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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

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IMPORTANT NOTICE

 

The unaudited financial statements included in this 6K have been prepared in accordance with the Compendium of Accounting Standards issued by the Superintendency of Banks and Financial Institutions (SBIF) of Chile. The accounting principles issued by the SBIF are substantially similar to IFRS, but there are some exceptions. The SBIF is the banking industry regulator that according to article 15 of the General Banking Law, establishes the accounting principles to be used by the banking industry. For those principles not covered by the Compendium of Accounting Standards, banks can use generally accepted accounting principles issued by the Chilean Accountant’s Association AG and which coincides with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the event that discrepancies exist between the accounting principles issued by the SBIF (Compendium of Accounting Standards) and IFRS, the Compendium of Accounting Standards will take precedence. The Notes to the unaudited consolidated financial statements contain additional information to that submitted in the Unaudited Consolidated Statement of Financial Position, Unaudited Consolidated Statement of Income, Unaudited Consolidated Statement of Comprehensive Income, Unaudited Consolidated Statement of Changes in Equity and Unaudited Consolidated Statement of Cash Flows. These notes provide a narrative description of such statements.

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	BANCO SANTANDER-CHILE
	By:	/s/ Cristian Florence
	Name:	Cristian Florence
	Title:	General Counsel

 

Date: March 12, 2015

 

 

 

 

 

 

INDEX

 

SECTION		PAGE
SECTION 1: SUMMARY OF RESULTS		2
SECTION 2: YTD RESULTS BY BUSINESS SEGMENT		6
SECTION 3: BALANCE SHEET ANALYSIS		8
SECTION 4: ANALYSIS OF QUARTERLY INCOME STATEMENT		11
SECTION 5: CREDIT RISK RATINGS		23
SECTION 6: SHARE PERFORMANCE		24
ANNEX 1: BALANCE SHEET		25
ANNEX 2: YTD INCOME STATEMENT		26
ANNEX 3: QUARTERLY INCOME STATEMENTS		27
ANNEX 4: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION		28

 

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

 

 

SECTION 1: SUMMARY OF RESULTS¹

 

Net income up 24.5% in 2014. ROAE reached 22.5%

 

Banco Santander Chile’s net income attributable to shareholders in 2014 totaled Ch$550,331 million (Ch$2.92 per share and US$1.92/ADR), increasing 24.5% compared to 2013. The Bank’s ROAE in the same period was 22.5% compared to 17.4% in 12M13². The net interest margin rose to 5.6% in 2014 compared to 5.0% in 2013 driven by stable loan spreads, a better funding mix and the higher inflation rate. The efficiency ratio reached 36.8% in 2014 compared to 40.4% in 2013, as the Bank has expanded its business activity with higher productivity levels.

 

 

In 4Q14, net income attributable to shareholders totaled Ch$138,741 million (Ch$0.74 per share and US$0.48/ADR), increasing 26.0% compared to 3Q14 (from now on QoQ) and 24.4%² compared to 4Q13 (from now on YoY). The Bank’s ROAE reached 21.7% in 4Q14 compared to 18.0%² in 3Q14 and 19.7% in 4Q13. Fourth quarter results were positively affected by solid business activity with positive loan growth, an improved funding mix, stable asset quality and upward trending fee income. At the same time, the higher quarterly inflation rate boosted margins in the quarter.

 

Loans up 9.3% YoY. Growth focused in segments with a higher risk-adjusted profitability

 

Total loans increased 2.8% QoQ and 9.3% YoY in 4Q14. Total loans to individuals increased 4.4% QoQ and 13.0% YoY. The Bank focused on expanding its loan portfolio in Mid-higher income segment, while remaining more selective in lower income segments. Loans in the Mid-high income segment increased 6.0% QoQ and 17.1% YoY. The other area of relevant growth in the loan book was in the Middle-market segment . In 4Q14, loans in this segment increased 1.1% QoQ and 8.1% YoY. Loan growth in this segment was focused on mid-sized exporters, which are benefitting from stronger external conditions and the weaker peso.

 

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1. The information contained in this report is unaudited and is presented in Chilean Bank GAAP as defined by the Superintendency of Banks of Chile (SBIF).

2. In 4Q13, the Bank recognized a pre-tax one-time gain of Ch$78,122 million from the sale of its asset management business. All figures and ratios for 2013 and 4Q13 exclude this gain.

 

 

Total deposits increased 10.4% YoY, led by non-interest bearing demand deposits

 

Total deposits increased 3.9% QoQ and 10.4% YoY. The Bank continued to focus on increasing its core deposit base (all checking accounts plus retail time deposits). Total core deposits increased 16.3% in 2014 and represented 77.9% of total deposits compared to 73.9% in 2013. This was led by the 13.2% QoQ and 15.3% YoY rise in non-interest bearing demand deposits.

 

Net interest margin reached 5.8% in 4Q14

 

In 4Q14, Net interest income increased 19.2% QoQ and 21.2% YoY mainly due to the higher quarterly inflation rate, solid loan growth and the better funding mix. The Net interest margin (NIM) in 4Q14 reached 5.8% compared to 5.0% in 3Q14 and 5.2% in 4Q13.

 

In 4Q14, Client NIMs (defined as net interest income from our business segments divided by average loans) reached 5.4% compared to 5.5% in 3Q14 and 5.6% in 4Q13.

 

In 4Q14, Client NIMs in the Middle-market and Global banking and markets segments increased as loan spreads have remained stable and the funding mix improved. This was offset by the reduction in client NIMs in Individuals. This was mainly due to the shift in the loan mix to higher income segments, which have a lower risk profile and therefore lower yileds. On the other hand, this strategy has resulted in lower provisions and charge-offs. As a result, for the full year 2014, net interest income in the Individual segment, net of provisions increased 13.8% and the net interest margin in this segment, net of provisions reached 4.0% compared to 3.9% in 2013.

 

 

Net interest margin, NIM: net interest income (NI) divided by average interest earning assets.

 

Stable asset quality. Coverage ratio of NPLs increased to 108.8%

 

The Bank’s total Non-performing loans (NPLs) ratio decreased to 2.8% in 4Q14 compared to 2.9% in 3Q14 and 2.9% in 4Q13. Total Coverage of NPLs in 4Q14 reached 108.8% compared to 104.4% in 3Q14 and 99.2% in 4Q13.

 

Provision for loan losses increased 10.5% QoQ and 24.7% YoY in 4Q14. During the quarter, three factors affected provision for loan losses: (i) loan growth resulted in higher provisions as the Bank’s expected loss models require the recognition of provisions the moment loans are granted; (ii) the Bank recognized approximately Ch$20 billion in above normal provision from further improvements made to the provisioning model in consumer lending and the downgrading of certain loan positions, mainly in the SME and middle-market segment  and; (iii) the depreciation of the exchange rate and the higher inflation rate in the quarter resulted in greater provisions over loans denominated in foreign currency and in UFs.

 

 

For the full year in 2014, the Bank’s Provision for loan losses increased 2.9% YoY. The Cost of credit (Provision for loan losses divided by total loans) reached 1.71% in 2014 compared to 1.84% in 2013. These figures reflect that despite the slowdown in economic activity, the Bank’s asset quality has remained healthy. As of November 2014, the latest data available, the Provision for loan losses in the Chilean banking system, excluding Santander, increased 19.7% YoY.

 

 

* 90 days or more NPLs. ** Loan loss reserves over NPLs

 

Fee income continued to rebound

 

Net fee and commission income increased 6.4% QoQ and 6.2% YoY. Fee and commission income continued to rebound as the Bank’s client base has been steadily expanding. The Bank achieved positive net client growth³ for the 7^th consecutive quarter and as of December 2014, the Bank reached 3.6 million clients. Net fees and commission income from our business segments in 4Q14, which exclude the effects of regulations, increased 5.7% QoQ and 22.0% YoY.

 

Efficiency ratio reached 36.9% in 4Q14

 

The Efficiency ratio reached 36.9% in 4Q14. For the full year 2014, the efficiency ratio reached 36.8% compared to 40.4% in 2013.

