Unassociated Document

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
x
 
Form 40-F
o
 
 
          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
o
 
No
x
 
 
          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
o
 
No
x
 
 
          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
o
 
No
x
 
 
          If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
 

   
 
 

 
 
Table of Contents
 
Item
   
1.
 
1Q110 Earnings Release (Chilean Bank GAAP)
2.
 
Financial Statements in Spanish as of March 31, 2011
3.
 
Translation of Material Events
 
 
2

 
 
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/
 
Name:
Juan Pedro Santa María
 
Title:
General Counsel
Date: May 20, 2011
 
 
3

 

FIRST QUARTER 2011
EARNINGS REPORT
 
 
 

 
 
INDEX

SECTION
 
PAGE
     
SECTION 1: SUMMARY OF RESULTS
 
2
     
SECTION 2: BALANCE SHEET ANALYSIS
 
6
     
SECTION 3: ANALYSIS OF QUARTERLY INCOME STATEMENT
 
9
     
SECTION 4: CREDIT RISK RATINGS
 
16
     
SECTION 5: SHARE PERFORMANCE
 
17
     
ANNEX 1: BALANCE SHEET
 
18
     
ANNEX 2: QUARTERLY INCOME STATEMENTS
 
19
     
ANNEX 3: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION
 
20
 
CONTACT INFORMATION
   
Robert Moreno
 
Santiago, Chile
Manager, Investor Relations Department
 
Tel: (562) 320-8284
Banco Santander Chile
 
Fax: (562) 671-6554
Bandera 140 Piso 19
 
Email: rmorenoh@santander.cl
   
Website: www.santander.cl
 
 
 

 
 
SECTION 1: SUMMARY OF RESULTS

Pre-tax net income increases 2.6% YoY in 1Q11

In 1Q11, net income attributable to shareholders1 totaled Ch$116,298 million (Ch$0.62 per share and US$1.33/ADR2). On a pre-tax basis, net income increased 2.6% compared to 1Q10 (from now on YoY). Compared to 4Q10 (from now on QoQ), pre-tax net income increased 25.6% mainly as a result of a one-time charge of Ch$39,800 million recognized in 4Q10. After tax net income fell 2.4% YoY mainly as a result of the higher statutory corporate tax rate that increased to 20% in 2011.

Strong loan growth in the quarter.

Santander Chile Loan Market Share (%)

   
Santander Chile: Market Share, %
 
   
Market Share
   
Chg. YoY (bp)
 
   
March 11, %
   
as of 3/11
 
Loans
    21.6       +130      
Individual
    25.1       +60      
- Consumer and Credit
    27.7       +140      
- Mortgage
    23.7       +0      
Companies*
    19.4       +180      
 
In 1Q11, total loans increased 7.1% QoQ and 19.4% YoY. Higher yielding retail loans, which include loans to individuals and small and middle-sized companies - increased 3.1% QoQ and 16.4% YoY in 1Q11. In the middle market, loans increased 8.3% QoQ and 22.5% YoY. This segment was positively affected by economic growth, especially the rise in investment levels.  Corporate lending increased 35.9% QoQ and 37.3% YoY.  This rise was due, in part, to the increase in loans to Chilean blue chip corporations. Loan market share in March 2011, the latest figure available, reached 21.6% and has increased 130 bp in the last twelve months. Notable has been the increase of our consumer loan market share that increased 140 basis points to 27.7% YoY.

Record growth of core deposits

Customer deposits increased 10.7% in the quarter, led by a record 12.1% QoQ and 40.7% rise in core deposits (non-institutional deposits). In the quarter, the Bank focused on increasing its core deposit base in line with growth of the loan book. The Bank’s loan to deposit ratio (measured as loans minus marketable securities that fund mortgage portfolio over total deposits) improved to 96.9% as of March 2011 from 99.8% as of December 2010 and 104.3% as of March 2010. As of March 2011, 74% of the Bank’s deposits were core.
   

1 The results in this report are unaudited.
2 Earnings per ADR was calculated using the observed exchange rate of Ch$482.08 per US$. As of March 31, 2010.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
2

 

  
Operating income net of provisions and costs* increases 14.1% QoQ and 11.0% YoY in 1Q11

 
Operating income, net of provisions and costs
                 
(Ch$ million)
    1Q11    
YoY Chg.
   
QoQ Chg.
 
Net interest income
    228,683       (0.3 )%     (1.4 )%
Provision expense**
    (48,674 )     (31.9 )%     (22.5 )%
Net interest income, net of provision expense
    180,009       14.0 %     6.5 %
Fee income
    71,389       14.5 %     2.5 %
Financial transactions, net
    26,193       (11.4 )%     33.2 %
Operating expenses
    (115,688 )     11.2 %     (0.6 )%
Gross income, net of provisions & costs
    161,903       11.0 %     14.1 %
* Excludes other operating income and expenses
** Provision expense excludes the one-time charge of Ch$39,800 million recognized in 4Q10.

Operating income, net of provisions and costs, an indicator or recurring revenue generation increased a solid 14.1% QoQ and 11.0% YoY in 1Q11. This was led by a 6.5% QoQ and 14.0% YoY increase in net interest income, net of provisions. The Central Bank continued to tighten monetary policy in the quarter and boosted short-term interest rates 75 basis points to 4.00%. As the Bank’s liabilities have a shorter duration than assets, they re-price more quickly than assets in a rising interest rate environment. This explains, in part, the 1.4% QoQ and 0.3% YoY decrease in net interest income in 1Q11.

The decline in net interest income was also due to the normalization of credit margins to pre-crisis levels as asset quality has improved across the board in the Chilean economy. This has positively affected provision expenses. Provision expense in the quarter decreased 22.5% QoQ and 31.9% YoY, offsetting the negative effect on margins of higher funding costs. The net interest margin net of provisions reached 4.0% in 1Q11 compared to 3.9% in 4Q10 and 4.0% in 1Q10. The NPL ratio improved to 2.47% of total loans from 2.66% in 4Q10 and 2.74% in 1Q10. The coverage ratio of total NPLs (loan loss reserves over non-performing loans) reached 118.2% as of March 31, 2011 compared to 115.6% as of December 31, 2010 and 97.4% as of March 31, 2010. The Banks on-going efforts in 2009 and 2010 of improving credit scoring models, boosting coverage and improving collection efforts of early non-performance at the branch level has also been a driver of the lower provision expense and higher coverage ratios.

