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

 

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The funding mix improves and demand deposits rise 10.1% QoQ

In the quarter, the Bank also improved its funding mix. The ratio of loans to deposits reached 104.3% as of March 2010 compared to 100.9% as of December 2009. Customer funds increased 1.5% QoQ. The 10.1% QoQ increase in demand deposits in the quarter was mainly due to the low interest rate environment and our strategic focus on non-lending activities also helped to boost demand deposit volumes. In the quarter, non-interest bearing deposit in the middle market increased 18.8% QoQ and 13.7% QoQ among SMEs clients.

Net interest income up 22.5% YoY in 1Q10

In 1Q10, net interest income increased 22.5%. The Bank’s net interest margin reached 5.8% in the quarter compared to 4.8% in 1Q09 and 5.8 in 4Q09. This rise in net interest income was mainly due to (a) the higher inflation rate and, (b) an improved loan and funding mix. The Bank maintains long-term assets (mainly medium and long-term financial investments) that are denominated in Unidades de Fomento (UFs), an inflation indexed unit, which are partially funded with nominal or non-interest bearing peso short-term deposits. The UF inflation reached 0.27% in 1Q10 compared to -2.30% in 1Q09, benefiting this mismatch. In the same YoY period, the percentage of high yielding loans to the retail segments (individuals, SMEs and institutional) reached 63.9% compared to 60.0% in 1Q09. This better mix helped to maintain client margins in a low interest rate environment.

Net provision expense decreases 22.8% YoY in 1Q10

In 1Q10, the Bank’s net provision expense decreased 22.8% YoY. This was mainly due to an improvement in asset quality, especially among individuals, which resulted in a 44.4% YoY decrease in total charge-offs. This improvement has been a consequence of both the improvement of the economy and the Bank’s strategic focus maintained since 2008 on keeping asset quality under control by growing selectively and by increasing the time commercial executives dedicate to asset quality issues. Non-performing consumer loans decreased 38.6% YoY and the coverage ratio of consumer NPLs reached 247% as of March 2010 compared to 121% as of March 2009.

Fees income grows 1.2% YoY in 1Q10. Credit card fees up 19.5% YoY in 1Q10

Net fee income increased 1.2% YoY. Fees from credit, debit and ATM cards continue to lead fee growth and increased 19.5% YoY. The rise in fees from these businesses reflects the higher use of the Bank’s cards. Fees from asset management increased 52.8% YoY and fees from insurance brokerage increased 53.4% in the same period. The Bank’s success in selling insurance online, especially auto insurance, coupled with a greater demand of fraud insurance has driven insurance brokerage fees. These positive trends were partially offset by lower fees from checking accounts due to regulatory changes introduced in mid-2009 and lower collection fees that were negatively affected by the earthquake.

 

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

 

 

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The efficiency ratio reached 33.0% in 1Q10

The Bank continued to control costs in 1Q10 and the efficiency ratio reached 33.0% in the quarter. Operating expenses increased 1.2% QoQ and 5.8% YoY mainly due to the growth of administrative expenses, which were impacted by earthquake related costs. The Bank’s installations are insured, but additional expenses were incurred in order restore full functionality following the quake (rental expenses, travel, aid, donations, etc.). 98% of the Bank’s branches and ATMs are currently open. The first business day after the quake the Bank’s systems were functioning normally, including all remote channels (internet, ATMs and phone banking). This was an important achievement that contributed to a rapid return to normal daily life in those zones less affected by the earthquake, such as Santiago.

Gross income net of provisions & costs increases 14.5% YoY in 1Q10

In summary, gross income, net of provisions & costs, a proxy for recurring earnings, jumped 14.5% YoY, reflecting the high quality of results in the period. The growth of net interest income and the improvement in asset quality were the main drivers of these positive results.

(Ch$ million)		1Q10				YoY Chg.
Net interest income			229,398				22.5	%
Fee income			62,351				1.2	%
Financial transactions			29,573				(57.0	)%
Provision expense			(70,187	)			(22.8	)%
Operating expenses			(103,999	)			5.8	%
Gross income, net of provisions & costs			147,136				14.5	%
Other operating and non-operating income, net*			(28,032	)			(45.9	)%
Net income attributable to shareholders			119,104				55.4	%

* Includes Other operating income, Other operating expenses, income attributable to investments in other companies, income tax and net of minority interest.