 

Operating expenses, excluding impairment and other operating expenses, increased 7.0% QoQ and 9.8% YoY in 4Q14. Personnel salaries and expenses increased 5.0% QoQ. This was mainly due to an increase in variable incentives given the solid year the Bank had in most segments. Administrative expenses decreased 0.9% QoQ and increased 10.3% YoY. This rise was mainly due to: (i) greater business activity that has resulted in higher system and data processing costs, (ii) the effects of a higher inflation rate over costs indexed to inflation and (iii) the on-going investments to continue optimizing the branch network.

 

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3. Net client growth: number of new clients less number of clients leaving the bank during the period.

 

 

 

Banco Santander Chile: Summary of Quarterly Results

 

		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Net interest income			356,460				299,112				294,009				21.2	%			19.2	%
Net fee and commission income			59,639				56,065				56,140				6.2	%			6.4	%
Total financial transactions, net			30,037				27,818				32,983				(8.9	)%			8.0	%
Provision for loan losses			(109,796	)			(99,365	)			(88,039	)			24.7	%			10.5	%
Operating expenses (excluding Impairment and Other operating expenses)			(153,600	)			(143,599	)			(139,905	)			9.8	%			7.0	%
Impairment, Other operating income and expenses, net			(29,942	)			(45,016	)			(16,608	)			80.3	%			(33.5	)%
Operating income			152,798				95,015				138,580				10.3	%			60.8	%
Net income attributable to shareholders			138,741				110,131				173,982				(20.3	)%			26.0	%
Net income/share (Ch$)			0.74				0.58				0.92				(20.3	)%			26.0	%
Net income/ADR (US$)1			0.49				0.39				0.71				(31.2	)%			24.7	%
Total loans			22,880,706				22,264,897				20,935,312				9.3	%			2.8	%
Deposits			16,894,437				16,255,927				15,296,035				10.4	%			3.9	%
Shareholders’ equity			2,609,896				2,482,733				2,325,678				12.2	%			5.1	%
Net interest margin			5.8	%			5.0	%			5.2	%
Efficiency ratio			36.9	%			38.3	%			38.2	%
Return on average equity2			21.7	%			18.0	%			19.7	%
NPL / Total loans3			2.8	%			2.9	%			2.9	%
Coverage NPLs			108.8	%			104.1	%			99.2	%
Risk index4			3.1	%			3.1	%			2.9	%
Cost of credit5			1.9	%			1.8	%			1.7	%
Core Capital ratio			10.9	%			10.6	%			10.6	%
BIS ratio			14.0	%			13.7	%			13.8	%
Branches			474				475				493
ATMs			1,645				1,692				1,860
Employees			11,478				11,493				11,516

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 for each period.

2.

Return on average equity: annualized quarterly net income attributable to shareholders divided by Average equity attributable to shareholders in the quarter. Averages calculated using monthly figures. 4Q13 excludes the results from the sale of our asset management business.

3.

NPLs: Non-performing loans: total outstanding gross amount of loans with at least one installment 90 days or more overdue.

4.

Risk Index: loan loss allowances divided by Total loans.

5.

Cost of credit: annualized provision for loan losses divided by quarterly average total loans. Averages calculated using monthly figures.

 

 

 

SECTION 2: YTD RESULTS BY BUSINESS SEGMENT

 

Positive revenue trends in all business segments in 2014

 

YTD		2014
(Ch$ million)		Individuals				SMEs2				Middle-market3				Global banking and markets 4				Total segments5
Net interest income			611,520				269,483				219,307				87,737				1,188,047
Change YoY			1.1	%			3.6	%			13.4	%			20.8	%			5.0	%
Fee income			150,148				47,011				29,405				21,952				248,516
Change YoY			5.9	%			9.2	%			0.7	%			25.9	%			7.4	%
Core revenues1			761,668				316,494				248,712				109,689				1,436,563
Change YoY			2.0	%			4.4	%			11.7	%			21.8	%			5.4	%
Financial transactions, net			11,929				6,529				16,342				55,180				89,980
Change YoY			36.6	%			36.1	%			14.8	%			30.2	%			28.3	%
Provision expense			(166,296	)			(162,734	)			(42,309	)			(3,086	)			(374,425	)
Change YoY			-22.3	%			60.3	%			32.7	%			-81.7	%			2.8	%
Net operating profit6			607,301				160,289				222,745				161,783				1,152,118
Change YoY			12.2	%			-22.4	%			8.7	%			39.9	%			7.8	%

1.

Core revenues: net interest income + fee income.

2.

SMEs: defined as companies with sales below than Ch$1,200 million per year.

3.

Middle-market: defined as companies with sales between Ch$1,200 million and Ch$10,000 million per year. Companies that engage in real estate industry that sell properties with annual sales exceeding Ch $800 million with no ceiling. Other companies such as large corporations with annual sales exceeding Ch$10.000 million and Institutional companies that serve institutions like universities, government entities and local and regional governments.

4.

Global banking and markets: defined as companies with sales over Ch$10,000 million per year or which are part of a large foreign or local economic group.

5.

Total segments exclude the results from the Financial Management and Corporate Activities.

6.

Net operating profit is defined as Net interest income + fee income + Total financial transactions, net - provision for loan losses.

 

In 2014, the net operating profit from the Bank’s business segments increased 7.9%. These results exclude our Corporate Center and the results from Financial Management, which includes, among other items, the impact of the inflation on results. Core revenues from our business segments (net interest income + fee income) increased 5.4% in 2014. This growth was achieved through higher client growth and greater product usage, which led to positive loan growth, an improved funding mix, a rebound in fee income and greater client treasury services. This was partially offset by lower margins in the Individuals segment due to the shift in the loan mix.

 

This rise in revenues was leveraged on the positive asset quality trends. The Bank has been shifting the loan mix towards less riskier segments with an aim to improve profitability net of risk. As a result, net operating profits from the Bank’s business segments increased 7.9% YoY. This result included the weaker results in the SME segment, which was affected by the re-calibration of the provisioning model in this segment in 3Q14.

 

 

 

 

In 4Q14, net operating profit from the Bank’s business segments decreased 2.6% QoQ and increased 1.1% YoY. Core revenue from our business segments increased 1.4% QoQ and 8.8% YoY. The Bank continues to shift the loan mix to lower yielding, but less riskier loans, in order to maximize revenues net of risk. Fee growth in the segments continued to rebound, increasing 5.7% QoQ and 22.0% YoY.

 

Additionally, in the quarter the Bank recognized above normal provisions levels in Individuals, the SME and Middle-market segments  in the amount of approximately Ch$20 billion in order to bolster coverage ratios while asset quality indicators remained stable (See Provision for loan losses and asset quality).

 

 

 

 

SECTION 3: BALANCE SHEET ANALYSIS

 

LOANS

 

Loans up 9.3% YoY. Growth focused in segments with a higher risk-adjusted profitability

 

Loans		Quarter ended,												% Change
(Ch$ million)		Dec-14				Sep-14				Dec-13				Dec. 14 / 13				Dec. / Sept. 2014
Total loans to individuals1			11,836,082				11,342,245				10,474,663				13.0	%			4.4	%
Consumer loans			3,918,375				3,818,635				3,607,248				8.6	%			2.6	%
Residential mortgage loans			6,632,031				6,299,766				5,625,812				17.9	%			5.3	%
SMEs			3,354,840				3,316,030				3,228,865				3.9	%			1.2	%
Middle-market			5,444,869				5,385,840				5,035,780				8.1	%			1.1	%
Global banking and markets			2,201,913				2,289,922				2,268,440				(2.9	)%			(3.8	)%
Total loans 2			22,880,706				22,264,897				20,935,312				9.3	%			2.8	%

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 exclude interbank loans.

 

Total loans increased 2.8% QoQ and 9.3% YoY in 4Q14. In the quarter, the Bank continued to focus on its strategy of expanding the loan book in less riskier segments in an economic environment that remains healthy, but with growth decelerating.