Fee income was up 2.5% QoQ and 14.5% YoY as product usage and cross-selling indicators continued to improve in the quarter. The number of checking accounts increased 13.9% YoY, credit cards +18.1% YoY and Debit cards grew 9.8% YoY. Purchases with Santander Chile’s credit cards increased 31.6% YoY in monetary terms. Greater commercial activity in retail banking also boosted fees, especially in insurance brokerage, stock brokerage, asset management and fees from credit and debit cards.

Operating expenses in 1Q11 decreased 0.6% QoQ and increased 11.2% YoY. The efficiency ratio reached 37.5% in 1Q11. The QoQ decrease in personnel expenses was mainly due to seasonal factors and no significant variation in headcount. The 13.0% YoY increase in personnel expenses was mainly due greater commercial activity in various business segments, especially retail banking. Administrative expenses were up 5.1% QoQ and 9.6% YoY. This rise was in line with the significant expansion of business activity in the quarter. At the same time, the Bank, in anticipation of a more positive economic environment forecast for the coming years, has been investing in technology and alternative distribution channels. In 2011, the Bank expects to open approximately 25 branches and has already begun an important investment program in CRM technology, client service and new credit scoring models for SMEs. These projects should drive stronger revenue growth while increasing productivity.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
3

 
 
    
ROE reaches 25.0% in 1Q11. Core capital at 10.2%.

 
With these results, the Bank’s ROAE, reached 25% (25.5% post-dividend). The Bank currently has one of the highest ROEs and capitalization levels in the Chilean financial system. Voting common shareholders’ equity is the sole component of our Tier I capital and represented 10.68% of risk-weighted assets. The BIS ratio reached 14.18% as of March 31, 2011.  On April 27, 2011, the Bank paid its annual dividend of Ch$1.52/share, 10.6% more than in 2010 and equivalent to 60% of 2010 earnings attributable to shareholders. At the record date in Chile, the dividend yield was 3.7%.  The Bank has not issued shares since 2002 and dividends per share have increased for the last five years in a row.

Dividends per share (Ch$)
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
4

 
 
Banco Santander Chile: Summary of Quarterly Results

 
   
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Net interest income
    228,683       231,865       229,398       (0.3 )%     (1.4 )%
Fee income
    71,389       69,637       62,351       14.5 %     2.5 %
Core revenues
    300,072       301,502       291,749       2.9 %     (0.5 )%
Financial transactions, net
    26,193       19,661       29,573       (11.4 )%     33.2 %
Provision expense1
    (48,674 )     (102,637 )     (71,489 )     (31.9 )%     (52.6 )%
Operating expenses
    (115,688 )     (116,380 )     (103,999 )     11.2 %     (0.6 )%
Operating income, net of provisions and costs
    161,903       102,146       145,834       11.0 %     58.5 %
Other operating & Non-op. Income
    (45,605 )     (8,274 )     (26,730 )     70.6 %     451.2 %
Net income attributable to shareholders
    116,298       93,872       119,104       (2.4 )%     23.9 %
Net income/share (Ch$)
    0.62       0.50       0.63       (2.4 )%     23.9 %
Net income/ADR (US$)2
    1.33       1.11       1.25       6.6 %     20.4 %
Total loans3
    16,774,368       15,657,557       14,043,570       19.4 %     7.1 %
Customer funds
    15,866,754       14,683,342       14,344,713       10.6 %     8.1 %
Shareholders’ equity
    1,905,690       1,831,798       1,683,104       13.2 %     4.0 %
Net interest margin
    5.1 %     5.4 %     5.8 %                
Efficiency ratio
    37.5 %     34.8 %     32.9 %                
Return on average equity4
    25.0 %     20.8 %     28.6 %                
NPL5 / Total loans
    2.5 %     2.7 %     2.7 %                
Coverage NPLs6
    118.2 %     115.6 %     97.4 %                
PDLs/ Total loans
    1.29 %     1.32 %     1.40 %                
Coverage PDLs7
    226.33 %     233.10 %     190.48 %                
Risk index8
    2.92 %     3.08 %     2.67 %                
BIS ratio
    14.1 %     14.5 %     14.7 %                
Branches
    506       504       498                  
ATMs
    2,017       2,018       1,856                  
Employees
    11,115       11,001       11,155                  
1.
Beginning in January 2011, new provisioning guidelines defined by the Superintendency of Banks (SBIF) - the industry supervisor - for loans analyzed on an individual basis came into effect. This encompasses mainly large commercial, leasing and factoring loans. These regulations had an initial cost of implementation of Ch$39,800 million. As per indications of the SBIF, this one time effect was recognized in December 2010 as an Other operating expenses in the income statement and as a Non-credit provision in the Bank’s Liabilities. As stated in the 4Q10 Earnings Report, the SBIF also indicated that in 2011, this liability must be shifted to Loan loss reserves in the Balance Sheet and Provision Expenses in the Income Statement with no impact to net income. The Bank also reclassified Ch$ 1,302 million in provisions for off balance sheet contingent loans recognized as other operating expenses and as a Non-credit provision in the Bank’s liabilities in March 2010 figures, also with no impact on net income.
2.
The change in earnings per ADR may differ from the change in earnings per share due to the exchange rate. Earnings per ADR was calculated using an exchange rate of Ch$482.08 per US$.
3.
Excludes interbank loans.
4.
Annualized quarterly Net income attributable to shareholders / Average equity attributable to shareholders.
5.
NPLs: Non-performing loans; full balance of loans with one installment 90 days or more overdue.
6.
Loan loss allowances / NPLs.
7.
PDLs: Past due loans; all loan installments that are more than 90 days overdue.
8.
Risk Index: Loan loss allowances / Total loans; measures the percentage of loans the Bank’s must provision for given its internal models and the Superintendency of Banks guidelines.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
5

 
 
   
SECTION 2: BALANCE SHEET ANALYSIS

 
LOANS

Strong loan growth in all segments and products

Loans
 
Quarter ended,
   
% Change
 
(Ch$ million)
 
Mar-11
   
Dec-10
   
Mar-10
   
Mar. 11 / 10
   
Mar. 11 /
Dec. 10
 
Total loans to individuals1
    8,652,205       8,407,416       7,411,686       16.7 %     2.9 %
Total loans to individuals1
    8,652,205       8,407,416       7,411,686       16.7 %     2.9 %
Consumer loans
    2,815,118       2,700,791       2,303,983       22.2 %     4.2 %
Residential mortgage loans
    4,758,712       4,651,136       4,219,733       12.8 %     2.3 %
SMEs
    2,467,951       2,375,192       2,143,885       15.1 %     3.9 %
Total retail lending
    11,120,156       10,782,608       9,555,571       16.4 %     3.1 %
Institutional lending
    352,593       331,153       313,079       12.6 %     6.5 %
Middle-Market & Real estate
    3,562,558       3,288,107       2,907,944       22.5 %     8.3 %
Corporate
    1,757,732       1,293,321       1,279,965       37.3 %     35.9 %
Total loans 2
    16,774,368       15,657,557       14,043,570       19.4 %     7.1 %
1. Includes consumer loans, residential mortgage loans and other loans to individuals.
2. Total loans gross of loan loss allowances. Total loans include other non-segmented loans and exclude interbank loans.

