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
 

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
   
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
   
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
   
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.
First Quarter Earnings Report
2.
March 2013 Financial Statements in English

IMPORTANT NOTICE

Banco Santander-Chile is a Chilean bank and maintains its financial books and records in Chilean pesos. The consolidated interim unaudited financial statements included in this report have been prepared in accordance with Chilean accounting principles issued by the Superintendency of Banks and Financial Institutions (“Chilean Bank GAAP” and the “SBIF,” respectively). The accounting principles issued by the SBIF are substantially similar to International Financial Reporting Standards (“IFRS”),  but there are some exceptions. Therefore, the consolidated interim unaudited financial statements included in this 6-K have some differences compared to the financial statements filed in our Annual Report on Form 20-F for the year ended December 31, 2012 (the “Annual Report”). For further details and a discussion of the main differences between Chilean Bank GAAP and IFRS, please see “Item 5. Operating and Financial Review and Prospects—A. Accounting Standards Applied in 2012” of our Annual Report.
 
 
 
 

 
 
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
 
 
Date:
May 20, 2013
 
By:
/s/ Cristian Florence
       
Name:
Cristian Florence
       
Title:
General Counsel

 
 
 

 
 
 
 
 
 

 
 
INDEX

 
SECTION PAGE
   
   
SECTION 1: SUMMARY OF RESULTS
2
   
SECTION 2: BALANCE SHEET ANALYSIS
5
   
SECTION 3: ANALYSIS OF QUARTERLY INCOME STATEMENT
8
   
SECTION 4: CREDIT RISK RATINGS
17
   
SECTION 5: SHARE PERFORMANCE
18
   
ANNEX 1: BALANCE SHEET
19
 
ANNEX 2: QUARTERLY INCOME STATEMENTS
 
20
   
ANNEX 3: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION
21

 
 

 
CONTACT INFORMATION
Robert Moreno
Manager, Investor Relations Department
Banco Santander Chile
Bandera 140 Piso 19
Santiago, Chile
Tel: (562) 2320-8284
Fax: (562) 2671-6554
Email: rmorenoh@santander.cl
Website: www.santander.cl
 
 
 

 

SECTION 1: SUMMARY OF RESULTS
 
Lower inflation and a higher tax rate reduces profitability in 1Q13
 
In 1Q13, Net income attributable to shareholders totaled Ch$80,879 million (Ch$0.43 per share and US$0.36/ADR). Compared to 4Q12 (from now on QoQ), net income decreased 28.9% and 31.7% compared to 1Q13 (from now on YoY). During the quarter, the lower inflation temporarily reduced net interest income and profitability. The higher statutory tax rate also lowered profitability.

The lower inflation mainly affected results at the beginning of the quarter. As the quarter progressed, the Bank’s commercial activity began to rebound with record loan growth in retail banking in March and higher profitability.
 
 
For the whole 1Q13, net interest income decreased 12.9% QoQ and 7.4% YoY. The net interest margin (NIM) in 1Q13 reached 4.7% compared to 5.5% in 4Q12 and 5.3% in 1Q12. The lower net interest margin income in the quarter was mainly due to the quarterly fluctuations of inflation. In 1Q13, the variation of the Unidad de Fomento (an inflation indexed currency unit), was 0.13% compared to 1.11% in 4Q12 and 1.07% in 1Q12. It is important to point out that the Bank has more assets than liabilities linked to inflation and, as a result, margins have a positive sensitivity to variations in inflation. Therefore, the QoQ decline in inflation was an important factor that explains the reduction in net interest income and profitability in the quarter.

Loan growth accelerating in segments the Bank has targeted for growth

In 1Q13, total loans increased 1.2% QoQ and 7.4% YoY. In the quarter, loan growth continued to accelerate in the markets the Bank is targeting the most: high-income individuals, SMEs and middle market of companies. Loans in these combined markets increased 3.1% QoQ and 11.4% YoY. Loans to high-income individuals increased 2.9% QoQ. Lending to SMEs (defined as companies that sell less than Ch$1,200 million per year) expanded 1.4% QoQ and 9.8% YoY, reflecting the Bank’s consistent focus on this segment. In the quarter, the Bank also focused its loan growth in the middle-market companies segment (companies with annual sales between Ch$1,200 million and Ch$10,000 million per year), which increased 4.4% QoQ and 14.7% YoY.

Solid growth of core deposits

Customer funds (deposits + mutual funds) increased 2.6% QoQ and 5.1% YoY. Core deposits (demand and time deposits from our retail and corporate clients) expanded 12.4% YoY. Core deposits now represent 83% of the Bank’s total deposit base. This should help support net interest margins in 2013.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
2

 
 
Asset quality stabilizing in consumer loans
 
Net provision for loan losses in the quarter totaled Ch$92,858 million an increase of 2.7% QoQ and 18.6% YoY. Net provision expense in consumer loans, which represent 63% of total provision expense, decreased 1.0% QoQ and 3.8% YoY. This reflects the different measure carried out by the Bank to improve credit risk. This includes focus loan growth in the higher end of the consumer market, tightening admissions policies, improving the collections process and updating the consumer provisioning models (performed in 3Q12). The measures mentioned above have gradually resulting in a stabilization of asset quality in consumer lending. Consumer NPLs decreased 2.7% QoQ. The coverage of consumer NPLs reached 226.4% in 1Q13 compared to 224.0% in 4Q12. At the same time, the amount of impaired consumer loans (consumer NPLs + renegotiated consumer loans) has evolved favorably. This tends to be a leading indicator for the evolution of future charge-offs. The improved collection efforts have also led to an important rise in loan loss recoveries, especially in consumer lending. Total loan loss recoveries increased 113.3% YoY. In this same period, consumer loan loss recoveries increased 146.3% YoY.

Cost growth moderates as key projects advance

Operating expenses in 1Q13 decreased 3.9% QoQ and increased 7.7% YoY. The efficiency ratio reached 41.8% in 1Q13. Administrative expenses increased 9.0% YoY as the Bank continued with its Transformation Projects aimed at enhancing productivity in retail banking. Going forward, though, administrative expenses should grow at a slower pace as many of these projects are finalizing. The 3.1% YoY increase in personnel expenses in 1Q13 reflects the stable evolution of the Bank’s headcount. Personnel expenses should experience moderate growth in the rest of the year as headcount levels should not grow significantly.

