Santiago, Chile, January 30, 2016. Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results¹ for the twelve month period ended December 30, 2016 and the fourth quarter of 2016.

12M16 ROE at 17.1%. Net contribution from business segments rises 25.6% YoY in 12M16

In 2016, Banco Santander Chile's full year (12M16) Net income attributable to equity holders, totaled Ch$472,351 million (Ch$2.51 per share and US$1.51/ADR). The Bank's ROE² reached 17.1% in 12M16, in line with initial guidance. The Bank achieved its ROE target due to the strong growth of our client activities despite an annual inflation rate that was below the market's expectations and a higher corporate tax rate.

Core business profits showed solid trends throughout 2016 with healthy loan growth, stable client margins, expanding fees, sound asset quality indicators and controlled cost growth. This propelled a 25.6% YoY increase in the Net contribution from our business segments³. This was partially offset by two factors: (i) the lower inflation rate in 2016 compared to 2015 and the impact this has on our net interest margins (NIMs) and (ii) the higher effective tax rate due to the hike in the statutory tax rate.

 Solid core revenue trends in 4Q16 offset by lower inflation

In the fourth quarter of 2016 (4Q16), Net income attributable to shareholders totaled Ch$108,633 million (Ch$0.58/share and US$0.35/ADR). Compared to 4Q15 net income increased 29.7% due to strong results from our business segments and the recognition of an additional provision in 4Q15 of Ch$35,000 million due to new provisioning requirements. Compared to 3Q16, net income fell 10.9% QoQ, mainly due to the lower inflation rate in 4Q16 compared to 3Q16. As a result, the Bank's ROE reached 15.3% in 4Q16.  Net contribution from our business segments, decreased 3.3% QoQ due to lower results from wholesale banking, but increased 63.8% YoY due to strong results in retail banking.

Loans up 1.3% QoQ and 7.5% YoY. Consumer loan growth accelerates in the quarter

Total loans increased 1.3% QoQ and 7.5% YoY in 4Q16. The Bank continued to focus loan growth on segments with the highest profitability, net of risk. This signified positive growth among larger SMEs and the mid to high-income individuals while still avoiding growth in the low-end of the consumer business and the low spread wholesale lending segment. Retail loans increased 2.1% QoQ and 9.2% YoY. Loans to individuals grew 2.2% QoQ and 9.3% YoY. The Bank is focusing on expanding its loan portfolio in middle and high-income individuals, but with an acceleration of growth among middle-income individuals.  As a result, consumer loan was the fastest growing product in the quarter and grew 3.1% QoQ and 7.1% YoY. Loans to SMEs also expended at a healthy rate in the quarter: 2.1% QoQ (9.0% YoY). In 4Q16, loans in the Middle-market increased 1.3% QoQ (6.5% YoY). In our wholesale unit, GCB, loans decreased 6.0% QoQ and 2.6% YoY. GCB and the Middle-market area had both a record year in terms of contribution to the Bank's bottom line. This was due to a strong increase in non-lending revenues such as cash management, investment banking and treasury services for clients, as well as positive asset quality numbers. 

Demand deposits grew 9.1% in the quarter

Total customer funds (deposits plus mutual funds) managed by the Bank increased 1.6% QoQ and 6.9 YoY. Total deposits increased 3.2% QoQ and 5.9% YoY. In the quarter, non-interest bearing demand deposits led growth, expanding 9.1% QoQ and 2.5% YoY. Time deposits increased 0.2% QoQ and 8.0% YoY.

 Market share gains in all products in 2016

The Bank was selective in its growth in 2016, but gained market share in loans and deposits. Our market share in deposits⁴ rose 30 basis points to 18.7% between December 2015 and November 2016, the latest figure available. Loan market share⁵ increased 40 bp to 19.5% in the same period. The Bank gained share in all major products in the year.

 Core Capital ratio at 10.5% and BIS ratio of 13.4% at year-end 2016

The Bank's Core capital ratio⁶ reached 10.5% and improved 20bp. YoY, despite the higher payout ratio adopted temporarily this year. This was due to the Bank's solid profitability levels and the control of RWA growth. The YoY growth of RWA was 2.9% compared to 7.5% for loans. The total BIS ratio⁷reached 13.4% at year-end 2016, the same level as in 2015.

 Client net interest income up 6.8% YoY. Total NIM affected by lower inflation rate in the quarter

 In 4Q16, Net interest income, NII, decreased 2.1% QoQ and 0.6% YoY. The Net interest margin⁸, NIM reached 4.2% compared to 4.5% in 3Q16 and 4.7% in 4Q15. The main reason for this decline was the lower inflation rate in 4Q16, while client margins remained stable.  In 4Q16, the variation of the Unidad de Fomento (an inflation indexed currency unit), was the lowest in the year and reached 0.47% compared to 0.6% in 3Q16 and 1.1% in 4Q15. The Bank has more assets than liabilities linked to inflation and, as a result, margins fall when inflation decelerates. At the same time, the Bank's liabilities have a shorter duration than asset, so the recent cut in interest rates should positively affect our NIMs in 2017.

 The lower inflation rate was partially offset by an increase of 6.8% YoY from our Client net interest income⁹ , which is NII from our business segments and excludes the impact of inflation. In 4Q16, Client NIMs (defined as Client NII divided by average loans) reached 4.8% in 4Q16 compared to 4.9% in 3Q16 and 4.8% in 4Q15. The 10bp. QoQ fall in Client NIMs compared to 3Q16 was mainly due to the shift in the loan mix away from the low-end of the consumer market, which is improving margins net of risk. In 4Q16, the NIM, net of provisions in retail banking rose 40bp. QoQ and YoY to 3.6%.

