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

 

 

 

 

Banco Santander Chile

 

2Q18 Earnings Report

 

July 26, 2018

 

 

 

 

 

 

 

 

Contents Page

 

§   Section 1 Key consolidated data 1
§   Section 2 Summary of results 2
§   Section 3  YTD results by reporting segment 6
§   Section 4 Loans, funding and capital 7
§   Section 5 Analysis of quarterly income  statement 10
§   Section 6 Credit risk ratings 19
§   Section 7 Share performance 20
§   Annex 1 Balance Sheet 21
§   Annex 2 YTD Income Statements 22
§   Annex 3 Quarterly Income Statements 23
§   Annex 4 Quarterly evolution of main ratios and other information 24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTACT INFORMATION

Investor Relations Department

Banco Santander Chile

Bandera 140 Floor 19 Santiago, Chile

Tel: (562) 2320-8284

Email: irelations@santander.cl

Website: www.santander.cl

 

 

 

 

 

 

Section 1: Key consolidated data

 

  Balance Sheet (Ch$mn)  Jun-18   Jun-17   % Change 
Total assets   37,589,238    34,806,430    8.0%
Gross customer loans   29,233,928    27,156,024    7.7%
Customer deposits   20,809,352    19,255,177    8.1%
Customer funds   26,366,380    24,818,118    6.2%
Total shareholders’ equity   2,999,879    2,895,250    3.6%

 

  Income Statement (Ch$mn)  6M18   6M17   % Change 
Net interest income   700,045    662,609    5.6%
Net operating profit before provisions for loan losses   920,708    908,475    1.3%
Provision for loan losses   (155,406)   (150,372)   3.3%
Net fee and commission income   154,318    144,661    6.7%
Op expenses excluding impairment and other op. exp.   (356,882)   (343,291)   4.0%
Operating income   388,529    360,465    7.8%
Income before tax   391,530    362,070    8.1%
Net income attributable to equity holders of the Bank   305,531    292,811    4.3%

 

  Profitability and efficiency  6M18   6M17   Change bp 

Net interest margin (NIM) 1

   4.5%   4.4%   9 
Efficiency ratio2   39.6%   40.2%   (56)
Return on avg. equity   20.0%   20.3%   (25)
Return on avg. assets   1.7%   1.6%   5 
Core Capital ratio   10.0%   10.7%   (65)
BIS ratio   12.8%   13.6%   (84)
Return on RWA   2.1%   2.2%   (3)

 

  Asset quality ratios ()%  Jun-18   Jun-17   Change bp 
NPL ratio3   2.2%   2.2%   6 
Coverage of NPLs  ratio 4   123.9%   136.2%   (1,231)
Cost of credit5   1.1%   1.1%   (1)

 

  Structure (#)  Jun-18   Jun-17   Change ()% 
Branches   376    406    (7.4)%
ATMs   1,001    1,059    (5.5)%
Employees   11,453    11,068    3.5%

 

  Market capitalization  6M18   6M17   Change ()% 
Net income per share (Ch$)   1.62    1.55    4.3%
Net income per ADR (US$)   0.99    0.94    5.9%
Stock price (Ch$/per share)   51.27    42.24    21.4%
ADR price (US$ per share)   31.43    25.41    23.7%
Market capitalization (US$mn)   14,435    11,971    20.6%
Shares outstanding (millions)   188,446.1    188,446.1    --% 
ADRs (1 ADR = 400 shares) (millions)   471.1    471.1    --% 

 

1 NIM = Net interest income annualized divided by interest earning assets.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. Capital + future interest of all loans with one installment 90 days or more overdue divided by total loans.

4. Loan loss allowance divided by Capital + future interest of all loans with one installment 90 days or more overdue.

5. Provision expense annualized divided by average loans.

 

 1

 

  

Section 2: Summary of results1

 

Net income attributable to shareholder increased 4.3% YoY and ROAE of 20.0% in 6M18

 

Net income attributable to shareholders in 2Q18 totaled Ch$154,515 million (Ch$0.82 per share and US$0.50 per ADR), increasing 2.3% compared to 1Q18 from now on QoQ) and increasing 2.7% compared to 2Q17. Operating income in the quarter increased 6.7% YoY in 2Q18 as business activity continued to accelerate in line with the improved economic outlook. This was partially offset by a higher effective tax rate. The Bank's ROAE in 2Q18 reached a solid 20.5%.

 

Net income attributable to shareholders accumulated up to June 2018 totaled Ch$305,531 million, increasing 4.3%. Operating income increased 7.8% and the YTD ROAE reached 20.0%.

 

 

Loan growth accelerating in all segments in the quarter

 

Total loans increased 7.7% YoY and 3.1% QoQ in 2Q18, driven by greater economic activity, a higher level of investment and greater business confidence. This has led to strong commercial growth with loans in SCIB2 increasing 3.3% QoQ and 3.9% YoY and loans in the Middle-market growing 5.9% QoQ and 14.2% YoY as these companies increase their activities and need for funding. Retail banking loans also accelerated in the quarter and increased 2.0% QoQ and 5.6% YoY with growth from loans to individuals growing 2.1% QoQ and 6.5% YoY.

 

Demand deposits increase 12.9% YoY. Cost of funds3 continues to improve

 

In 2Q18, the Bank’s total deposits increased 3.3% QoQ and 8.1% YoY. The Bank’s non-interest bearing demand deposits continued to grow strongly, increasing 12.9% YoY. The growth of demand deposits has been driven by double digit growth in all business segments led by SCIB which expanded 20.6% and Individuals 15.7%. In 2Q18, time deposits growth also accelerated and grew 6.0% as clients started to shift back to lower risk investments given the volatility experienced in the global and local equity markets. This growth in total deposits continues to contribute to a lower cost of funding for the Bank and as a result, the total average cost of deposits including demand and time deposits decreased from 2.0% in 6M17 to 1.7% in 6M18. The Bank’s liquidity levels also remained healthy in the quarter. Our LCR4 ratio reached 122.9% and the NSFR5 ratio reached 109.0% as of June 30, 2018.

 

 

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

2.Santander Corporate and Investment Banking formerly GBM.

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

4. LCR= Liquidity Coverage Ratio under ECB rules. These are not the Chilean models

5. NSFR= Net Stable Funding Ratio according to internal methodology.

 

 2

 

  

NIMs stable at 4.5% in 2Q18

 

The Bank’s net interest margin (NIM) in 2Q18 reached 4.5% in 2Q18 stable QoQ and 10bp lower compared to 2Q17. Loan growth in the quarter was mainly driven by SCIB, Middle Market and mortgages that are generally lower yielding than consumer loans. On the other hand, the improved funding mix and stable cost of credit has offset the lower yielding asset mix. This is reflected in the 5.6% YoY growth of Net interest income (NII) in 6M18 and the YTD NIM that reached 4.5% compared to 4.4% in 6M17.

 

Asset quality stable QoQ. Cost of credit remains stable at 1.1%.

 

Provision for loan losses increased 4.6% compared to 2Q17 and 6.1% compared to 1Q18. In the quarter, the Bank provisioned and charged-off various specific commercial loan positions leading to a higher provision expense. The Bank’s overall asset quality remained healthy in the quarter. The cost of credit remained stable at 1.1% of loans as the Bank expected loans loss ratio (Loan loss allowance over total loans) improved slightly to 2.8% in the quarter. The total NPL ratio reached 2.2% as of June 2018, a decrease from the 2.3% in 1Q18 and stable compared to the 2.2% in 2Q17. The impaired loan ratio decreased 10bp compared to 2Q17 and 20bp QoQ to 6.2%. The slight improvement in both the NPL and impaired loan ratio along with a lower expected loss ratio reflects the more positive economic trends in Chile in 2018. As a result, in 6M18 the Bank’s total cost of credit remained stable at 1.1% compared to 6M17 and the Bank’s NIM, net of risk6 increased 9bp to 3.5%.

