Banco Santander Chile Announces Second Quarter and First Half 2011 Earnings

SANTIAGO, Chile, August 1, 2011 -

Banco Santander Chile (NYSE: SAN; SSE: Bsantander) announced today its unaudited results for the second quarter and first half of 2011. These results are reported on a consolidated basis in accordance with Chilean GAAP in nominal Chilean pesos.

Net income increases 21.7% QoQ in 2Q11

In 2Q11, net income attributable to shareholders(1) totaled Ch$141,512 million (Ch$0.75 per share and US$1.66/ADR(2)). Compared to 1Q11 (from now on QoQ) net income increased 21.7%. Compared to 2Q10 (from now on YoY) net income increased 1.9%.

ROE reaches 30.5% in 2Q11. Core capital at 9.8%

With these results, the Bank’s ROAE reached 30.5% in 2Q11. 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 9.8% of risk-weighted assets. The BIS ratio reached 13.4% as of June 30, 2011.  On April 27, 2011, the Bank paid its annual dividend of Ch$1.52 per 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.

Positive core deposit growth

Total deposits increased 4.6% QoQ. Demand deposits increased 3.1% in the same period and time deposits were up 5.3%. Core deposits (non-institutional deposits) increased 4.5% QoQ and 36.5% YoY. As short-term interest rates went up in the quarter, the Bank proactively increased its cheaper core deposit base. The Bank’s market share in total deposits has increased 60 basis points to 19.1% in the last 12 months.

Strong loan growth in the quarter

In 2Q11, total loans increased 3.9% QoQ and 19.5% YoY. Higher yielding retail loans - which include loans to individuals and small and middle-sized companies, SMEs - increased 3.3% QoQ (15.7% YoY) in 2Q11. Consumer loans increased 2.8% QoQ and 20.3% YoY. This positive evolution was driven by credit cards loans that expanded 4.2% QoQ and 37.8% YoY as the Bank’s market share in the credit card business continues to rise.

Operating income, net of provisions and costs increases 2.8% QoQ and 6.8% YoY in 2Q11

Operating income, net of provisions and costs, an indicator or recurring revenue generation increased 2.8% QoQ and 6.8% YoY in 2Q11. Net interest income increased 8.2% QoQ and 1.9% YoY. The Net interest margin (NIM) in 2Q11 reached 5.2% compared to 5.1% in 1Q11 and 6.1% in 2Q10. Compared to 2Q10, the decline in net interest income and NIM was mainly due to higher short-term interest rates, which increased our funding costs. The Central Bank has increased short-term interest rates by 425 basis points to 5.25% 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. Compared to 1Q11, the increase in the Bank’s net interest income and NIM was mainly due to the higher yield earned on interest earning assets.

NIMs after provision expense have remained relatively stable for the past 6 quarters, as the higher funding costs has been offset by improvements in asset quality. The Bank’s NIM after provision expenses reached 4.0% in 2Q11. Asset quality indicators remained stable in the quarter. The Risk Index, which measures the percentage of loans the banks must provision for given their internal models and the Superintendency of Banks guidelines, remained stable QoQ at 2.9%. The NPL ratio as of June 2011 reached 2.6% compared to 2.5% as of March 2011 and 2.9% as of June 2010.

Provision expense in the quarter increased 16.8% QoQ and decreased 3.8% YoY. This was mainly due to (i) the Bank has strengthened its provisioning model for residential mortgage lending in 2Q11. This in line with our strategic objective of accelerating retail lending growth, while maintaining a proactive stance regarding credit risk. This signified an additional Ch$3,252 million in provisions for residential mortgage loans in the quarter. For more details on the new model, see Annex 1, (ii) provisions related to La Polar. The bank has a total exposure of Ch$6,835 million to this company and set aside Ch$1,872 million in provisions for this loan position in 2Q11, and (iii) higher lending volumes.

Operating expenses in 2Q11 increased 8.2% QoQ and 6.1% YoY. The efficiency ratio reached 36.5% in 2Q11 a 100bp improvement compared to 1Q11 efficiency levels. The increase in personnel and administrative expenses was mainly due to greater commercial activity, which increased variable incentives, marketing and general expenses. The higher inflation also fueled administrative cost growth as approximately 2/3 of operating expenses are linked to inflation.

In the first half of 2011 (1H11), net income attributable to shareholders totaled Ch$257,810 million (Ch$1.37 per share and US$3.02/ADR). Net income was flat compared to 1H10. Return on average equity reached 27.9% in 1H11, among the highest in the Chilean financial system. Operating income, net of provisions and costs increased 8.8% compared to 1H10. Net interest income, net of provision expenses increased 12.5% compared to 1H10. Fee income in the first half of 2010 grew 12.5% YoY as product usage and cross-selling indicators continued to improve. Finally, operating expenses rose 8.5% mainly driven by higher expenses to support stronger business activity, especially in retail banking. The efficiency ratio in 1H10 reached 37.0%.

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for June 2011, Banco Santander Chile was the largest bank in terms of loans, equity and second in terms of total deposits. The Bank has the highest credit ratings among all Latin American companies, with an A+ rating from Standard and Poor’s and Aa3 by Moody’s, which are the same ratings assigned to the Republic of Chile, and AA- by Fitch. The stock is traded on the New York Stock Exchange (NYSE: SAN) and the Santiago Stock Exchange (SSE: Bsantander). The Bank’s main shareholder is Santander, which controls 75.0% of Banco Santander Chile.  

For more information see www.santander.cl

Banco Santander (SAN.MC, STD.N, BNC.LN) is a retail and commercial bank, based in Spain, with a presence in 10 main markets. Santander is the largest bank in the euro zone and tenth in the world by market capitalization. Founded in 1857, Santander had EUR 1,374 billion in managed funds, more than 100 million customers, 14,679 branches - more than any other international bank - and 190,000 employees at the close of June 2011. It is the largest financial group in Spain and Latin America. Furthermore, it has significant positions in the United Kingdom, Portugal, Germany, Poland and the U.S. northeast. Santander Consumer Finance operates in the Group’s core markets as well as in the Nordic region. In the first half of 2011, Grupo Santander registered EUR 3,501 million in net attributable profit.

(1) The results in this report are unaudited.

(2) Earnings per ADR was calculated using the Observed Exchange Rate of Ch$471.13 per US$ as of June 30, 2011.

Robert Moreno, Manager, Investor Relations Department, Tel: +562-320-8284, Fax: +562-671-6554, Email: rmorenoh at santander.cl