Mercantil Servicios Financieros, C. A. Financial Report Second Quarter 2011

Transcription

1 Mercantil Servicios Financieros (Mercantil). Second Quarter 2011 Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY Caracas, August 3, Mercantil Servicios Financieros (Mercantil) reports its earnings for the quarter ended June 30, Summary Mercantil Servicios Financieros, C. A. Financial Report Second Quarter 2011 Net Income: Mercantil reported Bs 549 (US$ 128 million) 1 in net income during 2Q 2011, compared with Bs 952 million (US$ 331 million) 1 in 2Q Net earnings per share in 2Q 2011 were Bs 5.52, US$ (Bs 9.53 in 2Q 2010, US$ ). ROE and ROA indicators were 25.2% and 2.6% respectively. Semi-annual net income was Bs 790 (US$ 184 million 1 ) compared to Bs 1,341 million (US$ 466 million) 1 in 2Q ROE and ROA during the same period were 18.1% and 1.9%, respectively. The main variations in net income for the quarter are: Net Interest Income reached Bs 1,329 million (US$ 310 million) 1 representing year-on-year growth of Bs 401 million (43.2%) from Bs 928 million (US$ 322 million) 1, mainly due to the increase in the financial intermediation ratio (loan portfolio-to-deposits) from 67.6% to 73.4% over that period. Loan Portfolio Provision totaled Bs 210 million (US$ 49 million) 1, reflecting a Bs 40 million (16.0%) year-on-year decline from Bs 250 million (US$ 87 million) 1. The ratio of past due and nonperforming loans to gross loans decreased from 4.3% in June 2010 to 2.5% in June The loan provision represents 3.5% of the gross loan portfolio and covers 140.3% of past-due and nonperforming loans. These ratios were 3.1% and 71.6% as of June 30, Commissions and other Income reached Bs 653 million (US$ 152 million) 1, Bs 549 million (45.7%) less than the Bs 1,202 million (US$ 418 million)1 recorded in 2Q 2010, mainly due to the fact that Bs 690 million in exchange gains were included in 2010 using the new exchange rate set by the Venezuelan Central Bank for the valuation of assets and liabilities in foreign currency which went from Bs /US$ to Bs /US$. In 2011 there was an increase of Bs 213 million in income from the financing of insurance policies, commissions on credit cards among others. Insurance premiums, net of claims increased Bs 89 million (114.1%) to Bs 167 million (US$ 39 million) 1 compared with Bs 78 million (US$ 27 million) 1 in 2Q Net collected premiums grew Bs 274 million (32.3%) to Bs 1,123 million over the same period. Personnel and Operating Expenses reached Bs 1,285 million (US$ 300 million) 1, Bs 364 million (39.5%) compared to Bs 921 million (US$ 320 million) 1 in 2Q 2010, due to a Bs 122 million increase (27.4%) in personnel expenses, Bs 79 million (80.6%) in expenses for contributions to regulatory agencies and Bs 163 million (43.2%) in other operating expenses. Personnel and Operating Expenses are affected by inflation in Venezuela which was 23.6% over the last 12 months 3, and due to the effects of devaluation on expenses in Venezuela and the conversion of expenses from Subsidiaries abroad The efficiency ratio measured by calculating Operating Expenses as a percentage of Average Assets, was 5.3% in June 2011 versus 5.6% in June Summary of the Financial Statements and Ratios 2 (In millions of Bolivars, except percentages) Jun 2011 vs. Mar 2011 Jun 2011 vs. Jun QUARTERLY RESULTS Net Interest Income 1,329 1, % 43.2% Allowance for losses on loan portfolio (39.1)% (16.0)% Commissions and other income , % (45.7)% Insurance premiums, net of claims % 114.1% Salaries and Operating Expenses 1,285 1, % 39.5% Taxes % 26.2% Net Income Quarter % (42.4)% Net Income Semester (41.2)% KEY FINANCIAL INDICATORS