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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
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FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
October 29, 2002
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Banco Santander Chile
(Exact name of registrant as specified in its charter)
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
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Indicate by check mark whether the registrant by furnishing
the information contained in this Form 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
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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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Banco Santander Chile
TABLE OF CONTENTS
Item
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1. Press release dated October 28, 2002 titled "Banco Santander Chile
Announces Results or Third Quarter 2002"
2. Copy of the unaudited quarterly income statements of Banco Santander
Chile for third quarter of 2001 and second and third quarters of
2002
3. Copy of the unaudited nine-month income statements of Banco Santander
Chile for third quarter of 2001 and 2002
4. Copy of the unaudited consolidated balance sheet of Banco Santander
Chile and Subsidiaries at September 30, 2001 and 2002 and at June 30,
2002
ITEM 1
[GRAPHIC OMITTED] Banco Santander Chile
CONTACTS:
Raimundo Monge Robert Moreno Desiree Soulodre
Banco Santander Chile Banco Santander Chile Banco Santander Chile
562-320-8505 562-320-8284 562-647-6474
BANCO SANTANDER CHILE ANNOUNCES
RESULTS FOR THE THIRD QUARTER 2002
o Net income totaled Ch$157,292 million (Ch$0.83/share and US$1.16/ADR) in
the nine month period ended September 30, 2002, a 5.5% decrease from pro
forma net income for the same period in 2001. This decrease was mainly due
to a charge of Ch$18,557 million stemming from the integration process of
Old Santander-Chile and Santiago. Excluding this charges pre-tax net
income in the nine-month period ended September 30, 2002 would have
totaled Ch$199,798 million, increasing 11.4% compared to pro forma pre-tax
income for the same period in 2001. Pre-tax ROE, excluding the merger
integration charge reached 31.8% in this period compared to pro forma
pre-tax ROE of 29.8% in the 2001 period. Pro forma 2001 amounts reflect
the combination of our two predecessor banks, Old Santander-Chile and
Santiago.
o In the third quarter of 2002, net income reached Ch$33,375 million
(US$44.6 million, Ch$0.18/share and US$0.25/ADR). Merger integration
expenses in the quarter totaled Ch$18,557 million. Adjusting for these
expenses pre-tax net income totaled Ch$57,158 million with no variation
compared to the pro forma third quarter of 2001.
o Net client contribution (net financial income plus fees) remained flat
compared to the pro forma third quarter of 2001 despite the lower interest
rate environment and weaker than expected economic growth, which impacted
spreads. Fee income rose 17.2% compared to the pro forma third quarter of
2001 with strong growth in various products, compensating the lower net
financial margin. The net financial margin reached 4.4% in the third
quarter compared to pro forma 4.6% in the third quarter of 2001.
o Operating expenses excluding merger integration charges decreased 7.1%
compared to the third quarter of 2001 as the Bank continues to exert a
strict control over costs.
o The Bank's loan and funding mix improved during the quarter. Consumer
loans grew at an annualized rate of 15%. Low yielding interbank and
contingent loans decreased 71.1% and 14.6%, respectively in the same
period.
o Substantial progress has been made in the integration process, which is on
schedule and should be completed in less than 12 months since the merger
became legally effective on August 1, 2002.
3
Santiago, Chile, October 28, 2002.(1)- Banco Santander Chile (NYSE: SAN)
announced today its unaudited results for the nine month period and third
quarter ended September 30, 2002. These results reflect the combined businesses
of the merged banks for both periods. For accounting purposes the merger was
effective as of January 1, 2002. These results are reported on a consolidated
basis in accordance with Chilean GAAP(2). Pro forma amounts at and for the nine
month period and the third quarter ended September 30, 2001 reflect the
combined financial condition and results of operations of Old Santander-Chile
and Santiago at that date and for those periods, without elimination of
inter-company balances or transactions. Pro forma amounts are provided to
facilitate comparison between the 2001 and 2002 periods.
Net income totaled Ch$157,292 million (Ch$0.83/share and US$1.16/ADR) in the
nine month period ended September 30, 2002, a 5.5% decrease from pro forma net
income for the same period in 2001. This decrease was mainly due to a charge of
Ch$18,557 million stemming from the merger integration of Old Santander-Chile
and Santiago. Net income was also affected by the higher effective tax rate in
2002 compared to 2001, as Santiago did not pay income tax in 2001. Pre-tax net
income in the nine-month period ended September 30, 2002 excluding the merger
integration charge totaled Ch$199,798 million, a 11.4% increase compared to
pro-forma pre-tax of the same period of 2001. Pre-tax ROE, excluding the merger
integration charge reached 31.8% in this period compared to pro-forma 29.8% in
2001. This rise in pre-tax net income was mainly due to higher fee income and a
strict control of operating expenses. The Bank's efficiency ratio, excluding
the merger integration charge reached 46.1%, the lowest among the Bank's main
competitors. These strong results have been achieved despite the lower interest
rate environment and the weaker than expected economic growth.
