Mercantil Servicios Financieros, C. A. Financial Report Second Quarter 2010

Transcription

1 Mercantil Servicios Financieros (Mercantil). Report Second Quarter 2010 Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY Caracas, August 02, Mercantil Servicios Financieros (Mercantil); reports its earnings for the quarter ended June 30, Summary Mercantil Servicios Financieros, C. A. Financial Report Second Quarter 2010 Net Income: Mercantil reported Bs. 952 million (US$ 331 million) 1 in Net Income in 2Q 2010, Bs. 815 million (594.9%) more than the Bs. 137 million (US$ 64 million) 1 recorded in 2Q Net earnings per share in 2Q 2010 were Bs. 9.53; US$ (Bs in 2Q 2009, US$ ). ROE and ROA indicators were 65.5% and 6.4%, respectively (12.8% y 1.1%, at the close of 2Q 2009). In terms of the semester, Net income totaled Bs. 1,341 million (US$ 466 million) 1, Bs. 1,036 million (339.7%) more than the Bs. 305 million (US$ 142 million) 1 recorded in the 1H ROE and ROA are 46.2% y 4.5%, respectively. The main changes in Net Income for the quarter are attributed to: Net Interest Income of Bs. 928 million (US$ 322 million) 1, Bs. 244 million (35,7%) higher than the Bs. 684 million (US$ 319 million) 1, recorded for 2Q This change is due to the increase in the financial intermediation ratio from 59.4% to 67.6%, versus second quarter Allowance for Losses on Loan Portfolio totaled Bs. 250 million (US$ 87 million) 1, Bs. 29 million (13.1%) more than the Bs. 221 million (US$ 103 million) 1 recorded in 2Q This increase is mainly due to higher provisioning requirements in the residential construction sector in United States, and agricultural, commercial and construction sectors in Venezuela. The provision represents 3.1% of the gross loan portfolio. Commissions and Other Income in 2Q 2010 totaled Bs. 1,202 million (US$ 418 million) 1, Bs. 910 million (310.5%) more than the Bs. 293 million (US$ 137 million) 1 registered in 2Q This increase is mainly due to a Bs. 140 million increase in earnings on security trading and a Bs. 725 million increase in earnings from exchange differences due to the new exchange rate establish by Venezuelan Central Bank for the valuation of the assets and liabilities in foreign currency. The rate went from Bs / US$1 to Bs /US$1 (See Page. 24). Insurance premiums, net of claims reached Bs. 78 million (US$ 27 million) 1 close to the Bs. 84 million in net earned premiums recorded in 2Q Net collected premiums grew Bs. 200 million (30.8%) to Bs. 849 million over the same period. Personnel and Operating Expenses totaled Bs. 921 million (US$ 320 million) 1, as a result of a Bs. 212 million (29.9%) year-on-year increase compared with Bs. 708 million (US$ 330 million) 1 in 2Q This change was due to the Bs. 90 million rise in personnel expenses, Bs. 47 million rise in contributions to regulatory bodies, resulting from the increase of the semi-annual contribution to Fogade (Deposits Guarantee Fund) by financial institutions from 0.50% of their total deposits in 2009 to 1.25% in 2010, and a Bs. 75 million increase in depreciation, property and equipment expenses, amortization of Intangibles, moving and communications expenses, commission on services, among others. Personnel and Operating Expenses were affected by the high level of inflation in Venezuela over the last 12 months (31.1%). The efficiency ratio measured by calculating operating expenses as a percentage of average assets, was 5.6% in June 2010 versus 5.5% in June Summary of the Financial Statements and Ratios 2 (In millions of Bolivars, except percentages) Jun 2010 vs. Mar 2010 Jun 2010 vs. Jun QUARTERLY RESULTS Net Interest Income % 35.7% Allowance for losses on loan portfolio % 13.1% Commissions and other income 1, % 310.5% Insurance premiums, net of claims (4.1)% (7.1)% Salaries and Operating Expenses % 29.9% Taxes (6) 262.3% (1,500.0)% Net Income Quarter % 594.9% Net Income Semester 1, % KEY FINANCIAL INDICATORS Income per share Quarter Bs/ share % 599.5% Income per share Semester Bs/ share % Market price A share % 55.3% Market price B share % 56.8% Book value per share % 70.7% Net Income (quarter) / Average Assets (ROA) 6.4% 2.8% 1.1% 128.6% 481.8% Net Income (quarter) / Average Equity (ROE) 65.5% 28.6% 12.8% 129.0% 411.7% Net Income (semester) / Average Assets (ROA) 4.5% 1.3% 246.2% Net Income (semester) / Average Equity (ROE) 46.2% 14.2% 225.4% 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control in place in Venezuela since February See Appendix III Summary of the Financial Statements and Ratios (in Dollars) 1. 1