Core capital ratio reached 10.9%. Dividend yield of 3.8%

Shareholders’ equity totaled Ch$2,194,025 million (US$4.6 billion) as of March 31, 2013. Core capital reached 10.9% and the Bank’s BIS ratio reached 13.9% at the same date. The Bank’s Board will also submit for shareholder approval on April 29, 2013 its annual dividend equivalent to 60% of 2012 net income (Ch$1.24/share) equivalent to a dividend yield of 3.8% on the day before the ex-dividend date in Chile. ROAE in the quarter reached 15.0%.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
3

 
 
Banco Santander Chile: Summary of Quarterly Results1

 
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Net interest income
246,481
282,991
266,072
(7.4%)
(12.9%)
Fee income
64,254
66,837
68,691
(6.5%)
(3.9%)
Core revenues
310,735
349,828
334,763
(7.2%)
(11.2%)
Financial transactions, net
22,262
18,134
19,303
15.3%
22.8%
Provision expense
(92,858 )
(90,387 )
(78,281 )
18.6%
2.7%
Operating expenses
(135,245 )
(140,665 )
(125,610 )
7.7%
(3.9%)
Operating income, net of provisions and costs
104,894
136,910
150,175
(30.2%)
(23.4%)
Other operating & Non-op. Income
(24,015 )
(23,193 )
(31,820 )
(24.5%)
3.5%
Net income attributable to shareholders
80,879
113,717
118,355
(31.7%)
(28.9%)
Net income/share (Ch$)
0.43
0.60
0.63
(31.7%)
(28.9%)
Net income/ADR (US$)1
0.36
0.50
0.51
(29.2%)
(28.0%)
Total loans
19,100,415
18,876,079
17,792,081
7.4%
1.2%
Deposits
14,115,349
14,082,232
13,392,489
5.4%
0.2%
Shareholders’ equity
2,194,025
2,134,778
2,065,995
6.2%
2.8%
Net interest margin
4.7%
5.5%
5.3%
   
Efficiency ratio
41.8%
39.9%
36.8%
   
Return on average equity2
15.0%
21.6%
23.3%
   
NPL / Total loans3
3.21%
3.17%
2.92%
   
Coverage NPLs
91.0%
92.0%
100.7%
   
Risk index4
2.92%
2.91%
2.94%
   
Cost of credit5
1.94%
1.92%
1.76%
   
Core capital ratio
10.9%
10.7%
11.2%
   
BIS ratio
13.9%
13.7%
14.8%
   
Branches
497
499
499
   
ATMs
2,011
2,001
1,949
   
Employees
11,679
11,713
11,572
   
1.  
The change in earnings per ADR may differ from the change in earnings per share due to exchange rate movements. Earnings per ADR was calculated using the Observed Exchange Rate Ch$472.54 per US$ as of March 31, 2013.
2.  
Annualized Quarterly net income attributable to shareholders / Average equity attributable to shareholders in the quarter.
3.  
NPLs: Non-performing loans: full balance of loans with one installment 90 days or more overdue.
4.  
Risk Index: Loan loss allowances / Total loans: measures the percentage of loans the banks must provision for given their internal models and the Superintendency of Banks guidelines.
5.  
Cost of credit: Provision expenses annualized divided by total loans.


1 On January 1, 2013, the Bank applied the modifications to IAC 19 relating to Employee Pension Benefits. This change was applied retroactively to 2012 figures which resulted in lower assets and liabilities of Ch$786 million and a higher net income of Ch$315 million, all charged to 4Q12 figures in this report.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
4

 
 
SECTION 2: BALANCE SHEET ANALYSIS

LOANS

Loan growth continues to accelerate in the markets the Bank has targeted for growth in 2013

Loans
Quarter ended,
% Change
(Ch$ million)
Mar-13
Dec-12
Mar-12
Mar. 13 / 12
Mar. 13 /
Dec. 12
Total loans to individuals1
9,837,213
9,741,412
9,376,934
4.9%
1.0%
Consumer loans
3,165,550
3,115,477
2,963,104
6.8%
1.6%
Residential mortgage loans
5,309,837
5,271,581
5,162,473
2.9%
0.7%
SMEs
2,860,666
2,821,060
2,604,565
9.8%
1.4%
Total retail lending
12,697,879
12,562,472
11,981,499
6.0%
1.1%
Institutional lending
369,751
355,518
347,818
6.3%
4.0%
Middle-Market & Real estate
4,236,766
4,058,693
3,692,576
14.7%
4.4%
Corporate
1,806,957
1,863,595
1,881,429
(4.0%)
(3.0%)
Total loans 2
19,100,415
18,876,079
17,792,081
7.4%
1.2%
1.
Includes consumer loans, residential mortgage loans and other commercial loans to individuals.
2.
Total loans gross of loan loss allowances. Total loans include other non-segmented loans and excludes interbank loans.

In 1Q13, total loans increased 1.2% QoQ and 7.4% YoY. In the quarter, loan growth continued to accelerate in the markets the Bank is targeting the most: high-income individuals, SMEs and middle market of companies. Loans in these combined markets increased 3.1% QoQ and 11.4% YoY. This is in line with the Bank’s strategy for 2013 of expanding loan volumes with a clear focus on spreads, net of provisions.
 
Loans to individuals, which include consumer, mortgage and commercial loans to individuals, increased of 1.0% QoQ in 3Q12 and 4.9% YoY. In the quarter, the Bank focused on expanding its loan portfolio in higher income segments, while remaining more selective in the mass consumer market. By products, total consumer loans increased 1.6% QoQ (6.8% YoY) and residential mortgage loans expanded 0.7% QoQ (2.9% YoY). Loans to high-income individuals increased 2.9% QoQ and 9.8% YoY. Lending to SMEs (defined as companies that sell less than Ch$1,200 million per year) expanded 1.4% QoQ (9.8% YoY), reflecting the Bank’s consistent focus on this segment.
 
 
In 4Q12, the Bank also focused its loan growth in the middle-market segment (companies with annual sales between Ch$1,200 million and Ch$10,000 million per year), which increased 4.4% QoQ and 14.7% YoY. This segment continues to show healthy loan demand given the high level of
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
5

 
 
investment in the Chilean economy, which is expected to reach approximately 26% of GDP. This segment is also generating more and more business volumes in other areas such as cash management, which has helped to drive the rise in core deposits (See Funding).

In the large corporate segment (companies with sale over Ch$10,000 million per year or that are part of a large foreign or local economic group), loans decreased 3.0% QoQ and 4.0% YoY. The sharp turn-around in the cost of external funding for companies throughout the second half of 2012 resulted in lower local loan demand from these clients and pre-payment of some large corporate loans. The Bank’s non-lending business with these clients, especially cash management services continues to thrive.

FUNDING

Improving the funding mix

Funding
Quarter ended,
% Change
(Ch$ million)
Mar-13
Dec-12
Mar-12
Mar. 13 / 12
Mar. 13 /
Dec. 12
Demand deposits
4,964,239
4,970,019
4,566,890
8.7%
(0.1%)
Time deposits
9,151,110
9,112,213
8,825,599
3.7%
0.4%
Total deposits
14,115,349
14,082,232
13,392,489
5.4%
0.2%
Mutual funds (off-balance sheet)
3,112,174
2,713,776
2,995,292
3.9%
14.7%
Total customer funds
17,227,523
16,796,008
16,387,781
5.1%
2.6%
Loans to deposits1
102.7%
101.6%
98.4%
 
1.
(Loans - marketable securities that fund mortgage loans) / (Time deposits + demand deposits).
 
Customer funds (deposits + mutual funds) increased 2.6% QoQ and 5.1% YoY. Total deposits grew 0.2% QoQ and grew 5.4% YoY. In the quarter, the Bank’s funding strategy was focused on increasing core deposits while lowering deposits from institutional sources, which are more expensive, as the Bank normalized its liquidity levels. This following the large liquidity surplus the Bank maintained throughout most of 2012. As a result, core deposits (demand and time deposits from our retail and corporate clients) expanded 12.4% YoY. Core deposits now represent 83% of the Bank’s total deposit base. This also resulted in lower deposits from institutional sources, lower bond issues and a decrease in interbank financing. This should help support net interest margins in 2013.
 