Net income for the third quarter of 2002 totaled Ch$33,375 million
(Ch$0.18/share and US$0.25/ADR), decreasing 36.8% compared to the pro forma
third quarter of 2001. During the third quarter the Bank recognized Ch$18,557
million in pre-tax restructuring charges related to the merger integration of
Old Santander-Chile and Santiago. At the same time former Santiago did not pay
income tax until this year. Pre-tax net income excluding merger integration
charges totaled Ch$57,158 million in the third quarter of 2002 compared to
pro-forma Ch$57,169 million in the same period of 2001. Pre-tax ROE excluding
merger integration charges in the quarter reached 28.8%, which was among the
highest of the Bank's main competitors. During the quarter the benefits of
lower operating expenses and higher fee income were offset by a decrease in the
gains from mark-to-market and trading and in net financial revenue. The Bank's
fee income rose 17.2% compared to pro-forma fee income in the third quarter of
2001. This rise in fee income mainly reflects the merged Bank's strategy of
seeking to become a leader in fee-based businesses by promoting fee-generating
products in various business segments and by taking advantage of cross-selling
opportunities among our client base, the largest in Chile. At the same time
this rise
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(1) Safe harbor statement under the Private Securities Litigation Reform Act
of 1995: All forward-looking statements made by Banco Santander Chile
involve material risks and uncertainties and are subject to change based
on various important factors which may be beyond the Bank's control.
Accordingly, the Bank's future performance and financial results may
differ materially from those expressed or implied in any such
forward-looking statements. Such factors include, but are not limited to,
those described in the Bank's filings with the Securities and Exchange
Commission. The Bank does not undertake to publicly update or revise the
forward-looking statements even if experience or future changes make it
clear that the projected results expressed or implied therein will not be
realized.
(2) The Peso/US dollar exchange rate as of September 30, 2002 was Ch$747.62
per dollar. September 30 figures are in constant Chilean pesos as of
September 30, 2002. September 2001 figures have been adjusted by the price
level restatement factor of 1.0218.
4
in fee income also reflects the efforts to minimize client service problems
during the integration process. Operating expenses adjusted for merger related
expenses decreased 7.1% compared to the pro-forma operating expenses in the
third quarter of 2001, reflecting the continued imposition of tight cost
control in the new merged Bank. Both personnel expenses and administrative
expenses excluding merger integration charges decreased by 4.3% and 21.6% in
the quarter, respectively.
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Banco Santander Chile Quarter Change %
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
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Net income 33,375 65,689 52,777 (36.8%) (49.2%)
Adjusted pre-tax net income 57,158 76,570 57,169 0.0% (25.4%)
Net income/share (Ch$) 0.18 0.35 0.28 (36.8%) (49.2%)
Net income/ADR (US$)(1) 0.25 0.52 0.41 (39.8%) (52.4%)
Total loans 8,353,691 8,708,217 8,770,213 (4.7%) (4.1%)
Customer funds 7,636,521 8,177,626 7,596,197 0.5% (6.6%)
Customer deposits 6,552,149 7,149,297 6,720,345 (2.5%) (8.4%)
Mutual funds (quarterly average) 1,084,372 1,028,239 875,852 23.8% 5.5%
Shareholder's equity 960,169 913,559 962,042 (0.2%) 5.1%
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Net financial margin 4.4% 4.7% 4.6%
Efficiency ratio 52.9% 43.8% 50.7%
ROE(2) 16.8% 32.5% 27.3%
Adjusted pre-tax ROE(3) 28.8% 32.4% 29.6%
PDLs / Total loans 1.74% 1.35% 1.33%
Coverage of past due loans 108.6% 129.9% 145.0%
-----------------------------
BIS ratio 13.9%
Branches 349
ATMs 1,104
Employees 8,363
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(1) The change in earnings per ADR may differ than the change in earnings per
share due to the exchange rate.
(2) Annualized Earnings / Average Capital & Reserves.
(3) Adjusted for merger expenses
MERGER UPDATE
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The Bank has made substantial progress in the integration process and expects
to complete it in 12 months or less from the date the merger was legally
effective on August 1, 2002. The merger process is progressing as planned and
the costs of the merger are within management's estimations. The majority of
the different administrative and back office areas of the Bank have been merged
as well as the Wholesale banking business unit.
Credit Risk
The Credit Risk Department is currently leveling the credit risk
classifications of the portfolios of Santiago and Old Santander-Chile. In those
cases in which a client of both banks has been
5
assigned a dissimilar risk classification, the Bank has adopted the policy of
classifying the client in the lower classification level. In the third quarter
this process signified additional provisions and charge-offs of Ch$8,100
million. The cost of this process is included in the total merger cost
calculation.
Personnel
In August 2002 the Bank offered a voluntary retirement program to all employees
in non-commercial areas. The retirement offer was accepted by 500 people, or
6.4% of the combined workforce. Headcount should be further reduced by 800
people between 2003-2004 due to normal attrition and the conclusion of merger
related activities.
Systems Integration
The systems integration is still in process. The former Santiago platform will
be the standard system. Management has adopted a cautious approach to the
merger of systems so as to minimize client-service disruptions. The process of
defining the compatibility of both systems and the master plan for integrating
them has been concluded. The integration itself should be completed by the
middle of 2003.
Distribution Network
The integration of the Santiago and Old Santander-Chile branch networks will be
completed once the operating systems of both banks are integrated. This will
enable the branch offices to minimize client-service difficulties. As of the
date of this release, each of the Santiago and Old Santander-Chile branch
networks continued to operate independently under its former brand name. The
ATM networks remain separate, but both are connected to the Redbanc network,
the largest ATM network in Chile. Clients of both banks can utilize each
other's ATMs, as well as all ATMs connected to the Redbanc network.