 

 

 

Greater customer loyalty & satisfaction fueling fee growth

 

In 2Q18, fee income increased 4.4% compared to 1Q18 and 9.7% compared to 2Q17. In 6M18 fee income has grown 6.7% compared to 6M17. By products, the biggest contributor to fee income growth was collection fees due to higher rebates paid by insurance companies. The effects of cross-selling were reflected in the increase in loyal clients and the consequential strong growth seen in credit and debit card fees, insurance brokerage fees and asset management.

 

 

6. NIM, net of risk = NII net of provision expense over average interest earning assets

 

 3

 

  

Continued improvements in productivity and digitalization lead to an efficiency ratio of 39.6% in 6M18

 

The Bank’s efficiency ratio reached 39.6% in 6M18 compared to 40.2% in the same period of last year. The improvement of the efficiency ratio is due to the various initiatives that the Bank has been implementing to improve productivity and efficiency. In 2Q18, Operating expenses, excluding Impairment and Other operating expenses, increased 8.9% QoQ and increased 6.6% YoY. The increase compared to last quarter is mainly due to seasonality. The rise compared to 2Q17 is mainly due to an increase in administration expenses related to our digital investments. The efficiency ratio in 2Q18 reached 40.5% compared to 40.4% in 2Q17.

 

A weaker quarter for results from financial transactions

 

Results from Total financial transactions, net was a gain of Ch$18,560 million in 2Q18, a decrease of 47.6% compared to 2Q17 and of 20.1% compared to 1Q18 mainly from lower results from the Bank’s Asset and Liability Management (ALM) recorded Non-client treasury income in the quarter. The Bank’s fixed income liquidity portfolio is mainly comprised of Chilean sovereign risk and U.S. treasuries.

 

Annual dividend paid in the quarter. Core capital ratio at 10.0% and BIS ratio at 12.8%.

 

In April 2018, the Bank paid its annual dividend equivalent to 75% of 2017 earnings or Ch$2.25/share. The dividend yield, considering the register date in Chile on April 19, 2018, was 4.2%. After the payment of this dividend the bank’s capital ratios remained solid. The Bank’s core capital ratio7 was 10.0% and the total BIS ratio8 to 12.8% as of June 30, 2018.

 

 

7. Core Capital ratio = Shareholders’ equity divided by Risk-weighted Assets (RWA) according to SBIF BIS I definitions.

8. BIS ratio: Regulatory capital divided by RWA.

 

 4

 

  

  Summary of Quarterly Results

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Net interest income   353,330    346,715    344,034    2.7%   1.9%
Net fee and commission income   78,824    75,494    71,838    9.7%   4.4%
Total financial transactions, net   18,560    23,221    35,405    (47.6)%   (20.1)%
Provision for loan losses   (80,001)   (75,405)   (76,510)   4.6%   6.1%
Operating expenses (excluding Impairment and Other operating expenses)   (186,031)   (170,851)   (174,511)   6.6%   8.9%
Impairment, Other op. income & expenses   8,326    (3,653)   (19,297)   (143.1)%   (327.9)%
Operating income   193,008    195,521    180,959    6.7%   (1.3)%
Net income attributable to shareholders   154,515    151,016    150,436    2.7%   2.3%
Net income/share (Ch$)   0.82    0.80    0.80    2.7%   2.3%
Net income/ADR (US$)1   0.50    0.53    0.48    4.3%   (5.4)%
Total loans   29,233,928    28,344,394    27,156,024    7.7%   3.1%
Deposits   20,809,352    20,144,383    19,255,177    8.1%   3.3%
Shareholders’ equity   2,999,879    3,169,855    2,895,250    3.6%   (5.4)%
Net interest margin   4.5%   4.5%   4.6%          
Efficiency ratio2   40.5%   38.7%   40.4%          
Return on equity3   20.5%   19.4%   20.8%          
NPL / Total loans4   2.2%   2.3%   2.2%          
Coverage NPLs   123.9%   122.9%   136.2%          
Cost of credit5   1.1%   1.1%   1.1%          
Core Capital ratio6   10.0%   11.1%   10.7%          
BIS ratio   12.8%   14.0%   13.6%          
Branches   376    379    406           
ATMs   1,001    948    1,059           
Employees   11,453    11,444    11,068           

 

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 (Exchange rate for the last trading day of the quarter taken from the Central Bank of Chile) for each period.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. 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.

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

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

6. Core capital ratio = Shareholders’ equity divided by risk-weighted assets according to SBIF BIS I definitions.

 

 5

 

  

Section 3: YTD Results by reporting segment

Net contribution from business segments affected by lower rate of return on capital

 

 Year to date results

(Ch$ Million)

 

   Retail Banking1   Middle market2   SCIB3   Total
segments4		 
Net interest income   472,149    133,312    48,553    654,014 
Change YoY   (2.8)%   1.2%   (2.4)%   (2.0)%
Net fee and commission income   111,838    18,197    18,659    148,694 
Change YoY   6.2%   0.3%   12.8%   6.2%
Core revenues   583,987    151,510    67,212    802,953 
Change YoY   (1.2)%   1.0%   1.4%   (0.5)%
Total financial transactions, net   9,969    7,292    22,892    40,153 
Change YoY   5.5%   8.1%   (25.4)%   (14.4)%
Provision for loan losses   (135,845)   (13,316)   (314)   (149,475)
Change YoY   (6.3)%   167.2%   (117.6)%   0.9%
Net operating profit from business segments5   458,111    145,486    89,790    693,387 
Change YoY   0.6%   (4.1)%   (9.1)%   (1.8)%
Operating expenses6   (270,527)   (45,957)   (32,086)   (348,570)
Change YoY   3.7%   (0.2)%   8.2%   3.5%
Net contribution from business segments7   187,584    99,529    57,704    344,817 
Change YoY   (3.5)%   (5.8)%   (16.5)%   (6.6)%

 

1. Retail consists of individuals and SMEs with annual sales below Ch$1,200 million.

2. Middle-market is made up of companies with annual sales exceeding Ch$1,200 million. It also serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry with annual sales exceeding Ch$800 million.

3. Santander Corporate & Investment Banking: consists of foreign and domestic multinational companies with sales over Ch$10,000 million. Formerly called GBM

4. Excludes the results from Corporate Activities, which includes, among other items, the impact of inflation on results, the impact of movements in the exchange rate in our provision expense and the results from our liquidity portfolio.

5. Net op. profit is defined as Net interest income + Net fee and commission income + Total financial transactions - provision for loan losses.

6. Operating expenses = personnel expenses +administrative expenses + depreciation.

7. The clients included in each business segment are constantly revised and reclassified if a client no longer meets the criteria for the segment they are in. Therefore, variations of loan volumes and profit and loss items reflect business trends as well as client migration effects.

 

Net contribution from our business segments decreased 6.6% YoY in 6M18 compared to the same period of 2017. At the beginning of 2018 the Bank adjusted the profitability of the capital assigned to each segment, in line with the lower interest rates. This lowered net interest income earned by the segments and increased net interest income earned by our Financial Management division.