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
6

 
 
Assets under management increased 14.7% QoQ as money returned to money market funds as inflation lowered, which reduced the attractiveness of time deposits denominated in UF, especially on behalf of institutional investors. We expect this business to continue to be volatile in line with general market and inflationary trends.
 
SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

Core capital ratio at 10.9%. Payout of 60% of 2012 earning to be proposed to shareholders

Shareholders' Equity
Quarter ended,
Change %
 
(Ch$ million)
Mar-13
Dec-12
Mar-12
Mar. 13 / 12
Mar. 13 /
Dec. 12
Capital
891,303
891,303
891,303
0.0%
0.0%
Reserves
975,460
975,460
801,422
21.7%
0.0%
Valuation adjustment
(1,152)
(3,781)
(15,210)
(92.4%)
(69.5%)
Retained Earnings:
328,414
271,796
387,408
(71.2%)
20.8%
Retained earnings prior periods
388,282
0
435,084
(67.3%)
--%
Income for the period
80,879
388,282
118,355
(31.6%)
(79.2%)
Provision for mandatory dividend
(140,747)
(116,486)
(166,031)
(15.2%)
20.8%
Equity attributable to shareholders
2,194,025
2,134,778
2,064,923
6.3%
2.7%
Non-controlling interest
34,830
34,265
34,554
0.8%
1.6%
Total Equity
2,228,855
2,169,043
2,099,477
6.2%
2.7%
Quarterly ROAE
15.0%
21.6%
23.3%
   

Shareholders’ equity totaled Ch$2,194,025 million (US$4.6 billion) as of March 31, 2013. Core capital reached 10.9% and the Bank’s BIS ratio reached 13.9% at the same date.  ROAE in the quarter reached 15.0%. Voting common shareholders’ equity is the sole component of our Tier I capital. Tier II declined in the quarter as some subordinated bonds no longer qualify as Tier II since they are approaching maturity.

Capital Adequacy
Quarter ended,
Change %
 
(Ch$ million)
Mar-13
Dec-12
Mar-12
Mar. 13 / 12
Mar. 13 /
Dec. 12
Tier I (Core Capital)*
2,194,025
2,135,660
2,065,995
6.2%
2.7%
Tier II
596,933
599,656
673,110
(11.3%)
(0.5%)
Regulatory capital
2,790,957
2,735,316
2,739,104
1.9%
2.0%
Risk weighted assets
20,091,880
19,940,397
18,509,191
8.6%
0.8%
Tier I (Core capital) ratio
10.9%
10.7%
11.2%
 
BIS ratio
13.9%
13.7%
14.8%
 
*Calculated based on 2012 Financials and does not include accounting change introduced in 1Q13.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
7

 


The Bank’s Board will also submit for shareholder approval on April 29, 2013 its annual dividend equivalent to 60% of 2012 net income (Ch$1.24/share) equivalent to a dividend yield of 3.8% on the day before the ex-dividend date in Chile. The prudent management of the Bank’s capital ratios and high profitability has permitted the Bank to continue paying attractive dividends without issuing new shares since 2002.

SECTION 3: ANALYSIS OF QUARTERLY INCOME STATEMENT

NET INTEREST INCOME

Client margins remain stable QoQ. NIM declines as inflation decelerates

Net Interest Income / Margin
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Client net interest income1
271,696
273,022
264,889
2.6%
(0.5%)
Non-client net interest income2
(25,215)
9,969
1,183
--%
--%
Net interest income
246,481
282,991
266,072
(7.4%)
(12.9%)
Average interest-earning assets
20,923,043
20,762,771
20,119,312
4.0%
0.8%
Average loans
18,942,547
18,666,166
17,537,743
8.0%
1.5%
Interest earning asset yield3
8.1%
10.1%
10.0%
 
Cost of funds4
3.5%
4.7%
4.8%
 
Client net interest margin5
5.7%
5.9%
6.0%
 
Net interest margin (NIM)6
4.7%
5.5%
5.3%
 
Avg. equity + non-interest bearing  demand deposits / Avg. interest earning assets
34.3%
32.8%
32.6%
 
Quarterly inflation rate7
0.13%
1.11%
1.07%
 
Central Bank reference rate
5.00%
5.00%
5.00%
 
Avg. 10 year Central Bank yield (real)
2.62%
2.45%
2.45%
 
1.
Client net interest income is mainly net interest income from the from all client activities such as loans and deposits minus the internal transfer rate. See footnote 3 at the end of this page.
2.
Non-client interest income is net interest income mainly from the Bank’s ALCO positions and treasury. See footnote 3 at the end of this page.
3.
Interest income divided by interest earning assets.
4.
Interest expense divided by interest bearing liabilities + demand deposits.
5.
Client net interest income annualized divided by average loans
6.
Net interest income divided by average interest earning assets annualized.
7.
Inflation measured as the variation of the Unidad de Fomento in the quarter.

In 1Q13, Net interest income decreased 12.9% QoQ and 7.4% YoY. The Net interest margin (NIM) in 1Q13 reached 4.7% compared to 5.5% in 4Q12 and 5.3% in 1Q12. In order to improve the explanation of margins, we have divided the analysis of net interest income between client interest income2 and non-client net interest income.
 

2 In order to explain better the evolution of net interest income, we have divided net interest income between client net interest income
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
8

 
 
Client net interest income. In 1Q13, client net interest income was flat QoQ and grew 2.6% YoY. Average loans increased 1.5% QoQ and 8.0% YoY. Client net interest margin (defined as client net interest income divided by average loans) reached 5.7% in 1Q13 compared to 5.9% in 4Q12 and 6.0% in 1Q12. The improved funding mix and stable pricing policies has kept client margins relatively unchanged since 4Q12. Compared to 1Q12, client margins have declined mainly because of the Bank’s focus on loan growth in high-income individuals, SMEs and Corporates and lower growth in the low end of the consumer market. We expect as the year progresses to achieve a higher client margin, net of provision expenses, even though this results in slightly lower client margins. Moreover, the funding mix has improved, reflected in the ratio of free funds to interest earning assets that reached 34.3% in 1Q13 compared to 32.8% in 4Q12 and 32.6% in 1Q12.
 
Non-client net interest income. The volatility of our total net interest margin and income is mainly due to the quarterly fluctuations of inflation. In 1Q13, the variation of the Unidad de Fomento (an inflation indexed currency unit), was 0.13% compared to 1.11% in 4Q12 and 1.07% in 1Q12. It is important to point out that the Bank has more assets than liabilities linked to inflation and, as a result, margins have a positive sensitivity to variations in inflation. The gap between assets and liabilities indexed to the UF averaged approximately US$7.5 billion in 1Q13. This signifies that for every 100 basis point change in inflation, our net interest income increases or decrease by US$75 million, all other factors equal. Therefore, the QoQ decline in inflation explains largely the sharp reduction in non-client net interest income in 1Q13 compared to 4Q12 and 1Q12.
 