 

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

 

 

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Banco Santander Chile: Summary of Quarterly Results

		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Net interest income			229,398				225,379				187,273				22.5	%			1.8	%
Fee income			62,351				64,598				61,631				1.2	%			(3.5	)%
Financial transactions, net			29,573				37,147				68,815				(57.0	)%			(20.4	)%
Provision expense			(70,187	)			(67,754	)			(90,934	)			(22.8	)%			3.6	%
Operating expenses			(103,999	)			(102,732	)			(98,288	)			5.8	%			1.2	%
Gross operating income, net of provisions			147,136				156,638				128,497				14.5	%			(6.1	)%
Other operating & Non-op. Income1			(28,032	)			(19,329	)			(51,845	)			(45.9	)%			45.0	%
Net income attributable to shareholders			119,104				137,309				76,652				55.4	%			(13.3	)%
Net income/share (Ch$)			0.63				0.73				0.41				55.4	%			(13.3	)%
Net income/ADR (US$)2			1.25				1.49				0.73				71.9	%			(16.5	)%
Total loans			14,043,570				13,727,864				13,985,677				0.4	%			2.3	%
Customer funds			14,343,802				14,136,620				14,855,094				(3.4	)%			1.5	%
Shareholders’ equity			1,683,104				1,658,316				1,543,040				9.1	%			1.5	%
Net interest margin			5.8	%			5.8	%			4.8	%
Efficiency ratio			33.0	%			30.5	%			34.5	%
Return on average equity3			28.6	%			34.1	%			20.2	%
NPL4 / Total loans			2.7	%			3.0	%			2.8	%
Coverage NPLs			97.1	%			85.4	%			71.6	%
Expected loss5			2.7	%			2.5	%			2.0	%
BIS ratio			14.7	%			15.6	%			15.0	%
Branches			498				498				500
ATMs			1,856				1,917				1,929

1.	Includes Other operating income, Other operating expenses, income attributable to investments in other companies, income tax and net of minority interest.

2.	The change in earnings per ADR may differ from the change in earnings per share due to the exchange rate. The exchange rate used is Ch$526.29 per US$.

3.	Annualized quarterly Net income attributable to shareholders / Average equity attributable to shareholders.

4.	NPL: Non-performing loans, includes all loans with one installment over 90 days overdue.

5.	This ratio, defined as loan loss allowances over total loans, measures how much the Bank expects to loose on its loan book, according to its internal models and the Superintendency of Banks guidelines. Banks must have 100% coverage of the Expected Loan Loss.

 

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

 

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SECTION 2: BALANCE SHEET ANALYSIS

LOANS

Loans grow 2.3% QoQ in 1Q10 with loan growth in all products and segments

Loans		Quarter ended,												% Change
(Ch$ million)		Mar-10				Dec-09				Mar-09				Mar. 10 / 09				Mar. 10 / Dec. 09
Total loans to individuals1			6,523,716				6,403,087				6,115,175				6.7	%			1.9	%
Consumer loans			2,303,983				2,244,035				2,187,832				5.3	%			2.7	%
Residential mortgage loans			4,219,733				4,159,052				3,927,343				7.4	%			1.5	%
SMEs			2,141,508				2,088,656				1,999,411				7.1	%			2.5	%
Institutional lending			313,139				291,830				262,518				19.3	%			7.3	%
Middle-Market & Real estate			2,905,516				2,784,767				3,050,854				(4.8	)%			4.3	%
Corporate			1,099,424				1,081,319				1,637,110				(32.8	)%			1.7	%
Total loans 2,3			14,043,570				13,727,864				13,985,677				0.4	%			2.3	%

1

Sum of consumer loans and residential mortgage loans.

2

Total loans gross of loan loss allowances and excluding interbank loans. Total loans include other non-segmented loans.

In 1Q10, total loans increased 2.3% QoQ with loan growth seen in all products and segments. The pick up in economic growth has led to a rebound in loan volumes, especially in higher yielding retail banking activities. The lower interest rate also continued to boost loan demand.

Regarding the 8.8 earthquake that hit Chile in February, the areas of Chile that were most affected (Regions VI, VII and VIII) accounted for approximately 11.8% of our loan portfolio or Ch$1,658,845 million. As a result, we expect some impact on loan growth in these regions in the coming quarters. Nevertheless, the Bank was able to compensate in March the lower credit demand on those areas with higher growth in the rest of the country and saw loan growth in the majority of its products and segments, while increasing its market share.

Loan growth accelerates in March

Monthly Sequential Loan Growth, %

 

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

 

 

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Loans to individuals increased 1.9% QoQ, led by a 2.7% increase in consumer loans. Notable was the 4.5% QoQ increase in credit card consumer loans as the Bank continues to gain market share in credit card purchases. Following the earthquake the Bank also saw greater usage of credit cards for home improvement expenses. Residential mortgage loans increased 1.5% QoQ. Lending to small and middle-sized companies (SMEs) and the Middle Market increased 2.5% and 4.3% QoQ, respectively. These segments were positively impacted by the rebound in economic growth and the initial reconstruction efforts. Corporate lending also positive showed growth in 1Q10 after several quarters of decline, reflecting the positive evolution of investment levels in the economy.