Sound asset quality indicators in the quarter

The Bank's strategy of de-risking the asset mix continues to have a positive impact on asset quality and coverage ratios in 2016. In 4Q16, the Non-performing loans (NPLs) ratio¹⁰ reached 2.1%, flat compared to 3Q16 and 40bp. lower than in 4Q15. Total Impaired loans, a broader measure of asset quality that includes NPLs and renegotiated loans, remained at 5.9% in 4Q16 compared to 3Q16 and improved 70bp. since 4Q15. Total Coverage of NPLs¹¹ reached 145.4% in 4Q16 similar to the level attained in 3Q16 and up from 117.3% in 4Q15.  

Provision for loan losses decreased 6.9% QoQ and 41.6% YoY. As a reminder, provision expense in 4Q15 included a non-recurring pre-tax provisions of Ch$35,000 million directly related to the regulatory change regarding provisioning models for mortgage loans and substandard consumer and commercial loans analyzed on a collective basis. Excluding this impact, provision expense decreased 23.9% YoY in 4Q16 compared to 4Q15. The cost of credit in the quarter was 1.3% compared to 1.4% in 3Q16 and 1.8% in 4Q15. For the full year 2016, provision expense fell 9.4%, excluding the one-time provision recognized in 2015. The cost of credit in 2016 reached 1.3% compared to 1.6% in 2015.

 Positive evolution of customer loyalty and satisfaction is fueling fee growth

In 2016, the Bank continued to make improvements in customer satisfaction and client loyalty. This improvement in customer service should be a key driver for continued growth of cross-selling and fee growth going forward. Loyal individual customers¹² in the high-income segment grew 11.1% YoY. Among Mid-income earners, loyal customers increased 8.0% YoY. Loyal Middle-market and SME clients¹³ grew 12.9% YoY in 2016.

Net fee and commission income decreased 2.0% QoQ and grew 6.7% YoY in 4Q16. For the full year 2016, fees increased 7.1% YoY. The QoQ decline was mainly due to a reduction in the origination of mortgages that affected insurance related fees. Fee income in the rest of the Bank's segments and products continued to grow in part due to greater product usage and customer loyalty and a recovery of fees in GCB.

 Costs under control. Strong push towards expanding digital services and modernizing the branch network

Operating expenses, excluding Impairment and Other operating expenses increased 4.2% QoQ and decreased 1.2% YoY in 4Q16. The Bank has been implementing several measures to sustain cost growth in the mid-single digit range in 2017. Various initiatives were carried out in 4Q16, which explains the QoQ rise in costs. The Bank's digital transformation and new branch formats have been successful and, therefore, the Bank accelerated its branch closure plan in the quarter. This also entailed the removing of money losing ATMs. In the quarter, the Bank closed 21 Santander Banefe branches aimed to the low-end consumer market, and removed 111 ATMs. In total, 8% of the Bank's branch network was closed and 16% of the ATMs were eliminated in 2016. An increase in transactions through channels such as internet, mobile and phone banking have ensured no impact of these measures on our distribution capabilities and service quality. The effectiveness of the Bank's CRM has also increased commercial productivity, as well as the implementation of other digital initiatives.

Personnel salaries and expenses in 4Q16 increased 1.7% QoQ and fell 7.0% YoY. Throughout 2015 and 2016, the Bank has been optimizing its headcount structure by reducing mid-upper level management levels and the sales force. This should sustain lower cost growth in 2017.

 Amortization expenses increased 15.0% QoQ and 18.9% YoY. This rise was 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.

 CONTACT INFORMATION

Robert Moreno

Manager, Investor Relations Department

Banco Santander Chile

Bombero Ossa 1068, Piso 8 Santiago, Chile

robert.moreno@santander.cl

Tel: (562) 2320-8284

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.   Return on Equity, ROE = Net income attributable to shareholders divided by average shareholders' equity.

3.   Net contribution from business segments: Net interest income + Net fee and commission income + Financial transactions, net - Provision expense - Operating expenses from our reporting segments. These results exclude Financial Management, which includes, among other items, the impact of the inflation on results, and the Corporate Center where the impact of additional provisions and restructuring charges, among other items is included.

4. Source: SBIF. Excludes deposits held by Chilean banks abroad.

5. Source: SBIF. Total market share includes interbank loans and for all categories market share excludes loans held by Chilean banks abroad.

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

7. BIS ratio: Regulatory capital divided by RWA.

8. NIM: Net interest income divided by average interest earning assets.

9. Client net interest income: NII from the Bank's reporting segments that includes NII from the Retail, Middle-market and GCB segments, excluding GCB's Treasury division. Non-client NII: NII from Bank's inflation gap, the financial cost of hedging, the financial cost of the Bank's structural liquidity position, NII from treasury positions and the interest expense of the Bank's financial investments classified as trading, since NII from this portfolio is recognized as Financial transactions net.

10. 90 days or more NPLs

11. Loan loss reserves over NPLs

12.  Customers with 4 products plus a minimum profitability level and a minimum usage indicator, all differentiated by segment. 

13. Mid-market & SMEs cross-selling differentiated by client size using a point system that depends on number of products, usage of products and income net of risk.