Merger Expenses
During the third quarter the Bank recognized Ch$18,557 million in merger
integration charges. Of the total merger integration charges, Ch$6,457 million
have been recognized in a special merger charges account in the income
statement included in non-operating income, net. These charges consist of
Ch$3,846 million in severance payments related to the voluntary retirement
program, and Ch$2,611 million correspond to administrative expenses.
Additionally, personnel expenses includes approximately Ch$4,000 million in
merger integration charges in connection with the integration of staff.
Finally, provision expense include Ch$8,100 million in the leveling of credit
risk classification and other charge-offs.
6
NET FINANCIAL INCOME
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Improvement in asset mix offset by lower interest rate environment
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Net Financial Income Quarter Change %
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Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
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Net interest income 158,007 148,086 146,896 7.6% 6.7%
Net results of hedging positions(3) (37,581) (16,663) (22,168) 69.5% 125.5%
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Net financial income 120,426 131,423 124,728 (3.4%) (8.4%)
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Net financial margin* 4.4% 4.7% 4.6%
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Interest Earning Assets
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Commercial loans 3,045,831 3,228,708 3,374,900 (9.8%) (5.7%)
Consumer loans 694,576 669,932 647,718 7.2% 3.7%
Residential mortgage loans** 1,350,327 1,355,637 1,365,110 (1.1%) (0.4%)
Foreign trade loans 845,739 835,856 826,492 2.3% 1.2%
Contingent loans 625,905 732,553 733,997 (14.7%) (14.6%)
Leasing 420,409 424,807 383,759 9.6% (1.0%)
Other outstanding loans*** 1,329,822 1,318,677 1,327,779 0.2% 0.8%
Interbank loans 41,082 142,047 110,458 (62.8%) (71.1%)
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Total loan 8,353,691 8,708,217 8,770,213 (4.7%) (4.1%)
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Financial investments 2,379,547 2,339,829 2,257,888 5.4% 1.7%
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Total interest-earning assets 10,733,238 11,048,046 11,028,101 (2.7%) (2.8%)
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* Annualized. The average balance of the third quarter 2002 was calculated by
taking the simple average of the balance of the combined interest earning
assets as of September 2002 and June 2002. The average balance of the second
quarter 2002 was calculated by taking the simple average of the balance of the
combined interest earning assets as of June 2002 and March 2002. The average
balance for the third quarter of 2001 was calculated by taking the simple
average of the balance of the combined interest earning assets as of September
2001.
** Includes residential mortgage loans backed by mortgage bonds (letras
hipotecarias para la vivienda) and residential mortgage loans not funded with
mortgage bonds (mutuos hipotecarios para la vivienda)
*** Includes non-residential mortgage loans backed by a mortgage bond (letras
hipotecarias para fines generales), past due loans and other loans.
Net financial income decreased 3.4% compared to pro-forma net financial income
for the third quarter of 2001. Despite a 0.9% increase in average earning
assets, the Bank's net interest margin decreased 20 basis points to 4.4% in the
same period. The lower interest rate environment has negatively impacted the
net financial margin. Although there is some initial benefit to margins when
interest rates fall because liabilities re-price faster than our interest
earning assets, over time interest earning assets also reprice at a lower rate.
This effect is further amplified by contraction of the spread earned over the
Bank's non-interest bearing liabilities and capital and inflation adjusted
earning assets, and by the inherent difficulty of maintaining spreads in
absolute terms as interest rates decline.
---------
(3) For analysis purposes results from foreign exchange transactions, which
consist mainly of the results of forward contracts which hedge foreign
currency positions, has been included in the calculation of the net
financial income and net financial margin. Under SBIF guidelines these
gains/losses cannot be considered interest revenue, but must be considered
as gains/losses from foreign exchange transactions and, accordingly,
registered in a different line of the income statement. This accounting
asymmetry distorts net interest income and foreign exchange transaction
gains especially in periods of high volatility of the exchange rate. The
results of these hedging positions have been added to net financial income
to indicate the Bank's actual net interest margin as they are linked to
normal credit operations.
7
Despite these negative effects, the net interest margin contracted only 20
basis points as the Bank has continued its strategy of focusing on improving
asset mix rather than asset growth in order to sustain a high level of
profitability. The evolution of loan volumes in the quarter reflected the
Bank's focus on optimizing its asset mix by focusing loan growth in retail
segments. Compared to pro-forma September 30, 2001 and June 30, 2002, total
loans decreased 4.7% and 4.1% respectively, but consumer loans in these same
periods increased 7.2% and 3.7%, respectively. This growth was mainly
concentrated in the middle to upper income retail segments, which offer a high
spread relative to wholesale lending and have been less affected by the high
unemployment levels. The lower interest rate environment has also led to an
increase in demand for consumer financing. On the other hand commercial loans
decreased 5.7% as the Bank has been reducing its activity in the low yielding
large corporate short term lending market as well as reducing its exposure to
the commercial real estate sector for credit risk reasons. In addition,
low-yielding Interbank and contingent loans decreased 71.1% and 14.6%,
respectively in the same period.