FUNDING

Strong growth of non-interest bearing liabilities

Customer funds		Quarter												Change %
(Ch$ million)		Mar-10				Dec-09				Mar-09				Mar. 10 / 09				Mar. 10 / Dec. 09
Non-interest bearing deposits			3,890,230				3,533,534				3,092,010				25.8	%			10.1	%
Time deposits			6,818,939				7,175,257				8,677,857				(21.4	)%			(5.0	)%
Total customer deposits			10,709,169				10,708,791				11,769,867				(9.0	)%			0.0	%
Mutual funds			3,634,633				3,427,829				3,085,227				17.8	%			6.0	%
Total customer funds			14,343,802				14,136,620				14,855,094				(3.4	)%			1.5	%
Loans to deposits*			104.3	%			100.9	%			96.5	%

* (Loans - marketable securities that fund mortgage portfolio) / (Time deposits + demand deposits).

In the quarter, the Bank also improved its funding mix. The ratio of loans to deposits2 reached 104.3% as of March 2010 compared to 100.9% as of December 2009. Customer funds increased 1.5% QoQ. The 10.1% QoQ increase in demand deposits in the quarter and the 5.0% QoQ decrease in time deposits was mainly due our strategic focus on non-lending activities. The low interest rate environment also helped to boost demand deposit volumes in the period. In the quarter, non-interest bearing deposit in the middle market increased 18.8% QoQ and 13.7% QoQ among SMEs clients.

Mutual funds under management increased 6.0% QoQ as equity funds continued to grow and the Bank proactively moved clients funds to higher yielding investments, which are also produce a higher spread for the Bank through fee income.

 

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

 

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SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

ROE reaches 28.6% in 1Q10. Record dividend paid in April 2010

Shareholders' Equity		Quarter												Change %
(Ch$ million)		Mar-10				Dec-09				Mar-09				Mar. 10 / 09				Mar. 10 / Dec. 09
Capital			891,303				891,303				891,303				0.0	%			0.0	%
Reserves			51,538				51,539				(16,960	)			(403.9	)%			(0.0	)%
Unrealized gain (loss) Available-for-sale financial assets			(32,620	)			(26,804	)			(7,856	)			315.2	%			21.7	%
Retained Earnings:			772,882				742,278				676,553				14.2	%			4.1	%
Retained earnings previous periods			818,885				440,401				721,340				13.5	%			85.9	%
Net income			119,104				431,253				76,652				55.4	%			(72.4	)%
Provision for mandatory dividend			(165,107	)			(129,376	)			(121,439	)			36.0	%			27.6	%
Minority Interest			29,942				29,799				28,403				5.4	%			0.5	%
Total Equity			1,713,045				1,688,115				1,571,443				9.0	%			1.5	%
Equity attributable to shareholders			1,683,103				1,658,316				1,543,040				9.1	%			1.5	%

Shareholders’ equity totaled Ch$1,683,103 million (US$3.2 billion) as of March 31, 2010. Since January 2010, all Chilean banks must include in the calculation of expected loss and reserve levels a percentage of off-balance sheet contingent loans. This also entailed including a greater portion of these operations in the calculation of risk weighted assets. As a result, the Bank recognized a charge to equity of Ch$63,448 million (Ch$52,662 million net of deferred taxes) in the quarter due to the recognition of provisions for lines of credit approved but not disbursed, unused credit card lines, stand-by letters of credit and other operations guaranteed by the Bank. This also explains the 9.2% QoQ increase in risk weighted assets as seen in the following page.

ROAE in 1Q10 reached 28.6%. This strong profitability was achieved while having one of the highest levels of capitalization in the banking system. Voting common shareholders’ equity is the sole component of our Tier I capital and represented 10.8% of risk weighted assets as of March 31, 2010. The BIS ratio reached 14.7% at the same date. In April 2010, the Bank paid its annual dividend of Ch$1.37/share, 21.2% more than in 2009 and equivalent to 60% of 2009 earnings attributable to shareholders. At the record date in Chile, the dividend yield was 3.9%. All else equal, the Bank’s BIS ratio post dividend will be approximately 14.0%.

 

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

 

 

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Capital Adequacy		Quarter ended											Change %
(Ch$ million)		Mar-10				Dec-09				Mar-09			Mar. 10 / 09				Mar. 10 / Dec. 09
Tier I			1,683,103				1,658,316				1,543,039			9.1	%			1.5	%
Tier II			599,353				555,776				560,232			7.0	%			7.8	%
Regulatory capital			2,282,455				2,214,092				2,103,271			8.5	%			3.1	%
Risk weighted assets			15,513,732				14,202,118				13,979,591			11.0	%			9.2	%
Tier I ratio			10.8	%			11.7	%			11.0	%
BIS ratio			14.7	%			15.6	%			15.0	%

