7,826

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 103

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

Assets and liabilities with related parties

	As of September 30, 2018								As of December 31, 2017
	(Unaudited)
	Companies								Companies
	with								with
	relation to								relation to
	the								the
	Santander		Associated		Key				Santander		Associated		Key
	Group		companies		personnel		Other		Group		companies		personnel		Other
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Assets
Cash and deposits in banks		10,367		-		-		-		74,949		-		-		-
Trading investments		-		-		-		-		-		-		-		-
Investments under resale agreements		-		-		-		-		-		-		-		-
Financial derivative contracts		379,965		105,623		-		-		545,028		86,011		-		14
Available for sale investments		-		-		-		-		-		-		-		-
Other assets		53,270		64,836		-		-		8,480		118,136		-		-

Liabilities
Deposits and other demand liabilities		36,040		14,131		2,571		423		24,776		25,805		2,470		221
Obligations under repurchase		25,775		-		352		110		50,945		-		-		-
agreements
Time deposits and other time liabilities		2,139,953		-		3,734		811		785,988		27,968		3,703		3,504
Financial derivative contracts		392,733		70,996		-		-		418,647		142,750		-		7,190
Bank obligation		-		-		-		-		-		-		-		-
Issued debts instruments		505,133		-		-		-		482,626		-		-		-
Other financial liabilities		6,474		-		-		-		4,919		-		-		-
Other liabilities		113,105		99,076		-		-		164,303		58,168		-		-

Recognized income (expense) with related parties

	As of September 30, (Unaudited)
	2018												2017
	Companies												Companies
	with												with
	relation to												relation to
	the												the
	Santander			Associated			Key						Santander			Associated			Key
	Group			companies			personnel			Other			Group			companies			personnel			Other
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Income (expense) recorded
Income and expenses from interest and		(40,528	)		(158	)		922			374			(5,711	)		(9	)		109			77
inflation
Fee and commission income and expenses		100,420			5,901			196			17			11,347			12			47			7
Net income (expense) from financial operations and foreign exchange		(251,347	)		50,465			15			(2	)		160,394			(22,079	)		(1	)		3
Other operating income and expenses		934			(1,580	)		-			-			256			10			-			-
Key personnel compensation and expenses		-			-			(9,962	)		-			-			-			(10,688	)		-
Administrative and other expenses		(40,528	)		(38,578	)		-			-			(7,956	)		(11,257	)		-			-

Total		(231,049	)		16,050			(8,829	)		389			158,330			(33,323	)		(10,533	)		87

(*)

Relates primarily to derivative contracts used to economically hedge the exchange risk of assets and liabilities that hedge positions of the Bank and its subsidiaries.

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 104

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 33

TRANSACTIONS WITH RELATED PARTIES, continued

Board members and key management personnel payments

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 Statement of Income and detailed as follows:

	As of September 30,
	(Unaudited)
	2018		2017
	MCh$		MCh$

Personnel compensation		12,878		12,753
Board member`s salaries and expenses		913		900
Bonuses or gratuity		11,920		9,319
Compensation in stock		146		1,822
Training expenses		163		60
Seniority compensation		1,133		2,589
Health funds		215		208
Other personnel expenses		681		602
Pension Plans		872		512
Total		28,921		28,765

Key personnel composition

As of September 30, 2018 and December 31, 2017, the composition of the Bank’s key personnel is as follows:

	N° of executives
Position	As of September 30, 2018		As of December 31, 2017
	(Unaudited)
Directors		11		11
Division managers		12		13
Managers		117		109
Total key personnel		140		133

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 105

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and December 31, 2017:

	As of				As of
	September 30, 2018				December 31, 2017
	(Unaudited)
	Book value		Fair value		Book value		Fair value
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		273,568		273,568		485,736		485,736
Financial derivative contracts		2,233,818		2,233,818		2,238,647		2,238,647
Loans and accounts receivable from customers and interbank loans, (net)		28,428,857		31,445,639		26,910,141		28,518,929
Investments available for sale		2,909,127		2,909,127		2,574,546		2,574,546
Guarantee deposits (margin accounts)		389,847		389,847		323,767		323,767

Liabilities
Deposits and interbank borrowings		22,362,564		22,429,792		21,380,468		20,887,959
Financial derivative contracts		2,072,108		2,072,108		2,139,488		2,139,488
Issued debt instruments and other financial liabilities		8,269,942		8,861,008		7,335,683		7,487,591
Guarantees received (margin accounts)		397,630		397,630		408,313		408,313

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 September 2018 / Banco Santander-Chile 106

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 2018 / Banco Santander-Chile 107

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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
		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
· Mortgage and private bonds	Present Value of Cash Flows Model	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. 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
· Time deposits	Present Value of Cash Flows Model	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.
· 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.
· 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
· Caps/ Floors/ Swaptions	Black Normal Model for Cap/Floors and Swaptions	There is no observable input of implicit volatility.
· UF options	Black Scholes	There is no observable input of implicit volatility.
· 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.
· CCS (special contracts)	Implicit Forward Rate Agreement (FRA)	Start Fwd unsupported by MUREX (platform) due to the UF forward estimate.
· 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.
· 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 September 2018 / Banco Santander-Chile 108

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

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 September 30, 2018 and December 31, 2017.