 

The net contribution from Retail banking decreased 3.5% YoY. Core revenues (net interest income + fees) decreased 1.2% YoY driven by a 6.2% YoY increase in Commissions. This rise in revenues was complemented by decrease in provisions of 6.3% YoY, in line with loan growth in this segment. Operating expenses in this segment were controlled, increasing only 3.7%. Net contribution from the Middle-market decreased 5.8% YoY in 6M18. Core revenues in this segment grew 1.0%, led by a 1.2% increase in net interest revenue due to increasing loan volumes in this segment. Provision expense increased due loan growth and the charge-off and higher provisions for various specific loan position in 2Q18. Net contribution from SCIB decreased 16.5% YoY in 6M18. Core revenues increased 1.4% YoY and income from financial transactions decreased 25.4% due to lower business activity in our Client Treasury business. This was partially compensated by a decrease in provisions.

 

 6

 

 

Section 4: Loans, funding and capital

 

Loans

 

Loan growth accelerating in the quarter in all segments

 

Total loans increased 7.7% YoY and 3.1% QoQ in 2Q18, driven by greater economic activity, a higher level of investment and greater business confidence. This has led to strong commercial growth with loans in SCIB increasing 3.3% QoQ and 3.9% YoY and Loans in the Middle-market growing 5.9% QoQ and 14.2% YoY as these companies increase their activities and need for funding. These loans are generally lower yielding than retail loans, however as these signs of growing investment strengthen, activities in higher yielding segments and non-lending operations should also increase.

 

 Loans by segment

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Total loans to individuals1   15,975,689    15,650,246    15,005,163    6.5%   2.1%
Consumer loans   4,641,646    4,595,908    4,469,821    3.8%   1.0%
Residential mortgage loans   9,523,157    9,269,711    8,861,371    7.5%   2.7%
SMEs   3,796,553    3,730,718    3,719,986    2.1%   1.8%
Retail banking   19,772,242    19,380,964    18,725,149    5.6%   2.0%
Middle-market   7,387,742    6,975,218    6,470,422    14.2%   5.9%
Corporate & Investment banking   1,948,723    1,886,261    1,876,105    3.9%   3.3%
Total loans2   29,233,928    28,344,394    27,156,024    7.7%   3.1%

 

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 includes interbank loans. See Note 3 of the Financial Statements.

3. The clients included in each business segment are constantly revised and reclassified if a client no longer meets the criteria for the segment they are in. Therefore, variations of loan volumes and profit and loss items reflect business trends as well as client migration effects.

 

Retail banking loans increased 2.0% QoQ and 5.6% YoY with growth from Loans to individuals growing 2.1% QoQ and 6.5% YoY. Mortgage loans increased 2.7% QoQ and 7.5% YoY in line with our expectations for the year and Consumer loans increased 1.0% QoQ and 3.8% YoY. Loan growth among middle and high-income earners increased 2.4% QoQ and 7.7% YoY while loans to the lower income segment fell 8.3% QoQ and 26.9% YoY as we reduce our exposure to the last credit card product remaining from Banefe. However, the launch of Santander Life (a new generation of digital products aimed at the mass consumer market) at the end of 2017 is helping us to gain more clients from the mass income segment, while the Meritolife component that rewards positive credit behavior, mitigates the risk associated with this segment. At the end of June 2018, Life had 16,600 clients, 70% of which are new clients to the Bank. Approximately 25% of new account plans sold to individuals are Life plans. We expect retail loans, especially consumer lending, to also begin to accelerate once economic growth begins to have a more significant effect on the level of employment and wages.

 

 7

 

  

Loans to SMEs increased 1.8% QoQ and 2.1% YoY. The Bank continues to maintain a conservative stance regarding loan growth in this segment by focusing on larger, less riskier SMEs that generate higher non-lending revenues as well.

 

Funding and Liquidity

 

Cost of funds continues to improve

 

Y:\Matlaw\2018\08 Aug\08 Aug\Shift III\Banco Santander 6-k s111973\Draft\03-Production  Funding

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Demand deposits   8,127,758    8,175,608    7,195,893    12.9%   (0.6)%
Time deposits   12,681,594    11,968,775    12,059,284    5.2%   6.0%
Total Deposits   20,809,352    20,144,383    19,255,177    8.1%   3.3%
Mutual Funds brokered1   5,557,028    5,386,644    5,562,941    (0.1)%   3.2%
Bonds   8,020,395    7,795,573    7,045,748    13.8%   2.9%
Adjusted loans to deposit ratio2   98.1%   98.0%   100.3%          
LCR 3   122.9%   125.0%   123.1%          
NSFR 4   109.0%   108.8%   102.9%          

 

1. Banco Santander Chile is the exclusive broker of mutual funds managed by Santander Asset Management S.A. Administradora General de Fondos, a subsidiary of SAM Investment Holdings Limited.

2. Ratio =(Net Loans - portion of mortgages funded with long-term bonds) / (Time deposits + demand deposits). The Bank’s mortgage loans are mainly fixed-rate long-term loans that we mainly finance with matching long-term funding and not with short-term deposits. For this reason, to calculate this ratio, we subtract residential mortgage loans funded with long term bonds in the numerator of our ratio.

3. Liquidity Coverage Ratio calculated according to ECB rules. Chilean ratios to be published commencing in Oct. 2018.

4. Net Stable Funding Ratio calculated using internal methodology. Chilean ratios are still under construction.

 

In 2Q18, the Bank’s total deposits increased 3.3% QoQ and 8.1% YoY. The Bank’s non-interest bearing demand deposits continued to grow strongly, reaching an increase of 12.9% YoY and a slight decrease since March 2018 when demand deposits are seasonally higher due to the tax contributions cycle in Chile. This positive YoY rise in demand deposits was driven by double digit growth in all segments with demand deposits in SCIB increasing 20.6% and among individuals 15.6%. In 2Q18 time deposits grew 6.0% as clients started to shift back to lower risk investments given the volatility experienced in the global and local equity markets. This growth in deposits continues to contribute to a lower cost of funding for the Bank and as a result, the total average cost of deposits including demand and time deposits decreased from 2.0% in 6M17 to 1.7% in 6M18. The Bank’s liquidity levels remain healthy in the quarter. Our LCR ratio reached 122.9% and the NSFR ratio reached 109.0% as of June 30, 2018.

 

 

 8

 

 

Shareholders’ equity and regulatory capital

 

ROAE9 of 20.5% in 2Q18 and 20.0% in 6M18

 

 Equity

(Ch$ Million)

 

   YTD   Change% 
   Jun-18   Mar-18   Jun-17   Jun-18/Jun-17   Jun-17/Mar-18 
Capital   891,303    891,303    891,303    0.0%   0.0%
Reserves   1,923,022    1,781,818    1,781,818    7.9%   7.9%
Valuation adjustment   (28,318)   (4,348)   17,162    (265.0)%   551.3%
Retained Earnings:                         
Retained earnings prior periods   -    564,815    -    --%    (100.0)%
Income for the period   305,531    151,016    292,811    4.3%   102.3%
Provision for mandatory dividend   (91,659)   (214,749)   (87,843)   4.3%   (57.3)%
Equity attributable to equity holders of the Bank   2,999,879    3,169,855    2,895,250    3.6%   (5.4)%
Non-controlling interest   43,251    42,613    30,058    43.9%   1.5%
Total Equity   3,043,130    3,212,468    2,925,308    4.0%   (5.3)%
Quarterly ROAE   20.5%   19.4%   20.8%          
YTD ROAE   20.0%   19.4%   20.3%          

 

Shareholders’ equity totaled Ch$2,999,879 million as of June 30, 2018 and grew 3.6% YoY. The Bank’s ROAE in 2Q18 reached 20.5% and 20.0% for the six-month period. In April 2018, the Bank paid its annual dividend equivalent to 75% of 2017 earnings or Ch$2.25/share. The dividend yield, considering the register date in Chile on April 19, 2018, was 4.2%. After the payment of this dividend the Bank’s capital ratios remained solid. The Bank’s core capital ratio10 was 10.0% and the total BIS ratio11 to 12.8% as of June 30, 2018. Additionally, in the quarter a regulatory change issued by the SBIF was introduced that amended the methodology for estimating the credit risk weighted asset equivalent of our derivative instruments. This lowered our core capital ratio by 11 basis points in the quarter.