Income per share Quarter Bs/ share % (42.1%) Income per share Semester Bs/ share (40.9)% Market price A share % 13.9% Market price B share % 16.3% Book value per share % 21.7% Net Income (quarter) / Average Assets (ROA) 2.6% 1.2% 6.4% 116.7% (59.4%) Net Income (quarter) / Average Equity (ROE) 25.2% 11.3% 65.5% 123.0% (61.5%) Net Income (semester) / Average Assets (ROA) 1.9% 4.5% (57.8%) Net Income (semester) / Average Equity (ROE) 18.1% 46.2% (60.8%) 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: During 2Q 2011 total assets registered Bs 5,170 million (6.3%) quarter-over-quarter growth to Bs 87,599 million (US$ 20,423 million) 1 and Bs 14,722 million (20.2%) year-on-year growth. This quarterly growth includes a 7.4% growth of the domestic operation and a 1.1% reduction in the size of the overseas operation in dollar terms. A breakdown by subsidiary is given below: Mercantil Banco Universal grew Bs 5,914 million (12.3%) in 2Q 2011 and Bs 13,582 million (33.7%) compared to June Mercantil Commercebank, N.A. was down US$ 207 million 1 (3.1%) in 2Q 2011 and up US$ 132 million 1 (2.1%) compared to June Mercantil Seguros grew Bs 222 million (6.2%) in 2Q 2011 and Bs 952 million (33.3%) compared to June Net Loan Portfolio: Net loans totaled Bs 48,889 million (US$ 11,399 million) 1 which reflected quarter-over-quarter growth of Bs 4,917 million (11.2%) and 31.5% year-on-year growth. The quarterly variation includes 10.8% growth of domestic operations and an increase of 0.4% in overseas operations in terms of dollars. Below is the analysis by subsidiary: Mercantil Banco Universal grew Bs 4,759 million (17.7%) in 2Q 2011 and Bs 10,351 million (48.6%) compared to June Mercantil Commercebank, N.A. grew US$ 8 million 1 (0.2%) in 2Q 2011 and US$ 243 million 1 (6.7%) compared to June Deposits: Totaled Bs 69,038 million (US$ 16,095 million) 1 and reflect Bs 5,017 million (7.8%) quarter-over-quarter growth compared to Bs 64,021 million (US$ 14,926 million) 1, reflecting a 21.6% year-on-year increase. The quarterly variation is reflected by an 8.8% increase in the size of the domestic operation and a 1.0% reduction in overseas transactions. The breakdown by subsidiary is given below: Mercantil Banco Universal grew Bs 5,369 million (13.1%) in 2Q 2011 and Bs 12,384 million (36.3%) compared to June Mercantil Commercebank, N.A. was down US$ 140 million 1 (2.7%) in 2Q 2011 and up US$ 100 million 1 (2.0%) compared to June Shareholders Equity: Totaled Bs 9,139 million (US$ 2,130 million) 1, representing Bs 632 million (7.4%) quarter-over-quarter growth from Bs 8,506 million (US$ 1,983 million) 1 and reflecting 21.3% year-on-year growth This variation can be attributed mainly to quarterly earnings of Bs 549 million, which represents an increase of Bs 65 million from adjusting investments available for sale to their market value, and Bs 14 million due to the effect of converting the net assets of foreign subsidiaries. Mercantil s Equity/Assets ratio at June 30, 2011 is 10.4% and its Equity/Risk-Weighted Assets ratio 19.7%, based on the standards of the National Securities Superintendency (Superintendencia Nacional de Valores, SNV), (10.3% and 21.0% at June 30, 2010). For Mercantil Banco Universal, the Equity/Assets ratio at June 30, 2011 is 10.6% and its Equity/Risk-Weighted Assets ratio 16.1% (11.7% and 17.1% at June 30, 2010) in keeping with the requirements of the Superintendency of Banking Sector Institutions (SUDEBAN). For Mercantil Commercebank, N.A., these indicators are 9.2% and 17.3% respectively, based on the standards of the Office of the Comptroller of the Currency (OCC) (9.8% and 17.8% at June 30, 2010). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Summary of the Financial Statements (In millions of Bolivars, except percentages) Jun 11 Jun vs. Mar 11 vs. Jun 10 Cash and due from banks 12,332 10,577 11, % 4.2% Investment Portfolio 23,089 24,356 20,779 (5.2)% 11.1% Loan Portfolio, Net 48,889 43,972 37, % 31.5% Other assets 3,289 3,524 3,091 (6.7)% 6.4% TOTAL ASSETS 87,599 82,429 72, % 20.2% ASSETS UNDER MANAGEMENT 17,083 17,065 17, % (1.8)% Deposits 69,038 64,021 56, % 21.6% Financial Liabilities 3,424 3,436 3,648 (0.3)% (6.1)% Other Liabilities 5,998 6,466 4,916 (7.2)% 22.0% Shareholders Equity 9,139 8,506 7, % 21.3% TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 87,599 82,429 72, % 20.2% 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 Loan Portfolio Provision 7 Total Commissions and Other Income 8 Insurance Premiums, Net of Claims 8 Total 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 Private Banking and Wealth Management 21 New Measures announced for the Venezuelan Economy 23 Law on Banking Sector Institutions and Law on Insurance Activity passed in Acknowledgements 23 Global Economic Climate 24 USA Economic Climate 25 Venezuelan Economic Climate 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 Holding Corporation 40 Appendix VIII: Financial statements Mercantil Seguros 42 Appendix IX: Key Macroeconomic Indicators 44 3

4 Contribution of the Subsidiaries June 30, 2011 MERCANTIL SERVICIOS FINANCIEROS 1 (In millions of Bolivars and Dollars 2, except percentages) Shareholders Equity: Bs. 9,139 SharHolders Equity Mercantil Banco Universal Bs. 5,116 US$ 1,193 (3) (3) Bank Overseas Bs. 683 US$ 159 (3) (3) Mercantil Commercebank Bs. 2,298 US$ 536 Mercantil Seguros Bs. 917 US$ 214 Mercantil Merinvest Bs. 91 US$ 18 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 (4) Total Total Assets 53,283 27,950 2,354 3, ,599 % Assets 60.8% 31.9% 2.7% 4.2% 0.1% 0.3% 100.0% Investments 8,959 9,949 1,372 2, ,089 Loans (Net) 31,630 16, ,889 Deposits 46,280 20,952 1, ,038 Contribution Income net: Quarter (4) (1) 89 2 (33) 549 Semester 605 (4) (30) 790 Assets Management 8,604 5,912 1, ,083 In millions of US$ 2 Total Assets 12,423 6, ,423 Investments 2,089 2, ,382 Loans (Net) 7,375 3, ,399 Deposits 10,790 4, ,095 Contribution Income net: Quarter (4) (8) 128 Semester 141 (1) (7) 184 Assets Management 2,006 1, ,983 Number of Employees 6, , ,173 1 Financial data presented in accordance with SNV 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 See appendix VII under USGAAP (page 40) which reflects US$ 2 million in Net income for 1Q 2011 and US$ 5 million en Net income for 1S 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 Commercial and Universal Bank's Positioning Market Share Venezuela Mercantil Banco (1) Mercantil Seguros (2) U.S.A. Tuorism Loans % Industrial Loans % Agricultural Loans % Morgtgage Loans under the mortgage Debtor Law (Ley Especial del Deudor Hipotecario) % Microcredits Loans % Gross Loans % Savings Deposits % Total Deposits % Total Deposits + Other Demand Liabilities % Total Assets % Trust 3 7.8% Net Premiums % Mercantil Commercebank (3) Total Deposits % (1) Source: Summary of Unconsolidated Financial Statements Published in National newspapers (2) Source: Venezuelan Superintendency of Insurance at June 30, (3) Source: Federal Deposit Insurance Corporation (FDIC), to the Florida Stated USA, at June 30, 2010, total number of institutions: 339 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 310 1, % 2,499 1, % Allowance for Losses on Loan Portfolio (40) (16.0)% % Net Financial Margin 261 1, % 1,944 1, % Commissions and Other Income ,202 (549) (45.7)% 1,223 1,723 (500) (29.0)% Insurance Premiums, Net of Claims % % Operating Income 452 1,939 1,958 (19) (1.0)% 3,465 3, % 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 2011 Net Interest Income was Bs 1,329 million (US$ 310 million) 1, representing a year-on-year increase of 43.2% from Bs 928 million (US$ 322 million) 1, mainly resulting from: a) 36.6% growth of the domestic operation, b) 1.0% growth of the overseas operation in dollar terms, and c) a 5.6% increase (Bs 53 million) due to currency conversion effects. Growth of Venezuela s net interest income is mainly due to the increased rate of financial intermediation which rose from 67.6% at the end of June 2010 to 73.4% at June 30, Mercantil Commercebank, N.A. s Net Interest Income registered 11.0% year-on-year growth from US$ 31 million to US$ 34 million. The Bank continues to hold a significant portion of its assets, US$ 2.5 million (more than 37%) in short-term investments and securities issued by the U.S. government or U.S. government-sponsored bodies. This high level of liquidity has continued to give the Bank ample flexibility to increase its credit operations, and ultimately to achieve a higher financial margin. Mercantil s Net Interest Margin (NIM) ratio in 2Q 2011 was 7.9% compared to 8.1% twelve months earlier. In the first half of 2011, Net Interest Income registered 46.5% year-on-year growth from Bs 1,706 million (US$ 593 million) 1 to Bs 2,499 million (US$ 583 million) 1. The improvement can be attributed mainly to: a) 52.9% growth of the domestic operation, b) 16.3% decline in the overseas operation in dollar terms, and c) a 9.9% increase (Bs 167 million) due to currency conversion effects. Evolution of Interest Income (Million of Bs) 1,400 1, % 7.1% 7.8% 7.2% 8.1% 7.8% 8.3% 7.1% 7.9% 1, ,096 1,170 1,329 - IIQ2009 IIIQ2009 IVQ2009 IQ 2010 IIQ2010 IIIQ2010 IVQ2010 IQ2011 Net Interest Income Net Interest Income / Average Financial Assets IIQ2011 6

7 Loan Portfolio Provision During 2Q 2011, the Loan Portfolio Provision was Bs 210 million (US$ 49 million) 1, reflecting a Bs 40 million (16.0%) decrease compared to Bs 250 million (US$ 87 million) 1 in 2Q This includes: a) 38.7% reduction in domestic operations, b) 21.1% growth of the overseas operation in dollar terms, and c) 1.6% increase (Bs 4 million) due to currency conversion effects. The Mercantil Banco Universal subsidiary registered Bs 145 million in Loan Portfolio Provisions in 2Q 2011 (Bs 207 million in 2Q 2010) due to loan portfolio growth, mainly aimed at provisioning the agricultural and construction sectors. The Mercantil Commercebank subsidiary registered US$ 14 million in Loan Portfolio Provisions in 2Q 2011, similar to the figure recorded in 2Q 2010, mainly for construction and residential real estate loans. Write-offs for the quarter totaled Bs 67 million in Venezuela and US$ 15 million abroad (Bs 65 million and US$ 27 million respectively in 2Q 2010). During the first half of 2011 expenses for Loan Portfolio Provisions rose 51.4% from Bs 366 million in the first half of 2010 to Bs 555 million in the first half of 2011 due to loan portfolio growth, mainly aimed at provisioning the agricultural and construction sectors in Venezuela and construction and residential real estate loans abroad. Semi-annual write-offs were Bs 108 million in Venezuela and US$ 24 million abroad. This brings the accumulated provision to Bs 1,777 million (US$ 414 million) 1 at June 30, 2011 and represents 3.5% of Gross Loans (3.1% at June 30, 2010). This also covers 140.3% of past-due and nonperforming Loans (71.6% at June 30, 2010). (Million of Bs) Evolution of Loan Portfolio 55,000 50,000 50,000 45,000 45,000 