CUSTOMER FUNDS
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Funding Quarter ended, Change %
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Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
---------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities 1,993,514 1,977,984 1,843,621 8.1% 0.8%
Savings and time deposits 4,558,635 5,171,313 4,876,724 (6.5%) (11.8%)
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Total customer deposits 6,552,149 7,149,297 6,720,345 (2.5%) (8.4%)
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Mutual funds (quarterly average) 1,084,372 1,028,329 875,852 23.8% 5.5%
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Total customer funds 7,636,521 8,177,626 7,596,197 0.5% (6.6%)
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Total customer funds decreased 6.6% between the second and third quarters of
2002. The 0.8% increase of non-interest bearing liabilities in twelve months
was mainly due to the low monthly inflation rates in this period and also
reflects in part the Bank's efforts to minimize client service difficulties
throughout the integration process. The 11.8% reduction in time deposits
between the end of the second quarter and the third quarter of 2002 was mainly
due to:
o The Bank has been following a strategy of reducing low yielding assets
from its balance sheet which are mainly funded through the Bank's deposit
base.
o The fall in deposits was also due to a decrease in pension fund deposits.
Currently, each Chilean pension fund can invest up to 7% of its assets
under management in securities of a single issuer. As a result of the
merger the amount of the AFPs' aggregate exposure to the new Santander
Chile was approximately 11% or an excess exposure of Ch$973,909 million
(U.S.$1.3 billion) or 8.0% of the Bank's liabilities at September 30,
2002. The AFPs have until August 1, 2005, to reduce their investments to
within the limit. It is important to point out that approximately 85% of
the short-term deposits with AFPs that expired before year-end 2002 were
renewed for a period greater than 1 year, in line with the Bank's strategy
of increasing the maturity of its deposit base. The Bank does not believe
this will impact its cost of funds as the spread earned over deposits from
AFPs is similar to other interbank deposits, although more expensive than
retail deposits. In addition, we expect to be able to replace much of the
excess AFP liabilities with customer deposits through the branch network,
interbank funding and bond offerings during the next three years.
8
o The low inflation rates and the lower interest rates have made other
investment alternatives more attractive for clients. The Bank has also
been proactively encouraging clients to invest in mutual funds instead of
short-term deposits as the Bank has excess liquidity given the constrained
outlook for loan growth. Moreover, mutual funds offer a better yield for
the client and the Bank generates fee income. In the quarter average
mutual funds under management increased 5.5% compared to the end of the
second quarter of 2002 and 23.8% in twelve months.
PROVISION FOR LOAN LOSSES
-------------------------
The Bank recognized Ch$8,100 million in extraordinary charge-offs and
provisions
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Provision for loan losses Quarter Change %
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
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Total provisions and charge-offs 30,961 9,393 24,101 28.5% 229.6%
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Merger related provisions and charge-offs 8,100 -- -- -- --
Reclassified provisions* -- 6,968 -- -- --
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Total adjusted provisions and charge-offs 22,861 16,361 24,101 (5.1%) 39.7%
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Loan loss recoveries 6,641 6,547 5,378 23.5% 1.4%
Total loans 8,353,691 8,708,217 8,770,213 (4.7%) (4.1%)
Total reserves for loan losses (RLL) (157,351) (152,647) (169,741) (7.3%) 3.1%
Past due loans (PDL) 144,941 117,540 117,081 23.8% 23.3%
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PDL/Total loans 1.74% 1.35% 1.33%
RLL/Past due loans 108.6% 129.9% 145.0%
Risk index(4) 1.56% 1.50%**
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* Reclassified to Other Income, net following new guidelines set by the SBIF.
** As of July 2002
In the third quarter of the present year total provision expense increased
28.5% compared to the third quarter of 2001. Provision expense in the quarter
included Ch$8,100 million in the leveling of credit risk classifications and
other merger related charge-offs. The Bank is in the process of reviewing the
loan portfolios of both banks in order to level the credit risk classifications
of the client base in those cases in which clients overlapped. In this process
the Bank adopted the conservative policy of rating a client in the lower risk
category of either Bank. As a result, the Bank's risk index in the quarter
increased to 1.56% which was higher than the risk index of both former
Santander and Santiago previous to the merger, but still below the average for
the Chilean financial system which as of June 30, 2002, the latest figure
available, was 2.00%
Past due loans increased 23.8% in the third quarter of 2002 and the coverage
ratio was 108.6%. This is mainly related to the merger process as the combined
loan portfolio has to be re-
---------
(4) Chilean banks are required to classify their outstanding loans on an
ongoing basis for the purpose of determining the amount of loan loss
reserves. Banks must evaluate the expected losses of their loan portfolio
and set aside specific provisions against these losses. For example, a
risk index of 1% implies that a bank is expecting to lose 1% of its loan
portfolio. The risk index is the key measure used to monitor asset quality
and is periodically reviewed by the Superintendence of Banks and Financial
Institutions (SBIF), the industry's main regulator.
9
evaluated. The Credit Risk Department of the new Bank is independent of the
commercial areas and is currently implementing the credit risk standards of our
parent company Santander Central Hispano. This process in the short-term
results in a rise in past due loans as Credit Risk Department becomes more
familiarized with client's business patterns and cycles, especially those
coming from Santiago.
