Banco Santander Chile (NYSE: SAN; SSE: Bsantander) announced today its unaudited results for the first quarter 2008. These results are reported on a consolidated basis in accordance with Chilean GAAP(1)(2)(3) in nominal Chilean pesos.
In 1Q08, net income totaled Ch$75,643 million (Ch$0.40 per share and US$0.95/ADR), increasing 6.9% QoQ and 4.8% YoY. The Bank's ROAE reached 21.3% in the quarter compared to 21.6% in 1Q07 and 19.4% in 4Q07.
Solid operating trends. The Bank has been focusing on increasing the quality of its earnings and maximizing recurrent earnings growth. The results achieved this quarter were in line with this goal. Net operating income in the quarter increased 13.0% YoY. This was led by core revenues (net interest income and fees) that increased 28.5% YoY as a consequence of solid results in the retail banking business. Net interest income increased 33.1% YoY. In 1Q08, the net interest margin reached 5.6%, increasing 70 basis points YoY driven by the positive evolution of the asset and liability mix and higher inflation. Net fee income increased 14.4% YoY in 1Q08. Fee income continues to be driven by the expansion of the Bank's client base, improvements in cross- selling and greater product usage.
Loan growth focused in high yielding segments. Total loans increased 1.4% QoQ and 12.5% YoY. Consumer loans expanded 3.6% QoQ and 12.9% YoY. Commercial loans decreased 0.1% QoQ and increased 10.1% YoY, affected in part by translation losses over loans denominated in US dollars as the Chilean peso appreciated 13.6% in the quarter. This was offset by a 3.5% QoQ and 18.0% YoY rise in lending to high yielding small and mid-sized companies (SMEs).
Focus on liquidity and funding. Total customer funds increased 3.4% QoQ and 14.9% YoY. Time deposits grew 6.6% QoQ and 15.5% YoY. Non-interest bearing demand deposits decreased 3.3% QoQ, but the average balance of non-interest bearing demand deposits increased 5.6% in the quarter. Given Chile's strong macro fundamentals, liquidity has remained ample in the Chilean market, fuelling deposit growth in the Bank and the Chilean financial system. The Bank, in line with its conservative regulatory and internal liquidity requirements, has increased the maturity of its deposits in the last 12 months. The positive performance of checking account balances also reflects our strong growth in checking account holders and the Bank's solid positioning in the cash-management business. This also helps to reduce the negative impact of rising rates on funding costs, as the yield on checking accounts rises with rate hikes.
Provisions increasing in line with retail loan growth. In 1Q08, the Bank's net provisions expenses increased 2.5% YoY. It is important to point out that provision expenses in 1Q07 included a one-time provision expense of Ch$13,379 million directly related to the implementation of an improved provisioning model for consumer loans. Excluding this one-time item in 2007, net provision expense in the quarter rose 32.3% YoY. This rise was mainly due to an increase in net provision expense in retail banking, in line with loan growth in this business segment. Net interest income after provisions and excluding the one-time provision expense recognized in 1Q07 increased 33.5%.
Higher inflation affecting costs and price level restatement. Operating expenses increased 14.0% YoY mainly as a result of the 18.2% YoY increase in personnel expenses. This was mainly due to the 5.8% increase in headcount and the higher inflation as most salaries are indexed to variations in CPI. This rise in headcount has been mainly focused in front office positions as the Bank expands its distribution network. In 1Q08, the efficiency ratio reached 39.0% compared to 37.9% in 1Q07 and 41.9% in 4Q07. Santander has the best efficiency ratio among the top banks in Chile. The loss from price level restatement increased 312.9% YoY. The inflation rate was 1.02% in 1Q08 compared to 0.20% in 1Q07. This difference in inflation rates explains the variation in price level restatement.
Strong capital base to fund growth. The Bank's BIS ratio as of March 31, 2008 reached 13.3% with a Tier I ratio of 10.3%. Banco Santander Chile held its annual Ordinary Shareholders' Meeting on April 22, 2008. During the meeting, a dividend of Ch$1.06460 per share was approved, corresponding to 65% of 2007 net income and 8.1% higher than the dividend paid in 2007. In US dollars the dividend should be approximately US$2.37 per ADR and 21.4% higher than the last yearly dividend paid. This corresponded to a dividend yield of 4.5% based on local share price on the record date. Immediately following the payment of the dividend, the Bank's BIS ratio should be approximately 11.9% and the Tier I ratio 8.8%. -- Banco Santander Chile
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