 
For 2013, the evolution of margins should reflect various factors. Going forward, we expect UF inflation to normalize at an annual rate of approximately 2.4-2.5% for 2013 or 0.7% per remaining quarter, subject to further revisions. In 2013, the negative effects of possible regulations regarding maximum rates may have a negative impact on margins. The final law regulating this change is still being discussed in Congress and there is no clarity as to when it will be approved. To counterbalance this we expect: (1) healthier loan growth both in terms of volumes and in terms of margins, post provision expense and, (2) an improved funding mix via healthy growth of core deposits.
 

and non-client net interest income. Client net interest income is net interest income from all client activities such as loans and deposits minus the internal transfer rate.  Non-client interest income is net interest income from Bank’s inflation gap, the financial cost of hedging, the financial cost of the Bank’s structural liquidity position, net interest income from treasury positions and the interest expense of the Bank’s financial investments classified as trading, since interest income from this portfolio is recognized as financial transactions net.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
9

 
 
PROVISION FOR LOAN LOSSES AND ASSET QUALITY

Asset quality in consumer lending improving
 
Provision for loan losses
Quarter
Change %
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 / 1Q12
1Q13 / 4Q12
Commercial loans
(27,394)
(25,366)
(14,905)
83.8%
8.0%
Residential mortgage loans
(6,921)
(5,895)
(2,490)
178.0%
17.4%
Consumer loans
(58,543)
(59,126)
(60,886)
(3.8%)
(1.0%)
Net provisions for loan losses
(92,858)
(90,387)
(78,281)
18.6%
2.7%
Total loans1
19,100,415
18,876,079
17,792,081
7.4%
1.2%
Total reserves (RLL)
557,564
550,122
522,728
6.7%
1.4%
Non-performing loans2 (NPLs)
612,379
597,767
519,283
17.9%
2.4%
NPLs commercial loans
343,764
320,461
263,843
30.3%
7.3%
NPLs residential mortgage loans
154,334
159,802
156,280
(1.2%)
(3.4%)
NPLs consumer loans
114,281
117,504
99,160
15.2%
(2.7%)
Cost of credit3
1.96%
1.94%
1.79%
 
Risk index4 (RLL / Total loans)
2.92%
2.91%
2.94%
 
NPL / Total loans
3.21%
3.17%
2.92%
 
NPL / Commercial loans
3.24%
3.06%
2.73%
 
NPL / Residential mortgage loans
2.91%
3.03%
3.03%
 
NPL / consumer loans
3.61%
3.77%
3.35%
 
Coverage of NPLs5
91.0%
92.0%
100.7%
 
Coverage of NPLs ex-mortgage6
113.3%
117.4%
134.1%
 
Coverage of commercial NPLs
75.6%
78.3%
90.5%
 
Coverage of residential mortgage NPLs
25.1%
22.5%
23.1%
 
Coverage of consumer NPLs
226.4%
224.0%
249.9%
 
1.  
Excludes interbank loans.
2.  
NPLs: Non-performing loans: full balance of loans with one installment 90 days or more overdue.
3.  
Cost of credit: Quarterly provision expense annualized divided by average loans
4.  
Risk Index: Loan loss allowances / Total loans; measures the percentage of loans the banks must provision for given their internal models and the Superintendency of Banks guidelines.
5.  
Loan loss allowances / NPLs.
6.  
Loan loss reserves of commercial + consumer loans divided by NPLs of commercial and consumer loans

Net provision for loan losses in the quarter totaled Ch$92,858 million an increase of 2.7% QoQ and 18.6% YoY.

Net provision expense in consumer loans, which represent 63% of total provision expense, decreased 1.0% QoQ and 3.8% YoY. This reflects the different measure carried out by the Bank to improve credit risk. This includes focus loan growth in the higher end of the consumer market, tightening admissions policies, improving the collections process and updating the consumer provisioning models (performed in 3Q12).
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
10

 
 
The measures mentioned above have gradually resulted in a stabilization of asset quality in consumer lending. Consumer NPLs decreased 2.7% QoQ and increased 15.2% YoY. The coverage of consumer NPLs reached 226.4% in 1Q13 compared to 224.0% in 4Q12. At the same time, the amount of impaired consumer loans (consumer NPLs + renegotiated consumer loans) has evolved favorably. This tends to be a leading indicator for the evolution of future charge-offs.
 
 
The improved collection efforts have also led to an important rise in loan loss recoveries, especially in consumer lending. Total loan loss recoveries increased 113.3% YoY. Total loan loss recoveries increased 113.3% YoY. In this same period, consumer loan loss recoveries increased 146.3% YoY.  The decline compared to 4Q12 is seasonal due to the vacation season in 1Q13.
 
 
Provision expense for mortgage residential loans increased 17.4% QoQ and 178% YoY. The YoY increase was mainly due to higher charge-offs of mortgage loans that totaled Ch$4,198 million. Total NPLs in mortgage loans decreased 3.4% QoQ and 1.2% YoY, also reflecting the stricter credit risk policies the Bank is enforcing in retail banking. Mortgage loan NPLs reached 2.9% in 1Q13, flat compared to 4Q12 and 1Q12. Including collateral, the coverage of residential mortgage NPLs reached 113% as of March 2013. The risk index (loan loss allowances for mortgage in the balance sheet over total mortgage loans) reached 0.7% and has been stable for an extended period.
 
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
11

 

Provision expense in commercial loans increased 8.0% QoQ and 83.8% YoY. Commercial loan NPLs reached 3.2% in 1Q13 compared to 3.1% in 4Q12 and 2.7% in 1Q12. The rise in NPLs in commercial loans is mainly due to an increase in NPLs in SMEs, which has been the fastest growing segment. The Bank experienced a rise in NPLs mainly among SME loans granted through the government’s guarantee program designed to aid the entrance of SME to the banking market. Therefore, the rise in NPLs does not necessarily imply a rise in expected losses as these loans are guaranteed by the state. For this reason, coverage ratio of commercial loan NPLs has fallen to 75.6% in the quarter while the Bank’s risk index has remained stable at 2.9%. We expect a similar trend for the rest of 2013 in SME NPLs, risk index and coverage ratios.
 
Coverage of total NPLs in 1Q13 reached 91.0%. Excluding residential mortgage loans that have a lower coverage ratio due to the value of residential property collateral, the coverage ratio reached 113%.
 
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
12

 
 
NET FEE INCOME

Fee income growth impacted by new regulations and negative client growth in the mass consumer segment

Fee Income
Quarter
Change %
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Credit, debit & ATM card fees
13,107
12,175
15,017
(12.7%)
7.7%
Collection fees
11,325
9,402
15,802
(28.3%)
20.4%
Asset management
8,390
8,047
8,609
(2.5%)
4.3%
Guarantees, pledges and other contingent operations
7,405
7,456
6,935
6.8%
(0.7%)
Checking accounts
7,126
7,024
7,238
(1.5%)
1.5%
Insurance brokerage
5,746
8,160
8,186
(29.8%)
(29.6%)
Lines of credit
1,991
2,203
2,449
(18.7%)
(9.4%)
Fees from brokerage and custody of securities
1,796
1,945
1,982
(9.4%)
(7.7%)
Other Fees
7,363
10,425
2,473
197.7%
(29.4%)
Total fees
64,254
66,837
68,691
(6.5%)
(3.9%)

Net fee income decreased 3.9% QoQ and 6.5% YoY. The Bank continued to increase its client base and cross-selling indicators, especially in the middle-upper income segments while client growth in the mass consumer segment has been negative. This in the short-term results in lower fees, especially credit card, checking account and line of credit fees, but in the medium-term will result in lower provision expenses. The introduction of the new insurance brokerage regulation for mortgage loans explains the 29.6% QoQ and 29.8% YoY fall in insurance brokerage fees.