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5, % 4.1% 3.6% 3.6% 3.5% 3.7% 3.3% 3.3% 3.2% 3.3% 3.5% 3.2% 3.3% 3.3% 3.1% 3.1% 3.6% 2.5% IIQ2009 IIQ2009 IIIQ2009 IIIQ2009 IVQ2009 IVQ2009 IQ2010 IQ2010 IIQ2010 IIQ2010 IIIQ2010 IIIQ2010 IVQ2010 IVQ2010 IQ2011 IQ2011 IIQ2011 IIQ % 4.5% 4.0% 4.0% 3.5% 3.5% 3.0% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.5% 0.0% 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 2011, Other Income and Commissions amounted to Bs 653 million (US$ 152 million) 1, Bs 549 million (45.7%) lower than in 2Q 2010 when they totaled Bs 1,202 million (US$ 418 million) 1, mainly due to: Bs 690 million decrease in earnings from exchange difference due to the new exchange rate set by the Venezuelan Central Bank for the valuation of assets and liabilities in foreign currency. The rate went from Bs /US$ to Bs /US$ in 2Q Bs 15 million increase in earnings from securities trading activities. Composition of Total Income Bs. 2,208 million US$ 768 million 1 June 2010 Bs. 2,149 million US$ 501 million 1 June 2011 Bs 127 million growth from the financing and sale of insurance policies, earnings from commissions on credit cards and others. In the first half of 2011, Commissions and Other Income registered a Bs 500 million (29.0%) year-on-year decline to Bs 1,223 million, mainly due to a Bs 850 million drop in income from exchange differences as a result of the new exchange rate set by the Venezuelan Central Bank for the valuation of assets and liabilities in foreign currency, which went from Bs 2,1446 / US$1 a Bs 4,2893 /US$1 en the first half of 2010; a Bs 46 million increase in earnings from securities trading activities, and a Bs 304 million increase from the financing of insurance policies, credit card fees and other operations. 42% 7% 6% 62% Insurance Premiums, Net of Claims In 2Q 2011, Insurance Premiums, net of Commissions, Reinsurance and Claims amounted to Bs 167 million (US$ 39 million) 1, 114.1% higher than in 2Q 2010 when they totaled Bs 78 million (US$ 27 million) 1. This improvement in insurance activity is attributable to the personal insurance business. Net earned premiums for 2Q 2011 amounted to Bs 1,123 million (US$ 262 million) 1, reflecting year-on-year growth of Bs 274 million (32.3%). The main contributors to this variation were the Personal (46.2%) and Automobile (27.5%) businesses. At the close of May 2011, Mercantil Seguros was the country s second largest insurance company in terms of net collected premiums, with 10.9% of the insurance market. Claims in 2Q 2011 totaled Bs 859 million (US$ 200 million) 1, up Bs. 171 million (24.9%) on the figure for 2Q This growth is attributable mainly to the Personal and Automobile businesses. The technical result was Bs 56 million (US$ 13 million) 1, a year-on-year increase of 1,021.6%. At the close of the first half of 2011, Insurance Premiums, net of Commissions, Reinsurance and Claims, registered Bs 298 million (US$ 69 million) 1, reflecting 87.4% year-on-year growth. Net collected premiums were Bs 2,237 million (US$ 521 million) 1, representing an increase of Bs 487 million and 27.8% compared to the first half of This growth was mainly attributable to the personal (27.3%) and automobile (31.0%) business. The volume of claims increased Bs 335 million (25.3%) to Bs million (US$ 387 million) 1, compared to the first half of Asset M anagement 1.3% 33% 12% IIQ 2010 IIQ 2011 Banking 86.2% Asset M anagement 1.5% 21% 2% 7% Gross Financial Margin Commissions on Transactions, Insurance Premiums net and Other Exchange Gains and Losses Income on Sales Investment Securities Other Income Composition of Total Income By Business Segment 8% Banking 85.2% Insurance 12.5% Insurance 13.3% IIQ 2010 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 in place in Venezuela since February