2 Assets: Second quarter assets totaled Bs. 72,877 million (US$ 16,990 million) 1, B s.16,231 million (28.7%) higher than the previous quarter s and Bs. 24,363 million (50.2%) higher than the 2Q The quarterly increase includes a 4.7% growth of the domestic operation: a 4.6% growth of the overseas operation, and a 19.4% increase (Bs. 10,984 million) due to currency translation effects. The analysis by subsidiary is as follow: Mercantil Banco Universal registered a Bs. 2,711 million (7.2%) growth in the second quarter 2010 and a Bs. 6,536 million (19.4%) last year. Mercantil Commercebank Florida Bancorp registered a US$ 429 million 1 (7.2%) growth in the second quarter 2010 and a US$ 812 million 1 (14.5%) last year. Mercantil Seguros registered a Bs. 346 million (13.8%) growth in the second quarter 2010 and a Bs. 940 million (49.0%) growth last year. Mercantil Bank (Schweiz) A.G., registered a US$ 12 million 1 (3.4%) growth in the second quarter 2010 and a US$ 26 million 1 (7.5%) growth last year. Net Loan Portfolio: The Loan Portfolio totaled Bs. 37,177 million (US$ 8,668 million) 1 in 2Q 2010, Bs. 8,653 million (30.3%) higher than in 1Q 2010 and 68.2% higher than 2Q In terms of Gross Loans this represents an increase of Bs. 8,872 million (30.1%) versus the 1Q 2010 and 67.8% higher than in the 2Q The quarterly variation includes a 3.5% growth of the bolívar operation, a 7.6% growth of the overseas operation in terms of dollars, and a 19.2% increase (Bs. 5,477 million) due to currency translation effects. The analysis by subsidiary is as follow: Mercantil Banco Universal registered a Bs. 1,051 million (5.2%) growth in the second quarter 2010 and a Bs. 5,832 million (37.8%) growth last year. Mercantil Commercebank Florida Bancorp registered a US$ 463 million 1 (14.6%) growth in the second quarter 2010 and a US$ 603 million 1 (19.9%) growth last year. Deposits: Totaled Bs. 56,781 million (US$ 13,238 million) 1 and represents Bs. 11,662 million (25.8%) quarter-over-quarter growth from Bs. 45,118 million (US$ 17,396 million) 1, and 47.5% higher than in 2Q This change can be attributed mainly to the increase of current accounts and saving accounts and is reflected in 5.0% growth of the domestic operation and a 1.6% growth in overseas transactions and a 19.2% increase (Bs. 8,643 million) due to currency translation effects. The analysis by subsidiary is as follow: Mercantil Banco Universal registered a Bs. 1,948 million (6.1%) growth in the second quarter 2010 and a Bs. 5,512 million (19.3%) growth the last year. Mercantil Commercebank Florida Bancorp registered a US$ 170 million 1 (3.6%) growth in the second quarter 2010 and a US$ 514 million 1 (11.7%) growth last year. Shareholders Equity: Totaled Bs. 7,532 million (US$ 1,755 million) 1 which represents a Bs million (33,6%) quarter-over-quarter growth from Bs. 5,636 million (US$ 2,173 million) 1, which was 69.9% higher than in 2Q This variation was due mainly to quarterly results of Bs. 952 million, which include Bs. 981 million from the effect of translating net assets of overseas subsidiaries (see Page.24), Bs. 6 million from repurchased and restricted shares under the employee stock option plan and, Bs. 44 million decrease from adjusting available-for-sale investments to their market value. Mercantil s Equity/Assets ratio at June 30, 2010 is 10.3% and its Equity/Risk-Weighted Assets ratio is 21.0%, based on the standards of the National Securities Commissions (9.1% and 19.3% at June 30, 2009). Mercantil Banco Universal s Equity/Assets ratio is 11.7%, according to the standards of the Superintendence of Banks in Venezuela, and its Equity/Risk-Weighted Assets ratio is 17.1% (9.2% and 15.3% at June 30, 2009). Mercantil Commercebank. N.A. s Equity/Assets and Equity/Risk-Weighted Assets ratio are 9.8% and 17.8%, respectively, based on the standards of the Office of the Comptroller of the Currency (10.5% and 18.3% at June 30, 2009). The ratios of Mercantil and its subsidiaries exceed minimum requirements. Summary of the Financial Statements (In millions of Bolivars, except percentages) Jun 2010 Jun vs. Mar 2010 vs. Jun 2009 Cash and due from banks 11,830 9,620 8, % 38.0% Investment Portfolio 20,779 15,753 15, % 34.4% Loan Portfolio, Net 37,177 28,524 22, % 68.2% Other assets 3,092 2,748 2, % 30.7% TOTAL ASSETS 72,877 56,645 48, % 50.2% ASSETS UNDER MANAGEMENT 17,394 14,765 11, % 45.0% Deposits 56,781 45,118 38, % 47.5% Financial Liabilities 3,648 1,399 1, % 99.6% Other Liabilities 4,916 4,492 3, % 30.3% Shareholders Equity 7,532 5,636 4, % 69.9% TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 72,877 56,645 48, % 50.2% 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

3 Table of contents Pages Contribution of the subsidiaries 4 Market share 5 Management discussion and analysis 5 Operating Income Net Interest Income 6 Allowance for Losses on Loan Portfolio 7 Commissions and Other Income 8 Insurance Premiums, Net of Claims 8 Operating Expenses 9 Balance Sheet Investment Portfolio 10 Loan Portfolio 12 Total Assets 13 Deposits 15 Financial Obligations 15 Shareholders Equity 16 Assets and Liabilities in Foreign Currency 17 Performance of Subsidiaries 18 Assets Under Management 20 Corporate events 22 New Measures announced for the Venezuelan Economy 22 Awards and Acknowledgements 24 Economic Climate Global 25 Economic Climate - USA 25 Economic Climate - Venezuela 26 Appendix I: Summary of the accounting principles used to prepare the financial statements 28 Appendix II: Financial statements Mercantil Servicios Financieros, C.A. 29 Appendix III: Summary of the Financial Statements and Ratios (in Dollars) 34 Appendix IV: Consolidated loan portfolio by classification 35 Appendix V: Summary of Financial Indicators Mercantil Servicios Financieros 36 Appendix VI: Financial statements Mercantil Banco Universal 38 Appendix VII: Financial statements Mercantil Commercebank Florida Bancorp 40 Appendix VIII: Financial statements Mercantil Seguros 42 Appendix IX: Key Macroeconomic Indicators 44 3