The Bank’s Transformation Plan continues to be implemented which should help bolster fees in 2013. This is the largest overhaul and reorganization of the Bank’s middle and lower income business segments in the last decade. The installation of the new CRM, a corner-piece of this initiative, is starting to improve the Bank’s client service indicators and productivity.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
13

 
 
NET RESULTS FROM FINANCIAL TRANSACTIONS

Higher yield on liquidity portfolio boosts results from financial transactions

Financial Transactions*
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Net income from financial operations
(16,873)
(31,138)
(34,196)
(50.7%)
(45.8%)
Foreign exchange profit (loss), net
39,135
49,272
53,499
(26.8%)
(20.6%)
Net results from financial transactions
22,262
18,134
19,303
15.3%
22.8%
*
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 Foreign exchange profits (loss), net mainly includes the translation gains or losses of assets and a liability denominated in foreign currency.

Net results from financial transactions totaled a gain of Ch$22,262 million in 1Q13, a 22.8% QoQ and 15.3% YoY increase. In order to understand more clearly these line items, we present them by business area in the table below.

Financial Transactions
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 / 1Q12
1Q13 / 4Q12
Santander Global Connect1
10,725
14,051
14,575
(26.4%)
(23.7%)
Market-making
7,237
7,592
11,310
(36.0%)
(4.7%)
Client treasury services
17,963
21,643
25,885
(30.6%)
(17.0%)
Non-client treasury income
4,300
(3,509)
(6,582)
--%
--%
Net results from financial transactions
22,262
18,134
19,303
15.3%
22.8%
1. 
Santander Global Connect is the Bank’s commercial platform for selling treasury products to our clients.

Client treasury services totaled Ch$17,963 million in 1Q13 and decreased 17.0% QoQ and 30.6% YoY. After a very active 4Q12 in corporate treasury services, 1Q13 saw an important reduction in volatility, especially in the foreign trade market, which reduced demand for currency protection on behalf of clients. Non-client treasury services recorded a gain of Ch$4,300 million, mainly reflecting the normalization of liquidity levels of the Banks following the large surplus the Bank maintained throughout most of 2012. This has resulted in higher interest income from the Bank’s liquidity portfolio comprised mainly of Central Bank instruments, but which also now includes other high-grade instruments such as local bank deposits, that yield a higher rate than Central bank instruments.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
14

 
 
OPERATING EXPENSES AND EFFICIENCY

Growth of cost moderates

Operating Expenses
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Personnel expenses
(71,533)
(76,488)
(69,400)
3.1%
(6.5%)
Administrative expenses
(48,032)
(48,127)
(44,084)
9.0%
(0.2%)
Depreciation, amortization and impairment
(15,680)
(16,050)
(12,126)
29.3%
(2.3%)
Operating expenses
(135,245)
(140,665)
(125,610)
7.7%
(3.9%)
Branches
      497
      499
      499
(0.4%)
(0.4%)
ATMS
   2,011
   2,001
   1,949
3.2%
0.5%
Employees
  11,679
  11,713
  11,572
0.9%
(0.3%)
Efficiency ratio1
41.8%
39.9%
36.8%
   
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 1Q13 decreased 3.9% QoQ and increased 7.7% YoY. The efficiency ratio reached 41.8% in 1Q13 compared to 39.9% in 4Q12 and 36.8% in 1Q12. The QoQ decline in costs was mainly due to seasonal factors related to the summer vacation season.

The 7.7% YoY increase in operating expenses was mainly due to the 9.0% increase in administrative expenses. The Bank continued with its Transformation Projects aimed at enhancing productivity in retail banking. Rent expenses have also been rising, since the Bank has sold most of its branches and now rents them. Branches are risk weighted at 100% and, therefore, from a capital perspective, it is more efficient to rent them than to own them. Going forward, though, administrative expenses should grow at a slower pace as many of these projects are finalizing.
 
The 3.1% YoY increase in personnel expenses in 1Q13 reflects the 0.9% rise in headcount plus the rise in salaries in the year due to inflation in 2012. As of March 2013, headcount totaled 11,679 employees and increase of 0.9% compared to 1Q12. The main area of headcount growth has been the Bank’s collection areas offset by lower headcount at Banefe’s sales force. As headcount should remain stable for the remainder of the year, personnel expenses should see moderate growth similar to 1Q13 levels for the remainder of the year.
 
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
15

 

OTHER INCOME AND EXPENSES

Other Income and Expenses
Quarter
Change %
 
(Ch$ million)
1Q13
4Q12
1Q12
1Q13 /
1Q12
1Q13 /
4Q12
Other operating income
4,569
4,630
3,982
14.7%
(1.3%)
Other operating expenses
(14,263)
(20,268)
(16,365)
(12.8%)
(29.6%)
Other operating income, net
(9,694)
(15,638)
(12,383)
(21.7%)
(38.0%)
Income from investments in other companies
482
(983)
447
7.8%
(149.0%)
Income tax expense
(14,237)
(5,790)
(19,081)
(25.4%)
145.9%
Income tax rate
14.9%
4.8%
13.8%
   

Other operating income, net, totaled a loss of Ch$9,694 million in 1Q13. The lower loss compared to previous periods was mainly due to higher gains from the sale and recovery of repossessed assets, which is in line with the higher charge-offs of mortgage loans. At the same time the loss from operational charge-offs and provisions for other contingencies also decreased compared to 4Q12 and 1Q12.

The higher income tax rate in 1Q13 was mainly due to the rise in the statutory corporate tax rate to 20% in 2013 offset by non-repeatable tax efficiencies achieved in 1Q13.  Additionally, in 4Q12 our tax expenses were positively affected by the recognition of higher deferred tax assets. Congress approved a law that raised the statutory corporate tax rate to 20% in 2013 and this new rate was applied to deferred taxes in 4Q12, resulting in a lower effective tax rate. For the remainder of 2013, the Bank should be paying an effective tax rate closer to 17-18%.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
16

 
 
SECTION 4: CREDIT RISK RATINGS

International ratings

The Bank has credit ratings from three leading international agencies with no changes in 1Q13.