9 Total Operating Expenses Quarter Semester Ended on Ended on (In millions of Bolivars and US$, US$ 1 except percentages) Bolivars % Bolivars Operating Income 452 1,939 1,958 (19) (1.0)% 3,465 3, % Operating Expenses Salaries and Employee Benefits % % Other Operating expenses % 1, % Taxes Current and Deferred % % Net Income (403) (42.3)% 790 1,341 (551) (41.1)% In 2Q 2011, Operating Expenses registered 39.5% year-on-year growth, increasing from Bs 921 million (US$ 320 million) 1 to Bs 1,285 million (US$ 300 million) 1. This can be attributed mainly to: Bs 122 million in Personnel Expenses (27.4% year-on-year increase). The application of salary increase policies in Venezuela contributed to the increase in expenses. At Mercantil Banco Universal assets per employee rose from Bs 5.9 million in 2010 to Bs 7.9 million in At Mercantil Seguros, the net collected premium per employee went from Bs 581,507 in 2010 to Bs 748,434 in In the case of the overseas business, the assets-per-employee indicator remained at US$ 8.6 million in Bs 79 million (80.6%) increase in fees paid to regulatory bodies. Bs 24 million (22.9%) increase in expenses due to the depreciation of property and equipment, amortization of intangibles and others. Bs 139 million (51.1%) increase in commissions on services, transfers, communications and other expenses. The efficiency ratio measured by calculating Operating Expenses as a percentage of Average Assets, was 5.3% in June 2011 versus 5.6% in June The ratio of Operating Income to Total Income was 51.5% in June 2011 versus 37.3% in June Personnel and Operating Expenses are affected by inflation in Venezuela which averaged 23.6% over the last 12 months, as well as by the effect of devaluation on expenses in Venezuela, and the conversion of expenses from subsidiaries abroad. In the first half of 2011, Operating Expenses totaled Bs 2,521 million, 42.2% more than the Bs 1,773 million recorded in the first half of 2010, mainly due to Bs 253 million growth of Personnel Expenses and a Bs 495 million increase in Other Operating Expenses; the latter reflected a Bs 46 million rise in depreciation expenses, property and equipment expenses, amortization of intangibles and others; higher expenses for contributions to regulatory agencies amounting to Bs 165 million, Bs 85 million in expenses for commissions, services, transfers and communications; Bs 51 million in provisions for realizable assets and other assets; Bs 26 million for taxes and contributions, and 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 in place in Venezuela since February

10 Balance Sheet The principal Balance Sheet variations during 2Q 2011 are reviewed below and commented on with respect to the previous quarter. The main year-on-year variations are also indicated for comparison purposes. Summary of Balance Sheet and Assets in Trust (In millions of Bolivars and Dollars, except percentages) Jun 11 vs. Mar 11 Jun 11 vs. Jun 10 US$ Bolivars % Bolivars % Investment Portfolio 5,382 23,089 24,356 20,779 (1,267) (5.2)% 2, % Loan Portfolio, Net 11,399 48,889 43,972 37,177 4, % 11, % Total Assets 20,423 87,599 82,429 72,877 5, % 14, % Deposits 16,095 69,038 64,021 56,780 5, % 12, % Shareholders Equity 2,130 9,139 8,506 7, % 1, % Asset Management 3,983 17,083 17,065 17, % (312) (1.8)% Investment Portfolio At the close of 2Q 2011, the investment portfolio amounted to Bs 23,089 million (US$ 5,382 million) 1, a quarter-over-quarter decrease of Bs 1,267 million (5.2%) from Bs 24,356 million (US$ 