4 Contribution of the Subsidiaries June 30, 2010 MERCANTIL SERVICIOS FINANCIEROS 1 (In millions of Bolivars and Dollars 2, except percentages) Equity: Bs. 7,532 (US1,755) Shareholders Equity Mercantil Banco Universal Bs. 4,298 US$ 1,002 3 Mercantil Commercebank Holding Mercantil Mercantil Florida Bancorp Mercantil Int l Seguros 4 Merinvest 4 Bs. 2,223 Bs. 401 Bs. 705 Bs. 108 US$ 518 US$ 93 US$ 164 US$ 25 Others Bs. 26 US$ 6 Main Activity Venezuelan Universal Bank U.S.A Domestic Bank & Brokerage International Banking Insurance In Venezuelan Investment banking, mutual funds, trading & brokerage in Venezuelan Mercantil Merinvest, Casa de Bolsa, C.A. Mercantil Servicios de Inversión, C.A. Mercantil Sociedad Administradora de Entidades de Inversión Colectiva, C.A. Other Minor Investments Main Subsidiaries Mercantil Mercantil Bank Commercebank N.A. Schweiz, AG. Mercantil (Suiza) Commercebank Mercantil Bank and Investment Services Trust Limited (MCIS) (Islas Caiman) Mercantil Mercantil Bank Commercebank Trust Curacao, NV Company (MCTC) Mercantil Bank Panamá, S.A. In millions of Bolivars 1 (5) Total Total Assets 40,054 27,342 2,309 2, ,877 % Assets 55.0% 37.5% 3.2% 3.8% 0.1% 0.5% 100.0% Investments 6,872 10,051 1,710 1, ,779 Loans (Net) 21,279 15, ,177 Deposits 34,318 20,423 2,040 56,781 Contribution Income net: Quarter (5) (1) Semester 1, ,341 Assets Under Management 10,242 4,495 1, ,394 In millions of US$ 2 Total Assets 9,339 6, ,990 Investments 1,603 2, ,845 Loans (Net) 4,961 3, ,668 Deposits 8,001 4, ,238 Contribution Income net: Quarter (5) (0) Semester Assets Under Management 2,388 1, ,055 Number of Employees 6, , ,237 1 Financial data presented in accordance with CNV standards (see appendix I). Figures net of elimination of inter-company transactions. 2 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in appendix V. Exchange control has been in place in Venezuela since February See Performance of Subsidiaries (page 18). 4 Mercantil Servicios Financieros has an 80.5% interest in the company and indirectly owns 19.5% of it through the Mercantil Banco Universal subsidiary 5 See appendix VII under USGAAP (page 41) which reflects US$ 2 million in Net income for 1Q 2010 and US$ 4 million in Net income for 1H 2010 mainly due to allowance for loan losses (page. 7). The difference between Mercantil Commercebank N.A. financial statements and the figures in the contribution of subsidiaries chart above is due to accounting conciliations between each institution s own regulators. (see page 28, and page. 40). 4

5 Market Share Ranking Market Share Venezuela Mercantil Banco (1) Tuorism Loans % Industrial Loans % Agricultural Loans % Morgtgage Loans under the mortgage Debtor Law (Ley Especial del Deudor Hipotecario) % Mercantil Merinvest Microcredits Loans % Gross Loans % Savings Deposits % Total Deposits + Inv. Sold under Rep Agrmt % Total Assets % Trust % Mutual Funds % Mercantil Seguros (2) Net Premiums % U.S.A. Mercantil Commercebank (3) Total Deposits % (1) Source: Summary of Unconsolidated Financial Statements Published in National newspapers. (2) Source: Venezuelan Superintendency of Insurance at May 31, (3) Source: Federal Deposit Insurance Corporation (FDIC), to the Florida Stated USA, at June 30, 2009, total number of institutions: 368 in Florida. Operating Income Management Discussion and Analysis Quarter Semester Ended on Ended on In millions of Bolivars and millions of US$ 1 US$, except percentages Bolivars % Bolivars % Net Interest Income % 1,706 1, % Allowance for Losses on Loan Portfolio % % Net Financial Margin % 1,340 1, % Commissions and Other Income 418 1, % 1, , % Insurance Premiums, Net of Claims (6) (7.1)% % Operating Income 681 1, , % 3,222 1,697 1, % 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

6 Net Interest Income In 2Q 2010, net interest income was Bs 928 million (US$ 322 million) 1, representing a year-on-year increase of 35.7% from Bs 684 million (US$ 319 million) 1, mainly resulting from: a) 33.8% growth of the domestic operation, b) 2.8% reduction in the overseas operation in dollar terms, and c) 4.7% (Bs. 32 million) growth due to currency translation effects. The increase in net interest income in Venezuela is mainly due to the increase in the financial intermediation ratio from 59.4% at June 30, 2009 to 67.6% at June 30, Mercantil Commercebank s net interest income registered US$ 34.9 million, which represents a 3.9% quarter-over-quarter growth from US$ 33.6 million and a US$ 7 million (16.7%) reduction last year. This variation is attributable mainly to the negative effect of the very low interest rate environment, particularly for short-term placements. The Bank maintains a significant portion of its assets, US$ 2.5 billion (39.0%) in short-term placements and of U.S. Government securities or Government Sponsored Enterprise bonds. This high level of liquidity will provide the Bank with ample flexibility to increase its lending activities, but also reduces its interest income potential. The ratio of net interest income to average financial assets for the second quarter of 2010 registered a year-over-year increased from 7.2% to 8.1%, In the first semester of 2010, Net Interest Income was Bs 1,706 million (US$ 593 million) 1, reflecting a year-on-year increase of 22.9% from Bs 1,388 million (US$ 647 million) 1. The improvement can be attributed mainly to: a) 21.3% growth of the domestic operation, b) 2.9% reduction in the overseas operation in dollar terms, and c) 4.5% (Bs. 64 million) growth due to currency translation effects. Evolution of Interest Income (Million of Bs.) 1, % 8.3% 8.5% 8.1% % 7.8% 7.2% 7.1% 7.2% IIQ2008 IIIQ2008 IVQ2008 IQ2009 IIQ2009 IIIQ2009 IVQ2009 IQ 2010 IIQ2010 Net Interest Income Net Interest Income / Average Financial Assets 6