 

 Capital Adequacy

(Ch$ Million)

 

   YTD   Change% 
   Jun-18   Mar-18   Jun-17   Jun-18/Jun-17   Jun-17/Mar-18 
Tier I (Core Capital)   2,999,879    3,169,855    2,895,250    3.6%   (5.4)%
Tier II   827,024    820,002    799,032    3.5%   0.9%
Regulatory capital   3,826,903    3,989,856    3,694,282    3.6%   (4.1)%
Risk weighted assets   29,945,320    28,530,058    27,133,274    10.4%   5.0%
Tier I (Core Capital) ratio   10.02%   11.11%   10.67%          
BIS ratio   12.8%   14.0%   13.6%          

 

 

9. Return on average equity

10. Core Capital ratio = Shareholders’ equity divided by Risk-weighted Assets (RWA) according to SBIF BIS I definitions.

11. BIS ratio: Regulatory capital divided by RWA. 

 

 9

 

 

Section 5: Analysis of quarterly income statement

 

Net interest income

 

Total NII increases 2.7% YoY

 

 Net Interest Income / Margin

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Net interest income   353,330    346,715    344,034    2.7%   1.9%
Average interest-earning assets   31,754,813    30,708,458    29,917,624    6.1%   3.4%
Average loans   28,806,711    27,885,150    27,036,649    6.5%   3.3%
Avg. net gap in inflation indexed (UF) instruments1   3,538,721    4,443,462    4,207,443    (15.9)%   (20.4)%
Interest earning asset yield2   7.1%   6.9%   7.4%          
Cost of funds3   2.7%   2.5%   2.8%          
Net interest margin (NIM) 4   4.5%   4.5%   4.6%          
Quarterly inflation rate5   0.7%   0.6%   0.7%          
Central Bank reference rate   2.5%   2.5%   2.5%          

 

1. The average quarterly difference between assets and liabilities indexed to the Unidad de Fomento (UF), an inflation indexed unit.

2. Interest income divided by average interest earning assets.

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

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

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

 

In 2Q18, Net interest income, NII, increased 2.7% compared to 2Q17. The Bank’s NIM reached 4.5% in 2Q18 compared to 4.6% in 2Q17. As mentioned in the loan section above, loan growth in the quarter was mainly driven by SCIB, Middle Market and mortgages. These loans are generally lower yielding than consumer loans. On the other hand, the greater demand for loan growth from these segments after a prolonged period of depressed growth is also an indicator of a recovering economy which should eventually pass on to other higher yielding segments. At the same time, the change in the consumer loan mix has decreased the average yield earned on consumer loans. For this reason, the average return on interest earning assets fell 30bp compared to 2Q17 to 7.1%, despite similar UF inflation levels. This was partially compensated with a 10bp improvement in the average cost of funds. Loan growth in these segments has also lead to higher growth of non-lending income in these segments such as cash management and checking accounts.

 

Compared to 1Q18 net interest income increased 1.9% driven by the 3.1% increase in loan volumes in the quarter. The QoQ rise in funding costs in the quarter reflects a rise in market rates in anticipation of a tighter monetary policy on behalf of the Chilean Central Bank as the economy’s growth rate continues to accelerate.

 

For the second half of the year, we expect margins to remain stable. As a reminder, our liabilities have a shorter duration that our assets signifying that a 100 basis point average rise in short-term interest rates leads to a 10bp decline in NIMs in a 12M period. On the other hand, we have more assets than liabilities linked to inflation so for every 100bp rise in inflation our margins rise 15bp. We expect similar growth trends in commercial lending, accompanied by an acceleration of loan growth in higher yielding retail lending, a slightly higher inflation rate driven by the recent depreciation of the peso and higher short-term rates.

 

 10

 

  

Asset quality and provision for loan losses

 

Asset quality stable QoQ. Cost of credit remaines stable at 1.1%.

 

Provision for loan losses increased 4.6% compared to 2Q17 and 6.1% compared to 1Q18. The Bank’s cost of credit remained stable at 1.1% of loans as the Bank expected loans loss ratio (Loan loss allowance over total loans) improved slightly to 2.8% in the quarter. The total NPL ratio reached 2.2% as of June 2018, a decrease from the 2.3% in 1Q18 and stable compared to the 2.2% in 2Q17. The impaired loan ratio decreased 10bp compared to 2Q17 and 20bp QoQ to 6.2%. The slight improvement in both the NPL and impaired loan ratio along with a lower expected loss ratio reflects the more positive economic trends in Chile in 2018. By product, provision for loan losses was as follows:

 

Y:\Matlaw\2018\08 Aug\08 Aug\Shift III\Banco Santander 6-k s111973\Draft\03-Production  Provision for loan losses

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Consumer loans   (49,571)   (48,841)   (47,754)   3.8%   1.5%
Commercial loans1   (32,919)   (25,326)   (26,313)   25.1%   30.0%
Residential mortgage loans   2,488    (1,238)   (2,443)   -%    -% 
Provision for loan losses   (80,001)   (75,405)   (76,510)   4.6%   6.1%

 

1. Includes provision for loan losses for contingent loans.

 

Provisions for loan losses for consumer loans increased 3.8% compared to 2Q17 and 1.5% compared to 1Q18, in line with volume growth in consumer loans.

 

As mentioned in previous reports, there was some deterioration in the asset quality of consumer loans towards the end of 2017 due to the negative impacts of lower economic growth. As of June 2018, asset quality has begun to improve with the consumer NPL ratio decreasing from 2.4% in March 2018 to 2.2% and the impaired consumer loan ratio also improving in the quarter, from 6.8% in 1Q18 to 6.4% in 2Q18.

 

Provisions for loan losses for commercial loans increased 30.0% compared to 1Q18 and 25.1% compared to 2Q17 mainly explained by the provisioning and charge-off of various specific commercial loan positions in the middle-market and the growth of commercial loans. Overall, the commercial NPL ratio remained steady at 2.6% and the impaired commercial loan ratio decreased to 6.9% in the quarter.

 

In the second quarter of 2018, Provisions for loan losses for residential mortgage loans decreased compared to 1Q18 and 2Q17, representing a release of provisions due to the improving asset quality of this portfolio. In the quarter, the NPL ratio of mortgage loans fell 10bp to 1.7% and the impaired mortgage loan ratio reduced on a QoQ basis to 5.0%. Loan to value (LTV) ratios at origination also remained healthy in this product.