SECTION 3: ANALYSIS OF QUARTERLY INCOME STATEMENT

NET INTEREST INCOME

Net interest income increases 22.5% YoY

Net Interest Income / Margin		Quarter											Change %
(Ch$ million)		1Q10				4Q09				1Q09			1Q10/1Q09				1Q10/4Q09
Net interest income			229,398				225,379				187,273			22.5	%			1.8	%
Average interest-earning assets			15,776,237				15,562,696				15,742,285			0.2	%			1.4	%
Average loans			13,879,173				13,647,750				14,312,882			(3.0	)%			1.7	%
Net interest margin (NIM)			5.8	%			5.8	%			4.8	%
Avg. equity + non-interest bearing demand deposits / Avg. interest earning assets			33.9	%			33.9	%			28.4	%
Quarterly inflation rate			0.27	%			0.52	%			(2.30	)%
Avg. overnight interbank rate (nominal)			0.40	%			0.43	%			5.49	%
Avg. 10 year Central Bank yield (real)			3.14	%			3.09	%			2.60	%

1.	Client net interest income and margins, is net interest income (and margins) generated by our commercial areas.

2.	Non-client net interest income is net interest income generated by centralized activities, non-segmented portions of the balance sheet and Financial Management.

3.	Annualized.

4.	Inflation measured as the variation of the Unidad de Fomento in the quarter.

In 1Q10, net interest income was up 1.8% QoQ and 22.5% YoY. The Bank’s net interest margin reached 5.8% in the quarter compared to 4.8% in 1Q09 and 5.8% in 4Q09. The YoY rise in net interest income was mainly due to (a) the higher inflation rate and, (b) an improved loan and funding mix. The Bank maintains long-term assets (mainly medium and long-term financial investments) that are denominated in Unidades de Fomento (UFs), an inflation indexed unit, which are partially funded with nominal or non-interest bearing peso short-term deposits. The UF inflation reached 0.27% in 1Q10 compared to -2.30% in 1Q09, benefiting this mismatch. In the same YoY period, the percentage of high yielding loans to the retail segments (individuals, SMEs and institutional) reached 63.9% compared to 60% in 1Q09. This better mix helped to maintain client margins in a low interest rate environment. At the same time, the ratio of average equity and non-interest bearing demand deposits to average interest earning assets reached 33.9% in 1Q10 compared to 28.4% in 1Q09.

 

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

 

 

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Compared to 4Q09, the 1.8% increase in net interest income was mainly due to the increase in the loan book and the improved loan mix, partially offset by the lower quarterly inflation rates QoQ.

PROVISION FOR LOAN LOSSES

Provision expense down 22.8% YoY as asset quality improves among individuals

Provision for loan losses		Quarter											Change %
(Ch$ million)		1Q10				4Q09				1Q09			1Q10/1Q09				1Q10/4Q09
Gross provisions			(26,002	)			(26,412	)			(6,098	)		326.4	%			(1.6	)%
Charge-offs			(52,158	)			(49,093	)			(93,733	)		(44.4	)%			6.2	%
Gross provisions and charge-offs			(78,160	)			(75,505	)			(99,831	)		(21.7	)%			3.5	%
Loan loss recoveries			7,973				7,751				8,897			(10.4	)%			2.9	%
Net provisions for loan losses			(70,187	)			(67,754	)			(90,934	)		(22.8	)%			3.6	%
Total loans1			14,043,570				13,727,864				13,985,677			0.4	%			2.3	%
Total reserves (RLL)			(374,064	)			(349,485	)			(281,265	)		33.0	%			7.0	%
Non-performing loans2 (NPLs)			385,211				409,067				392,802			(1.9	)%			(5.8	)%
Gross provision expense / Loans			2.23	%			2.20	%			2.86	%
Cost of credit3			2.00	%			1.97	%			2.60	%
Expected loss (RLL / Total loans)			2.66	%			2.55	%			2.01	%
NPL / Total loans			2.74	%			2.98	%			2.81	%
Coverage of NPLs4			97.1	%			85.4	%			71.6	%

1	Excludes interbank loans.

2	NPL: Non-performing loans: Full balance of loans with one installment 90 days or more overdue.

3	Cost of credit: Net provision expense, annualized / Loans.

4	Coverage NPL:  RLL / NPL.

In 1Q10, the Bank’s net provision expense increased 3.6% QoQ and decreased 22.8% YoY. By loan product, provision expense was as follows:

Net provisions for loan losses by product		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Commercial loans			(23,231	)			(18,527	)			(12,940	)			79.5	%			25.4	%
Residential mortgage loans			(5,197	)			(4,231	)			(5,403	)			(3.8	)%			22.8	%
Consumer loans			(41,759	)			(44,996	)			(72,591	)			(42.5	)%			(7.2	)%
Net provisions for loan losses			(70,187	)			(67,754	)			(90,934	)			(22.8	)%			3.6	%