7 Allowance for Losses on Loan Portfolio During 2Q 2010, Bs 250 million (US$ 87 million) 1 in expenditure was recorded under Allowances for Losses on Loan Portfolio, Bs. 29 million (13.1%) higher than the Bs 221 million (US$ 103 million) 1 in 2Q This includes: a) a 41.7% increase in domestic operations, b) a 44.5% decrease in the overseas operation in dollar terms, and c) 15.9% (Bs. 35 million) growth due to currency translation effects. The Mercantil Banco Universal subsidiary registered Bs. 207 million in allowances for loan losses during the 2Q 2010 (Bs. 118 million in 2Q 2009) due to the growth of the Loan Portfolio. Higher provisions were made in the agricultural, commercial and construction sectors. The Mercantil Commercebank subsidiary registered US$ 13 million in allowances for loan losses during the 2Q 2010, mainly in mortgage, construction and home loans, US$ 35 million lower that the US$ 48 million allowance for loan losses recorded during 2Q This brings the accumulated allowance to Bs 1,185 million (US$ 276 million) 1 at June 30, 2010, representing 3.1% of Gross Loans (3.3% at March 31, 2010). This provision covers 71.6% of the Past due and Nonperforming Loan Portfolio (91.4% at March 31, 2010). Write-offs for the quarter totaled Bs 65 million in Venezuela and US$ 27 million abroad (Bs. 43 million in Venezuela and US$ 25 million abroad in 2Q 2009). In the first semester of 2010 loan portfolio provisions registered 0.3% year-on-year growth from Bs 364 million (US$ 170 million) 1 to Bs. 366 million US$ 127 million) 1. Write-offs for the semester totaled Bs. 111 million in Venezuela and US$ 44 million abroad. Evolution of Loan Portfolio (Million of Bs.) 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 10,000 10, % 5,000 5, % 4.1% 3.3% 3.6% 3.3% 3.2% 2.7% 3.5% 2.2% 2.3% 3.1% 3.3% 3.2% 3.3% 3.1% 20,000 20, % 15,000 15, % IIQ2008 IIQ2008 IIIQ2008 IIIQ2008 IVQ2008 IVQ2008 IQ2009 IQ2009 IIQ2009 IIQ2009 IIIQ2009 IIIQ2009 IVQ2009 IVQ2009 IQ2010 IQ2010 IIQ2010 IIQ % 4.5% 4.0% 4.0% 3.5% 3.5% 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.0% Loan Portfolio Allowance for Losses on Loan Portfolio / Gross Loans Past Due and Non-Performing Loans / Gross Loans 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

8 Total Commissions and Other Income In 2Q 2010, Other Income and Commissions amounted to Bs million (US$ 418 million) 1, Bs 910 million (310.5%) higher than in 2Q 2009 when they totaled Bs 293 million (US$ 136 million) 1, mainly due to: Bs 725 million increase in earnings from exchange differences due to the new exchange rate establish by Venezuelan Central Bank for the valuation of the assets and liabilities in foreign currency. It went from Bs / US$1 to Bs /US$1 (See Page. 24). Bs 140 million increase in earnings on securities trading. Bs 32 million from recoveries of loans recorded as uncollectible in previous periods, financing and sale of insurance policies, income from commissions on credit cards and other products. Bs. 18 million decline on equity interest of affiliates. In the first semester of 2010, commissions and other income totaled Bs million (US$ 599 million) 1, a increase of Bs 1,202 million (231.2%) compared to 1H 2009, due to the Bs. 899 million in income due to currency translation effects, Bs 230 million in income in investment trading activities, Bs 16 million in income from commissions on customers accounts, Bs 16 million in income from policy financing, Bs 11 million in recoveries from written off credits, Bs. 16 in income from commissions on credit cards and other products, Bs 21 million in income on equity interest of affiliates, etc. Insurance Premiums, Net of Claims In the second quarter of 2010, Insurance Premiums, net of Commissions, Reinsurance and Claims totaled Bs 78 million (US$ 27 million)1, 7.1 % lower than in 2Q 2009 when they amounted to Bs 84 million (US$ 39 million) 1. The health business was the main contributor to this decrease in insurance activity. Net earned premiums for 2Q 2010 amounted to Bs 849 million (US$ 198 million) 1, reflecting year-on-year growth of Bs 200 million (30.8%). The main contributors to this change were the Individual Automobile (54.3%). At the close of May 2010, Mercantil Seguros was the country s second insurance company in terms of net collected premiums, with 11.1% of the insurance market. Claims in 2Q 2010 rose Bs 235 million (51.7%) to Bs 688 million (US$ 239 million) 1 compared with 2Q 2009 and are attributable mainly to the health business. Composition of Total Income Bs. 1,061 million US$ 495 million 1 June % 14.5% 0.4% 21.2% Bs. 2,208 million US$ 768 million 1 June % IIQ 2009 IIQ % 7.1% 33.0% 6.2% 11.7% Gross Financial Margin Commissions on Transactions, Insurance Premiums, net and Other Exchange Gains and Losses Income (Loss) on Sales Investment Securities Other Income Composition of Total Income by Business Segment At the close of the first semester of 2010, Insurance Premiums, net of Commissions, Reinsurance and Claims totaled Bs 159 million (US$ 55 million) 1, 3.2% higher than last year. Net earned premiums for the 1H 2010 were Bs. 1,750 million (US$ 408 million) 1, which represents 37.6% (Bs. 478 million) higher than 2Q This growth can be attributed mainly to Individual Automobile (53.4%). Claims registered Bs. 1,324 million (US$ 460 million) 1, Bs. 470 million (55.0%) higher than 1H This growth is attributable mainly to the health business Asset M anagement 1.7% Banking 83.5% Asset M anagement 1.3% Banking 86.2% Insurance 14.8% Insurance 12.5% IIQ 2009 IIQ Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