 

 11

 

 

 

 

  Provision for loan losses

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Gross provisions   (69,228)   (63,529)   (49,898)   38.7%   9.0%
Charge-offs1   (35,211)   (32,695)   (47,379)   (25.7)%   7.7%
Gross provisions and charge-offs   (104,439)   (96,224)   (97,277)   7.4%   8.5%
Loan loss recoveries   24,438    20,819    20,767    17.7%   17.4%
Provision for loan losses   (80,001)   (75,405)   (76,510)   4.6%   6.1%
Cost of credit2   1.1%   1.1%   1.1%   (0.7)%   3.0%
Total loans3   29,233,928    28,344,394    27,156,024    7.7%   3.1%
Total Loan loss allowances (LLAs)   (805,071)   (810,390)   (799,442)   0.7%   (0.7)%
Non-performing loans4 (NPLs)   650,010    659,347    587,107    10.7%   (1.4)%
NPLs consumer loans   101,514    108,541    90,523    12.1%   (6.5)%
NPLs commercial loans   387,289    381,614    338,729    14.3%   1.5%
NPLs residential mortgage loans   161,207    169,192    157,855    2.1%   (4.7)%
Impaired loans5   1,803,077    1,825,702    1,705,257    5.7%   (1.2)%
Impaired consumer loans   295,043    312,948    309,040    (4.5)%   (5.7)%
Impaired commercial loans   1,034,931    1,035,616    966,085    7.1%   (0.1)%
Impaired residential mortgage loans   473,103    477,138    430,132    10.0%   (0.8)%
Expected loss ratio6 (LLA / Total loans)   2.8%   2.9%   2.9%          
NPL / Total loans   2.2%   2.3%   2.2%          
NPL / consumer loans   2.2%   2.4%   2.0%          
NPL / commercial loans   2.6%   2.6%   2.5%          
NPL / residential mortgage loans   1.7%   1.8%   1.8%          
Impaired loans / total loans   6.2%   6.4%   6.3%          
Impaired consumer loan ratio   6.4%   6.8%   6.9%          
Impaired commercial loan ratio   6.9%   7.2%   7.1%          
Impaired mortgage loan ratio   5.0%   5.1%   4.9%          
Coverage of NPLs7   123.9%   122.9%   136.2%          
Coverage of NPLs non-mortgage8   151.2%   151.3%   172.4%          
Coverage of consumer NPLs   263.9%   255.5%   328.8%          
Coverage of commercial NPLs   121.7%   121.6%   130.6%          
Coverage of mortgage NPLs   40.9%   40.7%   37.5%          

 

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

2. Annualized provision for loan losses / quarterly average total loans. Averages are calculated using monthly figures.

3. Includes interbank loans.

4. Total outstanding gross amount of loans with at least one installment 90 days or more overdue.

5. 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 NPL (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.

6. LLA / Total loans. Measures the percentage of loans that banks must provision for given their internal models and the SBIF’s guidelines.

7. LLA / NPLs.

8. LLA of commercial and consumer loans / NPLs of commercial and consumer loans.

 

 12

 

  

Net fee and commission income

 

Greater customer loyalty & satisfaction fueling fees

 

In 2Q18, fee income increased 4.4% compared to 1Q18 and 9.7% compared to 2Q17. By products, the biggest contributor to fee income growth was collection fees due to higher rebates paid by insurance companies. The effects of cross-selling were reflected in the increase in loyal clients and the consequential strong growth seen in credit and debit card fees, insurance brokerage fees and asset management.

 

  Fee Income by client segment

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Retail banking1   52,660    59,178    53,087    (0.8)%   (11.0)%
Middle-market   9,116    9,081    9,117    0.0%   0.4%
Global corporate banking   8,164    10,495    5,901    38.4%   (22.2)%
Others   8,884    (3,260)   3,733    138.0%   (372.5)%
Total   78,824    75,494    71,838    9.7%   4.4%

 

1. Includes fees to individuals and SMEs.

 

Fees in the Middle-market were flat compared to 2Q17 and increased 0.4% compared to 1Q17. As the economy continues to recover, we expect a higher growth rate of fees in this segment as customer loyalty has been expanding with Loyal Middle-market and SME clients grew 2.5% YoY. Fees in SCIB decreased 22.2% compared to 1Q18 after a strong first quarter in financial advisory services, however compared to 2Q17 this segment increased 38.4%. Fees in this segment are deal driven and, therefore, tend to vary significantly from quarter to quarter. The strength of the Bank in providing value added non-lending services, such as cash management and financial advisory services should continue to drive fee income in SCIB. The decrease in Retail fees is mainly explained by the decrease in fee income from ATM cards due to the optimization of our ATM network during 2017. This negatively affects fees, but has a positive impact on costs and efficiency (See Operating expenses and Efficiency.) However, client loyalty continues to rise in retail banking with loyal individual customers (clients with >4 products plus minimum usage and profitability levels) in the High-income segment grew 7.8% YoY. Among Mid-income earners, loyal customers increased 6.6% YoY. The rise in other fees reflects higher rebates from insurance companies that are not assigned to any segments.

 

 

1. Loyal high income and middle income customers with 4 products plus a minimum profitability level and a minimum usage indicator, all differentiated by segment. SME + Middle-market cross-selling differentiated by client size using a point system that depends on number of products, usage of products and income net of risk.

 

 13

 

 

By products, the evolution of fees was as follows:

 

  Fee Income by product

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Credit, debit & ATM card fees   14,703    15,222    14,084    4.4%   (3.4)%
Asset management   11,379    11,259    10,831    5.1%   1.1%
Insurance brokerage   9,883    8,941    9,209    7.3%   10.5%
Guarantees, pledges and other contingent op.   8,195    8,136    8,722    (6.0)%   0.7%
Collection fees   14,389    8,928    13,455    6.9%   61.2%
Checking accounts   8,278    8,254    7,802    6.1%   0.3%
Brokerage and custody of securities   2,444    2,274    2,308    5.9%   7.5%
Other   9,553    12,480    5,426    76.0%   (23.5)%
Total fees   78,824    75,494    71,838    9.7%   4.4%

 

Total financial transactions, net

 

Lower results from ALM portfolio reduces gains from financial transactions, net

 

Results from Total financial transactions, net was a gain of Ch$18,560 million in 2Q18, a decrease of 47.6% compared to 2Q17 and of 20.1% compared to 1Q18. It is important to point out that the Bank does not run a significant foreign currency gap. The Bank’s spot position in foreign currency is hedged with derivatives that are either considered trading derivatives or hedge accounting derivatives. Derivatives that are considered trading are marked-to-market in net income from financial operations. Hedge accounting derivatives are mark-to-market together with the hedged item in net foreign exchange results. This distorts these line items, especially in periods of a strong appreciation or depreciation of the exchange rate.

 

  Total financial transactions, net

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Net income (expense) from financial operations1   18,321    (27,174)   3,623    405.7%   167.4%
Net foreign exchange gain2   239    50,395    31,782    (99.2)%   (99.5)%
Total financial transactions, net   18,560    23,221    35,405    (47.6)%   (20.1)%

 

1. These results include the realized gains of the Available for sale investment portfolio, realized and unrealized gains and interest revenue generated by Trading investments, gains or losses from the sale of charged-off loans and the realized gains (loss) or mark-to-market of derivatives.

2. The results recorded as Foreign exchange gain mainly include the translation gains or losses of assets and liabilities denominated in foreign currency as well as from our hedge accounting derivatives.

 

 14

 

 

In order to understand more clearly these line items, we present them by business area in the following table:

 

Total financial transactions, net by business

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Client treasury services   24,449    15,704    21,387    14.3%   55.7%
Non-client treasury income1   (5,890)   7,517    14,018    (142.0)%   (178.4)%
Total financ. transactions, net   18,560    23,221    35,405    (47.6)%   (20.1)%

 

1. Non client treasury income. These results includes interest income and the mark-to-market of the Bank’s trading portfolio, realized gains from the Bank’s available for sale portfolio and other results from our Financial Management Division.

 

Client treasury services revenues reached a gain of Ch$ 24,449 million in the quarter, an increase of 55.7% compared to 1Q18 and 14.3% compared to 2Q17. The movement of client treasury revenue, which usually makes up the bulk of our treasuring income, reflects the demand on behalf of clients for treasury products, mainly for their hedging needs and market making. The Bank had a good 2Q18 in Debt Capital Markets and Market Making following a weak 1Q18. As the economic recovery continued in the quarter the demand for treasury products also continued to recover, driving growth in this line of business.