1 Includes net provision expenses for interbank loans and off-balance sheet contingent

In 1Q10, the Bank’s net provision expense decreased 22.8% YoY. This was mainly due to an improvement in asset quality, especially among individuals, which resulted in a 44.4% YoY decrease in total charge-offs and a 42.5% YoY decrease in net provision expense for consumer loans. This was mainly due to the improvement of both the economy and the Bank’s strategic focus in 2009 on keeping asset quality under control by growing selectively and by increasing the time commercial executives dedicate to assert quality issues. Non-performing consumer loans decreased 38.6% YoY and the coverage ratio of consumer NPLs reached 247% as of March 2010 compared to 121% as of March 2009.

 

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

 

 

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This positive trend in charge-offs among individuals was partially offset by a rise in net provision expense for commercial loans that increased 79.5% YoY. This growth was mainly due to a rise in the expected loss in the middle market and SME segments, a consequence of an specific loan position and some initial impacts of the ongoing asset quality review after the earthquake. Going forward, the Bank expects asset quality in these segments to be further negatively impacted by the earthquake.

The regions of Chile most affected by the earthquake were regions VI, VII and VIII, which accounted for approximately 11.8% of our loan portfolio or Ch$1,658,845 million.

The rise in risk levels in the Middle Market explains the rise in the Expected Loan Loss level to 2.66% in the quarter. This ratio, defined as loan loss allowances over total loans, measures how much the Bank expects to loose on its loan book, according to its internal models and the Superintendency of Banks guidelines. The Bank is required to have 100% coverage of its Expected Loan Loss ratio. NPLs, on the other hand, decreased 5.8% YoY and 1.9% QoQ, reflecting the improvement in asset quality in individuals as commented above. The coverage ratio of total NPLs reached 97.1% as of March 31, 2010 compared to 85.4% at year-end 2009 and 71.6% in March 2009.

 

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

 

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NET FEE INCOME

Solid YoY growth of usage-linked fees

Fee Income		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Credit, debit & ATM card fees			14,351				14,002				12,014				19.5	%			2.5	%
Collection fees			13,812				16,697				15,365				(10.1	)%			(17.3	)%
Checking accounts & lines of credit			11,265				11,991				15,995				(29.6	)%			(6.1	)%
Asset management			9,391				8,825				6,144				52.8	%			6.4	%
Guarantees, and other contingent op.			5,829				6,159				6,216				(6.2	)%			(5.4	)%
Insurance brokerage			5,106				4,039				3,328				53.4	%			26.4	%
Fees from brokerage and custody of securities			1,906				1,741				1,263				50.9	%			9.5	%
Other Fees			691				1,144				1,306				(47.1	)%			(39.6	)%
Total fees			62,351				64,598				61,631				1.2	%			(3.5	)%

Net fee income decreased 3.5% QoQ and increased 1.2% YoY. The evolution of the main products was the following:

Fees from credit, debit and ATM cards continue to lead fee growth and increased 2.5% QoQ and 19.5% YoY. The rise in fees from these businesses reflects the higher use of the Bank’s cards and the launching of three new successful credit card products in 2009 and other marketing initiatives. As of March 2010, the Bank, with 32.7% of all bank credit cards, generated 38.5% of all monetary purchases year-to-date compared to 35.8% market share as of March 2009. Billing was up 35.7% in real terms YoY compared to 20.7% for the rest of the market, excluding Santander. Credit card purchases have also been positively affected by the economic rebound, but also indirectly by the earthquake as home improvement purchases spiked in the quarter.

Collection fees in 1Q10 decreased 17.3% QoQ and 10.1% YoY. This decrease was due to lower collection of loan insurance policies on behalf of third parties, which represent 75% of fee income in this item and was down 19.7% QoQ. This was a direct result of the temporary interruption of general activity in the zones more affected by the earthquake.

Fees from checking accounts and lines of credit decreased 6.1% QoQ and 29.6% YoY. The YoY decline was mainly due to regulatory changes that prohibited fees charged for unauthorized overdrafts as of April 2009. The QoQ decrease was mainly due to the temporary waiving of fees in some of the more affected areas by the earthquake.

Fees from asset management increased 6.4% QoQ and 52.8% YoY. Total assets under management reached Ch$3,634,633 million (US$6.9 billion) increasing 6.0% QoQ and increasing 17.8% YoY. The QoQ and YoY increase reflects the greater flows of money to both money market and stock funds. The Bank’s commercial teams have also proactively funneled customer deposits to mutual funds, which is a more profitable product for the Bank.

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

 

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A similar trend was observable in brokerage related fees. Fees from insurance brokerage increased 26.4% QoQ and 53.4% YoY. The Bank’s success in selling insurance online, especially auto insurance coupled with a greater demand of fraud insurance has driven insurance brokerage fees. Fees from the brokerage of securities was positively affected by the Bank’s new internet platform for stock trading, which drove a fourfold increase in volumes traded online.