9 Operating Expenses Quarter Semester Ended on Ended on (In millions of Bolivars and US$, except US$ 1 percentages) Bolivars % Bolivars % Operating Income 681 1, , % 3,222 1,697 1, % Operating Expenses Salaries and Employee Benefits % % Other Operating expenses % % Taxes Current and Deferred ,300.0% (107) (20) (87) 435.0% Net Income % 1, , % In 2Q 2010, Operating Expenses registered 29.9% year-on-year growth from Bs 708 million (US$ 330 million) 1 to Bs 921 million (US$ 320 million) 1. This growth is mainly due to: Bs 90 million in Personnel Expenses (25.3% year-on-year increase). The higher expenses include application of salary increase policies. Mercantil Banco Universal s assets per employee rose from Bs 4.2 million in 2009 to Bs 5.9 million in Mercantil Seguros net earned premiums per employee increased from Bs. 433,824 in 2009 to Bs. 581,507 in In the case of the overseas business, the indicator rose from US$ 7.0 million per employee in 2009 to US$ 8.6 million in Bs 47 million increase in fees paid to regulatory bodies, mainly due to the increase to the semiannual contribution to Fogade (Deposits Guarantee Fund) which went from 0.5% of total deposits in 2009 to 1.25% in Bs 18 million year-on-year increase in Depreciation, Property and Equipment Expenses, Amortization of Intangibles and Others. Bs 57 million increase in outsourcing services, transportation and communications, among others. The efficiency ratio measured by calculating Operating Expenses as a percentage of Average Assets, was 5.6% in June 2010 similar to 5.5% in June The ratio of Operating Income to Total Income was 37.3% in June 2010 versus 62.0% in June Inflation in Venezuela over the last 12 months was 31.3%. This variable has a significant effect on Mercantil s operating costs. In the first semester of 2010, operating expenses registered a 29.2% year-on-year increase to Bs 1,773 million, compared with Bs 1,372 million twelve months earlier, mainly due to a Bs 133 million rise in Personnel Expenses and a Bs 268 million increase in Other Operating Costs, which include: a Bs 97 million increase in expenses for contributions to regulatory entities; a Bs 33 increase in expenses for Depreciation of Property, Plant and Equipment Expenses, Amortization of Intangibles and others; a Bs 60 million in outsourcing services, transportation and communications and Bs 8 million in taxes and contributions, among others. 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

10 Balance Sheet The principal Balance Sheet variations during 2Q 2010 are reviewed below and commented on with respect to the previous quarter. The main year-on-year variations are also indicated for the purpose of comparison Summary of Balance Sheet and Assets in Trust (In millions of Bolivars and Dollars, except percentages) US$ 1 Mar 10 vs. Dec 09 Mar 10 vs. Mar Bolivars % Bolivars % Investment Portfolio 4,845 20,779 15,753 15,465 5, % 5, % Loan Portfolio, Net 8,668 37,177 28,524 22,109 8, % 15, % Total Assets 16,990 72,877 56,645 48,514 16, % 24, % Deposits 13,238 56,781 45,118 38,483 11, % 18, % Shareholders Equity 1,755 7,532 5,636 4,432 1, % 3, % Asset Management 4,055 17,394 14,765 11,997 2, % 5, % Investment Portfolio At the close of 2Q 2010, the investment portfolio amounted to Bs 20,781 million (US$ 4,845 million) 1, 31.9% higher than the Bs 15,753 million (US$ 6,074 million) 1 recorded in 1Q This quarterly variation includes: a) 0.1% increase in the domestic operation, b) 1.5% increase in the overseas operation in dollar terms and c) 30.3% increase (4,767 million) due to currency translation effects. Mercantil Banco Universal s investment portfolio amounted to Bs 6,701 million (US$ 1,562 million) 1, reflecting an 7.6% drop compared to the previous quarter. Mercantil Commercebank Florida Bancorp volumes increased 2.6% to US$ 2,343 million, compared to US$ 2,283 million in the previous quarter. Mercantil Seguros investment portfolio grew 18.8% to Bs 1,957 million (US$ 456 million) 1, compared to the previous quarter. Compared to June 30, 2009, the investment portfolio grew Bs 5,316 million (34,4%) from Bs 15,465 million to Bs 20,781 million. This increase includes: a) 7.4% decrease of the domestic operation, b) 4.1% growth of the overseas operation in dollar terms and c) 37.7% increase (5,835 million) due to currency translation effects. 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February 2003 Investments by maturity and yield during the second quarter of 2010 are broken down as follows: Trading Available for Sale Investments by Maturity and Yield (In millions of Bolivars, except percentages) Held to Maturity Shares Time Deposits and Placements Restricted Investments Years Bs. 2 Bs. 2 % 4 Bs. 3 % 4 Bs. 2 Bs. 2 % Bs. 2 % 4 TOTAL Bs. Less Than 1 1, % 1, % 1, % 4,424 From 1 to 5 2, % 2,512 Over % % US$ Less Than % % % % 998 From 1 to 5 1, % % % 6 4.9% 1,965 Over 5 9, % % % % 9, , ,228 1,512 20,779 2 Registered at Market Value. 3 Amortized cost. 4 The yield of securities is based on amortized cost at the end of the period. Yield is calculated by dividing income from (including Premium amortization or discounts) by amortized cost or market value 5 Bs 2,006 are Central Bank placements with less than 60 days maturity. 10

11 Investments by maturity and yield during the second quarter of 2010 are broken down as follows: Breakdown of Investments by Issuer and Currency at June 30, 2010 (In millions of Bolivars and Dollars, except percentages) Venezuelan US Gov. Central US Guaranteed Int I Venezuelan Venezuelan Total Bank Government Agencies Private Government Private Bs Bolivars Mercantil Banco Universal 3, , ,960 Mercantil Seguros & Others 73 1, ,859 Total Bs 3, , ,819 Total US Dollars US$ 1 Mercantil Banco Universal Mercantil Commercebank Florida Bancorp 1, ,343 Mercantil Seguros & Others Total US$ 1, ,021 Breakdown % 14.7% 34.9% 14.8% 9.4% 24.6% 1.6% 100.0% 1 Dollar figures given for reference purposes only and are translated al the closing exchange rate. See Exchange rates in Appendix V. Exchange control has been in place in Venezuela since February Bs 521millions include US$ indexation clause. Total investments in Securities Issued or Guaranteed by the Venezuelan Government (excluding the BCV) represent 0.6 times Mercantil s equity and 6.4% of its assets. These securities are 0.6 times Mercantil Banco Universal s equity and represent 6.3% of its assets. Mercantil holds 3.0% of the public debt securities issued by the Venezuelan State, according to information obtained from the Ministry of Economics and Finance at March 31, Breakdown of Investments by Issuer Venezuelan Private US Gov. Guaranteed Agencies Venezuelan Goverment Int'l Private US Govermment Venezuelan Central Bank 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Jun-09 Mar-10 Jun-10 11