 

Non-client treasury totaled a loss of Ch$5,890 million in the quarter. The Bank’s fixed income liquidity portfolio is mainly comprised of Chilean sovereign risk and U.S. treasuries. In the first semester of 2018 the long-term interest rate went up, particularly in the second quarter, leading to lower results from our ALM liquidity positions. In 2017, on the other hand, the long-term interest rates on Chilean sovereign instruments fell significantly, resulting in positive mark-to-market gains.

 

 15

 

  

Operating expenses and efficiency

 

Continued improvements in productivity and digitalization lead to an efficiency ratio of 39.6% in 6M18

 

The Bank’s efficiency ratio reached 39.6% in 6M18 compared to 40.2% in the same period of last year. The improvement of the efficiency ratio is mainly due to the various initiatives that the Bank has been implementing to improve productivity and efficiency through digitalization. In 2Q18, Operating expenses, excluding Impairment and Other operating expenses increased 8.9% QoQ and increased 6.6% YoY. The increase compared to 1Q18 is mainly due to seasonality.

 

Operating expenses

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Personnel salaries and expenses   (104,061)   (89,516)   (101,350)   2.7%   16.2%
Administrative expenses   (62,710)   (62,155)   (54,383)   15.3%   0.9%
Depreciation & amortization   (19,260)   (19,180)   (18,778)   2.6%   0.4%
Operating expenses1   (186,031)   (170,851)   (174,511)   6.6%   8.9%
Impairment of property, plant and
Equipment		   -    (39)   (165)   --%    --% 
Branches   376    379    406    (7.4)%   (0.8)%
Standard   296    299    338    (12.4)%   (1.0)%
WorkCafé   24    22    7    242.9%   9.1%
Middle-market centers   8    7    8    0.0%   14.3%
Select   48    51    53    (9.4)%   (5.9)%
ATMs   1,001    948    1,059    (5.5)%   5.6%
Employees   11,453    11,444    11,068    3.5%   0.1%
Efficiency ratio2   40.5%   38.7%   40.4%   -14bp   -186bp
YTD Efficiency ratio2   39.6%   38.7%   40.2%   +56bp    -95bp
Volumes per branch (Ch$mn)3   133,094    127,939    114,313    16.4%   4.0%
Volumes per employee (Ch$mn)4   4,369    4,237    4,193    4.2%   3.1%
YTD Cost / Assets5   1.9%   1.9%   1.9%          

 

1. Excluding Impairment and Other operating expenses.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. Loans + deposits over total branches.

4. Loans + deposits over total employees.

5. Operating expenses as defined in footnote 1 above, annualized / Total assets.

 

Personnel expenses increased 2.7% in 2Q18 compared the same quarter of last year, in line with inflation. Total headcount rose 3.5% YoY, reflecting an expansion of the IT projects team during 6M18. Previously the Bank outsourced some IT projects that are now being done in-house, producing cost savings and project efficiencies.

 

 16

 

  

Administrative expenses increased 15.3% YoY in 2Q18 due to the ongoing investments in digitalization and branch restructuring. IT expenses increased 22.7% YoY as the Bank launched various initiatives to automatize its processes. For example, the Chat Bot was launched during March of this year, with a capacity to answer more than 1,100 different questions. In the quarter, the Bank also increased its expenditure in cybersecurity. We also continued to improve our branches, opening four more Workcafés during the first half of the year. For this year, we will transform a total of 20 branches by the year end, with at least one in every region of Chile. In total, in the last twelve months, 7.4% of the Bank’s branch network was closed. Compared to 1Q18, we have increased the number of ATMS by 5.6%. Despite this increase, expenses for security and security and security transport services decreased 3.3% YoY, as we have strategically chosen locations with greater security and traffic of people.

 

 

1 Volumes= Loans+ Deposits

 

Amortization expenses increased 2.6% YoY mainly due to the investment in software and digital banking the Bank is carrying out as part of our plan to improve productivity and efficiency.

 

 17

 

  

Other operating income, net & corporate tax

 

Other operating income, net, totaled Ch$8,326 million in 2Q18, representing an increase of 330.4% QoQ and 143.5% YoY. Gross other operating income increased by Ch$2bn YoY and Ch$12bn QoQ in 2Q18 mainly as a result of higher gains from the liberation of provisions for non-credit contingencies. The lower loss from gross operating expenses in 2Q18 compared to 2Q17 was mainly due to the one-time charge of Ch$12 billion related to severance expenses recognized in 2Q17.

 

Other operating income, net and corporate tax

(Ch$ Million)

 

   Quarter   Change% 
   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
Other operating income   18,257    6,307    16,049    13.8%   189.5%
Other operating expenses   (9,931)   (9,921)   (35,181)   (71.8)%   0.1%
Other operating income, net   8,326    (3,614)   (19,132)   143.5%   330.4%
Income from investments in associates and other companies   2,176    825    885    145.9%   163.8%
Income tax income (expense)   (40,031)   (44,553)   (31,143)   28.5%   (10.1)%
Effective income tax rate   20.5%   22.7%   17.1%          

 

Income tax expenses in 2Q18 totaled Ch$40,031 million, a decrease of 10.1% QoQ and an increase of 28.5% YoY. On a QoQ basis, the lower effective tax rate is a seasonal effect mainly due to the deduction of real estate taxes paid on assets for leasing, which usually occurs in 2Q of each year. The effective tax rate in 6M18 reached 21.6% compared to 18.9% in 6M17. The rise in the effective tax rate was mainly due to the higher statutory tax rate. The statutory corporate tax rate in 2018 increased to 27.0% compared to 25.5% in 2017. The Bank’s effective tax rate should be approximately 22%-23% in 2018.

 

YTD income tax1

(Ch$ Million)

 

       Change% 
   Jun-18   Jun-17   Jun-18/Jun-17 
Net income before tax   391,530    362,070    8.1%
Price level restatement of capital2   (61,951)   (52,432)   18.2%
Net income before tax adjusted for price level restatement   329,579    309,638    6.4%
Statutory Tax rate   27.0%   25.5%   +150bp
Income tax expense at Statutory rate   (88,986)   (78,958)   12.7%
Tax benefits3   4,404    10,605    (58.5)%
Income tax   (84,584)   (68,351)   23.7%
Effective tax rate   21.6%   18.9%   +273bp 

 

1. This table is for informational purposes only. Please refer to note 13 in our interim financials for more details.

2. For tax purposes, capital is indexed to CPI inflation. The statutory tax rate is applied over net income before tax adjusted for price level restatement.

3. Mainly includes income tax credits from property taxes paid on leased assets as well as the impact from fluctuations in deferred tax assets and liabilities.

 

 18

 

  

Section 6: Credit risk ratings

 

International ratings

 

The Bank has credit ratings from three leading international agencies.