To a lesser extent, both the rise in the risk index and in past due loans were
also due to the weaker economic environment which has impacted asset quality
throughout the financial system.
FEE INCOME
----------
Strong fee income growth reflects commercial strength of the new Bank
------------------------------------------- ---------------------------------------------- -----------------------------
Net Fee Income by Subsidiary Quarter Change %
--------------- -------------- --------------- -------------- -------------
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
------------------------------------------- --------------- -------------- --------------- -------------- --------------
Total net fee income 28,098 24,023 23,968 17.2% 17.0%
------------------------------------------- --------------- -------------- --------------- -------------- --------------
The Bank's fee income rose 17.2% compared to the third quarter of 2002. This
rise in fee income reflects the merged Bank's strategy of seeking to become a
leader in fee-based businesses by promoting fee-generating products in various
business segments and by taking advantage of cross-selling opportunities among
our client base, the largest in Chile. At the same time this rise in fee income
also reflects the efforts to minimize client service problems during the
integration process. In the quarter checking account fees rose 13.9%, ATM
related fees were up 10.5%. This is also in line with the Bank's policy of
incrementing fees in the corporate business area to counteract falling spreads.
Financial advisory fees rose 305.6% in the third quarter of 2002 as compared to
the same period in 2001. It is important to point out that this large increase
in financial advisory fees may not always be recognized in every quarter
despite the fact that the Bank has been very active in this type of business.
At the same time, the fees recognized by the Bank's subsidiaries also showed
important growth. Fees from asset management increased 11.7% compared to the
third quarter of 2001, while insurance brokerage fees increased 12.2% in the
same period.
OTHER OPERATING INCOME
----------------------
------------------------------------------- ---------------------------------------------- ------------------------------
Other operating income Quarter Change %
--------------- -------------- --------------- -------------- -------------
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
------------------------------------------- --------------- -------------- --------------- -------------- ---------------
Net gain from trading and mark-to-market
of securities 4,826 8,651 5,059 (4.6%) (44.2%)
------------------------------------------- --------------- -------------- --------------- -------------- ---------------
Other (5,300) (3,879) 4,249 (224.7%) 36.6%
------------------------------------------- --------------- -------------- --------------- -------------- ---------------
Total (474) 4,772 9,308 (105.1%) (109.9%)
------------------------------------------- --------------- -------------- --------------- -------------- ---------------
The net gain from trading and mark-to-market of securities totaled Ch$4,826
million in the third quarter of 2002. The decrease in the net gain from trading
and mark-to-market compared to the
10
third quarter of 2001 and the second quarter of 2002 was mainly due to higher
gains in those periods from the sale of bonds in the investment portfolio.
The increase in the loss in other operating income compared to the third
quarter of 2001 was mainly due to the reclassification of the variable portion
of sales force expenses from administrative expenses to other operating income,
net as of the fourth quarter of 2001 in former Santander-Chile.
OPERATING EXPENSES AND EFFICIENCY
---------------------------------
Operating expenses impacted by merger related charges
------------------------------------------------------------------------------------------------------------------
Operating Expenses Quarter Change %
---------------------------------------------------------------------
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
------------------------------------------------------------------------------------------------------------------
Personnel expenses 41,349 36,798 39,015 6.0% 12.4%
------------------------------------------------------------------------------------------------------------------
Administrative expenses 25,844 24,175 32,977 (21.6%) 6.9%
Depreciation and amortization 11,146 9,218 8,058 38.3% 20.9%
------------------------------------------------------------------------------------------------------------------
Operating expenses 78,339 70,191 80,050 (2.1%) 11.6%
------------------------------------------------------------------------------------------------------------------
Operating expenses adjusted for merger 74,339 70,191 80,050 (7.1%) 11.6%
------------------------------------------------------------------------------------------------------------------
Efficiency ratio* 52.9% 43.8% 50.7%
------------------------------------------------------------------------------------------------------------------
* Operating expenses/Operating income
Operating expense adjusted for merger related expenses decreased 7.1% compared
to the third quarter of 2002 reflecting the tight cost control continued to be
imposed in the new merged Bank. Operating expenses includes Ch$4,000 million in
merger related expenses. Adjusted personnel expense decreased 4.3% in the same
period despite the fact that salaries are adjusted for inflation on a quarterly
base. Administrative expenses decreased 21.6% in the quarter, reflecting
various actions undertaken in order to improve efficiency, such as modifying
the branch format, centralizing back office functions and increasing the space
dedicated to complementary channels such as ATMs, Internet and other automated
terminals. These reductions in costs were offset by the 38.3% rise in
amortization and deprecations, which reflects the high level of recent
investments in technology in both Old Santander-Chile and Santiago.
11
OTHER INCOME/EXPENSES, PRICE LEVEL RESTATEMENT AND INCOME TAX
--------------------------------------------------------------
Other income, net includes Ch$6,457 million of merger related costs. The
effective tax rate increased from 7.7% to 13.5%.