OPERATING EXPENSES AND EFFICIENCY

The efficiency ratio reached 33.0% in 1Q10

Operating Expenses		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Personnel expenses			(55,589	)			(56,638	)			(54,394	)			2.2	%			(1.9	)%
Administrative expenses			(36,053	)			(34,051	)			(33,448	)			7.8	%			5.9	%
Depreciation and amortization			(12,341	)			(11,968	)			(10,446	)			18.1	%			3.1	%
Deterioration			(16	)			(75	)			0				—	%			(78.7	)%
Operating expenses			(103,999	)			(102,732	)			(98,288	)			5.8	%			1.2	%
Efficiency ratio*			33.0	%			30.5	%			34.5	%

* Operating expenses / Operating income.  Operating income = Net interest income + Net fee income+ Financial transactions net + other operating income and expenses.

The Bank continued to control costs in 1Q10 and the efficiency ratio reached 33.0% in the quarter. Operating expenses increased 1.2% QoQ and 5.8% YoY. The rise in operating expenses in 1Q10 was mainly due to earthquake related costs that affected administrative expenses. The Bank’s installations are insured, but expenses were incurred in order restore full functionality following the quake (rental expenses, travel, aid, donations, etc.). 98% of the Bank’s branches and ATMs are currently open. The first business day after the quake the Bank’s systems were functioning normally, including all remote channels. This was an important achievement that contributed to a rapid return to normal daily life in those zones less affected by the temblor such as Santiago.

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

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NET RESULTS FROM FINANCIAL TRANSACTIONS

Positive results from client treasury activities in the quarter

Net Result from Financial Transactions		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Net gains from mark-to-market and trading			52,092				(48,126	)			19,429				168.1	%			(208.2	)%
Exchange differences, net			(22,519	)			85,273				49,386				(145.6	)%			(126.4	)%
Net results from financial transactions			29,573				37,147				68,815				(57.0	)%			(20.4	)%

* 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.

The Net results from financial transactions, which include the sum of the net gains from mark-to-market and trading and exchange differences, net totaled a gain of Ch$29,573 million in 1Q10. In order to better understand this line item, we present the net results from financial transactions by business area in the table below.

Net Result from Financial Transactions		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Santander Global Connect & Market making			19,290				25,690				39,240				(50.8	)%			(24.9	)%
ALCO & Proprietary trading			10,283				11,457				29,574				(65.2	)%			(10.2	)%
Net results from financial transactions			29,573				37,147				68,814				(57.0	)%			(20.4	)%

*  Santander Global Connect is the Bank’s commercial platform for selling treasury products to our clients. This line item also includes the gain or loss from the sale of charged-off loans.

The 20.4% QoQ decrease in this line item was due to the Ch$8,689 million one time gain from the sale of charged-off loans in 4Q09. Excluding this item, the net results from financial transactions increased 3.6% QoQ and were driven by higher results from our market making business and Santander Global Connect, the Bank’s platform for selling derivatives to clients. This is a recurrent line of business for the Bank.

The 57.0% YoY decline in this line item in 1Q10 was mainly due to extraordinary gains from the realized gains from the available for sale fixed income portfolio and realized and mark-to-market gains from financial investments held for trading, following the sharp decline in interest rates in 1Q09.

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

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OTHER INCOME AND EXPENSES

Other Income and Expenses		Quarter												Change %
(Ch$ million)		1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
Other operating income			6,065				24,598				2,498				142.8	%			(75.3	)%
Other operating expenses			(12,556	)			(14,773	)			(35,531	)			(64.7	)%			(15.0	)%
Income attributable to investments in other companies			120				(566	)			326				(63.2	)%			(121.2	)%
Income tax			(21,760	)			(28,348	)			(16,259	)			33.8	%			(23.2	)%
Income tax rate			15.5	%			17.1	%			17.0	%

Other operating income totaled a gain of Ch$6,065 million in the quarter. The 75.3% QoQ decrease was mainly due to a one-time gain of Ch$7,072 million from the sale of a building and the reversal of Ch$16,700 million in additional provisions for non-specific credit and non-credit contingencies in 4Q09. The rise in operating income, excluding the one time effects in 4Q09 was mainly due to higher results from the sale of repossessed assets.

Other operating expenses totaled a loss of Ch$12,556 million in the quarter compared to Ch$14,773 million in 4Q09. This lower expense was mainly due to lower charge-offs of repossessed assets as the economy improves. Other operating expenses improved 64.7% compared to 1Q09. In that period, the Bank recognized additional provisions for both credit and non-credit contingencies given the expectations in that period of further deterioration of the economic environment and asset quality.