 

Moody’s  Rating
Bank Deposit  A1/P-1
Baseline Credit Assessment  A3
Adjusted Baseline Credit Assessment  A3
Senior Unsecured  A1
Commercial Paper  P-1
Outlook  Stable

 

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
Outlook  Negative

 

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
Outlook  Stable

 

Local ratings

 

Our local ratings 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+

 

 19

 

  

Section 7: Share performance

As of June 30, 2018

 

Ownership Structure:

 

 

Total Shareholder Return

Santander ADR vs. SP500 (Base 100 = 12/31/2017)

 

 

ADR price (US$) 6M18    
06/30/18:   31.43 
Maximum (6M18):   34.94 
Minimum (6M18):   31.21 

 

Market Capitalization: US$14.435 million    
P/E 12month trailing*:   16.9 
P/BV (06/30/18)**:   3.2 
Dividend yield***:   4.2%

 

* Price as of June 30, 2018 / 12mth. earnings

** Price as of June 30, 2018/Book value as of 06/30/18

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

 

Average daily traded volumes 6M18

US$ million

 

 

 

Total Shareholder Return

Santander vs IPSA Index (Base 100 = 12/31/2017)

 

 

Local share price (Ch$) 6M18    
06/30/18:   51.27 
Maximum (6M18):   52.98 
Minimum (6M18):   47.52 

 

Dividends:

 

Year paid  Ch$/share   % of previous year’s
earnings		 
2015:   1.75    60%
2016:   1.79    75%
2017:   1.75    70%
2018:   2.25    75%

 

 20

 

  

Annex 1: Balance sheet

 

  Unaudited Balance Sheet     

 

   Jun-18   Jun-18   Jun-17   Jun-18/Jun-17 
   US$ Ths1  

Ch$ Million

   % Chg. 
Cash and deposits in banks   2,217,487    1,450,015    1,344,043    7.9%
Cash items in process of collection   1,140,132    745,532    429,236    73.7%
Trading investments   418,364    273,568    700,334    (60.9)%
Investments under resale agreements   2,670    1,746    -    --% 
Financial derivative contracts   3,416,146    2,233,818    2,215,654    0.8%
Interbank loans, net   45,475    29,736    235,512    (87.4)%
Loans and account receivables from customers, net   43,430,373    28,399,121    26,121,070    8.7%
Available for sale investments   4,448,887    2,909,127    2,169,845    34.1%
Held-to-maturity investments   -    -    -    --% 
Investments in associates and other companies   46,325    30,292    25,179    20.3%
Intangible assets   93,372    61,056    59,343    2.9%
Property, plant and equipment   352,610    230,572    245,099    (5.9)%
Current taxes   16,246    10,623    5,969    78.0%
Deferred taxes   582,061    380,610    361,939    5.2%
Other assets   1,274,540    833,422    893,207    (6.7)%
Total Assets   57,484,689    37,589,238    34,806,430    8.0%
                     
Deposits and other demand liabilities   12,429,665    8,127,758    7,195,893    12.9%
Cash items in process of being cleared   1,096,766    717,175    258,454    177.5%
Obligations under repurchase agreements   169,116    110,585    145,570    (24.0)%
Time deposits and other time liabilities   19,393,782    12,681,594    12,059,284    5.2%
Financial derivatives contracts   3,168,845    2,072,108    2,060,639    0.6%
Interbank borrowings   2,375,305    1,553,212    1,830,856    (15.2)%
Issued debt instruments   12,265,476    8,020,395    7,045,748    13.8%
Other financial liabilities   381,629    249,547    244,622    2.0%
Current taxes   -    -    -    --% 
Deferred taxes   34,628    22,643    8,304    172.7%
Provisions   315,501    206,306    238,766    (13.6)%
Other liabilities   1,200,161    784,785    792,986    (1.0)%
Total Liabilities   52,830,873    34,546,108    31,881,122    8.4%
                     
Equity                    
Capital   1,363,057    891,303    891,303    --% 
Reserves   2,940,850    1,923,022    1,781,818    7.9%
Valuation adjustments   (43,306)   (28,318)   17,161    (265.0)%
Retained Earnings:                    
Retained earnings from prior years   -    -    -    --% 
Income for the period   467,244    305,531    292,811    4.3%
Minus: Provision for mandatory dividends   (140,173)   (91,659)   (87,843)   4.3%
Total Shareholders' Equity   4,587,672    2,999,879    2,895,250    3.6%
Non-controlling interest   66,143    43,251    30,058    43.9%
Total Equity   4,653,816    3,043,130    2,925,308    4.0%
                     
Total Liabilities and Equity   57,484,689    37,589,238    34,806,430    8.0%

 

1. The exchange rate used to calculate the figures in dollars was Ch$653.90 / US$1

 

 21

 

 

Annex 2: YTD income statements

 

  Unaudited YTD Income Statement     

 

   Jun-18   Jun-18   Jun-17   Jun-18/Jun-17 
   US$ Ths1   Ch$ Million   % Chg. 
Interest income   1,665,044    1,088,772    1,074,843    1.3%
Interest expense   (594,475)   (388,727)   (412,234)   (5.7)%
Net interest income   1,070,569    700,045    662,609    5.6%
Fee and commission income   377,042    246,548    230,862    6.8%
Fee and commission expense   (141,046)   (92,230)   (86,201)   7.0%
Net fee and commission income   235,996    154,318    144,661    6.7%
Net income (expense) from financial operations   (13,539)   (8,853)   4,899    (280.7)%
Net foreign exchange gain   77,434    50,634    67,238    (24.7)%
Total financial transactions, net   63,895    41,781    72,137    (42.1)%
Other operating income   37,565    24,564    29,068    (15.5)%
Net operating profit before provisions for loan losses   1,408,026    920,708    908,475    1.3%
Provision for loan losses   (237,660)   (155,406)   (150,372)   3.3%
Net operating profit   1,170,365    765,302    758,103    0.9%
Personnel salaries and expenses   (296,035)   (193,577)   (194,026)   (0.2)%
Administrative expenses   (190,954)   (124,865)   (112,865)   10.6%
Depreciation and amortization   (58,786)   (38,440)   (36,400)   5.6%
Op. expenses excl. Impairment and Other operating expenses   (545,775)   (356,882)   (343,291)   4.0%
Impairment of property, plant and equipment   (60)   (39)   (349)   (88.8)%
Other operating expenses   (30,359)   (19,852)   (53,998)   (63.2)%
Total operating expenses   (576,194)   (376,773)   (397,638)   (5.2)%
Operating income   594,172    388,529    360,465    7.8%
Income from investments in associates and other companies   4,589    3,001    1,605    87.0%
Income before tax   598,761    391,530    362,070    8.1%
Income tax expense   (129,353)   (84,584)   (68,351)   23.7%
Net income from ordinary activities   469,408    306,946    293,719    4.5%
Net income discontinued operations   -    -    -    --% 
Net income attributable to:                    
Non-controlling interest   2,164    1,415    908    55.8%
Net income attributable to equity holders of the Bank   467,244    305,531    292,811    4.3%

 

1. The exchange rate used to calculate the figures in dollars was Ch$653.90 / US$1

 

 22

 

  

Annex 3: Quarterly income statements

 

  Unaudited Quarterly Income Statement     

 

   2Q18   2Q18   1Q18   2Q17   2Q18/2Q17   2Q18/1Q18 
   US$ Ths1   Ch$ Million 4Q15   % Chg. 
                         