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

Standard and Poor’s
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
A+
Local Currency Long-term Debt
A+
Foreign Currency Short-term Debt
F1
Local Currency Short-term Debt
F1
Viability rating
a+

 
Local ratings:
 
Our local ratings, the highest in Chile, are the following:
 
Local ratings
Fitch
Ratings
Feller
Rate
Shares
1CN1
1CN1
Short-term deposits
N1+
N1+
Long-term deposits
AAA
AAA
Mortgage finance bonds
AAA
AAA
Senior bonds
AAA
AAA
Subordinated bonds
AA
AA+
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
17

 
 
SECTION 5: SHARE PERFORMANCE
As of March 2013
 
 
ADR price3 (US$) 3M13
   
Local share price (Ch$) 3M13
 
03/31/13:
28.47
 
03/31/13:
33.41
Maximum (3M12):
30.59
 
Maximum (3M12):
36.23
Minimum (3M12):
28.34
 
Minimum (3M12):
33.41

Market Capitalization: US$13,413 million
   
Dividends:
   
     
Year paid
Ch$/share
% of previous year
P/E 12 month trailing*:
17.95
      earnings
P/BV (03/31/13)**:
2.87
 
2009:
1.13
65%
Dividend yield***:
3.8%
 
2010:
1.37
60%
     
2011:
1.52
60%
*    Price as of March 31, 2013 / 12mth. earnings
   
2012:
1.39
60%
**   Price as of March 31, 2013 / Book value as of 03/31/13
   
2013:
1.24
60%
***  Based on closing price on record date of last dividend payment.
         


3 On Oct. 22, 2012, the ratio of common share per ADR was changed from 1,039 shares per ADR to 400 shares per ADR.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
18

 

ANNEX 1: BALANCE SHEET
 
Unaudited Balance Sheet
 
Mar-13
   
Mar-13
   
Dec-12
   
Mar. 13 / Dec. 12
 
Assets
 
US$ths
   
Ch$ million
   
% Chg.
 
Cash and balances from Central Bank
    2,607,739       1,230,201       1,250,414       (1.6 %)
Funds to be cleared
    1,317,567       621,562       520,267       19.5 %
Financial assets held for trading
    530,026       250,040       338,287       (26.1 %)
Investment collateral under agreements to repurchase
    -       -       6,993       -- %
Derivatives
    2,740,759       1,292,953       1,293,212       (0.0 %)
Interbank loans
    296,693       139,965       90,527       54.6 %
Loans, net of loan loss allowances
    39,306,520       18,542,851       18,325,957       1.2 %
Available-for-sale financial assets
    3,971,337       1,873,478       1,826,158       2.6 %
Held-to-maturity investments
    -       -       -       -- %
Investments in other companies
    17,128       8,080       7,614       6.1 %
Intangible assets
    163,557       77,158       87,347       (11.7 %)
Fixed assets
    338,849       159,852       162,214       (1.5 %)
Current tax assets
    41,933       19,782       10,227       93.4 %
Deferred tax assets
    398,497       187,991       186,407       0.8 %
Other assets
    1,241,183       585,528       655,217       (10.6 %)
Total Assets
    52,971,788       24,989,441       24,760,841       0.9 %
Liabilities and Equity
                               
Demand deposits
    10,523,029       4,964,239       4,970,019       (0.1 %)
Funds to be cleared
    977,583       461,175       284,953       61.8 %
Investments sold under agreements to repurchase
    474,196       223,702       304,117       (26.4 %)
Time deposits and savings accounts
    19,398,219       9,151,110       9,112,213       0.4 %
Derivatives
    2,509,518       1,183,865       1,146,161       3.3 %
Deposits from credit institutions
    2,924,916       1,379,829       1,438,003       (4.0 %)
Marketable debt securities
    9,750,552       4,599,823       4,571,289       0.6 %
Other obligations
    445,596       210,210       192,611       9.1 %
Current tax liabilities
    1,189       561       525       6.9 %
Deferred tax liability
    31,330       14,780       9,544       54.9 %
Provisions
    487,089       229,784       221,089       3.9 %
Other liabilities
    723,917       341,508       341,274       0.1 %
Total Liabilities
    48,247,135       22,760,586       22,591,798       0.7 %
Equity
                               
Capital
    1,889,355       891,303       891,303       0.0 %
Reserves
    2,067,748       975,460       975,460       0.0 %
Unrealized gain (loss) Available-for-sale financial assets
    (2,442 )     (1,152 )     (3,781 )     (69.5 %)
Retained Earnings:
    696,161       328,414       271,796       20.8 %
Retained earnings previous periods
    823,067       388,282       -       -- %
Net income
    171,445       80,879       388,282       (79.2 %)
Provision for mandatory dividend
    (298,351 )     (140,747 )     (116,486 )     20.8 %
Total Shareholders' Equity
    4,650,821       2,194,025       2,134,778       2.8 %
Minority Interest
    73,831       34,830       34,265       1.6 %
Total Equity
    4,724,653       2,228,855       2,169,043       2.8 %
Total Liabilities and Equity
    52,971,788       24,989,441       24,760,841       0.9 %
 
Figures in US$ have been translated at the exchange rate of Ch$471.75. On January 1, 2013 the Bank began to apply the modifications to IAC 19 relating to Employee Pension Benefits. This change was applied retroactively to 2012 figures which resulted in lower assets and liabilities of Ch$786 million and a higher net income of Ch$315 million all charged to 4Q12 figures in this report.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
19

 
 
ANNEX 2: QUARTERLY INCOME STATEMENTS

Unaudited Quarterly Income Statement
    1Q13       4Q12       1Q12       1Q13 / 1Q12       1Q13 / 4Q12  
           
Ch$mn
           
% Chg.
 
Interest income
    425,797       524,918       502,833       (15.3 %)     (18.9 %)
Interest expense
    (179,316 )     (241,927 )     (236,761 )     (24.3 %)     (25.9 %)
Net interest income
    246,481       282,991       266,072       (7.4 %)     (12.9 %)
Fee and commission income
    87,528       89,735       90,935       (3.7 %)     (2.5 %)
Fee and commission expense
    (23,274 )     (22,898 )     (22,244 )     4.6 %     1.6 %
Net fee and commission income
    64,254       66,837       68,691       (6.5 %)     (3.9 %)
Net income from financial operations
    (16,873 )     (31,138 )     (34,196 )     (50.7 %)     (45.8 %)
Foreign exchange profit (loss), net
    39,135       49,272       53,499       (26.8 %)     (20.6 %)
Total financial transactions, net
    22,262       18,134       19,303       15.3 %     22.8 %
Other operating income
    4,569       4,630       3,982       14.7 %     (1.3 %)
Net operating profit before loan losses
    337,566       372,592       358,048       (5.7 %)     (9.4 %)
Provision for loan losses
    (92,858 )     (90,387 )     (78,281 )     18.6 %     2.7 %
Net operating profit
    244,708       282,205       279,767       (12.5 %)     (13.3 %)
 