	Fair value measurement
As of September 30,
(Unaudited)	2018		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		392,013		337,454		54,559		-
Available for sale investments		2,495,623		2,470,596		24,356		671
Derivatives		2,230,448		-		2,217,441		13,007
Guarantee deposits (margin accounts)		237,380		-		237,380		-
Total		5,355,464		2,808,050		2,533,736		13,678

Liabilities
Derivatives		2,086,532		-		2,086,532		-
Guarantees received (margin accounts)		371,516		-		371,516		-
Total		2,458,048		-		2,458,048		-

	Fair value measurement
As of December 31,	2017		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Trading investments		485,736		481,642		4,094		-
Available for sale investments		2,574,546		2,549,226		24,674		646
Derivatives		2,238,647		-		2,216,306		22,341
Guarantee deposits (margin accounts)		323,767		323,767		-		-
Total		5,622,696		3,354,635		2,245,074		22,987

Liabilities
Derivatives		2,139,488		-		2,139,481		7
Guarantees received (margin accounts)		408,313		408,313		-		-
Total		2,547,801		408,313		2,139,481		7

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 109

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

The following table presents the Bank’s activity for assets and liabilities that aren’t measured at fair value in the consolidated financial statements. Their fair value is shown as of September 30, 2018 and December 31, 2017:

	Fair value measurement
As of September 30,
(Unaudited)	2018		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Loans and accounts receivable and Interbank Loans		29.862.574		-		-		29.862.574
Total		29.862.574		-		-		29.862.574

Liabilities
Deposits and Interbank borrowing		22.641.126		-		22.641.126		-
Issued debt instruments and other liabilities		9.077.110		-		9.077.110		-
Total		31.718.236		-		31.718.236		-

	Fair value measurement
As of December 31,	2017		Level 1		Level 2		Level 3
	MCh$		MCh$		MCh$		MCh$

Assets
Loans and accounts receivable and Interbank Loans		28,518,929		-		-		28,518,929
Total		28,518,929		-		-		28,518,929

Liabilities
Deposits and Interbank borrowing		20,887,959		-		20,887,959		-
Issued debt instruments and other liabilities		7,487,591		-		7,487,591		-
Total		28,518,929		-		28,518,929		-

There weren’t any transfers made between level 1 and 2 for the periods ended as of September 30, 2018 and December 31, 2017.

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 September 30, 2018 and 2017:

	Assets			Liabilities
	MCh$			MCh$

As of January 1, 2018		22,987			7
Total realized and unrealized profits (losses)
Included in statement of income		(9,334	)		(7	)
Included in other comprehensive income		25			-
Purchases, issuances, and loans (net)		-			-

As of September 30, 2018 (Unaudited)		13,678			-

Total profits or losses included in comprehensive income as of September 30, 2018 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2017		(9,309	)		(7	)

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 110

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

	Assets			Liabilities
	MCh$			MCh$

As of January 1, 2017		40,034			43

Total realized and unrealized profits (losses)
Included in statement of income		(3,143	)		(28	)
Included in other comprehensive income		12			-
Purchases, issuances, and loans (net)		-			-

As of September 30, 2017 (Unaudited)		36,879			15

Total profits or losses included in comprehensive income at September 30, 2017 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2016		(3,155	)		(28	)

The realized and unrealized profits (losses) included in comprehensive income for 2018 and 2017, 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 September 30, 2018 and 2017 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant entries (level 3), generated by changes in the principal assumptions if other reasonably possible assumptions that are less or more favorable were used, is not considered by the Bank to be significant.

The following tables show the financial instruments subject to compensation in accordance with IAS 32, for 2018 and 2017:

	As of September 30, 2018
	(Unaudited)
	Linked financial instruments, compensated in balance

							Remains of
							unrelated and /
							or		Amount in
					Net amount		unencumbered		Statements of
			Compensated		presented in		financial		Financial
	Gross amounts		in balance		balance		instruments		Position
	Ch$ Million		Ch$ Million		Ch$ Million		Ch$ Million
Assets
Financial derivative contracts		1,938,037		-		1,938,037		292,411		2,230,448
Investments under resale agreements		-		-		-		-		-
Loans and accounts receivable from customers, and Interbank loans, net		-		-		-		29,167,634		29,167,634
Total		1,938,037		-		1,938,037		29,460,045		31,398,082

Liabilities
Financial derivative contracts		1,762,128		-		1,762,128		324,404		2,086,532
Investments under resale agreements		180,001		-		180,001		-		180,001
Déposits and interbank borrowings		-		-		-		22,554,796		22,554,796
Total		1,942,129		-		1,942,129		22,879,200		24,821,329

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 111

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 34

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued

	As of December 31, 2017
	Linked financial instruments, compensated in balance
							Remains of
							unrelated and /
							or		Amount in
					Net amount		unencumbered		Statements of
			Compensated		presented in		financial		Financial
	Gross amounts		in balance		balance		instruments		Position
	Ch$ Million		Ch$ Million		Ch$ Million		Ch$ Million
Assets
Financial derivative contracts		2,029,657		-		2,029,657		208,990		2,238,647
Investments under resale agreements		-		-		-		-		-
Loans and accounts receivable from customers, and Interbank loans, net		-		-		-		26,910,141		26,910,141
Total		2,029,657		-		2,029,657		27,119,131		29,148,788
Liabilities
Financial derivative contracts		1,927,654		-		1,927,654		211,834		2,139,488
Investments under resale agreements		268,061		-		268,061		-		268,061
Déposits and interbank borrowings		-		-		-		21,380,467		21,380,467
Total		2,195,715		-		2,195,715		21,592,301		23,788,016

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 112

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2018 AND 2017 AND DECEMBER 31, 2017

NOTE 35

SUBSEQUENT EVENTS

There are no other subsequent events to be disclosed that occurred between October 1, 2018 and the date of issuance of these Interim Consolidated Financial Statements (October 22, 2018).

FELIPE CONTRERAS FAJARDO	MIGUEL MATA HUERTA
Chief Accounting Officer	Chief Executive Officer

Consolidated Interim Financial Statements September 2018 / Banco Santander-Chile 113

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: November 20, 2018