In 1Q11, total loans increased 7.1% QoQ and 19.4% YoY. In 1Q11, Chile’s economy is forecast to grow by over 10% in 1Q11. In 2011, GDP is expected to grow close to 6.5% led by a strong increase in private investment and consumption levels. Unemployment figures have also been better than expected as well as wage growth. This has boosted the Bank’s credit activity in all segments.

Higher yielding retail loans – which include loans to individuals and small and middle-sized companies, SMEs - increased 3.1% QoQ (16.4% YoY) in 1Q11.

-
Consumer loans increased 4.2% QoQ increase and 22.2% YoY. This positive evolution was driven by credit cards loans that expanded 7.1% QoQ (38.7% YoY) as the Bank’s market share in the credit card business continues to rise.
-
Residential mortgage loans increased 2.3% QoQ (12.8% YoY), as long-term rates remained attractive and demand for purchasing housing continues to rise.
-
Lending to SMEs (defined as companies that sell less than Ch$1,200 million per year) increased 3.9% QoQ (15.1% YoY), reflecting the strength of economic growth and the Bank’s focus on this high yielding segment.

In the middle market, which is comprised of companies with annual sales greater than Ch$1,200 million increased 8.3% QoQ (22.5% YoY). This segment was positively affected by economic growth, especially the rise in investment levels.

Corporate lending (companies with sale over Ch$10,000 million or that are part of a large foreign or local economic group) increased 35.9% QoQ (37.3% YoY).  This rise was due, in part, to the increase in loans to Chilean blue chip corporations in line with the strong expansion of investment in the local economy. In this segment, the Bank competes not only with Chilean lender, but also with international banks, including other units of Grupo Santander. The Banks international funding costs are currently lower than many high-grade European and U.S. banks, permitting us to participate more actively in this segment. This should permit the Bank not only to increase its lending business, but also, to enhance even further its highly profitable non-lending businesses with these companies.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
6

 
 
     
FUNDING

Core deposits grow 12.1% QoQ and 40.7% YoY

Funding
 
Quarter ended,
   
% Change
 
(Ch$ million)
 
Mar-11
   
Dec-10
   
Mar-10
   
Mar. 11 / 10
   
Mar. 11 /
Dec. 10
 
Demand deposits
    4,315,563       4,236,434       3,890,230       10.9 %     1.9 %
Time deposits
    8,408,818       7,258,757       6,818,939       23.3 %     15.8 %
Total deposits
    12,724,381       11,495,191       10,709,169       18.8 %     10.7 %
Mutual funds
    3,142,373       3,188,151       3,635,544       (13.6 )%     (1.4 )%
Total customer funds
    15,866,754       14,683,342       14,344,713       10.6 %     8.1 %
Loans to deposits1
    96.9 %     99.8 %     104.3 %                
1. (Loans - marketable securities that fund mortgage portfolio) / (Time deposits + demand deposits).

Customer funds increased 8.1% in the quarter led by a 10.7% rise in total deposits. Demand deposits in the period increased 1.9% and time deposits were up 15.8% in the same period. Deposit growth was led by a 12.1% QoQ and 40.7% rise in core deposits (non-institutional time deposits). In the quarter, the Bank focused on increasing its core deposit base in line with growth of the loan book. The Bank’s loan to deposit ratio (measured as loans minus marketable securities that fund mortgage portfolio over total deposits) improved to 96.9% as of March 2011 from 99.8% as of December 2010 ands 104.3% as of March 2010. As of March 2011, 74% of the Bank’s deposits were core deposits. As short-term interest rates went up in the quarter, the Bank proactively increased its cheaper core deposit base.  Going forward, as short-term interest rates continue to rise, demand deposit growth should decelerate and time deposit growth should continue to accelerate.

*  Demand deposits + Non-institutional time deposits.
 
Mutual funds under management decreased 1.4% QoQ. This was mainly due to negative mark-to-market effects on fixed income funds as short-term interest rates increased. The Bank also proactively shifted client funds from money market funds to time deposits.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
7

 
 
       
SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

ROAE of 25.0% achieved in 1Q11. BIS ratio at 13.9% and Tier I at 10.6%

Shareholders' Equity
 
Quarter ended,
   
Change %
 
 
(Ch$ million)
 
Mar-11
   
Dec-10
   
Mar-10
   
Mar. 11 / 10
   
Mar. 11 /
Dec. 10
 
Capital
    891,303       891,303       891,303       0.0 %     0.0 %
Reserves
    51,539       51,539       51,539       (0.0 )%     (0.0 )%
Unrealized gain (loss) Available-for-sale financial assets
    (12,697 )     (5,180 )     (32,620 )     (61.1 )%     145.1 %
Retained Earnings:
    975,545       894,136       772,882       26.2 %     9.1 %
Retained earnings previous periods
    1,037,283       560,128       818,885       26.7 %     85.2 %
Net income
    116,298       477,155       119,104       (2.4 )%     (75.6 )%
Provision for mandatory dividend
    (178,036 )     (143,147 )     (165,107 )     7.8 %     24.4 %
Equity attributable to shareholders
    1,905,690       1,831,798       1,683,104       13.2 %     4.0 %
Minority Interest
    34,486       31,809       29,942       15.2 %     8.4 %
Total Equity
    1,940,176       1,863,607       1,713,046       13.3 %     4.1 %
ROAE
    25.0 %     20.8 %     28.6 %                

Shareholders’ equity totaled Ch$1,905,690 million (US$4.0 billion) as of March 31, 2011. ROAE in the quarter reached 25.0% in 1Q11 (25.5% post-dividend). Voting common shareholders’ equity is the sole component of our Tier I capital and represented 10.6% of risk-weighted assets. The BIS ratio reached 14.1% as of March 31, 2011.