Personnel salaries and expenses
    (71,533 )     (76,488 )     (69,400 )     3.1 %     (6.5 %)
Administrative expenses
    (48,032 )     (48,127 )     (44,084 )     9.0 %     (0.2 %)
Depreciation and amortization
    (15,653 )     (16,048 )     (12,072 )     29.7 %     (2.5 %)
Impairment
    (27 )     (2 )     (54 )     (50.0 %)     -- %
Operating expenses
    (135,245 )     (140,665 )     (125,610 )     7.7 %     (3.9 %)
Other operating expenses
    (14,263 )     (20,268 )     (16,365 )     (12.8 %)     (29.6 %)
Total operating expenses
    (149,508 )     (160,933 )     (141,975 )     5.3 %     (7.1 %)
Operating income
    95,200       121,272       137,792       (30.9 %)     (21.5 %)
Income from investments in other companies
    482       (983 )     447       7.8 %     -- %
Income before taxes
    95,682       120,289       138,239       (30.8 %)     (20.5 %)
Income tax expense
    (14,237 )     (5,790 )     (19,093 )     (25.4 %)     145.9 %
Net income from ordinary activities
    81,445       114,499       119,146       (31.6 %)     (28.9 %)
Net income discontinued operations
    -       -       -       -- %     -- %
Net income attributable to:
                                       
Minority interest
    566       782       791       (28.4 %)     (27.6 %)
Net income attributable to shareholders
    80,879       113,717       118,355       (31.7 %)     (28.9 %)

Figures in US$ have been translated at the exchange rate of Ch$471.75. On January 1, 2013, the Bank began to apply the modifications to IAC 19 relating to Employee Pension Benefits. This change was applied retroactively to 2012 figures which resulted in lower assets and liabilities of Ch$786 million and a higher net income of Ch$315 million all charged to 4Q12 figures in this report.
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
20

 
 
ANNEX 3: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION

(Ch$ millions)
 
Mar-12
   
Jun-12
   
Sep-12
   
Dec-12
   
Mar-13
 
                               
Loans
                             
Consumer loans
    2,963,104       2,987,880       3,039,998       3,115,477       3,165,550  
Residential mortgage loans
    5,162,473       5,221,914       5,208,217       5,271,581       5,309,837  
Commercial loans
    9,666,504       10,164,678       10,254,959       10,489,021       10,625,028  
Total loans
    17,792,081       18,374,472       18,503,174       18,876,079       19,100,415  
Allowance for loan losses
    (522,728 )     (518,331 )     (552,138 )     (550,152 )     (557,564 )
Total loans, net of allowances
    17,269,353       17,856,141       17,951,034       18,325,961       18,542,854  
Loans by segment
                                       
Individuals
    9,376,934       9,534,018       9,613,857       9,741,412       9,837,213  
SMEs
    2,604,565       2,658,077       2,745,928       2,821,060       2,860,666  
Total retail lending
    11,981,499       12,192,095       12,359,785       12,562,472       12,697,879  
Institutional lending
    347,818       366,862       355,119       355,518       369,751  
Middle-Market & Real estate
    3,692,576       3,848,479       3,918,324       4,058,693       4,236,766  
Corporate
    1,881,429       2,006,270       1,874,749       1,863,595       1,806,957  
Customer funds
                                       
Demand deposits
    4,566,890       4,624,570       4,601,160       4,970,019       4,964,239  
Time deposits
    8,825,599       9,913,093       9,487,610       9,112,213       9,151,110  
Total deposits
    13,392,489       14,537,663       14,088,770       14,082,232       14,115,349  
Mutual funds (Off balance sheet)
    2,995,292       2,944,482       3,080,130       2,713,776       3,112,174  
Total customer funds
    16,387,781       17,482,145       17,168,900       16,796,008       17,227,523  
Loans / Deposits1
    98.4 %     96.5 %     98.7 %     101.6 %     102.7 %
Average balances
                                       
Avg. interest earning assets
    20,119,312       20,362,279       20,410,407       20,762,771       20,923,043  
Avg. loans
    17,537,743       18,127,164       18,546,119       18,666,166       18,942,547  
Avg. assets
    24,918,317       24,957,219       25,106,995       24,995,465       24,843,979  
Avg. demand deposits
    4,527,917       4,749,885       4,598,283       4,716,789       5,020,202  
Avg equity
    2,035,332       2,014,260       2,042,929       2,101,849       2,159,904  
Avg. free funds
    6,563,249       6,764,145       6,641,212       6,818,638       7,180,106  
Capitalization
                                       
Risk weighted assets
    18,509,191       19,572,225       19,479,092       19,940,397       20,091,880  
Tier I (Shareholders' equity)
    2,065,995       2,028,612       2,058,231       2,134,778       2,194,025  
Tier II
    673,110       659,788       642,650       599,656       596,933  
Regulatory capital
    2,739,104       2,688,401       2,700,881       2,735,316       2,790,957  
Tier I ratio
    11.2 %     10.4 %     10.6 %     10.7 %     10.9 %
BIS ratio
    14.8 %     13.7 %     13.9 %     13.7 %     13.9 %
Profitability & Efficiency
                                       
Net interest margin
    5.3 %     5.0 %     4.7 %     5.5 %     4.7 %
Efficiency ratio
    36.8 %     41.0 %     42.4 %     39.9 %     41.8 %
Avg. Free funds / interest earning assets
    32.6 %     33.2 %     32.5 %     32.8 %     34.3 %
Return on avg. equity
    23.3 %     21.0 %     9.9 %     21.6 %     15.0 %
Return on avg. assets
    1.9 %     1.7 %     0.8 %     1.8 %     1.3 %
 
 
Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
21

 
 
   
Mar-12
   
Jun-12
   
Sep-12
   
Dec-12
   
Mar-13
 
Asset quality                              
Non-performing loans (NPLs)2
    519,283       529,869       561,730       597,767       612,379  
Loan loss reserves4
    522,728       518,331       552,138       550,152       557,564  
NPLs / total loans
    2.92 %     2.88 %     3.04 %     3.17 %     3.21 %
Coverage of NPLs (Loan loss allowance / NPLs)
    100.66 %     97.82 %     98.29 %     92.03 %     91.05 %
Risk index (Loan loss allowances / Loans)4
    2.94 %     2.82 %     2.98 %     2.91 %     2.92 %
Cost of credit (prov. expense / loans)
    1.76 %     1.71 %     2.58 %     1.92 %     1.94 %
                                         
Network
                                       
Branches
    499       499       496       499       497  
ATMs
    1,949       1,966       1,966       2,001       2,011  
Employees
    11,572       11,621       11,692       11,713       11,679  
                                         
Market information (period-end)
                                       
Net income per share (Ch$)
    0.63       0.56       0.27       0.60       0.43  
Net income per ADR (US$)
    0.51       0.44       0.23       0.50       0.36  
Stock price
    40.54       37.34       33.55       33.72       33.41  
ADR price
    33.14       29.83       28.2       28.49       28.47  
Market capitalization (US$mn)
    15,613       14,053       13,285       13,422       13,413  
Shares outstanding
    188,446.1       188,446.1       188,446.1       188,446.1       188,446.1  
ADRs (1 ADR = 400 shares)5
    471.1       471.1       471.1       471.1       471.1  
                                         
Other Data
                                       
Quarterly inflation rate6
    1.07 %     0.42 %     -0.16 %     1.11 %     0.13 %
Central Bank monetary policy reference rate (nomina
    5.00 %     5.00 %     5.00 %     5.00 %     5.00 %
Avg. 10 year Central Bank yield (real)
    2.45 %     2.49 %     2.42 %     2.45 %     2.62 %
Avg. 10 year Central Bank yield (nominal)
    5.40 %     5.58 %     5.31 %     5.48 %     5.62 %
Observed Exchange rate (Ch$/US$) (period-end)
    489.76       509.73       470.48       478.6       472.54  

