Banco Santander Chile Announces Second Quarter 2012 Earnings

SANTIAGO, Chile, July 30, 2012 /PRNewswire/ -- Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results for the second quarter and first half of 2012. These results are reported on a consolidated basis in accordance with Chilean GAAP in nominal Chilean pesos.

2Q12: Net income reaches Ch$105,695 million

In 2Q12, Net income attributable to shareholders totaled Ch$105,695 million (Ch$0.56 per share and US$1.14 [1] /ADR). Compared to 1Q12 (from now on QoQ), net income decreased 10.7%. Compared to 2Q12 (from now on YoY), a record earnings quarter for the Bank, net income decreased 25.3%. This decline was mainly due to the lower inflation rate in the quarter that negatively affected net interest margins. Net income in the first half of 2012 totaled Ch$224,002 million (Ch$1.19 per share and US$2.42/ADR).

Solid levels of capital: Core capital at 10.4%, BIS at 13.7%

ROAE in 2Q12 reached 21.0% and 22.2% in 1H12. The Bank paid on April 25, 2012 its annual dividend equivalent to 60% of 2011 net income (Ch$1.39/share and US$2.95 [2] /ADR) equivalent to a dividend yield of 3.5% on the dividend record date in Chile. Our dividend payout ratio has remained unchanged for the past three years. 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. The BIS ratio reached 13.7% as of June 2012 compared to 13.4% as of June 2011. The Bank's core capital ratio reached 10.4% as of June 2012, among the highest among our main peers. Voting common shareholders' equity is the sole component of our Tier I capital.

Loan growth accelerating

In 2Q12, total loans increased 3.3% QoQ (+13.2% annualized) and 5.5% YoY. In the quarter, the Bank focused its loan growth in the middle-market and corporate loan segments. These segments continue to show healthy loan demand given the solid level of investment expected this year in the Chilean economy. Simultaneously, many corporate clients have reverted to the local market for their funding needs as external funding sources for companies have become more expensive. As a result, lending in the middle market (companies with annual sales between Ch$1,200 million and Ch$10,000 million per year) increased 4.2% QoQ. Corporate lending (companies with sale over Ch$10,000 million per year or that are part of a large foreign or local economic group) increased 6.6% QoQ.

Loans to individuals, which include consumer, mortgage and commercial loans to individuals, increased of 1.7% QoQ in 2Q12 and 5.6% YoY. In the quarter, the Bank focused on expanding its loan portfolio in the mid-upper income segments, while remaining more selective in the mass consumer market. Loans to high-income individuals increased 2.7% QoQ in comparison to a decrease of 1.1% QoQ in the mass consumer market. Lending to SMEs (defined as companies that sell less than Ch$1,200 million per year) expanded 2.1% QoQ (8.3% YoY), reflecting the Bank's consistent focus on this profitable segment.

Solid growth of deposits

Total deposits increased 8.6% QoQ and 9.3% YoY, outstripping loan growth. In the quarter, pension funds and core deposits fueled deposit growth. As a result, total time deposits increased 12.3% QoQ. Core deposits (demand deposits and time deposits from non-institutional sources) grew 1.5% QoQ and 17.6% YoY. The Bank took advantage of this influx of deposits and its relatively high structural liquidity to pre-pay more expensive foreign bank lines and bonds.

Asset quality indicators remain stable QoQ

Net provisions for loan losses in the quarter were flat QoQ. Total charge-offs increased 4.3% QoQ driven by an increase in charge-offs in retail banking. This was offset by a 52.5% QoQ rise in loan loss recoveries, as the Bank strengthened its collection efforts in retail banking. The Bank's Non-performing loans ratio (NPL) reached 2.82% as of June 2012 compared to 2.94% as of March 2012 and 2.60% as of June 2011. The Coverage ratio of total NPLs (loan loss allowances over non-performing loans) reached 97.8% as of June 30, 2012. The Risk Index, which measures the percentage of loans for which the Bank must set aside loan loss allowances, based on our internal models and Superintendency of Banks guidelines, decreased to 2.82% as of June 2012 compared to 2.94% in March 2012 and 2.90% in June 2011.

Deceleration of inflation temporarily lowers net interest margins

In 2Q12, the Net interest margin (NIM) reached 5.0% compared to 5.3% in 1Q12 and 5.2% in 2Q12. The lower NIM was mainly due to the lower inflation rates, since the Bank has more assets than liabilities linked to inflation. Inflation, measured as the variation of the Unidad de Fomento (an inflation indexed currency unit), increased 0.42% in 2Q12 compared to 1.07% in 1Q12 and 1.44% in 2Q11. Net interest income decreased 4.2% QoQ and increased 3.0% YoY. The negative impact of a lower inflation rate was more than offset by higher lending volumes and an improved funding mix. The latter is a direct result of the Bank's efforts over the past two years to improve our funding costs. This should give further stability to margins going forward.

Focus on improving efficiency in middle-income banking

Operating expenses in 2Q12 increased 9.6% QoQ and 10.1% YoY. The QoQ rise in expenses is mainly seasonal.  In the quarter, the Bank continued with its projects of investing in a new Client Relationship Management system and the Transformation Initiatives aimed at enhancing productivity, especially in middle-income banking. The CRM and Transformation Project should help to reverse this situation, leading to better long-term efficiency, growth and profitability in this segment.

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for May 2012, Banco Santander Chile was the largest bank in terms of loans and equity. The Bank has among the highest credit ratings among all Latin American companies, with an A+ rating from Fitch, A from Standard and Poor's and Aa3 by Moody's. The stock is traded on the New York Stock Exchange (NYSE: BSAC) and the Santiago Stock Exchange (SSE: Bsantander). The Bank's main shareholder is Santander, which controls 67% of Banco Santander Chile.  

For more information see www.santander.cl

[1] Earnings per ADR was calculated using the Observed Exchange Rate Ch$509.73 per US$ as of June 30, 2012.

[2] Dividend per ADR calculated based on the observed exchange rate of Ch$487.15 / US$ as of April 25, 2012, which was the dividend pay date in Chile.