On April 27, 2011, the Bank paid its annual dividend of Ch$1.52/share, 10.6% more than in 2010 and equivalent to 60% of 2010 earnings attributable to shareholders. At the record date in Chile, the dividend yield was 3.7%.

Capital Adequacy
 
Quarter ended,
   
Change %
 
 
(Ch$ million)
 
Mar-11
   
Dec-10
   
Mar-10
   
Mar. 11 / 10
   
Mar. 11 /
Dec. 10
 
Tier I
    1,905,690       1,831,799       1,683,103       13.2 %     4.0 %
Tier II
    642,221       672,099       599,353       7.2 %     (4.4 )%
Regulatory capital
    2,547,912       2,503,898       2,282,455       11.6 %     1.8 %
Risk weighted assets
    18,013,990       17,245,265       15,513,732       16.1 %     4.5 %
Tier I (Core capital) ratio
    10.6 %     10.6 %     10.8 %                
BIS ratio
    14.1 %     14.5 %     14.7 %                
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
8

 
 
    
SECTION 3: ANALYSIS OF QUARTERLY INCOME STATEMENT

NET INTEREST INCOME

Positive commercial trends partially offset by negative impact of rising rates on Net interest income

Net Interest Income / Margin
 
Quarter
   
Change %
 
 
(Ch$ million)
    1Q11       4Q10       1Q10      
1Q11 /
1Q10
     
1Q 11 /
4Q10
 
Interest income
    378,417       367,381       321,238       17.8 %     3.0 %
Interest expense
    (149,734 )     (135,516 )     (91,840 )     63.0 %     10.5 %
Net interest income
    228,683       231,865       229,398       (0.3 )%     (1.4 )%
Average interest-earning assets
    17,866,010       17,176,435       15,776,237       13.2 %     4.0 %
Average loans
    16,150,015       15,470,132       13,879,173       16.4 %     4.4 %
Interest earning asset yield1
    8.5 %     8.6 %     8.1 %                
Cost of funds2
    3.2 %     3.2 %     2.2 %                
Net interest margin (NIM)3
    5.1 %     5.4 %     5.8 %                
Net interest margin net of provisions4
    4.0 %     3.9 %     4.0 %                
Avg. equity + non-interest bearing  demand deposits / Avg. interest earning assets
    34.3 %     34.1 %     33.9 %                
Quarterly inflation rate5
    0.57 %     0.54 %     0.27 %                
Avg. Central Bank reference rate
    4.00 %     3.25 %     0.50 %                
Avg. 10 year Central Bank yield (real)
    3.09 %     3.01 %     3.14 %                
1. Interest income divided by interest earning assets
2. Interest expense divided by interest bearing liabilities + demand deposits
3. Net interest income divided by average interest earning assets annualized.
4. Net interest income net of provision expenses divided by interest earning assets. Excludes one-time provision expense of Ch$39.8bn in 4Q10.
5. Inflation measured as the variation of the Unidad de Fomento in the quarter.

Net interest income decreased 1.4% QoQ and 0.3% YoY. The Net interest margin in 1Q11 reached 5.1% compared to 5.4% in 4Q10 and 5.8% in 1Q10. Compared to 4Q10 and 1Q10, the decline in net interest income and margin was mainly due to higher short-term interest rates. The Central Bank increased short-term interest rates 75 basis points to 4.00% QoQ and 350 basis points in the last twelve months. The Bank’s liabilities have a shorter duration than assets and, therefore, re-price more quickly in a rising interest rate environment.  This has increased funding costs as reflected in the 10.5% QoQ and 63.0% YoY rise in interest expense.  Going forward, we expect rates to continue to rise. However, this negative effect on spreads should be partially compensated by:

 
(i)
improved asset quality. The Bank’s net interest margin net of provision expense reached 4.0% in 1Q11 compared to 3.9% in 4Q10 and 4.0% in 1Q10. Net interest income net of provision expense increased 6.5% QoQ and 13.1% YoY. As a result, the increase in funding costs has been offset by the decrease in provision expense;
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
9

 
 
     
 
(ii)
stabilization of the Bank’s funding costs. The Bank’s cost of funds increased 100 bp YoY to 3.2% in 1Q11, although this rise was lower than the rise in market rates. QoQ the Bank’s cost of funds remained stable as the Bank increased its cheaper core deposit base in the quarter (See Section 2: Funding) and continued to extend the duration of its institutional funding base in order to minimize negative impacts of rising short-term rates on our net interest margin. The ratio of average equity plus average demand deposits also improved to 34.3% in 1Q11 compared to 34.1% in 4Q10 and 33.9% in 1Q10;
 
(iii)
loan growth and yields; The Bank’s interest earning asset yields (interest income divided by average interest earning assets) have been gradually rising. In 1Q11, interest earning asset yields increased by 40 basis points YoY to 8.5% as our interest earning assets incorporate the rising interest rates; and
 
(iv)
the positive impact on margins of higher inflation forecast for the rest of 2011, as the Bank has more assets than liabilities linked to inflation.

PROVISION FOR LOAN LOSSES

Asset quality improves in the quarter. Coverage of NPLs reaches 118.2%

Provision for loan losses
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Gross provisions
    (131 )     (53,746 )     (27,303 )     (99.5 )%     (99.8 )%
Charge-offs
    (54,178 )     (55,815 )     (52,158 )     3.9 %     (2.9 )%
Gross provisions and charge-offs
    (54,309 )     (109,561 )     (79,461 )     (31.7 )%     (50.4 )%
Loan loss recoveries
    5,635       6,924       7,972       (29.3 )%     (18.6 )%
Net provisions for loan losses1
    (48,674 )     (102,637 )     (71,489 )     (31.9 )%     (52.6 )%
Total loans2
    16,774,368       15,657,557       14,043,570       19.4 %     7.1 %
Loan loss reserves1
    489,034       481,581       375,366       30.3 %     1.5 %
Non-performing loans3 (NPLs)
    413,775       416,739       385,211       7.4 %     (0.7 )%
Risk Index4
    2.92 %     3.08 %     2.67 %                
NPL / Total loans
    2.47 %     2.66 %     2.74 %                
Coverage ratio of NPLs5
    118.2 %     115.6 %     97.4 %                
1.
Provision for loan losses and loan loss reserves for 1Q10 includes a reclassification of Ch$1,302 million of provisions for off-balance sheet contingent loans from Other operating expenses and Other Provisions to Loan loss reserves and Provision Expenses. 4Q10 Provision for loan losses and loan loss reserves includes a reclassification of Ch$39,800 million of provisions for commercial loans recognized in line with the change in provisioning models for commercial loans analyzed on an individual basis. This charge was reclassified from Other operating expenses and Other Provisions to Loan loss reserves and Provision Expenses.
2.
Excludes interbank loans.
3.
NPL: Non-performing loans; full balance of loans with one installment 90 days or more overdue.
4.
Risk Index: Loan loss reserves / Total loans; measures the percentage of loans the Bank’s must provision for given its internal models and the Superintendency of Banks guidelines.
5.
Loan loss reserves / NPLs.