1
Ratio = Loans - marketable securities / Time deposits + demand deposits
2
Capital + future interest of all loans w ith one installment 90 days or more overdue.
3
Total installments plus lines of credit more than 90 days overdue
4
Based on internal credit models and SBIF guidelines. Banks must have a 100% coverage of risk index
5
The rato of ADRs per local shares w as modified in Oct. 2012
6
Calculated using the variation of the Unidad de Fomento (UF) in the period
















Investor Relations Department
Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,
email: rmorenoh@santander.cl
 
 
22
 

 
 
 
 
 
 
 

 

 
 

Consolidated Financial Statements
 
   
CONSOLIDATED INTERMEDIATE STATEMENTS OF FINANCIAL POSITION
3
CONSOLIDATED INTERMEDIATE STATEMENTS OF INCOME
4
CONSOLIDATED INTERMEDIATE STATEMENTS OF COMPREHENSIVE INCOME
5
CONSOLIDATED INTERMEDIATE STATEMENTS OF CHANGES IN EQUITY
6
CONSOLIDATED INTERMEDIATE STATEMENTS OF CASH FLOW
7
   
Notes to the Consolidated Financial Statements
 
   
NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
9
NOTE 02 ACCOUNTING CHANGES
39
NOTE 03 SIGNIFICANT EVENTS
42
NOTE 04 BUSINESS SEGMENTS
43
NOTE 05 CASH AND CASH EQUIVALENTS
47
NOTE 06 TRADING INVESTMENTS
48
NOTE 07 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
49
NOTE 08 INTERBANK LOANS
56
NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS
57
NOTE 10 PURCHASES AND SALES OF LOANS
64
NOTE 11 TRADING INVESTMENTS
65
NOTE 12 INTANGIBLE ASSETS
66
NOTE 13 PROPERTY, PLANT, AND EQUIPMENT
68
NOTE 14 CURRENT AND DEFERRED TAXES
72
NOTE 15 OTHER ASSETS
75
NOTE 16 TIME DEPOSITS AND OTHER TIME LIABILITIES:
76
NOTE 17 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES
77
NOTE 18 MATURITY OF ASSETS AND LIABILITIES
83
NOTE 19 OTHER LIABILITIES
85
NOTE 20 COMMITMENTS AND CONTINGENCIES
86
NOTE 21 EQUITY
88
NOTE 22 CAPITAL REQUIREMENTS (BASEL)
91
NOTE 23 NON-CONTROLLING INTEREST
93
NOTE 24 INTEREST AND ADJUSTMENTS
95
NOTE 25 FEES AND COMMISSIONS
97
NOTE 26 OTHER INCOME FROM FINANCIAL OPERATIONS
98
NOTE 27 NET FOREIGN EXCHANGE INCOME
98
NOTE 28 PROVISION FOR LOAN LOSSES
99
NOTE 29 PERSONNEL SALARIES AND EXPENSES
100
NOTE 30 ADMINISTRATIVE EXPENSES
101
NOTE 31 DEPRECIATION, AMORTIZATION AND IMPAIRMENT
102
NOTE 32 OTHER OPERATING INCOME AND EXPENSES
103
NOTE 33 TRANSACTIONS WITH RELATED PARTIES
105
NOTE 34 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
109
NOTE 35 SUBSEQUENT EVENTS
113


 
 2

 

Banco Santander Chile and Subsidiaries
CONSOLIDATED INTERMEDIATE STATEMENTS OF FINANCIAL POSITION
For periods ending as of

     
As of
March,
 
As of
December,
     
2013
 
2012
 
NOTE
 
MCh$
 
MCh$
           
ASSETS
         
 
Cash and deposits in banks
5
 
1,230,201
 
1,250,414
 
Cash items in process of collection
5
 
621,562
 
520,267
 
Trading investments
6
 
250,040
 
338,287
 
Investments under resale agreements
   
-
 
6,993
 
Financial derivative contracts
7
 
1,292,953
 
1,293,212
 
Interbank loans, net
8
 
139,965
 
90,527
 
Loans and accounts receivable from customers, net
9
 
18,542,851
 
18,325,957
 
Available for sale investments
11
 
1,873,478
 
1,826,158
 
Held to maturity investments
   
-
 
-
 
Investments in other companies
   
8,080
 
7,614
 
Intangible assets
12
 
77,158
 
87,347
 
Property, plant, and equipment
13
 
159,852
 
162,214
 
Current taxes
14
 
19,782
 
10,227
 
Deferred taxes
14
 
187,991
 
186,407
 
Other assets
15
 
585,528
 
655,217
TOTAL ASSETS
   
24,989,441
 
24,760,841
LIABILITIES
         
 
Deposits and other demand liabilities
16
 
4,964,239
 
4.970.019
 
Cash items in process of being cleared
5
 
461,175
 
284.953
 
Obligations under repurchase agreements
   
223,702
 
304.117
 
Time deposits and other time liabilities
16
 
9,151,110
 
9.112.213
 
Financial derivative contracts
7
 
1,183,865
 
1.146.161
 
Interbank borrowings
   
1,379,829
 
1.438.003
 
Issued debt instruments
17
 
4,599,823
 
4.571.289
 
Other financial liabilities
17
 
210,210
 
192.611
 
Current taxes
14
 
561
 
525
 
Deferred taxes
14
 
14,780
 
9.544
 
Allowances
   
229,784
 
221.089
 
Other liabilities
19
 
341,508
 
341.274
           
TOTAL LIABILITIES
   
22,760,586
 
22,591,798
EQUITY
         
             
 
Attributable to the Bank's shareholders:
   
2,194,025
 
2,134,778
 
Capital
   
891,303
 
891,303
 
Reserves
   
975,460
 
975,460
 
Valuation adjustments
21
 
(1,152)
 
(3,781)
 
Retained earnings
   
328,414
 
271,796
   
Retained earnings of prior years
   
388,282
 
-
   
Income for the period
   
80,879
 
388.282
   
Minus:  Provision for mandatory dividends
   
(140,747)
)
(116.486)
 
Non-controlling interest
23
 
34,830
 
34,265
           
TOTAL EQUITY
   
2,228,855
 
2,169,043
           
TOTAL LIABILITIES AND EQUITY
   
24,989,441
 
24,760,841


 
Financial Statements 2013 / Banco Santander Chile 3

 

Banco Santander Chile and Subsidiaries
CONSOLIDATED INTERMEDIATE STATEMENTS OF INCOME FOR THE PERIOD
For periods ending as of

     
March 31,
     
2013
 
2012
 
NOTE
 
MCh$
 
MCh$
           
OPERATING INCOME
         
           
Interest income
24
 
425,797
 
502,833
Interest expense
24
 
(179,316)
 
(236,761)
           
         Net interest income
   
246,481
 
266,072
           
Fee and commission income
25
 
87,528
 
90,935
Fee and commission expense
25
 
(23,274)
 
(22,244)