 

Total loans to individuals increased 4.4% QoQ and 13.0% YoY. The Bank focused on expanding its loan portfolio in Mid-higher income segment, while remaining more selective in lower income segments. Loans in the Mid-high income segment increased 6.0% QoQ and 17.1% YoY. On the other hand, in the Santander Banefe unit, which attends lower income segments, the Bank’s loan portfolio increased 0.8% QoQ and 2.5% YoY, continuing the loan mix shift started in 2013. As of year-end 2014, 62% of the loans to individuals was in the Mid-higher income segments.

 

By products, total consumer loans increased 2.6% QoQ and 8.6% YoY. Residential mortgage loans expanded 5.3% QoQ and 17.9% YoY. Growth rates were partially affected by the higher inflation rates which results in a translation gain of mortgage loans, which are all denominated in Unidades de Fomento (UF or inflation linked pesos). Excluding the impact of inflation, mortgage loans grew 3.4% QoQ and 12.2% YoY. The Bank continues to focus on residential mortgage loans with loan-to-values (LTV) below 80% at origination. The LTV of the Bank’s residential mortgage loans was 71% at year-end 2014.

 

Lending to SMEs expanded 1.2% QoQ and 3.9% YoY. In the quarter, the Bank kept focusing its growth in SMEs clients that are also intensive in non-lending activities such as cash management, which tend to be the most profitable SMEs.

 

 

 

In 4Q14, loans in the Middle-market segment  increased 1.1% QoQ and 8.1% YoY. Loan growth in this segment was focused on mid-sized exporters, which are benefitting from stronger external conditions and the weaker peso. This segment is also generating increasingly higher levels of business volumes in other areas such as cash management, which has helped to drive the rise in client deposits.

 

In the Global banking and markets, loans decreased 3.8% QoQ and 2.9% YoY. This segment generally has a volatile evolution of loan growth, due in part, to large transactions that are not recurring between one quarter and the next. In 4Q14, various short-term working capital loans came due lowering loan volumes in this segment.

 

DEPOSITS

 

Total deposits increased 10.4% YoY, led by non-interest bearing demand deposits

 

Deposits		Quarter ended,												% Change
(Ch$ million)		Dec-14				Sep-14				Dec-13				Dec. 14 / 13				Dec. / Sept. 2014
Demand deposits			6,480,497				5,724,921				5,620,763				15.3	%			13.2	%
Time deposits			10,413,940				10,531,006				9,675,272				7.6	%			(1.1	)%
Total deposits			16,894,437				16,255,927				15,296,035				10.4	%			3.9	%
Loans to deposits1			96.2	%			98.2	%			100.1	%
Avg. non-interest bearing  demand deposits / Avg. interest earning assets			24.2	%			23.9	%			23.6	%

1.

(Loans – residential mortgage loans) / (Time deposits + demand deposits).

 

Total deposits increased 3.9% QoQ and 10.4% YoY. The Bank continued to focus on increasing its core deposit base (all checking accounts plus time deposits from non-wholesale sources). Total core deposits increased 16.3% in 2014 and represented 77.9% of total deposits compared to 73.9% in 2013. This was led by the 13.2% QoQ and 15.3% YoY rise in non-interest bearing demand deposits. This more than offset the 1.1% QoQ reduction in time deposits, which was mainly due to a decline in deposits from institutional investors and large corporate clients. Time deposits from retail clients increased 6.0% QoQ.

 

1. Core deposits: all checking accounts plus non-Wholesale time deposits. Wholesale time deposits include deposits from: (i) banks and other financial institutions, (ii) economic groups with greater than 1% of short-term time deposits, (iii) economic groups with time deposits representing more than 2.5% of Core capital and, (iv) any other client defined as Wholesale. 2. Long-term Wholesale deposits include all time deposits with an average maturity greater than 120 days. 3. Short-term wholesale deposits have an average maturity of less than 120 days.

 

 

 

SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

 

ROAE in 4Q14 reached 21.7% with a core capital ratio of 10.9%

 

Equity		Quarter ended,												Change %
(Ch$ million)		Dec-14				Sep-14				Dec-13				Dec. 14 / 13				Dec. / Sept. 2014
Capital			891,303				891,303				891,303				0.0	%			0.0	%
Reserves			1,307,761				1,307,761				1,130,991				15.6	%			0.0	%
Valuation adjustment			25,600				(4,444	)			(5,964	)			(529.2	)%			(676.1	)%
Retained Earnings:			385,232				288,113				309,348				24.5	%			33.7	%
Retained earnings prior periods			—				—				—				—	%			—	%
Income for the period			550,331				411,590				441,926				24.5	%			33.7	%
Provision for mandatory dividend			(165,099	)			(123,477	)			(132,578	)			24.5	%			33.7	%
Equity attributable to shareholders			2,609,896				2,482,733				2,325,678				12.2	%			5.1	%
Non-controlling interest			33,083				31,461				28,504				16.1	%			5.2	%
Total Equity			2,642,979				2,514,194				2,354,182				12.3	%			5.1	%
Quarterly ROAE			21.7	%			18.0	%			19.7	%1

1.

4Q13 ROE excludes the gain from the sale of our asset management business.

 

Shareholders’ equity totaled Ch$2,609,896 million as of December 2014. The ROAE was 21.7% in 4Q14 and 22.5% for the full year 2014. The Core Capital ratio reached 10.9% at the same date. Santander Chile has the highest core capital ratio among its main competitors and has achieved this robust capital level without issuing new shares in 12 years. Chilean regulations only permit the inclusion of voting common shareholders’ equity as Tier I capital. The Bank’s BIS ratio¹ reached 14.0% at the same date.

 

Capital Adequacy		Quarter ended,												Change %
(Ch$ million)		Dec-14				Sep-14				Dec-13				Dec. 14 / 13				Dec. / Sept. 2014
Tier I (Core Capital)			2,609,896				2,482,733				2,325,678				12.2	%			5.1	%
Tier II			744,806				732,794				708,063				5.2	%			1.6	%
Regulatory capital			3,354,702				3,215,527				3,033,741				10.6	%			4.3	%
Risk weighted assets			23,946,126				23,474,373				21,948,981				9.1	%			2.0	%
Tier I (Core capital) ratio			10.9	%			10.6	%			10.6	%
BIS ratio1			14.0	%			13.7	%			13.8	%

1.

BIS ratio: Regulatory capital divided by risk-weighted assets according to SBIF BIS I definitions.

 

 

 

SECTION 4: ANALYSIS OF QUARTERLY INCOME STATEMENT

 

NET INTEREST INCOME

 

Higher inflation, solid loan growth and better funding mix income drive Net interest income

 

Net Interest Income / Margin		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Client net interest income1			304,418				302,108				286,437				6.3	%			0.8	%
Non-client net interest income1			52,042				(2,996	)			7,572				587.3	%			—	%
Net interest income			356,460				299,112				294,009				21.2	%			19.2	%
Average interest-earning assets			24,483,371				23,787,024				22,470,077				9.0	%			2.9	%
Average loans			22,659,565				22,090,451				20,599,268				10.0	%			2.6	%
Interest earning asset yield2			10.1	%			8.0	%			9.2	%
Cost of funds3			4.8	%			3.3	%			4.2	%
Client net interest margin4			5.4	%			5.5	%			5.6	%
Net interest margin (NIM)5			5.8	%			5.0	%			5.2	%
Quarterly inflation rate6			1.88	%			0.60	%			0.94	%
Central Bank reference rate			3.00	%			3.25	%			4.50	%
Avg. 10 year Central Bank yield (real)			1.54	%			1.49	%			2.17	%

1. Please refer to footnote 4 at the end of this page.

2. Interest income divided by interest earning assets.

3. Interest expense divided by sum of interest bearing liabilities and demand deposits.

4. Annualized Client Net interest income divided by average loans.

5. Annualized Net interest income divided by average interest earning assets.

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

 

In 4Q14, Net interest income increased 19.2% QoQ and 21.2% mainly due to the higher quarterly inflation rate, solid loan growth and the better funding mix. The Net interest margin (NIM) in 4Q14 reached 5.8% compared to 5.0% in 3Q14 and 5.2% in 4Q13. In order to improve the explanation of margins, we have divided the analysis of Net interest income between Client net interest income and Non-client net interest income⁴.