Asset quality improved in the quarter. The NPL ratio improved to 2.47% of total loans from 2.66% in 4Q10 and 2.74% in 1Q10. The coverage ratio of total NPLs (loan loss reserves over non-performing loans) also improved and reached 118.2% as of March 31, 2011 compared to 115.6% as of December 31, 2010 and 97.4% as of March 31, 2010.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
10

 
 
   
Provision expense in the quarter decreased 52.6% QoQ and 31.9% YoY in 1Q11.  The QoQ declines was mainly due to the Ch$39,800 million in one-time provision expenses recognized in 4Q10 as a result of the change in provisioning methodology for commercial loans analyzed on an individual basis. Excluding this charge, QoQ provision expense decreased 22.5%. As asset quality improved in the quarter as economic growth and employment levels rebounded sharply in the year.  The Banks on-going efforts in 2009 and 2010 of improving credit scoring models, boosting coverage and improving collection efforts of early non-performance at the branch level has also been a driver of the lower provision expense and higher coverage ratios.

By loan product, provision expense was as follows:

Net provisions by segment
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Commercial loans1,2
    (4,683 )     (57,605 )     (23,231 )     (79.8 )%     (91.9 )%
Residential mortgage loans
    (5,222 )     (6,356 )     (5,197 )     0.5 %     (17.8 )%
Consumer loans2
    (38,769 )     (38,676 )     (43,061 )     (10.0 )%     0.2 %
Net provisions for loan losses
    (48,674 )     (102,637 )     (71,489 )     (31.9 )%     (52.6 )%
1.
4Q10 figures includes Ch$39,800 million as a result of the
2.
Includes net provision expenses for interbank loans.
3.
Includes provision reversal for contingent loans, which is included in Other operating income in 3Q10.

The Bank expects, as the Chilean economy strengthens, to see a rise in consumer and SME lending. This expected rise in retail lending is being complemented with continuous investments and improvements in the Bank’s credit scoring models in order to maintain an adequate balance between loan growth and risk levels.

Note: Reclassifications of Provisions in Income Statement and Balance Sheet

Beginning in January 2011, new provisioning guidelines defined by the Superintendency of Banks (SBIF) - the industry supervisor - for loans analyzed on an individual basis came into effect. This encompasses mainly large commercial, leasing and factoring loans. These regulations had an initial cost of implementation of Ch$39,800 million. As per indications of the SBIF, this one time effect was recognized in December 2010 as an Other operating expenses in the income statement and as a Non-credit provision in the Bank’s Liabilities. As stated in the 4Q10 Earnings Report, the SBIF also indicated that in 2011, this liability must be shifted to Loan loss reserves in the Balance Sheet and Provision Expenses in the Income Statement with no impact to net income. The Bank also reclassified Ch$ 1,302 million in provisions for off balance sheet contingent loans recognized as other operating expenses and as a Non-credit provision in the Bank’s liabilities in March 2010 figures, also with no impact on net income.
 
It is important to point out that such provisions are not expected to be reflected in the Bank's financial statements prepared in accordance with IFRS and filed with the U.S. Securities and Exchange Commission in our 2010-20F because such provisions are not expected to relate to incurred losses.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
11

 
 
    
NET FEE INCOME

Solid growth of fees

Fee Income
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10    
1Q11 /
1Q10
   
1Q 11 /
4Q10
 
Collection fees
    15,488       16,764       13,812       12.1 %     (7.6 )%
Credit, debit & ATM card fees
    14,786       14,677       14,351       3.0 %     0.7 %
Asset management
    10,953       10,841       9,391       16.6 %     1.0 %
Checking accounts & lines of credit
    10,178       10,273       11,265       (9.6 )%     (0.9 )%
Insurance brokerage
    8,815       10,032       5,106       72.6 %     (12.1 )%
Guarantees, pledges and other contingent operations
    5,818       5,501       5,829       (0.2 )%     5.8 %
Fees from brokerage and custody of securities
    3,262       2,698       1,906       71.1 %     20.9 %
Other Fees
    2,089       (1,149 )     691       202.3 %     %
Total fees
    71,389       69,637       62,351       14.5 %     2.5 %

Net fee income was up 2.5% QoQ and 14.5% YoY as product usage and cross-selling indicators continued to improve in the quarter. The number of checking accounts increased 13.9% YoY, credit cards +18.1% YoY and Debit cards grew 9.8% YoY.

 Greater commercial activity in retail banking also boosted insurance related fees. Collection fees in 1Q11 increased 12.1% YoY and fees from our insurance brokerage subsidiary increased 72.6% YoY. Greater demand for insurance has driven insurance brokerage fees. The QoQ decline in these products is mainly due to seasonal factors. Going forward, regulatory changes may limit the growth of insurance related fees.

Fees from the brokerage and custody of securities grew 20.9% QoQ and 71.1% YoY. These fees were driven by increased stock brokerage income.  Fees from asset management increased 1.0% QoQ and 16.6% YoY. Mutual funds under management decreased 1.4% QoQ and 13.6% YoY, but equity funds, which generate higher management fees, continued to expand in the quarter, driving fee income.

Fees from credit, debit and ATM cards increased 0.7% QoQ and 3.0% YoY. Purchases with Santander Chile’s credit cards increased 31.6% YoY in monetary terms. This positive growth in usage and number of cards was partially offset by the increase in fee expenses related to our co-branding programs.