--------------------------------------------------------------------------------------------------------------------
Other Income and Expenses Quarter Change %
--------------------------------------------------------------------------------------------------------------------
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
--------------------------------------------------------------------------------------------------------------------
Recovery of loans 6,641 6,547 5,378 23.5% 1.4%
Non-operating income, net (4,268) (5,717)* 1,007 (523.8%) (25.3%)
Income attributable to investments in other
companies 544 136 95 472.6% 299.4%
Losses attributable to minority interest (77) (36) (24) 220.8% 113.0%
--------------------------------------------------------------------------------------------------------------------
Total other income, net 2,840 930 6,456 (56.0%) 205.4%
--------------------------------------------------------------------------------------------------------------------
Price level restatement (2,989) (4,993) (3,140) (4.8%) (40.1%)
--------------------------------------------------------------------------------------------------------------------
Income tax (5,226) (10,882) (4,392) 19.0% (52.0%)
--------------------------------------------------------------------------------------------------------------------
Income tax rate 13.5% 14.2% 7.7%
--------------------------------------------------------------------------------------------------------------------
* In the second quarter of 2002 in Old Santander Chile As mentioned before, the
Bank following new SBIF guidelines reclassified in the balance sheet Ch$6,968
million from voluntary loan loss reserves to other liabilities and in the
income statement from voluntary provisions to other income, net. These
voluntary loan provisions where recognized by the Bank in order to improve
coverage ratios in periods of high economic instability. These had to be
reclassified since they were not specified as credit risk related.
Other income, net totaled Ch$2,840 million in the quarter. Of the total merger
charges recognized in the quarter, Ch$6,457 million have been recognized in a
special merger expenses account in the income statement included in
non-operating income, net. These charges consist of Ch$3,846 million in
severance payments related to the voluntary retirement program and Ch$2,611
million correspond to administrative expenses. In August 2002 we offered a
voluntary retirement program to all employees in non-commercial areas, up to a
maximum of 700 employees. The retirement offer was accepted by 500 persons, or
6.4% of the combined workforce.
The lower loss from price level restatement reflects the lower UF inflation in
the third quarter of 2002 compared to the second quarter of 2002. The Bank has
to adjust its capital, fixed assets and other assets for the variations in
price levels. Since the Bank's capital is larger than the sum of fixed and
other assets, price level restatement fluctuates with the variation of
inflation. The lower price level restatement loss in the quarter partially
offsets the negative impact of lower inflation on net financial income in the
quarter.
In the third quarter of 2001 former Santiago did not pay income tax as it still
was benefiting from tax loss carryforwards related to the subordinated debt
issue with the Central Bank of Chile. These tax loss carryforwards expired in
2002 and the new combined Bank will be paying an effective tax rate similar to
the corporate tax rate in Chile, which this year is 16%.
12
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
-------------------------------------------
As of September 30, 2002, the Bank's shareholders' equity totaled Ch$960,169
million (US$1,284 million). The Bank's ROE in the third quarter reached 16.8%
and 24.7% on an adjusted basis.
------------------------------------------------------------------------------------------------------------------------
Shareholders' equity Quarter ended Change %
----------------------------------------------------------------------------
Pro-forma Pro-forma IIIQ IIIQ/IIQ
(Ch$ million September 30, 2002) IIIQ 2002 IIQ 2002 IIIQ 2001 2002/2001 2002
------------------------------------------------------------------------------------------------------------------------
Capital and Reserves 802,877 789,135 795,619 0.9% 1.7%
Net Income 157,292 124,425 166,424 (5.5%) 26.4%
------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 960,169 913,560 962,042 (0.2%) 5.1%
------------------------------------------------------------------------------------------------------------------------
The Bank's BIS ratio as of September 30, 2002 was 13.9% and the Bank's Tier I
ratio reached a solid level of 9.5%. The Bank's capitalization ratios as of
September 30, 2002 were the following.
----------------------------------------------------------------------------
Capital Adequacy
(Ch$ million September 30, 2002) June 30, 2002 % risk weighted assets
----------------------------------------------------------------------------
Capital and reserves 802,877 9.5%
Tier II capital 376,672 4.4%
----------------------------------------------------------------------------
Regulatory capital 1,179,549 13.9%
----------------------------------------------------------------------------
Risk weighted assets 8,475,577 --
----------------------------------------------------------------------------
It is important to point out that as a result of the merger between Banco
Santander and Banco Santiago the SBIF has requested that the combined entity to
maintain a BIS ratio of no less than 12% compared to the minimum legal ratio of
8%. The BIS ratio as of September 30, 2002 was 13.9%.
13
INSTITUTIONAL BACKGROUND
------------------------
According to the latest figures published by the SBIF, the Bank was the largest
bank in Chile in terms of loans, had the largest customer base with over 1.4
million customers and the largest distribution network with 349 branches and
1,104 ATMs. The Bank has the highest credit ratings among all Latin American
banks with a Baa1 rating from Moody's and A- ratings from Standard and
Poor's and Fitch, which are the same ratings assigned to the Republic of Chile.
The stock is traded on the New York Stock Exchange (NYSE: SAN) and the Santiago
Stock Exchange (SSE: Bsantander). The Bank's main shareholder is Santander
Central Hispano, which directly and indirectly owns 84.14% of Banco Santander
Chile.