12 Loan Portfolio At the close of 2Q 2010, Net Loans reached Bs 37,177 million (US$ 8,668 million) 1, 30.3% higher than the previous quarter s level of Bs 28,524 million (US$ 11,000 million) 1. This quarter-over-quarter variation includes: a) 3.5% growth of the domestic operation, b) 7.6% growth of the overseas operation in dollar terms and c) 19.2% increase (5,477 million) due to currency translation effects. Compared to June 30, 2009, the loan portfolio increased Bs 15,068 million (68.2%) from Bs. 22,109 million to Bs 37,177 million at June 30, This variation includes: a) 26.0% growth of the domestic operation, b) 11.9% growth in the overseas operation in dollar terms and c) 30.3% increase (6,702 million) due to currency translation effects.. The ratio of Past-due and Nonperforming Loans to Gross Loans was 4.3%. At Mercantil Banco Universal this indicator is 1.0%, compared with 3.5% for the Venezuelan financial system and 9.1% at Mercantil Commercebank (10.1% of non-accrual loans). At June 30 and March 31, 2010, 94.5% and 95.3% of Mercantil s loan portfolio, respectively, is outstanding. The portfolio provision represents 71.6% coverage of Past-due and Nonperforming loans; this indicator is 422.1% at Mercantil Banco Universal and 18.9% at Mercantil Commercebank. Mercantil Banco Universal is Venezuela's leading bank in terms of Tourism Manufacturing and Mortgage loans (Mortgage Debtor Law), with 18.7%, 20.1% and 16.6% of the market respectively. Mercantil Banco Universal ranks second in the Venezuelan financial system in terms of Gross Loans and Agricultural Loans with market shares of 13.5% in each sector. Mercantil Banco Universal complied with the minimum loan portfolio requirements for the first half of 2010 which includes the following sectors: agriculture, tourism, microcredits and manufacture. Appendix IV shows the distribution of the loan portfolio, broken down by economic activity, maturity, country and type of risk. 45 % Loan Portfolio by Business Segment 40,000 In millions of Bolivars 35,000 30,000 25,000 20,000 15,000 10,000 5, % 45% 17% 35% 42% 23% 33% 42% 25% Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Jun % 41% 32% 22% 46% 32% 28% 46% 26% Large Corporation SME's Individuals 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

13 Percentage of Mercantil Banco Universal s required loan portfolio for each Sector of the economy and applicable interest rates Sector Agriculture Percentages of compliance Calculated on the average gross loans at 12/31/2009 and 12/31/2008, monthly compliance. Maximum per customer 5% of the current portfolio. It requires a minimum number of new clients. Additionally the portfolio must be classified between priority a non-priority sectors in accordance with the Ministry for Agriculture and Land. Moreover, loans to priority sectors must not be lower than 70% of total agricultural loans and at least 10% must be medium and long term loan. 2 % of Compliance Reached Jun-10 % of compliance required 21.7% % Jun-10 Interest Rates Set weekly by the Central Bank (BCV). At 06/30/2010 this is 13%. Mortgage Calculated on the gross loan portfolio at 12/31/2009, distributed as follows: 5,8% in longterm loans and 4,2% in short-term loans. Annual Compliance. 9.8% Not applicable in June Set semi-annually by the Housing and Habitat Ministry, based on the weighted average lending rate of leading banks in Venezuela and according to family earnings. At 06/30/2010 this is between 4.66% and 14.39%. Microcredits 3% Calculated on the gross loan portfolio at 12/31/2009. Monthly Compliance. 3.3% 3.0% Within minimum and maximum rates established by the Central Bank. At 06/30/2010 the rate can not be higher than 24%. Tourism It s calculated based on the average of the Loan Portfolio figures at year-end 2009 and In February 2010 the Tourism Ministry set the minimum that banks must lend at 3%. Compliance must be reached by December 31, 2010 (1.5% semiannually). 3.0% 1.5% The Central bank establishes a preferential rate for the sector on a monthly basis. As of June 30, 2010 the rate is 15% and can be as low as 12% in some cases in accordance with the Law for Tourism Loans. Industrial Calculated on the gross loan portfolio at 03/31/2009. Monthly Compliance 12.2% 11.0% 3 Set by the Central Bank at 19%. Total Assets At the close of 2Q 2010, Total Assets reached Bs 72,877 million (US$ 16,990 million) 1, Bs 16,231 million (28.7%) higher than the Bs 56,645 million (US$ 21,841 million) 1 recorded in 1Q This quarterly variation includes: a) 4.7% growth of the domestic operation, b) 4.6% growth in the overseas operation in dollar terms and c) 19.4% increase (Bs. 10,984 million) due to currency translation effects. Compared to June 30, 2009, Assets grew Bs 24,363 million (50.2%) from Bs 48,514 million to Bs 72,877 million. This increase includes: a) 15.0% growth of the domestic operation, b) 7.9% growth in the overseas operation in dollar terms and c) 27.3% increase (Bs. 13,252 million) due to currency translation effects. At June 30, 2010, Mercantil Banco Universal ranks third in the Venezuelan financial system in terms of Total Assets with a 11.1% market share. The leading institution has an 11.7% share and Venezuela s four main banks account for 41.4% of the market. 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control in place in Venezuela since February As of June 30, 2010 the concentration of the agriculture portfolio in primary production was 82.4% (79.8% in priority sectors and 2.6% in non-priority sectors). Medium and Long term loans were 34%. 3 The Bank should earmark not less than 10% of its Gross Loans to the industrial sector at December 31, Includes agricultural bonds issued by the State allocated to the compulsory loan portfolio. 13