This positive evolution of fees in the quarter was offset by a fall in non-usage related fees such as checking account fees that decreased 0.9% QoQ and 9.6% YoY.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
12

 
 
    
NET RESULTS FROM FINANCIAL TRANSACTIONS

Positive evolution of client treasury activities

Results from Financial Transactions*
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Net income from financial operations
    49,375       (13,191 )     52,092       (5.2 )%     (474.3 )%
Net foreign exchange income
    (23,182 )     32,852       (22,519 )     2.9 %     (170.6 )%
Net results from financial transactions
    26,193       19,661       29,573       (11.4 )%     33.2 %
These results mainly include the mark-to-market of the available for sale investment portfolio, realized and unrealized gains of financial investments held for trading, the interest revenue generated by the held for trading portfolio, gains or losses from the sale of charged-off loans and the mark-to-market of derivatives. The results recorded as Exchange differences, net mainly includes the translation gains or losses of assets and a liability denominated in foreign currency.

Net results from financial transactions, which include the sum of the net income from financial operations and net foreign exchange income totaled a gain of Ch$26,193 million in 1Q11. In order to comprehend more clearly these line items, we present them by business area in the table below.

Results from Financial Transactions
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Santander Global Connect and other client activities
    16,040       13,585       13,029       23.1 %     18.1 %
Market-making
    9,028       1,560       6,304       43.2 %     478.7 %
Client treasury services
    25,068       15,145       19,333       29.7 %     65.5 %
Proprietary trading
    2,971       (1,018 )     7,067       (58.0 )%     (391.8 )%
Sale of loans and charged-off loans
    1,081       8,375       (43 )     %     (87.1 )%
Financial Management (ALCO) and other results
    (2,927 )     (2,841 )     3,216       %     3.0 %
Non-client treasury services
    1,126       4,516       10,240       (89.0 )%     (75.1 )%
Net results from financial transactions
    26,193       19,661       29,573       (11.4 )%     33.2 %
1.  Santander Global Connect is the Bank’s commercial platform for selling treasury products to our clients.

The Bank’s Client treasury services continued to generate positive results in 1Q11, totaling Ch$25,068 million and increasing 65.5% QoQ and 29.7% YoY. This was driven by a rises in our market making business and better results from Santander Global Connect, our commercial platform for selling treasury products to clients. More than 70% of income generated with our corporate and middle market clients comes from recurring non-lending activities.

These results were partially offset by lower results in Non-client treasury services. In the quarter, interest rates continued to rise, negatively affecting our proprietary trading and Financial Management (ALCO). The Financial Management Division manages the structural interest rate risk, the structural position in inflation-indexed assets and liabilities, shareholders’ equity and liquidity. The aim of the Financial Management Division is to inject stability and recurrence into the net interest income of commercial activities and to ensure that we comply with internal and regulatory limits regarding liquidity, regulatory capital, reserve requirements and market risk. Results were also affected by lower gains from the sale of charged-off loans in the quarter.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
13

 
 
     
OPERATING EXPENSES AND EFFICIENCY

Stable QoQ evolution of costs.  Investing to grow.

Operating Expenses
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Personnel expenses
    (62,841 )     (65,344 )     (55,589 )     13.0 %     (3.8 )%
Administrative expenses
    (39,502 )     (37,600 )     (36,053 )     9.6 %     5.1 %
Depreciation and amortization
    (13,340 )     (13,176 )     (12,341 )     8.1 %     1.2 %
Impairment
    (5 )     (260 )     (16 )     (68.8 )%     (98.1 )%
Operating expenses
    (115,688 )     (116,380 )     (103,999 )     11.2 %     (0.6 )%
Efficiency ratio1
    37.5 %     34.8 %     32.9 %                
1.
Operating expenses / Operating income. Operating income = Net interest income + Net fee income+ Net results from Financial transactions + Other operating income and expenses.

Operating expenses in 1Q11 decreased 0.6% QoQ and increased 11.2% YoY. The efficiency ratio reached 37.5% in 1Q11.

The QoQ decrease in personnel expenses was mainly due to seasonal factors and no significant variation in headcount. The 13.0% YoY increase in personnel expenses was mainly due greater commercial activity in various business segments, especially retail banking and as a result, variable incentives to commercial teams have increased. Headcount as of March 31 2011 totaled 11,115 personas and did not vary YoY.

Administrative expenses were up 5.1% QoQ and 9.6% YoY. This was also mainly due to greater commercial activity which increased marketing and general expenses. Branch rent expenses also increased as the Bank in 2010 sold 43 branches, which it now rents. At the same time, the Bank, in anticipation of a more positive economic environment forecast for the coming years, has been investing in technology and alternative distribution channels. The higher inflation also fueled administrative cost growth as 2/3 of operating expenses are linked to inflation. In 2011, the Bank expects to open approximately 25 branches and has already begun an important investment program in CRM technology, client service and new credit scoring models for SMEs. These projects should drive stronger revenue growth while increasing productivity.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
14

 
 

      
OTHER INCOME AND EXPENSES

Other Income and Expenses
 
Quarter
   
Change %
 
(Ch$ million)
  1Q11     4Q10     1Q10     1Q11 / 1Q10    
1Q 11 /
4Q10
 
Other operating income
    2,550       22,824       5,738       (55.6 )%     (88.8 )%
Other operating expenses1
    (20,613 )     (9,989 )     (10,927 )     88.6 %     106.4 %
Other operating income, net
    (18,063 )     12,835       (5,189 )     248.1 %     %
Income attributable to investments in other companies
    575       (4 )     120       379.2 %     %
Income tax
    (26,501 )     (18,927 )     (21,760 )     21.8 %     40.0 %
Income tax rate
    18.4 %     16.5 %     15.5 %                
1. 
The one-time charge of Ch$39,800 million recognized by the Bank in 4Q10 as part of the modification of provisioning models for commercial loans was reclassified to provision expense. See Provision Expense.
 
Other operating income, net, totaled Ch$-18,063 million in 1Q11. Other operating income totaled Ch$2,550 million and decreased 88.8% QoQ and 55.6% YoY. The QoQ decline was mainly due to the Ch$17,986 million gain recognized in 4Q10 from the sale of 27 branches. Compared to 1Q10 the 55.6% decline in other operating income was mainly due to a Ch$4,045 million gain recognized in 1Q10 from the reversal of provisions for non-credit contingencies. Other operating expenses totaled Ch$20,613 million and increased 106.4% QoQ and 88.6% YoY. Higher other operating expense in 1Q11 was mainly due to higher provisions for non-credit contingencies, which totaled Ch$6,883 million in 1Q11, and higher expenses related to repossessed assets. These totaled Ch$4,774 million in 1Q11 compared to Ch$3,282 million in 1Q10.