Income tax decreased 23.2% QoQ mainly as a result of the lower income before taxes. The 33.8% YoY increase in income tax expense was mainly due to the higher income before taxes. The effective tax rate paid in the quarter was 15.5% compared to 17.0% in 1Q09. This lower effective tax rate was mainly due to the higher inflation in 1Q10 compared to 1Q09. For tax purposes the Bank’s still calculates the price level restatement of equity and this computes as a deduction from our taxable income. The statutory tax rate in Chile has not changed and is 17% over net income before taxes. It is expected that the statutory corporate tax rate in Chile will rise to 20% in 2011 and gradually return to 17% in 2013 as a part of the government’s plan to finance the reconstruction efforts.

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

 

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SECTION 4: CREDIT RISK RATINGS

International ratings

The Bank has credit ratings from three leading international agencies. All of our ratings are assigned a stable outlook.

Moody’s		Rating
Long-term bank deposits		A1
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		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
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

 

 

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SECTION 5: SHARE PERFORMANCE

As of March 2010

Ownership Structure:

ADR Price Evolution

Santander ADR vs. Global 1200 Financial Index

                      (Base 100 = 06/30/2008)

ADR price (US$) 2010

03/31/10:			68.22
Maximum (2010):			70.63
Minimum (2010):			60.59

Market Capitalization: US$12,373 million

P/E 12 month trailing*:			12.8
P/BV (09/30/09)**:			3.85
Dividend yield***:			3.9	%

*	Price as of March 31 / 12mth Earnings

**	Price as of March 31 / Book value as of 03/31/10

***	Based on closing price on record date of last dividend payment.

Daily traded volumes 2010

US$ million

Local Share Price Evolution

Santander vs IPSA Index

                        (Base 100 = 06/30/2008)

Local share price (Ch$) 2010

03/31/10:			34.43
Maximum (2010):			34.99
Minimum (2010):			30.74

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	%

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

 

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SECTION 6: INSTITUTIONAL BACKGROUND

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for March 2010, Banco Santander Chile was the largest bank in terms of loans and equity. The Bank has the highest credit ratings among all Latin American companies, with an A+ rating from Standard and Poor’s, A+ by Fitch and A1 by Moody’s, which are the same ratings assigned to the Republic of Chile. 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 76.91% of Banco Santander Chile.

For more information see www.santander.cl

Banco Santander (SAN.MC, STD.N) is a retail and commercial bank, based in Spain. Santander has more than 90 million customers, 13,660 branches – more than any other international bank – and 169,460 employees around the world. It is the largest financial group in Spain and Latin America, with leading positions in the United Kingdom and Portugal and a broad presence in Europe through its Santander Consumer Finance arm. In 2009, Santander registered EUR 8,943 million in net attributable profit. Banco Santander’s eligible capital at the close of the third quarter came to EUR 79,704 million, with a surplus of EUR 34,769 million above the required regulatory minimum. With this capital base, the BIS ratio, using Basel II criteria, comes to 14.2%, Tier I to 10.1% and core capital 8.6%. These ratios place Santander among the most solvent banks in the world.

For more information see www.santander.com

 