14 The Total Consolidated Assets of Mercantil Banco Universal including its overseas agencies were Bs 40,258 million (US$ 9,386 million) 1, representing a 7.2% (Bs 2,711 million) quarter-over-quarter increase from Bs 37,547 (US$ 14,477 million) 1. Year-on-year growth was 19.4%, up from Bs 33,722 million (US$ 15,724 million) 1. The Total Assets of Mercantil Commercebank Florida Bancorp (a Holding of Mercantil Commercebank N.A.) were US$ 6,395 at the close of the second quarter, up US$ 429 million (7.2%) compared to US$ 5,966 at the end of the first quarter of Year-onyear growth was 14.5% from US$ 5,583 million. The Total Assets of Mercantil Seguros were Bs 2,859 million (US$ 668 million) 1, up 13.8% from Bs 2,513 million (US$ 968 million) 1 in the previous quarter. Year-on-year growth was 49.0% from Bs 1,920 million (US$ 895 million) 1. The following figure shows the composition of Mercantil s assets: Assets in Venezuela Loan Portfolio (50%) Venezuelan Gov. (10%) Deposits whith B.C.V. (7%) Private (2%) Cash & Equivalents (13%) Other Assets (5%) Due from B.C.V. (13%) Investment (19%) Assets Distribution Total Bs. 72,877 million (US$ 16,990 million) 1 June % 37% 4% 54% 4% Mercantil Banco Universal's Branches Mercantil Commercebank (U.S.A.) Other Companies (Venezuela) Mercantil Banco Universal (Venezuela) Other Countries Assets in USA Loan Portfolio (56%) Venezuelan Gov. (1%) U.S. Goverment (24%) U.S. Gov. Guaranteed Ag. (10%) Private (3%) Other Assets (6%) Investment (38%) 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control has been in place in Venezuela since February

15 Deposits At the close of 2Q 2010, Deposits reached Bs 56,781 million (US$ 13,238 million) 1 and represented quarter-over-quarter growth of 25.8% (Bs 11,662 million) from Bs. 45,118 million (US$ 17,396 million) 1. This change is due to: a) 5.0% growth of the domestic operation, b) 1.6% growth in the overseas operation in dollar terms and c) 19.2% increase (Bs. 8,643 million) due to currency translation effects. Compared to June 30, 2009, Deposits grew 47.5% from Bs 38,483 million to Bs 56,781 million. This increase includes: a) 15.3% growth of the domestic operation, b) 5.8% growth in the overseas operation in dollar terms and c) 26.4% increase (Bs. 10,179 million) due to currency translation effects. Mercantil Banco Universal in Venezuela is the leading institution in the national banking system in savings and total deposits including investments sold under repurchase agreements with 19.9% and 12.6% of the market, respectively. Mercantil Commercebank s deposits at June 30, 2010 totaled US$ 4,920 million, representing a 3.6% (US$ 170 million) quarterover-quarter increase compared to US$ 4,750 million in 1Q Year-on-year growth was 11.7% (US$ 514 million) from US$ 4,406 million. 60,000 Breakdown of Deposits by Business Segment In millions of Bolivars 50,000 21% Large Corporation 40,000 25% 23% 25% 30,000 28% 22% SME's Individuals 20,000 23% 23% 24% 32% 24% 56% 20% 53% 10,000 52% 53% 48% 48% 0 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Jun-2010 Financial Obligations At the close of 2Q 2010, financial obligations registered a 117.5% quarter-over quarter increase from Bs 1,961 million (US$ 756 million) to Bs 4,266 million (US$ 995 million) 1. Year-on-year growth was 79.8%. Jun-10 Mar-10 Jun-09 (In millions of bolivars and dollars) US$ 1 Bs. Bs. Bs. Publicly Traded Debt Securities Issued by Mercantil Subordinated debt Banks debt Other Financial Liabilities* 3,648 1,399 1,825 4,266 1,961 2,373 * Includes liabilities under repurchase agreements, funds received for special financing programs, liabilities with credit cards, letters of credit and securities loan agreements. 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See exchange rates in Appendix V. Exchange control in place in Venezuela since February

16 Shareholders Equity At the close of 2Q 2010, Shareholders Equity totaled Bs 7,532 million (US$ 1,755 million) 1, representing 33.6% quarter-overquarter growth versus Bs 5,636 million (US$ 2,173 million) 1. This figure was 69.9% up on the Bs 4,432 million (US$ 2,068 million) 1 recorded in 2Q The variation in the first quarter of 2010, is mainly due to Bs 952 million in net income for the period, Bs 981 million due to currency translation effects of the assets of overseas subsidiaries, Bs 6 million from shares repurchased and restricted under the employee stock option plan and Bs 44 million from adjusting available-for-sale investments to their market value Mercantil s Equity/Assets ratio at June 30, 2010 is 10.3% and its Equity/Risk-Weighted Assets ratio 21.0% (minimum requirement 8%), based on the standards of the National Securities Commission (9.1% and 19.3% at June 30, 2009). For Mercantil Banco Universal, in accordance with the standards of the Superintendency of Banks in Venezuela, at June 30, 2010, the Equity/Assets ratio is 11.7% 2 and the Equity/Risk-Weighted Assets ratio 17.1% (9.2% and 15.3% at June 30, 2009). For Mercantil Commercebank N.A., these indicators are 9.8% and 17.8% respectively, based on the standards of the Office of the Comptroller of the Currency (10.5% and 18.3% at June 30, 2009). The equity ratios of Mercantil and its subsidiaries exceed compliance with the regulatory minimums. 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See Exchange rates in Appendix V. Exchange control in place in Venezuela since February Obtained from dividing Shareholders Equity minus goodwill s amortizations by Total Assets minus public debt securities. 16