 
Income tax increased 40.0% QoQ and 21.8% YoY.  The statutory corporate tax rate in Chile in 2010 was 17%. In 2011, it will be 20% as part of the plan to finance the post-earthquake reconstruction efforts. In 2012, the statutory corporate tax rate will decline to 18.5% and in 2013, it will return to 17%.  The Bank’s effect tax rate tends to be below the statutory rate, since for tax purposes, the Bank still recognizes a loss from the price level restatement of its capital.
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
15

 
 
     
SECTION 4: CREDIT RISK RATINGS

International ratings

The Bank has credit ratings from three leading international agencies.

Moody’s
 
Rating
 
Foreign currency bank deposits
 
Aa3
 
Senior bonds
 
Aa3
 
Subordinated debt
  A1  
Bank Deposits in Local Currency
 
Aa3
 
Bank financial strength
  B-  
Short-term deposits
  P-1  

Standard and Poor’s (Outlook Positive)
 
Rating
 
Long-term Foreign Issuer Credit
  A+  
Long-term Local Issuer Credit
  A+  
Short-term Foreign Issuer Credit
  A-1  
Short-term Local Issuer Credit
  A-1  

Fitch
 
Rating
 
Foreign Currency Long-term Debt
 
AA-
 
Local Currency Long-term Debt
 
AA-
 
Foreign Currency Short-term Debt
  F1+  
Local Currency Short-term Debt
  F1+  
Individual rating
  B  
 
Local ratings:
 
Our local ratings, the highest in Chile, are the following:
 
Local ratings
 
Fitch
Ratings
 
Feller
Rate
Shares
 
Level 2
 
1CN1
Short-term deposits
  N1+  
Level 1+
Long-term deposits
 
AAA
 
AAA
Mortgage finance bonds
 
AAA
 
AAA
Senior bonds
 
AAA
 
AAA
Subordinated bonds
 
AA
 
AA+
Outlook
 
Stable
 
Stable
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
16

 
 
   
SECTION 5: SHARE PERFORMANCE
As of March 2011

Ownership Structure:



ADR price (US$) 1Q11
     
03/31/11:
    86.75  
Maximum (1Q11):
    93.75  
Minimum (1Q11):
    76.06  

Market Capitalization: US$15,737 million

P/E 12 month trailing*:
    15.9  
P/BV (03/31/11)**:
    3.96  
Dividend yield***:
    3.7 %

Price as of March 31 / 12mth Earnings
** 
Price as of March 31 / Book value as of 3/31/11
***
Based on closing price on record date of last dividend payment.
 
Average daily traded volumes 1Q11
US$ million



Local share price (Ch$) 1Q11
 
03/31/11:
    40.05  
Maximum (2010):
    43.65  
Minimum (2010):
    35.63  

Dividends:
           
Year paid
 
Ch$/share
   
% of previous year
earnings
 
2006:
    0.83       65 %
2007:
    0.99       65 %
2008:
    1.06       65 %
2009:
    1.13       65 %
2010:
    1.37       60 %
2011:
    1.52       60 %
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
17

 

    
ANNEX 1: BALANCE SHEET

Unaudited Balance Sheet
 
Mar-11
   
Mar-11
   
Dec-10
   
Mar-10
   
Mar. 11 / 10
   
Mar. 11 / Dec. 10
 
 
 
US$ths
   
Ch$mn
   
% Chg.
 
Assets
                                   
Cash and balances from Central Bank
    4,688,602       2,238,573       1,762,198       1,526,810       46.6 %     27.0 %
Funds to be cleared
    1,222,373       583,622       374,368       345,521       68.9 %     55.9 %
Financial assets held for trading
    561,215       267,952       379,670       877,884       (69.5 )%     (29.4 )%
Investment collateral under agreements to repurchase
    25,213       12,038       170,985       3,679       227.2 %     (93.0 )%
Derivatives
    2,948,868       1,407,937       1,624,378       1,465,832       (3.9 )%     (13.3 )%
Interbank loans
    119,160       56,893       69,672       47,738       19.2 %     (18.3 )%
Loans, net of reserves for loan losses
    34,108,981       16,285,333       15,175,975       13,668,205       19.1 %     7.3 %
Available-for-sale financial assets
    3,478,366       1,660,746       1,473,980       1,572,839       5.6 %     12.7 %
Held-to-maturity investments
    -       -       -       -                  
Investments in other companies
    16,381       7,821       7,275       7,095       10.2 %     7.5 %
Intangible assets
    153,859       73,460       77,990       72,290       1.6 %     (5.8 )%
Fixed assets
    317,778       151,723       154,985       179,981       (15.7 )%     (2.1 )%
Current tax assets
    28,070       13,402       12,499       4,649       188.3 %     7.2 %
Deferred tax assets
    292,598       139,701       117,964       103,186       35.4 %     18.4 %
Other assets
    1,376,429       657,176       640,937       572,371       14.8 %     2.5 %
Total Assets
    49,337,893       23,556,377       22,042,876       20,448,080       15.2 %     6.9 %
                                                 
Liabilities and Equity
                                               
Demand deposits
    9,038,775       4,315,563       4,236,434       3,890,230       10.9 %     1.9 %
Funds to be cleared
    836,094       399,193       300,125       197,908       101.7 %     33.0 %
Investments sold under agreements to repurchase
    341,454       163,027       294,725       762,703       (78.6 )%     (44.7 )%
Time deposits and savings accounts
    17,611,934       8,408,818       7,258,757       6,818,939       23.3 %     15.8 %
Derivatives
    2,767,678       1,321,428       1,643,979       1,358,323       (2.7 )%     (19.6 )%
Deposits from credit institutions
    3,577,642       1,708,145       1,584,057       2,005,763       (14.8 )%     7.8 %
Marketable debt securities
    9,311,765       4,445,902       4,190,888       2,872,100       54.8 %     6.1 %
Other obligations
    360,607       172,172       166,289       174,497       (1.3 )%     3.5 %
Current tax liabilities
    4,187       1,999       1,293       74,440       (97.3 )%     54.6 %
Deferred tax liability
    38,806       18,528       5,441       1,650       1022.9 %     240.5 %
Provisions
    533,798       254,862       235,953       265,070       (3.9 )%     8.0 %
Other liabilities
    851,532       406,564       261,328       313,411       29.7 %     55.6 %
Total Liabilities
    45,274,272       21,616,201       20,179,269       18,735,034       15.4 %     7.1 %
              -                                  
Equity
            -                                  
Capital
    1,866,799       891,303       891,303       891,303       0.0 %     0.0 %
Reserves
    107,946       51,539       51,539       51,539       0.0 %     0.0 %
Unrealized gain (loss) Available-for-sale financial assets
    (26,593 )     (12,697 )     (5,180 )     (32,620 )     (61.1 )%     145.1 %
Retained Earnings:
    2,043,240       975,545       894,136       772,882       26.2 %     9.1 %
Retained earnings previous periods
    2,172,548       1,037,283       560,128       818,885       26.7 %     85.2 %
Net income
    243,582       116,298       477,155       119,104       (2.4 )%     (75.6 )%
Provision for mandatory dividend
    (372,889 )     (178,036 )     (143,147 )     (165,107 )     7.8 %     24.4 %
Total Shareholders' Equity
    3,991,392       1,905,690       1,831,798       1,683,104       13.2 %     4.0 %
Minority Interest
    72,230       34,486       31,809       29,942       15.2 %     8.4 %
Total Equity
    4,063,621       1,940,176       1,863,607       1,713,046       13.3 %     4.1 %
Total Liabilities and Equity
    49,337,893       23,556,377       22,042,876       20,448,080       15.2 %     6.9 %
 