 

---

4. Client net interest income (NII) is Net interest income from all client activities such as loans and deposits minus the internal transfer rate. Non-client NII is NII from Bank’s inflation gap, the financial cost of hedging, the financial cost of the Bank’s structural liquidity position, NII from treasury positions and the interest expense of the Bank’s financial investments classified as trading, since NII from this portfolio is recognized as financial transactions net.

 

 

 

Client net interest income. In 4Q14, Client net interest income increased 0.8% QoQ and 6.3% YoY, driven mainly by loan growth and the improved funding mix. Average loans increased 2.6% QoQ and 10.0% YoY. Client NIMs (defined as Client net interest income divided by average loans) reached 5.4% in 4Q14 compared to 5.5% in 3Q14 and 5.6% in 4Q13.

 

In 4Q14, Client NIMs in the Middle-market and Corporate segments increased as loan spreads have remained stable and the funding mix improved. This was offset by the reduction in client NIMs in Individuals. This was mainly due to the shift in the loan mix to higher income segments, which have a lower risk profile. This strategy has resulted in lower provisions and charge-offs. For the full year 2014, net interest income in the Individual segment, net of provisions increased 13.9% and the client margin in this segment, net of provisions reached 4.0% compared to 3.9% in 2013.

 

 

Non-client net interest income. The rise in Non-client net interest income was due to the higher quarterly inflation rate. The Bank has more assets than liabilities linked to inflation and, as a result, margins have a positive sensitivity to variations in inflation. In 4Q14, the variation of the Unidad de Fomento (an inflation indexed currency unit), was 1.9% compared to 0.6% in 3Q14 and 0.9% in 4Q13. The gap between assets and liabilities indexed to the UF averaged Ch$4,251 billion (US$7.0 billion) in 4Q14. This implies that for every 100 basis point change in inflation, our Net interest income increases or decrease by Ch$43 billion, all other factors equal. The existence of this gap is mainly due to the Bank’s lending and funding activities.

 

We expect UF inflation in 1Q15 to be approximately -0.7% and 1% in 2Q15.

 

 

 

 

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

 

Stable asset quality. Coverage ratio of NPLs increased to 108.8%

 

Provision for loan losses		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Gross provisions			(71,450	)			(69,273	)			(59,946	)			19.2	%			3.1	%
Charge-offs1			(54,118	)			(44,468	)			(44,283	)			22.2	%			21.7	%
Gross provisions and charge-offs			(125,568	)			(113,741	)			(104,229	)			20.5	%			10.4	%
Loan loss recoveries			15,772				14,376				16,190				(2.6	)%			9.7	%
Provision for loan losses			(109,796	)			(99,365	)			(88,039	)			24.7	%			10.5	%
Total loans2			22,880,706				22,264,897				20,935,312				9.3	%			2.8	%
Total reserves (RLL)			700,768				673,620				608,291				15.2	%			4.0	%
Non-performing loans3 (NPLs)			644,327				646,814				613,301				5.1	%			(0.4	)%
NPLs commercial loans			367,791				372,511				364,890				0.8	%			(1.3	)%
NPLs residential mortgage loans			179,417				175,068				155,688				15.2	%			2.5	%
NPLs consumer loans			97,119				99,235				92,723				4.7	%			(2.1	)%
Impaired loans4			1,617,251				1,585,208				1,477,701				9.4	%			2.0	%
Impaired commercial loans			883,165				864,466				804,888				9.7	%			2.2	%
Impaired residential mortgage loans			370,603				353,489				323,401				14.6	%			4.8	%
Impaired consumer loans			363,484				367,253				349,412				4.0	%			(1.0	)%
Cost of credit5			1.94	%			1.80	%			1.71	%
Risk Index6 (RLL / Total loans)			3.1	%			3.0	%			2.9	%
NPL / Total loans			2.8	%			2.9	%			2.9	%
NPL / Commercial loans			3.0	%			3.1	%			3.1	%
NPL / Residential mortgage loans			2.7	%			2.8	%			2.8	%
NPL / Consumer loans			2.5	%			2.6	%			2.6	%
Impaired loans / total loans			7.1	%			7.1	%			7.1	%
Impaired commercial loan ratio			7.2	%			7.1	%			6.9	%
Impaired mortgage loan ratio			5.6	%			5.6	%			5.7	%
Impaired consumer loan ratio			9.3	%			9.6	%			9.7	%
Coverage of NPLs7			108.8	%			104.1	%			99.2	%
Coverage of NPLs ex-mortgage8			140.2	%			132.8	%			123.5	%
Coverage of commercial NPLs			108.2	%			101.4	%			82.3	%
Coverage of mortgage NPLs			27.2	%			27.0	%			27.8	%
Coverage of consumer NPLs			261.6	%			250.4	%			285.3	%

1.

Charge-offs corresponds to the direct charge-offs and are net of the reversal of provisions already established on charged-off loans.

2.

Excludes interbank loans.

3.

Full balance of loans with at least one installment 90 days or more overdue.

4.

Impaired loans include: (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C6 and, (ii) the carrying amount of all loans to an individual client with at least one non-performing loan (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated.

5.

Annualized quarterly provision for loan losses divided by average loans. Averages are calculated using monthly figures.

6.

Loan loss allowances divided by Total loans; measures the percentage of loans the banks must provision for given their internal models and the Superintendency of Banks of Chile guidelines.

7.

Loan loss allowances divided by NPLs.

8.

Loan loss allowance of commercial and consumer loans divided by NPLs of commercial and consumer loans.

 

 

 

The Bank’s total Non-performing loans (NPLs) ratio decreased to 2.8% in 4Q14 compared to 2.9% in 3Q14 and 2.9% in 4Q13. Total Coverage of NPLs in 4Q14 reached 108.8% compared to 104.4% in 3Q14 and 99.2% in 4Q13.

 

Provision for loan losses increased 10.5% QoQ and 24.7% YoY in 4Q14. During the quarter, three factors affected provision for loan losses: (i) loan growth resulted in higher provisions as the Bank’s expected loss models require the recognition of provisions the moment loans are granted; (ii) the Bank recognized approximately Ch$20 billion in above normal provision from further improvements made to the provisioning model in consumer lending and the downgrading of certain loan positions, mainly in the SME and middle-market segment  and; (iii) the depreciation of the exchange rate and the higher inflation rate in the quarter resulted in greater provisions over loans denominated in foreign currency and in UFs.

 

For the whole year in 2014, the Bank’s total Provision for loan losses increased 2.9% in 2014 compared to 2013 and the Cost of credit reached 1.71% in 2014 compared to 1.84% in 2013. These figures reflect that despite the slowdown in economic activity, the Bank’s asset quality remained healthy throughout the year. As of November 2014, the Provision for loan losses in the Chilean banking system, excluding Santander, increased 19.7% YoY.

 

By product, the evolution of provision for loan losses in 4Q14 was as following:

 

Provision for loan losses		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Commercial loans			(56,790	)			(86,411	)			(47,949	)			18.4	%			(34.3	)%
Residential mortgage loans			(4,144	)			(3,270	)			(3,907	)			6.1	%			26.7	%
Consumer loans			(48,862	)			(9,684	)			(36,183	)			35.0	%			404.6	%
Provision for loan losses			(109,796	)			(99,365	)			(88,039	)			24.7	%			10.5	%

 

Provisions for loan losses for consumer loans increased 404.6% QoQ and 35.0% YoY. The Bank in the quarter continued to perform minor adjustments on its consumer loan-provisioning model and set around Ch$10,000 million in one-time provisions. Therefore, the total impact in 2014 due to re-calibration of the consumer loan model was a net reversal of Ch$26.6 billion.

 

Asset quality in the consumer loan book evolved favorably. The ratio of Impaired consumer loans (consumer NPLs + renegotiated consumer loans) to total consumer loans reached 9.3% compared to 9.6% in 3Q14 and 9.7% in 4Q13. The consumer NPL ratio fell to 2.5% in 4Q14 from 2.6% in 3Q14 and 4Q13. The coverage ratio of consumer NPLs reached 262% in 4Q14 compared to 250% in 3Q13 and 285% in 4Q13. The reduction in coverage compared to 4Q13 is due to the reversal of provisions from the recalibration of the consumer model performed in 2014, as mentioned in the previous paragraph.