17 Assets and Liabilities in Foreign Currency Mercantil s assets and liabilities in foreign currency amounted to US$ 7,588 million and US$ 6,278 million respectively as of June 30, 2010 and US$ 29 in derivatives. The estimated effect of each Bs. 0.10/US$1 increase in the exchange rate, which was Bs /US$1 at June 30, 2010 would amount to an increase of Bs. 759 million in assets and Bs. 131 million in Shareholders Equity, of which Bs. 46 million would be recorded as income for the period. Bs. 48,514 million (US$ 22,621 million 1 ) June 2009 Assets by Currency 71.3% Bs. 72,877 million (US$ 16,990 million 1 ) June % 28.7% 44.2% Bolivars US$ Bolivars US$ At June 30, 2010, Mercantil s shareholders equity was Bs 7,532 million, equivalent to US$ 1,755 million 1, which is partially covered in US dollars by the following assets and derivatives operations: Allocation by Subsidiary: Mercantil Commercebank Florida Bancorp and Subsidiaries (39%) 100% 80% Assets in US$ US$ 1,339 Assets in US$ in Mercantil & Other Subsidiaries in Venezuela (45%) Venezuelan Gov. Bonds 53.2% (*) US Treasuries 3.8% Other Foreing Subsidiries (8%) 60% Mercantil and Venezuelan Subsidiaries (45%) Mercantil Banco Universal and its Overseas Brach and Agencies (8%) 40% 20% 0% Loan Portfolio & Other Assets 14.6% Cash & due from Banks(foreign banks) 28.4% 1 Dollar figures are given for reference purposes only. Balance Sheet figures are translated at the closing exchange rate and income statement figures at the average exchange rate for the period. See Exchange rates in Appendix V. Exchange control has been in place in Venezuela since February * US$ or under indexation clause (See Investment Portfolio, page 10) 17

18 Performance of Subsidiaries The results of Mercantil s subsidiares are presented according to the accounting standards applicable to each of them in their corresponding jurisdiction. Mercantil Banco Universal Mercantil Banco Universal s total assets grew Bs 3,290 million (8.9%) compared with March During 2Q2010 net loans increased Bs 1,051 million (5.2%) and government deposits increased Bs 2,801 million (8.8%) compared with the close of 1Q2010, reaching Bs 21,279 million and Bs 34,780 million, respectively. Loan portfolio quality remains favorable, with a ratio of Past-due and Nonperforming Loans to Gross Loans of 1.0%, compared to 3.5% for the Venezuelan financial system as a whole. At June 30, 2010 the Mercantil Banco Universal subsidiary ranks third in the Venezuelan financial system in terms of Total Assets with an 11.1% market share. The leading institution s share is 11.7% and Venezuela s four main banks account for 41.4% of the entire financial system. It is also the leading institution in terms of total deposits plus investments sold under repurchase agreement, with a 12.6% market share, and ranks second in terms of gross loans and agricultural loans with a 13.5% market share in both categories. Mercantil Banco Universal is Venezuela's leading bank in terms of savings deposits, tourism loans, manufacturing loans and mortgage loans under the Mortgage Debtor Law (Ley Especial del Deudor Hipotecario), with market shares of 19.9%, 18.7%, 20.1% and 16.6%, respectively. Shareholders Equity grew Bs 655 million (18.4%) to Bs 4,224 million, compared to the previous quarter. This increase mainly includes Bs 265 million in net quarterly earnings, a Bs 525 million increase in reserves required by the Superintendency of Banks with the proceeds from exchange earnings and a Bs 135 million reduction from adjusting available-for-sale investments to their market value. The equity/assets ratio as of June 30, 2010 is 11.7% (minimum requirement 8%) and the equity/risk-weighted assets, according to the standards of the Superintendency of Banks in Venezuela, is 17.1% (minimum requirement 12%). In 2Q 2010, net earnings grew Bs 98 million (58.4%) to Bs 265 million compared to 2Q 2009, mainly due to the Bs 153 million increase in net interest income, Bs 98 million in earnings from the sale of securities, Bs 58 million in exchange earnings, Bs 18 in commission on services earnings, Bs 49 in contributions to regulatory bodies, Bs 89 million in allowances for losses on loan portfolio and Bs 30 million in personnel expenses. In semi-annual terms, net earnings rose Bs 109 million (32.7%) to Bs 442 million compared to the 2Q 2010, mainly due to the Bs 225 million increase in net interest income, Bs 144 million in earnings from the sale of securities, Bs 42 million in exchange earnings, Bs 28 in commission on services earnings, Bs 98 in contributions to regulatory bodies, Bs 71 million in allowances for losses on loan portfolio and Bs 61 million in personnel expenses Mercantil Commercebank N.A. During the second quarter the Bank registered US$ 14 million in allowances for loses on loan portfolio, substantially lower compared to US$ 48 million twelve months earlier. This is partly attributed to the effort made in the management of the affected loan portfolio and a slowdown in the fall in the prices of real estate in South Florida. Total assets were US$ 6,435 million, reflecting 7.0% quarterover-quarter growth and 14.7% year-on-year growth. Deposits reached US$ 4,480 million at the close of June 2010 and represent an increase of 2.9% and 10.8% respectively compared to the second quarter of Mercantil C.A. Banco Universal Consolidated (In millions of Bs and US$) US$ Total Assets 9,380 40,234 36,944 32,725 Investments Portfolio 1,521 6,524 6,501 7,601 Loan Portfolio 4,961 21,279 20,228 15,582 Deposits 8,109 34,780 31,979 28,278 Shareholders Equity 985 4,224 3,569 2,882 Income net Quarter Income net Semester Historic figures in accordance with the standards of the Venezuelan Superintendency of Banks and Other Financial Institution (SUDEBAN). Mercantil Commercebank N.A. Consolidated. (In millions of US$) Total Assets 6,435 6,011 5,611 Investments Portfolio 2,340 2,280 2,230 Loan Portfolio 3,623 3,160 3,020 Deposits 4,480 4,355 4,043 Shareholders Equity Income net Quarter 2 1 (15) Income net Semester 4 (14) Figures presented according to accounting principles generally accepted in the United States (USGAAP ) 18