Banco Santander Central Hispano - Leading Financial Group in Europe
-------------------------------------------------------------------
Santander Central Hispano's Group is the leading financial group in Spain and
Latin America, the third larger by market capitalization in the Euro Zone and
among the fifteenth largest in the world by market value. Santander's Group
provides services to 39 million customers through out 118,000 employees and
10,200 offices. As of March 31, 2002, the Group had more than $300 billion in
customer funds and $160 billion loan portfolio, spread by countries and sector
respectively.
14
ITEM 2
BANCO SANTANDER CHILE
UNAUDITED QUARTERLY INCOME STATEMENTS
-------------------------------------
--------------------------------------------------------------------------
IIIQ 2002 IIQ 2002 IIIQ 2001 IIIQ IIIQ / IIQ
--------------------------------------------------------------------------
Ch$ millions Ch$ millions Ch$ millions % %
Interest income and expense
Interest income .......................... 285,447 301,146 298,175 -4.3% -5.2%
Interest expense ......................... (127,440) (153,060) (151,279) -15.8% -16.7%
--------------------------------------------------------------------------
Net interest income ..................... 158,007 148,086 146,896 7.6% 6.7%
--------------------------------------------------------------------------
Provision for loan losses ................. (30,961) (9,393) (24,101) 28.5% 229.6%
--------------------------------------------------------------------------
Fees and income from services
Fees and other services income ........... 32,340 29,533 29,113 11.1% 9.5%
Other services expense ................... (4,242) (5,510) (5,145) -17.6% -23.0%
--------------------------------------------------------------------------
Total fees and income from services, net 28,098 24,023 23,968 17.2% 17.0%
--------------------------------------------------------------------------
Other operating income, net
Net gain (loss) from trading and brokerage 4,826 8,651 5,059 -4.6% -44.2%
Foreign exchange transactions, net ....... (37,581) (16,663) (22,168) 69.5% 125.5%
Other, net ............................... (5,300) (3,879) 4,249 -224.7% 36.6%
--------------------------------------------------------------------------
Total other operating income,net ........ (38,055) (11,891) (12,860) 195.9% 220.0%
--------------------------------------------------------------------------
Other income and expenses
Recovery of loans previously written off . 6,641 6,547 5,378 23.5% 1.4%
Nonoperating income, net ................. (4,268) (5,717) 1,007 -523.8% -25.3%
Income attributable to investments in
other companies ......................... 544 136 95 472.6% 299.4%
Losses attributable to minority interest . (77) (36) (24) 220.8% 113.0%
--------------------------------------------------------------------------
Total other income and expenses ......... 2,840 930 6,456 -56.0% 205.4%
--------------------------------------------------------------------------
Operating expenses
Personnel salaries and expenses .......... (41,349) (36,798) (39,015) 6.0% 12.4%
Administrative and other expenses ........ (25,844) (24,175) (32,977) -21.6% 6.9%
Depreciation and amortization ............ (11,146) (9,218) (8,058) 38.3% 20.9%
--------------------------------------------------------------------------
Total operating expenses ................ (78,339) (70,191) (80,050) -2.1% 11.6%
--------------------------------------------------------------------------
Gain (loss) from price-level restatement .. (2,989) (4,993) (3,140) -4.8% -40.1%
--------------------------------------------------------------------------
Income before income taxes ................ 38,601 76,570 57,169 -32.5% -49.6%
Income taxes .............................. (5,226) (10,882) (4,392) 19.0% -52.0%
--------------------------------------------------------------------------
Net income ................................ 33,375 65,689 52,777 -36.8% -49.2%
--------------------------------------------------------------------------
ITEM 3
BANCO SANTANDER CHILE
UNAUDITED NINE-MONTH INCOME STATEMENTS
------------------------------------------
Constant Chilean pesos of September 30, 2002
----------------------------------------
30-Sep-02 30-Sep-01 % CHANGE
----------------------------------------
Ch$ millions Ch$ millions
Interest income and expense
Interest income ......................................... 794,780 861,447 -7.7%
Interest expense ........................................ (370,321) (467,000) -20.7%
-------- -------- --------
Net interest income .................................... 424,459 394,446 7.6%
-------- -------- --------
Provision for loan losses ................................ (66,521) (73,086) -9.0%
-------- -------- --------
Fees and income from services
Fees and other services income .......................... 91,214 85,539 6.6%
Other services expense .................................. (14,502) (13,357) 8.6%
-------- -------- --------
Total fees and income from services, net ............... 76,712 72,182 6.3%
-------- -------- --------
Other operating income, net
Net gain (loss) from trading and brokerage .............. 32,031 24,601 30.2%
Foreign exchange transactions, net ...................... (58,260) (23,141) 151.8%
Others,net .............................................. (13,118) (3,784) 246.7%
-------- -------- --------
Total other operating income,net ....................... (39,347) (2,324) 1593.1%
-------- -------- --------
Other income and expenses
Recovery of loans previously written off ................ 19,714 16,881 16.8%
Nonoperating income, net ................................ (11,980) (4,904) 144.3%
Income attributable to investments in other companies ... 721 444 62.4%
Losses attributable to minority interest ................ (157) (85) 84.7%
-------- -------- --------
Total other income and expenses ........................ 8,298 12,336 -32.7%
-------- -------- --------
Operating expenses
Personnel salaries and expenses ......................... (114,125) (110,330) 3.4%
Administrative and other expenses ....................... (74,818) (81,502) -8.2%
Depreciation and amortization ........................... (28,142) (22,152) 27.0%