 

 

 

Provisions for loan losses for residential mortgage loans increased 26.7% QoQ and 6.1% YoY in the quarter. These increases were mainly due to loan growth and the impacts of a higher inflation rate on provision expense. Asset quality remained stable in this product. The Mortgage NPL ratio reached 2.7% in 4Q14 compared to 2.8% in both 3Q14 and 4Q13. The evolution of the Impaired mortgage loans ratio remained stable at 5.6% QoQ and decreased from 5.7% in 4Q13. The Impaired mortgage loan ratio is a broader measure of asset quality and mainly includes non-performing or renegotiated residential mortgage loans. Growth in this product has been focused on mortgages with loan-to-value ratios below 80%. The LTV of the Bank’s mortgage loan book was 71% at year-end 2014.

 

Provision for loan losses for commercial loans decreased 34.3% QoQ and increased 18.4% YoY. The QoQ decrease in net provision expense in commercial loans was mainly due to the impacts recognized in 3Q14 from the re-calibration of the SME expected loan loss provisioning model. In 3Q14, the Bank recognized a one-time provision expense of Ch$45,141 million in the SME segment because of this process. In 4Q14, the Bank performed additional downgrades on some loan positions mainly in the SME and Middle-market segments in an amount of approximately Ch$10,000 million in order to bolster the coverage ratio of these clients loan position in light of the lower growth environment.

 

Overall asset quality trends in commercial lending were stable and the Coverage ratio increased significantly following the actions taken in 2014 to bolster this indicator. The Commercial NPL ratio reached 3.0% in 4Q14 compared to 3.1% in 3Q13 and 3.1% in 4Q13. The Impaired commercial loan ratio reached 7.2% compared to 7.1% in 3Q14 and 6.9% in 4Q13. The Coverage ratio of commercial NPLs increased to 108.2% at year-end 2014 compared to 101.4% in 3Q14 and 82.3% at year-end 2013.

 

 

 

NET FEE AND COMMISSION INCOME

 

Fee income continued to rebound

 

Net Fee and Commission Income		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Credit, debit & ATM card fees			11,095				10,671				9,694				14.5	%			4.0	%
Insurance brokerage			9,807				8,241				8,880				10.4	%			19.0	%
Guarantees, pledges and other contingent operations			8,606				8,260				7,450				15.5	%			4.2	%
Asset management			8,222				8,622				7,575				8.5	%			(4.6	)%
Collection fees			8,198				8,284				11,548				(29.0	)%			(1.0	)%
Checking accounts			7,451				7,256				7,047				5.7	%			2.7	%
Fees from brokerage			2,052				2,431				1,486				38.0	%			(15.6	)%
Lines of credit			1,793				1,752				1,825				(1.8	)%			2.3	%
Other Fees			2,417				548				635				280.6	%			341.1	%
Net fee and commission income			59,639				56,065				56,140				6.2	%			6.4	%

 

Net fee and commission income increased 6.4% QoQ and 6.2% YoY. Fee and commission income continued to rebound as the Bank’s client base has been steadily expanding. The Bank achieved positive net client growth for the 7^th consecutive quarter. The client base has grown 7.2% in this stretch, which started at the end of 1Q13 when the Bank completed the development of the CRM and launched the Santander Select brand for higher income clients. Clients in the higher income segments, increased 17% in the same period. As of December 2014, the Bank had 3.6 million clients.

 

 

Because of the rise in clients, checking account, insurance brokerage and card related fees showed positive growth trends. Other fees were increased mainly as a result of greater financial advisory services performed by our corporate clients. These positive figures were partially offset by the decrease in collection fees that are negatively affected this year by the refund of insurance premiums for mortgage loans that are pre-paid. Weaker equity markets also negatively affected the QoQ evolution of asset management and brokerage fees.

 

 

 

By business segments , the evolution of fee income was as follows:

 

Fee Income		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Individuals			39,197				38,804				32,475				20.7	%			1.0	%
SMEs			12,570				12,051				10,954				14.8	%			4.3	%
Middle-market			7,512				7,253				6,916				8.6	%			3.6	%
Corporate			7,090				4,693				4,067				74.3	%			51.1	%
Sub-total			66,369				62,801				54,412				22.0	%			5.7	%
Others1			(6,730	)			(6,736	)			1,728				—	%			-0.1	%
Total			59,639				56,065				56,140				6.2	%			6.4	%

1.

Others include Financial management, the Corporate Activities and the effects of the change in regulations on fees.

 

Fees from our business segments, which exclude the effects of regulations and other non-segmented fees, increased 5.7% QoQ and 22.0% YoY. This evolution of fees reflects the Bank’s efforts of expanding the client base and to increase cross-selling in the retail segments. Fees from Corporate banking also evolved positively in the quarter due to strong performance in financial advisory and transactional services in the quarter.

 

 

 

 

TOTAL FINANCIAL TRANSACTIONS, NET

 

Lower interest rates boost mark-to-market gains

 

Total financ. transactions, net *		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Net profit (loss) from fin. operations			(101,975	)			24,693				(82,592	)			23.5	%			—	%
Foreign exchange profit (loss), net			132,012				3,125				115,575				14.2	%			4124.4	%
Total finance. transactions, net			30,037				27,818				32,983				(8.9	)%			8.0	%

*

These results mainly include the realized gains of the Available for sale investment portfolio, realized and unrealized gains and interest revenue generated by Financial investments held for trading, 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 include the translation gains or losses of assets and a liability denominated in foreign currency.

 

Results from Total financial transactions, net were a gain of Ch$30,037 million in 4Q14, increasing 8.0% compared to 3Q14 and decreasing 8.9% YoY. In order to understand more clearly these line items, we present them by business area in the table below.

 

Total financ. transactions, net		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Santander Global Connect1			13,577				13,115				13,465				0.8	%			3.5	%
Market-making			3,437				7,192				5,796				(40.7	)%			(52.2	)%
Client treasury services			17,014				20,307				19,261				(11.7	)%			(16.2	)%
Non-client treasury income			13,023				7,511				13,722				(5.1	)%			73.4	%
Total financ. transactions, net			30,037				27,818				32,983				(8.9	)%			8.0	%

1. Santander Global Connect is the Bank’s commercial platform for selling treasury products to our clients.

 

Client treasury services decreased 16.2% QoQ and 11.7% YoY in 4Q14. The QoQ decline in this line item was due to lower market-making activity on behalf of clients. On the other hand, the result from Santander Global Connect (SGC), the Bank’s platform for selling treasury products to clients, continued to show positive results in the quarter. This was mainly a result of greater demand for foreign currency hedging on behalf of our clients as the peso depreciated in the quarter.

 

Non-client treasury income increased 73.4% QoQ due to higher gains from mark-to-market of our fixed income portfolio as mid and long term interest rates continued to fall in the local market. The Bank’s fixed income portfolio is mainly comprised of Chilean Central Bank instruments.

 

 

 

OPERATING EXPENSES AND EFFICIENCY

 

Efficiency ratio reached 38.6% in 2014

 

Operating expenses		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Personnel salaries and expenses			(90,869	)			(86,503	)			(78,433	)			15.9	%			5.0	%
Administrative expenses			(51,880	)			(52,360	)			(47,024	)			10.3	%			(0.9	)%
Depreciation & amortization			(10,851	)			(4,736	)			(14,448	)			(24.9	)%			129.1	%
Operating expenses, excluding impairment and other operating expenses			(153,600	)			(143,599	)			(139,905	)			9.8	%			7.0	%
Impairment			(53	)			(36,582	)			(31	)			71.0	%			(99.9	)%
Branches			474				475				493				(3.9	)%			(0.2	)%
Traditional			273				273				274				(0.4	)%			0.0	%
Companies and institutional centers			5				3				-				—	%			66.7	%
Select			51				47				46				10.9	%			8.5	%
Banefe			67				68				77				(13.0	)%			(1.5	)%
Payment centers  & others			78				84				96				(18.8	)%			(7.1	)%
ATMs			1,645				1,692				1,860				(11.6	)%			(2.8	)%
Employees			11,478				11,493				11,516				(0.3	)%			(0.1	)%
Efficiency ratio1			36.9	%			38.3	%			38.2	%

1.