Figures in US$ have been translated at the exchange rate of Ch$477.45

Beginning in January 2011, new provisioning guidelines defined by the Superintendency of Banks (SBIF) - the industry supervisor - for loans analyzed on an individual basis came into effect. This encompasses mainly large commercial, leasing and factoring loans. These regulations had an initial cost of implementation of Ch$39,800 million. As per indications of the SBIF, this one time effect was recognized in December 2010 as an Other operating expenses in the income statement and as a Non-credit provision in the Bank’s Liabilities. As stated in the 4Q10 Earnings Report, the SBIF also indicated that in 2011, this liability must be shifted to Loan loss reserves in the Balance Sheet and Provision Expenses in the Income Statement with no impact to net income. The Bank also reclassified Ch$ 1,302 million in provisions for off balance sheet contingent loans recognized as other operating expenses and as a Non-credit provision in the Bank’s liabilities in March 2010 figures, also with no impact on net income.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
18

 
 
       
ANNEX 2: QUARTERLY INCOME STATEMENTS

Unaudited Quarterly Income Statement
  1Q11     1Q11     4Q10     1Q10     1Q11 / 1Q10     1Q 11 / 4Q10  
   
US$ths.
   
Ch$mn
   
% Chg.
 
Interest revenue
    792,579       378,417       367,381       321,238       17.8 %     3.0 %
Interest expense
    (313,612 )     (149,734 )     (135,516 )     (91,840 )     63.0 %     10.5 %
Net interest income
    478,967       228,683       231,865       229,398       (0.3 )%     (1.4 )%
Fee income
    191,094       91,238       90,837       79,159       15.3 %     0.4 %
Fee expense
    (41,573 )     (19,849 )     (21,200 )     (16,808 )     18.1 %     (6.4 )%
Net fee income
    149,521       71,389       69,637       62,351       14.5 %     2.5 %
Net income from financial operations
    103,414       49,375       (13,191 )     52,092       (5.2 )%     (474.3 )%
Net foreign exchange income
    (48,554 )     (23,182 )     32,852       (22,519 )     2.9 %     (170.6 )%
Total financial transactions, net
    54,860       26,193       19,661       29,573       (11.4 )%     33.2 %
Other operating income
    5,341       2,550       22,824       5,738       (55.6 )%     (88.8 )%
Operating profit before loan losses
    688,690       328,815       343,987       327,060       0.5 %     (4.4 )%
Provision expense
    (101,946 )     (48,674 )     (102,637 )     (71,489 )     (31.9 )%     (52.6 )%
Total operating income net of interest, fee and provision expenses
    586,744       280,141       241,350       255,571       9.6 %     16.1 %
Personnel expenses
    (131,618 )     (62,841 )     (65,344 )     (55,589 )     13.0 %     (3.8 )%
Administrative expenses
    353,180       (39,502 )     (37,600 )     (36,053 )     9.6 %     5.1 %
Depreciation and amortization
    (27,940 )     (13,340 )     (13,176 )     (12,341 )     8.1 %     1.2 %
Impairment
    (10 )     (5 )     (260 )     (16 )     (68.8 )%     (98.1 )%
Operating expenses
    (242,304 )     (115,688 )     (116,380 )     (103,999 )     11.2 %     (0.6 )%
Other operating expenses
    (43,173 )     (20,613 )     (9,989 )     (10,927 )     88.6 %     106.4 %
Total operating expenses
    (285,477 )     (136,301 )     (126,369 )     (114,926 )     18.6 %     7.9 %
Net operating income
    301,267       143,840       114,981       140,645       2.3 %     25.1 %
Income attributable to investments in other companies
    1,204       575       (4 )     120       379.2 %     -- %
Net income before taxes
    302,471       144,415       114,977       140,765       2.6 %     25.6 %
Income tax
    (55,505 )     (26,501 )     (18,927 )     (21,760 )     21.8 %     40.0 %
Net income from ordinary activities
    246,966       117,914       96,050       119,005       (0.9 )%     22.8 %
Net income discontinued operations
    0       0       0       0                  
Net income attributable to:
                                               
Minority interest
    3,385       1,616       2,178       (99 )     -1732.3 %     (25.8 )%
Net income attributable to shareholders
    243,582       116,298       93,872       119,104       (2.4 )%     23.9 %

Figures in US$ have been translated at the exchange rate of Ch$477.45

Beginning in January 2011, new provisioning guidelines defined by the Superintendency of Banks (SBIF) - the industry supervisor - for loans analyzed on an individual basis came into effect. This encompasses mainly large commercial, leasing and factoring loans. These regulations had an initial cost of implementation of Ch$39,800 million. As per indications of the SBIF, this one time effect was recognized in December 2010 as an Other operating expenses in the income statement and as a Non-credit provision in the Bank’s Liabilities. As stated in the 4Q10 Earnings Report, the SBIF also indicated that in 2011, this liability must be shifted to Loan loss reserves in the Balance Sheet and Provision Expenses in the Income Statement with no impact to net income. The Bank also reclassified Ch$ 1,302 million in provisions for off balance sheet contingent loans recognized as other operating expenses and as a Non-credit provision in the Bank’s liabilities in March 2010 figures, also with no impact on net income.
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
19

 
 
        
ANNEX 3: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION

   
Mar-10
   
Jun-10
   
Sep-10
   
Dec-10
   
Mar-11
 
(Ch$ millions)
                             
Loans
                             
Consumer loans
    2,303,983