Interest income   857,501    560,720    528,052    550,875    1.8%   6.2%
Interest expense   (317,159)   (207,390)   (181,337)   (206,841)   0.3%   14.4%
Net interest income   540,343    353,330    346,715    344,034    2.7%   1.9%
Fee and commission income   187,175    122,394    124,154    115,567    5.9%   (1.4)%
Fee and commission expense   (66,631)   (43,570)   (48,660)   (43,729)   (0.4)%   (10.5)%
Net fee and commission income   120,544    78,824    75,494    71,838    9.7%   4.4%
Net income (expense) from financial operations   28,018    18,321    (27,174)   3,623    405.7%   167.4%
Net foreign exchange gain   365    239    50,395    31,782    (99.2)%   (99.5)%
Total financial transactions, net   28,384    18,560    23,221    35,405    (47.6)%   (20.1)%
Other operating income   27,920    18,257    6,307    16,049    13.8%   189.5%
Net operating profit before provisions for loan losses   717,191    468,971    451,737    467,326    0.4%   3.8%
Provision for loan losses   (122,344)   (80,001)   (75,405)   (76,510)   4.6%   6.1%
Net operating profit   594,846    388,970    376,332    390,816    (0.5)%   3.4%
Personnel salaries and expenses   (159,139)   (104,061)   (89,516)   (101,350)   2.7%   16.2%
Administrative expenses   (95,902)   (62,710)   (62,155)   (54,383)   15.3%   0.9%
Depreciation and amortization   (29,454)   (19,260)   (19,180)   (18,778)   2.6%   0.4%
Op. expenses excl. Impairment and Other operating expenses   (284,495)   (186,031)   (170,851)   (174,511)   6.6%   8.9%
Impairment of property, plant and equipment   -    -    (39)   (165)   --%    --% 
Other operating expenses   (15,187)   (9,931)   (9,921)   (35,181)   (71.8)%   0.1%
Total operating expenses   (299,682)   (195,962)   (180,811)   (209,857)   (6.6)%   8.4%
Operating income   295,164    193,008    195,521    180,959    6.7%   (1.3)%
Income from investments in associates and other companies   3,328    2,176    825    885    145.9%   163.8%
Income before tax   298,492    195,184    196,346    181,844    7.3%   (0.6)%
Income tax expense   (61,219)   (40,031)   (44,553)   (31,143)   28.5%   (10.1)%
Net income from ordinary activities   237,273    155,153    151,793    150,701    3.0%   2.2%
Net income discontinued operations   -    -    -    -    --%    --% 
Net income attributable to:                              
Non-controlling interest   976    638    777    265    140.8%   (17.9)%
Net income attributable to equity holders of the Bank   236,298    154,515    151,016    150,436    2.7%   2.3%

 

1. The exchange rate used to calculate the figures in dollars was Ch$653.90/ US$1

 

 23

 

 

Annex 4: Quarterly evolution of main ratios and other information

 

(Ch$ millions)            
Loans  2Q17   3Q17   4Q17   1Q18   2Q18 
                     
Consumer loans   4,469,821    4,477,196    4,557,692    4,595,908    4,641,646 
Residential mortgage loans   8,861,371    8,935,539    9,096,895    9,269,711    9,523,157 
Commercial loans   13,589,218    14,070,635    13,908,642    14,469,530    15,039,330 
Interbank loans   235,614    278,215    162,684    9,245    29,795 
Total loans (including interbank)   27,156,024    27,761,585    27,725,913    28,344,394    29,233,928 
Allowance for loan losses   (799,442)   (809,021)   (815,773)   (810,390)   (805,071)
Total loans, net of allowances   26,356,582    26,952,564    26,910,141    27,534,004    28,428,857 
                          
Deposits                         
Demand deposits   7,195,893    7,270,501    7,768,166    8,175,608    8,127,758 
Time deposits   12,059,284    12,591,871    11,913,945    11,968,775    12,681,594 
Total deposits   19,255,177    19,862,372    19,682,111    20,144,383    20,809,352 
Mutual funds (Off balance sheet)   5,562,941    5,524,308    5,056,892    5,386,644    5,557,028 
Total customer funds   24,818,118    25,386,680    24,739,003    25,531,027    26,366,380 
Loans / Deposits1   100.3%   101.0%   100.7%   98.0%   98.1%
                          
Average balances                         
Avg. interest earning assets   29,917,624    29,572,154    30,028,486    30,708,458    31,754,813 
Avg. Loans   27,036,649    27,149,550    27,506,354    27,885,150    28,806,711 
Avg. assets   35,860,060    35,124,476    35,414,483    36,259,035    37,005,082 
Avg. demand deposits   7,451,784    7,224,320    7,447,208    7,833,062    8,295,853 
Avg equity   2,887,236    2,926,402    3,018,905    3,117,571    3,021,163 
Avg. free funds   10,339,020    10,150,722    10,466,113    10,950,633    11,317,016 
                          
Capitalization                         
Risk weighted assets   27,133,274    27,863,424    27,911,835    28,530,059    29,945,320 
Tier I (Shareholders' equity)   2,895,241    2,971,938    3,066,180    3,169,855    2,999,879 
Tier II   799,032    814,651    815,072    820,002    827,024 
Regulatory capital   3,694,273    3,786,590    3,881,252    3,989,856    3,826,903 
Tier I ratio   10.7%   10.7%   11.0%   11.1%   10.0%
BIS ratio   13.6%   13.6%   13.9%   14.0%   12.8%
                          
Profitability & Efficiency                         
Net interest margin (NIM)2   4.6%   4.3%   4.6%   4.5%   4.5%
Efficiency ratio3   40.4%   40.2%   42.8%   38.7%   40.5%
Costs / assets4   1.9%   2.0%   2.1%   1.9%   2.0%
Avg. Demand deposits / interest earning assets   24.9%   24.4%   24.8%   25.5%   26.1%
Return on avg. equity   20.8%   18.8%   17.8%   19.4%   20.5%
Return on avg. assets   1.7%   1.6%   1.5%   1.7%   1.7%
Return on RWA   2.2%   2.0%   1.9%   2.1%   2.1%

 

 24

 

  

(Ch$ millions)            
Asset quality  Jun-17   Sep-17   Dec-17   Mar-18   Jun-18 
Impaired loans5   1,705,257    1,788,048    1,803,173    1,825,702    1,803,077 
Non-performing loans (NPLs) 6   587,107    589,580    633,461    659,347    650,007 
Past due loans7   330,156    335,832    339,562    352,363    363,124 
Loan loss reserves   (799,442)   (809,021)   (815,773)   (810,390)   (805,071)
Impaired loans / total loans   6.3%   6.4%   6.5%   6.4%   6.2%
NPLs / total loans   2.2%   2.1%   2.3%   2.3%   2.2%
PDL / total loans   1.2%   1.2%   1.2%   1.2%   1.2%
Coverage of NPLs (Loan loss allowance / NPLs)   136.2%   137.2%   128.8%   122.9%   123.9%
Coverage of PDLs (Loan loss allowance / PDLs)   242.1%   240.9%   240.2%   230.0%   221.7%
Risk index (Loan loss allowances /  Loans) 8   2.9%   2.9%   2.9%   2.9%   2.8%
Cost of credit (prov expense annualized / avg. loans)   1.1%   1.1%   1.1%   1.1%   1.1%
                          
Network                         
Branches   406    405    385    379    376 
ATMs   1,059    937    926    948    1,001 
Employees   11,068    11,052    11,068    11,444    11,453 
                          
Market information (period-end)                         
Net income per share (Ch$)   0.80    0.73    0.71    0.80    0.82 
Net income per ADR (US$)   0.48    0.46    0.46    0.53    0.50 
Stock price   42.24    47.59    48.19    50.88    51.27 
ADR price   25.41    29.71    31.27    33.51    31.43 
Market capitalization (US$mn)   11,971    13,997    14,732    15,855    14,435 
Shares outstanding   188,446    188,446    188,446    188,446    188,446 
ADRs (1 ADR = 400 shares)   471    471    471    471    471 
                          
Other Data                         
Quarterly inflation rate9   0.7%   0.0%   0.5%   0.6%   0.7%
Central Bank monetary policy reference rate (nominal)   2.50%   2.50%   2.50%   2.50%   2.50%
Observed Exchange rate (Ch$/US$)  (period-end)   663.80    639.15    616.85    604.67    653.90 

 

1. Ratio =(Net Loans - portion of mortgages funded with long-term bonds) / (Time deposits + demand deposits)

2. NIM = Net interest income annualized divided by interest earning assets

3. Efficiency ratio =(Net interest income+ net fee and commission income +financial transactions net + Other operating income +other operating expenses) divided by (Personnel expenses + administrative expenses + depreciation). Excludes impairment charges

4. Costs / assets = (Personnel expenses + adm. Expenses + depreciation) / Total assets

5. 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.

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

7. Total installments plus lines of credit more than 90 days overdue.

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

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

 

 25

 

 

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: August 13, 2018