Efficiency ratio: Operating expenses less impairment of property, plant and equipment divided by Operating income. Operating income = Net interest income + Net fee and commission income+ Total financial transactions, net + Other operating income and expenses.

 

Operating expenses, excluding impairment and other operating expenses, increased 7.0% QoQ and 9.8% YoY in 4Q14.

 

Personnel salaries and expenses increased 5.0% QoQ. This was mainly due to an increase in variable incentives given the solid year the Bank had in most segments (~20% of personnel expenses are variable incentives). The 15.9% YoY increase in personnel expenses also reflects the impact of a higher inflation rate over salaries, which are indexed to inflation. Headcount levels remained stable compared to 3Q14 and 4Q13 despite increased business activity. This increase in productivity is mainly due to the benefits being generated by the Bank’s CRM (Customer Relationship Management) platform implemented in 2013.

 

 

 

Administrative expenses decreased 0.9% QoQ and increased 10.3% YoY. This rise was mainly due to: (i) greater business activity that has resulted in higher system and data processing costs, (ii) the effects of a higher inflation rate over costs indexed to inflation and (iii) the on-going investments to continue optimizing the branch network. In the quarter, the Bank opened 4 Santander Select branches and 2 specialized Middle-market centers outside of Santiago. Simultaneously, the Bank closed 6 Super Caja payment centers and 1 additional Banefe branch. The Bank also continued to optimize the ATM network in order to adjust to new security procedures and to remove unprofitable machines. The Bank remained focused on growing through complementary channels such as internet, phone and mobile banking. This is allowing the Bank to reduce the size of its brick and mortar distribution network while improving its distribution capabilities.

 

Depreciation and amortization expenses increased 129.1% QoQ. In 3Q14, the Bank performed a one-time impairment of intangibles charge of Ch$36,577 million, mainly systems. Because of this charge, in 3Q14 the Bank also reversed the year-to-date amortization expense of those intangibles charged-off, resulting in a lower than normal amortization expense in 3Q14. The 24.9% YoY decline in amortization and depreciation in 4Q14 was due to the lower amount of intangible assets that are now being amortized following the one-time charge in 3Q14. Going forward, Depreciation and amortization expense should be similar to 4Q14 levels plus the impact in the growth of fixed asset and intangibles.

 

The Efficiency ratio reached 36.9% in 4Q14. For the full year 2014, the efficiency ratio reached 36.8% compared to 40.4% in 2013.

 

 

 

OTHER OPERATING INCOME, NET & INCOME TAX

 

Other operating income, net and Corporate tax		Quarter												Change %
(Ch$ million)		4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
Other operating income			2,111				3,728				4,639				(54.5	)%			(43.4	)%
Other operating expenses			(32,000	)			(12,162	)			(21,216	)			50.8	%			163.1	%
Other operating income, net			(29,889	)			(8,434	)			(16,577	)			80.3	%			254.4	%
Income from investments in associates and other companies			826				500				78,050				(98.9	)%			65.2	%
Income tax income (expense)			(13,262	)			18,941				(41,520	)			(68.1	)%			(—	)%
Effective income tax rate			8.6	%			n/a				19.2	%

 

Other operating income, net, totaled a loss of Ch$29,889 million in 4Q14 compared to a gain of Ch$8,434 million in 3Q14 and a gain of Ch$16,577 million in 4Q13. This net loss in comparison to net gain QoQ and YoY was mainly due to greater provisions for non-credit contingencies and greater expenses related to the maintenance and charge-off of repossessed assets.

 

In 4Q13, Income from investment in other companies totaled Ch$78,050 million. This included the Ch$78,122 million pre-tax gain from the sale of the Bank’s subsidiary Santander Asset Management. This operation was approved in an extraordinary shareholders’ meeting held in December 2013.

 

Income tax expenses in 4Q14 totaled Ch$13,262 million. As a reminder, in September 2014, the new tax bill became effective. This increased the statutory corporate tax rate from 20% to 21% in 2014, which was retroactive for the entire year. The corporate tax rate will increase to 22.5% in 2015 and 24% in 2016. Beginning in 2017, a corporation’s shareholders meeting will have to choose between two alternative tax schemes. Under the first scheme, the corporation would be subject to a 25% corporate tax rate but receive no tax benefits for reinvesting profits. Under the second scheme, the corporation would pay a 27% corporate tax rate, but would receive partial tax benefits for reinvesting profits. This modification of the corporate tax rate resulted in a one-time non-cash income of Ch$35,411 million (Ch$32,822 million attributable to net income to shareholders; the difference is attributable to non-controlling interest), which was recognized in the income tax expense line in 3Q14. This occurs since the Bank has more deferred tax assets than liabilities. When the statutory rates were modified, the Bank’s net deferred tax assets increased, as the future tax rates used to calculate these assets rose from 20% to 27%.

 

Income tax expense in 4Q14 included an additional Ch$6,083 million one-time income tax gain as further adjustments were made to the re-calculation of deferred tax assets, following greater regulatory clarity regarding the implementation of the new tax law. The higher inflation rate also resulted in a higher adjustment of the Bank’s capital by the Consumer Price Index, which translates into lower taxable net income in the tax books. As a result, of all of the above, the effective income tax rate was 8.6% in 4Q14.

 

 

 

Below is a summary of our year-to-date income tax expense and effective rate.

 

YTD income tax1
(Ch$ million)		12M14				12M13				Var. (%)
Net income before taxes			601,863				538,528				11.8	%
Price level restatement of capital2			(171,420	)			(60,660	)			182.6	%
Net income before taxes adjusted for price level restatement			430,443				477,868				(9.9	)%
Statutory Tax rate			21.0	%			20.0	%			+1%
Income tax expense at statutory rate			(90,393	)			(95,574	)			(5.4	)%
Tax benefits3			3,347				1,107				202.3	%
Impact from deferred tax assets4			41,494				—				—	%
Income tax			(45,552	)			(94,467	)			(51.8	)%
Effective tax rate			7.6	%			17.5	%

1.

This table is for informational purposes only. Please refer to note 14 in our financials for more details.

2.

For tax purposes, Capital is re-adjusted by CPI inflation.

3.

Include mainly tax credits from property taxes paid on leased assets.

4.

This gain arises from the difference between the Bank’s accounting and tax books regarding how provisions and charge-offs are recognized. When the statutory rate was modified, the Bank’s net deferred tax assets increased as the future tax rate used to calculate this asset was increased from 20% to 27%.

 

 

 

SECTION 5: CREDIT RISK RATINGS

 

International ratings

 

The Bank has credit ratings from three leading international agencies. All ratings have outlook stable.

 

Moody’s		Rating
Foreign currency bank deposits		Aa3
Senior bonds		Aa3
Subordinated debt		A3
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+

 

 

 

SECTION 6: SHARE PERFORMANCE

As of Dec. 31, 2014

 

Ownership Structure:

 

 

ADR Price Evolution

Santander ADR vs. SP500

  (Base 100 = 12/31/2013)

 

 

ADR price (US$) 12M14

12/31/14:	19.72
Maximum (12M14):	26.91
Minimum (12M14):	19.19

 

Market Capitalization: US$9,290 million

 

P/E 12 month trailing*:	10.4
P/BV (12/31/14)**:	2.2
Dividend yield***:	4.1%

 

*

Price as of Dec 31, 2014 / 12mth. earnings

**

Price as of Dec 31, 2014 / Book value as of 12/31/14

***

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

 

Average daily traded volumes 12M14

US$ million

 

 

Local Share Price Evolution

Santander vs IPSA Index

(Base 100 = 12/31/2013)

 

 

Local share price (Ch$) 12M14

12/31/14:	30.33
Maximum (12M14):	37.32
Minimum (12M14):	26.81

 

Dividends:

Year paid	Ch$/share	% of previous year’s
		earnings
2011:	1.52	60%
2012:	1.39	60%
2013:	1.24	60%
2014:	1.41	60%

 

 

 