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

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ANNEX 1: BALANCE SHEET

																						Mar. 10 /
Unaudited Balance Sheet		Mar-10				Mar-10				Dec-09				Mar-09				Mar. 10 / 09				Dec. 09
		US$ths																% Chg.
Assets
Cash and balances from Central Bank			2,909,595				1,526,810				2,043,459				1,092,151				39.8	%			(25.3	)%
Funds to be cleared			658,449				345,521				468,134				374,617				(7.8	)%			(26.2	)%
Financial assets held for trading			1,672,957				877,884				798,539				940,357				(6.6	)%			9.9	%
Investment collateral under agreements to repurchase			7,011				3,679				14,020				7,008				—	%			(73.8	)%
Derivatives			2,793,391				1,465,832				1,393,878				1,598,218				(8.3	)%			5.2	%
Interbank loans			90,973				47,738				23,370				47,809				(0.1	)%			104.3	%
Loans, net of reserves for loan losses			26,049,561				13,669,507				13,378,379				13,704,412				(0.3	)%			2.2	%
Available-for-sale financial assets			2,997,311				1,572,839				1,830,090				1,276,382				23.2	%			(14.1	)%
Held-to-maturity investments			-				-				-				-				—	%			—	%
Investments in other companies			13,521				7,095				7,417				7,452				(4.8	)%			(4.3	)%
Intangible assets			137,761				72,290				77,260				68,248				5.9	%			(6.4	)%
Fixed assets			342,984				179,981				184,122				196,553				(8.4	)%			(2.2	)%
Current tax assets			8,859				4,649				4,541				8,310				(44.1	)%			2.4	%
Deferred tax assets			196,638				103,186				95,229				85,691				20.4	%			8.4	%
Other assets			1,091,373				572,698				452,558				579,639				(1.2	)%			26.5	%
Total Assets			38,970,384				20,449,709				20,770,996				19,986,847				2.3	%			(1.5	)%
Liabilities and Equity
Total non-interest bearing deposits			7,413,492				3,890,230				3,533,534				3,092,010				25.8	%			10.1	%
Funds to be cleared			377,147				197,908				275,474				246,100				(19.6	)%			(28.2	)%
Investments sold under agreements to repurchase			1,453,460				762,703				1,114,605				369,905				106.2	%			(31.6	)%
Time deposits and savings accounts			12,994,643				6,818,939				7,175,257				8,677,857				(21.4	)%			(5.0	)%
Derivatives			2,588,515				1,358,323				1,348,906				1,426,565				(4.8	)%			0.7	%
Deposits from credit institutions			3,822,321				2,005,763				2,046,790				1,423,195				40.9	%			(2.0	)%
Marketable debt securities			5,473,273				2,872,100				2,924,676				2,632,433				9.1	%			(1.8	)%
Other obligations			332,534				174,497				146,911				120,780				44.5	%			18.8	%
Current tax liabilities			141,858				74,440				63,831				506				14611.5	%			16.6	%
Deferred tax liability			3,144				1,650				3,380				9,381				(82.4	)%			(51.2	)%
Provisions			508,240				266,699				186,121				204,211				30.6	%			43.3	%
Other liabilities			597,258				313,411				263,396				212,461				47.5	%			19.0	%
Total Liabilities			35,705,885				18,736,663				19,082,881				18,415,404				1.7	%			(1.8	)%
Equity
Capital			1,698,529				891,303				891,303				891,303				0.0	%			0.0	%
Reserves			98,216				51,539				51,539				(16,960	)			(403.9	)%			—	%
Unrealized gain (loss) Available-for-sale financial assets			(62,163	)			(32,620	)			(26,804	)			(7,856	)			315.2	%			21.7	%
Retained Earnings:			1,472,858				772,882				742,278				676,553				14.2	%			4.1	%
Retained earnings previous periods			1,560,524				818,885				440,401				721,340				13.5	%			85.9	%
Net income			226,973				119,104				431,253				76,652				55.4	%			(72.4	)%
Provision for mandatory dividend			(314,639	)			(165,107	)			(129,376	)			(121,439	)			36.0	%			27.6	%
Total Shareholders' Equity			3,207,440				1,683,104				1,658,316				1,543,040				9.1	%			1.5	%
Minority Interest			57,060				29,942				29,799				28,403				5.4	%			0.5	%
Total Equity			3,264,499				1,713,046				1,688,115				1,571,443				9.0	%			1.5	%
Total Liabilities and Equity			38,970,384				20,449,709				20,770,996				19,986,847				2.3	%			(1.5	)%

Investor Relations Department

Bandera 140 19th Floor, Santiago, Chile, Tel: 562-320-8284, fax: 562-671-6554,

email: rmorenoh@santander.cl

 

 

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ANNEX 3 : QUARTERLY INCOME STATEMENTS

Unaudited Quarterly Income Statement		1Q10				1Q10				4Q09				1Q09				1Q10/1Q09				1Q10/4Q09
		US$ths.																% Chg.
Interest revenue			612,173				321,238				342,363				246,791				30.2	%			(6.2	)%
Interest expense			(175,017	)			(91,840	)			(116,984	)			(59,518	)			54.3	%			(21.5	)%
Net interest revenue			437,157				229,398				225,379				187,273				22.5	%			1.8	%
Fee income			150,851				79,159				80,501				77,163				2.6	%			(1.7	)%
Fee expense			(32,030	)			(16,808	)			(15,903	)			(15,532	)			8.2	%			5.7	%
Net fee income			118,820				62,351				64,598				61,631				1.2	%			(3.5	)%
Net gains from mark-to-market and trading			99,270				52,092				(48,126	)			19,429				168.1	%			—	%
Exchange differences, net			(42,914	)			(22,519	)			85,273				49,386				—	%			—	%
Total financial transactions, net			56,356				29,573				37,147				68,815				(57.0	)%			(20.4	)%
Other operating income, net			11,558				6,065				24,598				2,498				142.8	%			(75.3	)%
Total operating income			623,891				327,387				351,722				320,217				2.2	%			(6.9	)%
Provision expense			(133,753	)			(70,187	)			(67,754	)			(90,934	)			(22.8	)%			3.6	%
Total operating income net of provisions			490,138				257,200				283,968				229,283				12.2	%			(9.4	)%
Personnel expenses			(105,934	)			(55,589	)			(56,638	)			(54,394	)			2.2	%			(1.9	)%
Administrative expenses			250,451				(36,053