-------- -------- --------
Total operating expenses ............................... (217,085) (213,984) 1.4%
-------- -------- --------
Gain (loss) from price-level restatement ................. (5,275) (10,202) -48.3%
-------- -------- --------
Income before income taxes ............................... 181,241 179,368 1.0%
Income taxes ............................................. (23,949) (12,945) 85.0%
-------- -------- --------
Net income ............................................... 157,292 166,423 -5.5%
-------- -------- --------
ITEM 4
BANCO SANTANDER CHILE, AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Adjusted for general price level changes and expressed in millions of constant
Ch$ of September 30, 2002)
30-Sep 30-Jun 30-Sep % Change % Change
------------------------------------------------------------------------
Sept. 2002/
2002 2002 2001 Sept. 2002 June 2002
------------------------------------------------------------------------
Ch$ millions Ch$ millions Ch$ millions
ASSETS
Cash and due from banks ................................. 1,081,419 1,268,492 1,098,958 -1.6% -14.7%
Financial investments ................................... 2,379,547 2,339,829 2,257,888 5.4% 1.7%
Loans, net
Commercial loans ...................................... 3,045,831 3,228,708 3,374,900 -9.8% -5.7%
Consumer loans ........................................ 694,576 669,932 647,718 7.2% 3.7%
Mortgage loans (Residential and general purpose) ...... 1,583,293 1,599,409 1,596,566 -0.8% -1.0%
Foreign trade loans ................................... 845,739 835,856 826,492 2.3% 1.2%
Interbank loans ....................................... 41,082 142,047 110,458 -62.8% -71.1%
Leasing ............................................... 420,409 424,807 383,759 9.6% -1.0%
Other outstanding loans ............................... 951,916 957,366 979,242 -2.8% -0.6%
Past due loans ........................................ 144,941 117,540 117,081 23.8% 23.3%
Contingent loans ...................................... 625,905 732,553 733,997 -14.7% -14.6%
Reserve for loan losses ............................... (157,351) (152,647) (169,741) -7.3% 3.1%
------------------------------------------------------------------------
Total loans, net ................................ 8,196,340 8,555,570 8,600,472 -4.7% -4.2%
------------------------------------------------------------------------
Other assets
Bank premises and equipment ........................... 226,024 226,396 230,751 -2.0% -0.2%
Other ................................................. 457,594 613,446 543,831 -15.9% -25.4%
------------------------------------------------------------------------
Total other assets .............................. 683,618 839,842 774,582 -11.7% -18.6%
------------------------------------------------------------------------
TOTAL ASSETS .................................... 12,340,923 13,003,733 12,731,900 -3.1% -5.1%
------------------------------------------------------------------------
BANCO SANTANDER CHILE, AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Adjusted for general price level changes and expressed in millions of constant
Ch$ of September 30, 2002)
30-Sep 30-Jun 30-Sep % Change % Change
----------------------------------------------------------------------
Sept. 2002/
2002 2002 2001 Sept. 2002 June 2002
----------------------------------------------------------------------
Ch$ millions Ch$ millions Ch$ millions
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Current accounts .................................. 1,068,976 953,948 870,089 22.9% 12.1%
Bankers drafts and other deposits ................. 924,538 1,024,035 973,532 -5.0% -9.7%
----------------------------------------------------------------------
1,993,514 1,977,983 1,843,621 8.1% 0.8%
----------------------------------------------------------------------
Savings accounts and time deposits ................ 4,558,635 5,146,166 4,876,724 -6.5% -11.4%
----------------------------------------------------------------------
Total deposits ................................. 6,552,149 7,124,149 6,720,345 -2.5% -8.0%
----------------------------------------------------------------------
Other interest bearing liabilities
----------------------------------------------------------------------
Total Banco Central borrowings ................. 30,920 87,090 49,865 -38.0% -64.5%
----------------------------------------------------------------------
Investments sold under agreements to repurchase ...... 591,369 491,607 557,675 6.0% 20.3%
----------------------------------------------------------------------
Mortgage finance bonds ............................... 1,686,385 1,649,863 1,674,115 0.7% 2.2%
----------------------------------------------------------------------
Other borrowings
----------------------------------------------------------------------
Total other borrowings ......................... 1,610,257 1,608,959 1,594,320 1.0% 0.1%
----------------------------------------------------------------------
Total other interest bearing liabilities ....... 3,918,931 3,793,499 3,875,975 1.1% 3.3%
----------------------------------------------------------------------
----------------------------------------------------------------------
Other liabilities ...................................... 909,674 1,171,851 1,173,538 -22.5% -22.4%
----------------------------------------------------------------------
Shareholders' equity
Capital and reserves ................................. 802,877 789,135 795,619 0.9% 1.7%
Income for the year .................................. 157,292 124,425 166,424 -5.5% 26.4%
----------------------------------------------------------------------
Total shareholders' equity ........................ 960,169 913,560 962,042 -0.2% 5.1%
----------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY ........................... 12,340,923 13,003,733 12,731,900 -3.1% -5.1%
----------------------------------------------------------------------
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
Date: October 29, 2002 By: /s/ Gonzalo Romero
-------------------------------------
Name: Gonzalo Romero
Title: General Counsel