ANNEX 1: BALANCE SHEET

Unaudited Balance Sheet		Dec-14				Dec-14				Dec-13				Dec 14 / Dec. 13
Assets		US$ths				Ch$ million								% Chg.
Cash and deposits in banks			2,644,762				1,608,888				1,571,810				2.4	%
Cash items in process of collection			873,495				531,373				604,077				(12.0	)%
Trading investments			1,273,675				774,815				287,567				169.4	%
Investments under resale agreements			-				-				17,469				—	%
Financial derivative contracts			4,483,690				2,727,563				1,494,018				82.6	%
Interbank loans, net			19,591				11,918				125,395				(90.5	)%
Loans and account receivables from customers, net			36,460,372				22,179,938				20,327,021				9.1	%
Available for sale investments			2,714,970				1,651,598				1,700,993				(2.9	)%
Held-to-maturity investments			-				-				-				—	%
Investments in associates and other companies			29,448				17,914				9,681				85.0	%
Intangible assets			67,370				40,983				66,703				(38.6	)%
Property, plant and equipment			347,773				211,561				180,215				17.4	%
Current taxes			3,684				2,241				1,643				36.4	%
Deferred taxes			463,911				282,211				230,215				22.6	%
Other assets			810,700				493,173				400,025				23.3	%
Total Assets			50,193,441				30,534,176				27,016,832				13.0	%
		Dec-14				Dec-14				Dec-13				Dec 14 / Dec. 13
Liabilities		US$ths				Ch$ million								% Chg.
Deposits and other demand liabilities			10,652,930				6,480,497				5,620,763				15.3	%
Cash items in process of being cleared			462,346				281,259				276,379				1.8	%
Obligations under repurchase agreements			644,594				392,126				208,972				87.6	%
Time deposits and other time liabilities			17,118,899				10,413,940				9,675,272				7.6	%
Financial derivatives contracts			4,210,517				2,561,384				1,300,109				97.0	%
Interbank borrowings			2,024,561				1,231,601				1,682,377				(26.8	)%
Issued debt instruments			9,509,825				5,785,112				5,198,658				11.3	%
Other financial liabilities			337,194				205,125				189,781				8.1	%
Current taxes			1,771				1,077				50,242				(97.9	)%
Deferred taxes			12,544				7,631				25,088				(69.6	)%
Provisions			510,565				310,592				236,232				31.5	%
Other liabilities			363,048				220,853				198,777				11.1	%
Total Liabilities			45,848,794				27,891,197				24,662,650				13.1	%
Equity
Capital			1,465,164				891,303				891,303				0.0	%
Reserves			2,149,756				1,307,761				1,130,991				15.6	%
Valuation adjustments			42,082				25,600				(5,964	)			—	%
Retained Earnings:			633,262				385,232				309,348				24.5	%
Retained earnings from prior years			-				-				-				—	%
Income from the period			904,659				550,331				441,926				24.5	%
Minus: Provision for mandatory dividends			(271,397	)			(165,099	)			(132,578	)			24.5	%
Total Shareholders' Equity			4,290,264				2,609,896				2,325,678				12.2	%
Non-controlling interest			54,383				33,083				28,504				16.1	%
Total Equity			4,344,647				2,642,979				2,354,182				12.3	%
Total Liabilities and Equity			50,193,441				30,534,176				27,016,832				13.0	%

 

The exchange rate used to calculate the figures in dollars was Ch$608.33 / US$1

 

 

 

ANNEX 2: YTD INCOME STATEMENT

 

YTD Income Statement Unaudited		Dec-14				Dec-14				Dec-13				Dec. 14 / Dec. 13
		US$ths.				Ch$ million								% Chg.
Interest income			3,660,872				2,227,018				1,871,204				19.0	%
Interest expense			(1,495,757	)			(909,914	)			(794,442	)			14.5	%
Net interest income			2,165,115				1,317,104				1,076,762				22.3	%
Fee and commission income			602,845				366,729				346,120				6.0	%
Fee and commission expense			(229,228	)			(139,446	)			(116,284	)			19.9	%
Net fee and commission income			373,617				227,283				229,836				(1.1	)%
Net profit (loss) from financial operations			(248,752	)			(151,323	)			(28,613	)			428.9	%
Net foreign exchange gain			447,474				272,212				144,726				88.1	%
Total financial transactions, net			198,722				120,889				116,113				4.1	%
Other operating income			24,385				14,834				20,508				(27.7	)%
Net operating profit before provisions for loan losses			2,761,839				1,680,110				1,443,219				16.4	%
Provision for loan losses			(615,506	)			(374,431	)			(364,031	)			2.9	%
Net operating profit			2,146,333				1,305,679				1,079,188				21.0	%
Personnel salaries and expenses			(557,079	)			(338,888	)			(308,344	)			9.9	%
Administrative expenses			(337,233	)			(205,149	)			(188,191	)			9.0	%
Depreciation and amortization			(72,612	)			(44,172	)			(61,074	)			(27.7	)%
Operating expenses excluding Impairment and Other operating expenses			(966,924	)			(588,209	)			(557,609	)			5.5	%
Impairment of property, plant and equipment			(60,270	)			(36,664	)			(244	)			14926.2	%
Other operating expenses			(133,329	)			(81,108	)			(62,351	)			30.1	%
Total operating expenses			(1,160,523	)			(705,981	)			(620,204	)			13.8	%
Operating income			985,810				599,698				458,984				30.7	%
Income from investments in associates and other companies			3,559				2,165				79,544				(97.3	)%
Income before taxes			989,369				601,863				538,528				11.8	%
Income tax expense			(74,880	)			(45,552	)			(94,467	)			(51.8	)%
Net income from ordinary activities			914,489				556,311				444,061				25.3	%
Net income discontinued operations			-				-				-				—	%
Net income attributable to:
Non-controlling interest			9,830				5,980				2,135				180.1	%
Net income attributable to shareholders			904,659				550,331				441,926				24.5	%

 

The exchange rate used to calculate the figures in dollars was Ch$608.33 / US$1

 

 

 

ANNEX 3: QUARTERLY INCOME STATEMENTS

 

Unaudited Quarterly Income Statement		4Q14				4Q14				3Q14				4Q13				4Q14 / 4Q13				4Q14 / 3Q14
		US$ths.				Ch$mn												% Chg.
Interest income			1,015,245				617,604				477,317				515,130				19.9	%			29.4	%
Interest expense			(429,280	)			(261,144	)			(178,205	)			(221,121	)			18.1	%			46.5	%
Net interest income			585,965				356,460				299,112				294,009				21.2	%			19.2	%
Fee and commission income			159,963				97,310				89,982				87,979				10.6	%			8.1	%
Fee and commission expense			(61,925	)			(37,671	)			(33,917	)			(31,839	)			18.3	%			11.1	%
Net fee and commission income			98,038				59,639				56,065				56,140				6.2	%			6.4	%
Net profit (loss) from financial operations			(167,631	)			(101,975	)			24,693				(82,592	)			23.5	%			-%
Net foreign exchange gain			217,007				132,012				3,125				115,575				14.2	%			4124.4	%
Total financial transactions, net			49,376				30,037				27,818				32,983				(8.9	)%			8.0	%
Other operating income			3,470				2,111				3,728				4,639				(54.5	)%			(43.4	)%
Net operating profit before provisions for loan losses			736,849				448,247				386,723				387,771				15.6	%			15.9	%
Provision for loan losses			(180,488	)			(109,796	)			(99,365	)			(88,039	)			24.7	%			10.5	%
Net operating profit			556,361				338,451				287,358				299,732				12.9	%			17.8	%
Personnel salaries and expenses			(149,375	)			(90,869	)			(86,503	)			(78,433	)			15.9	%			5.0	%
Administrative expenses			(85,283	)			(51,880	)			(52,360	)			(47,024	)			10.3	%			(0.9	)%
Depreciation and amortization			(17,837	)			(10,851	)			(4,736	)			(14,448	)			(24.9	)%			129.1	%
Operating expenses excluding Impairment and Other operating expenses			(252,495	)			(153,600	)			(143,599	)			(139,905	)			9.8	%			7.0	%
Impairment of property, plant and equipment			(87	)			(53	)			(36,582	)			(31	)			71.0	%			(99.9	)%
Other operating expenses			(52,603	)			(32,000	)			(12,162	)			(21,216	)			50.8	%			163.1	%
Total operating expenses			(305,185	)			(185,653	)			(192,343	)			(161,152	)			15.2	%			(3.5	)%
Operating income			251,176				152,798				95,015				138,580				10.3	%			60.8	%
Income from investments in associates and other companies			1,358				826				500				78,050				(98.9	)%			65.2	%
Income before taxes			252,534				153,624				95,515				216,630				(29.1	)%			60.8	%
Income tax expense			(21,801	)			(13,262	)			18,941				(41,520	)			(68.1	)%			—	%
Net income from ordinary activities			230,733				140,362				114,456				175,110				(19.8	)%			22.6	%
Net income discontinued operations			-				-				-				-
Net income attributable to:
Non-controlling interest			2,665				1,621				4,325				1,128				43.7	%			(62.5	)%
Net income attributable to shareholders			228,069				138,741				110,131				173,982				(20.3	)%			26.0	%

 

The exchange rate used to calculate the figures in dollars was Ch$608.33 / US$1

 

 

 

ANNEX 4: QUARTERLY EVOLUTION OF MAIN RATIOS AND OTHER INFORMATION

 

		Dec-13				Mar-14				Jun-14				Sep-14				Dec-14
(Ch$ millions)
Loans
Consumer loans			3,607,248				3,696,198				3,736,553				3,818,635				3,918,375
Residential mortgage loans			5,625,812				5,841,152				6,095,929				6,299,766				6,632,031
Commercial loans			11,702,252				11,918,520				11,951,802				12,146,496				12,330,300
Total loans			20,935,312				21,455,870				21,784,284				22,264,897				22,880,706
Allowance for loan losses			(608,291	)			(626,452	)			(642,633	)			(673,620	)			(700,768	)
Total loans, net of allowances			20,327,021				20,829,418				21,141,651				21,591,277				22,179,938
Loans by segment
Individuals			10,474,663				10,827,707				11,049,148				11,342,245				11,836,082
SMEs			3,228,865				3,289,191				3,293,787				3,316,030				3,354,840
Companies and institutional lending			5,035,780				5,116,788				5,171,768				5,385,840				5,444,869
Corporate			2,268,440				2,168,967				2,315,308				2,289,922				2,201,913
Deposits
Demand deposits			5,620,763				5,610,373				5,664,560				5,724,921				6,480,497
Time deposits			9,675,272				9,640,601				9,310,661				10,531,006				10,413,940
Total deposits			15,296,035				15,250,974				14,975,221				16,255,927				16,894,437
Loans / Deposits1			100.1	%			102.4	%			104.8	%			98.2	%			96.2	%
Average balances
Avg. interest earning assets			22,470,077				23,121,712				23,226,246				23,787,024				24,483,371
Avg. loans			20,599,268				21,241,689				21,661,513				22,090,451				22,659,565
Avg. assets			26,643,136				27,884,085				27,989,256				28,911,456				30,424,886
Avg. demand deposits			5,300,996				5,542,214				5,767,539				5,693,382				5,922,829
Avg equity			2,263,385				2,376,656				2,391,833				2,449,630				2,552,031
Avg. free funds			7,564,381				7,918,870				8,159,372				8,143,011				8,474,860
Capitalization
Risk weighted assets			21,948,981				22,649,033				22,634,232				23,474,373				23,946,126
Tier I (Shareholders' equity)			2,325,678				2,424,863				2,416,870				2,482,733				2,609,896
Tier II			708,063				715,010				726,457				732,794				744,806
Regulatory capital			3,033,741				3,139,873				3,143,327				3,215,527				3,354,702
Tier I ratio			10.6	%			10.7	%			10.7	%			10.6	%			10.9	%
BIS ratio			13.8	%			13.9	%			13.9	%			13.7	%			14.0	%
Profitability & Efficiency
Net interest margin			5.2	%			5.4	%			6.0	%			5.0	%			5.8	%
Efficiency ratio2			38.2	%			35.6	%			36.4	%			38.3	%			36.9	%
Avg. Demand deposits / interest earning assets			23.6	%			24.0	%			24.8	%			23.9	%			24.2	%
Return on avg. equity			19.7	%			23.9	%			26.7	%			18.0	%			21.7	%
Return on avg. assets			2.6	%			2.0	%			2.3	%			1.5	%			1.8	%

 

 

 

		Dec-13				Mar-14				Jun-14				Sep-14				Dec-14
Asset quality
Impaired loans3			1,477,701				1,487,982				1,537,089				1,585,208				1,617,251
Non-performing loans (NPLs)4			613,301				585,477				628,124				646,814				644,327
Past due loans5			356,203				354,195				384,998				399,594				382,231
Loan loss reserves6			608,291				626,452				642,633				673,620				700,768
Impaired loans / total loans			7.1	%			6.9	%			7.1	%			7.1	%			7.1	%
NPLs / total loans			2.93	%			2.73	%			2.88	%			2.91	%			2.82	%
PDL / total loans			1.70	%			1.65	%			1.77	%			1.79	%			1.67	%
Coverage of NPLs (Loan loss allowance / NPLs)			99.2	%			107.0	%			102.3	%			104.1	%			108.8	%
Coverage of PDLs (Loan loss allowance / PDLs)			170.8	%			176.9	%			166.9	%			168.6	%			182.9	%
Risk index (Loan loss allowances /  Loans)6			2.91	%			2.92	%			2.95	%			3.03	%			3.06	%
Cost of credit (prov expense annualized / avg. loans)			1.71	%			1.53	%			1.55	%			1.80	%			1.94	%
Network
Branches			493				484				479				475				474
ATMs			1,860				1,860				1,753				1,692				1,645
Employees			11,516				11,455				11,381				11,493				11,478
Market information (period-end)
Net income per share (Ch$)			0.94				0.75				0.85				0.58				0.74
Net income per ADR (US$)			0.71				0.55				0.62				0.39				0.49
Stock price			30.46				32.1				36.49				33.77				30.33
ADR price			23.57				23.44				26.45				22.09				19.72
Market capitalization (US$mn)			11,104				11,043				12,461				10,407				9,290
Shares outstanding			188,446.1				188,446.1				188,446.1				188,446.1				188,446.1
ADRs (1 ADR = 400 shares)			471.1				471.1				471.1				471.1				471.1
Other Data
Quarterly inflation rate7			0.95	%			1.28	%			1.76	%			0.60	%			1.88	%
Central Bank monetary policy reference rate (nominal)			4.50	%			4.00	%			4.00	%			3.25	%			3.00	%
Avg. 10 year Central Bank yield (real)			2.17	%			2.04	%			1.86	%			1.49	%			1.54	%
Avg. 10 year Central Bank yield (nominal)			5.04	%			4.91	%			4.84	%			4.45	%			4.48	%
Observed Exchange rate (Ch$/US$)  (period-end)			523.76				550.53				550.60				601.66				607.38

 

1 Ratio = Loans - mortgage loans / Time deposits + demand deposits

2 Efficiency ratio =(Net interest revenue+ fee income +financial transactions net + Other operating income +other operating expenses) divided by (Personnel expenses + admiinistrative expenses + depreciation). Excludes impairment charges

3 Impaired loans include: (A) for loans individually evaluated for impairment, (i) the carrying amount of all loans to clients that are rated C1 through C6 and (ii) the carrying amount of loans to an individual client with a loan that is non-performing, regardless of category, excluding residential mortgage loans, if the past-due amount on the mortgage loan is less than 90 days; and (B) for loans collectively evaluated for impairment, (i) the carrying amount of total loans to a client, when a loan to that client is non-performing or has been renegotiated, excluding performing residential mortgage loans, and (ii) if the loan that is non-performing or renegotiated is a residential mortgage loan, all loans to that client.

4 NPLs = Capital + future interest of all loans with one installment 90 days or more overdue.

5 Total installments plus lines of credit more than 90 days overdue

6 Based on internal credit models and SBIF guidelines. Banks must have a 100% coverage of risk index

7 Calculated using the variation of the Unidad de Fomento (UF) in the period