5,678 million) 1 given the significant growth of the loan portfolio. This quarterly variation includes: a) 1.5% reduction in the domestic operation, and b) 3.7% reduction in the overseas operation in dollar terms. Mercantil Banco Universal s investment portfolio amounted to Bs 9,270 million (US$ 2,161 million) 1 at , reflecting a 5.3% quarter-over-quarter decline from Bs 9,793 million. Mercantil Commercebank Florida Bancorp s portfolio decreased 6.3% to US$ 2,319 million compared to the previous quarter. Mercantil Seguros investment portfolio registered 8.6% quarter-over-quarter growth to Bs 2,694 million (US$ 628 million) 1 compared to March 31, Compared to June 30, 2010, the investment portfolio grew Bs 2,310 million (11.1%) from Bs 20,779 million to Bs 23,089 million. This growth includes: a) 13.9% growth of the domestic operation, and b) 2.8% decline in the overseas operation in dollar terms. 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 Investments by maturity and yield during 2Q 2010 are broken down as follows: Investments by Maturity and Yield (In millions of Bolivars, except percentages) Trading Available for Sale 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, % 4,165 From 1 to 5 4, % % 4,696 Over 5 1, % % 13 2,022 US$ Less Than % % % % 1,035 From 1 to , % % % 1,587 Over , % % % % 9, , ,469 1,923 23,089 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. 1,196 are Central Bank placements with less than 60 days maturity. 6 Consists of Repos with the Central Bank of Venezuela with maturity under 30 days. 10

11 Investments during 2Q 2011 by company, by issuer and by currency are broken down as follows: Breakdown of Investments by Issuer and Currency at June 30, 2011 (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, , ,439 Mercantil Seguros & Others 53 2, ,442 Total Bs 3, , ,881 Total US Dollars US$ 1 Mercantil Banco Universal Mercantil Commercebank Florida Bancorp 1, ,319 Mercantil Seguros & Others Total US$ 1, ,846 Breakdown % 13.2% 25.1% 17.0% 8.1% 36.1% 0.5% 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. 937 millions include US$ indexation clause. Total investments in securities issued or guaranteed by the Venezuelan nation (excluding the BCV) represent 0.9 times Mercantil s equity and 9.5% of its assets. These securities are 1.1 times Mercantil Banco Universal s equity and account for 10.2% 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% Jun-10 Mar-11 Jun-11 11

12 Loan Portfolio At the close of 2Q 2011, Net Loans reached Bs 48,889 million (US$ 11,399 million) 1, 11.2% more than the previous quarter s level of Bs 43,972 million (US$ 10,251 million) 1. This quarterly variation includes: a) 10.8% growth of the domestic operation, and b) 0.4% growth of the overseas operation in dollar terms. Compared to June 30, 2010, the investment portfolio grew Bs 11,712 million (31.5%) from Bs 37,177 million to Bs 48,889 million. This variation includes: a) 27.9% growth of the domestic operation, and b) 3.6% increase in the overseas operation in dollar terms. The ratio of past-due and nonperforming loans to gross loans was 2.5%. At Mercantil Banco Universal this indicator is 0.9%, compared with 3.1% for the Venezuelan financial system and 5.6% at Mercantil Commercebank (7.2% of nonperforming loans). At June 30, 2011, 96.3% of Mercantil s loan portfolio was outstanding. The allowance for losses on loan portfolio covers 140.3% of past-due and nonperforming loans (71.6% in June 2010); this indicator is 487.6% at Mercantil Banco Universal and 29.3% at Mercantil Commercebank. The analysis of Mercantil s main subsidiaries and its market positions can be found on pages 5 and 18. 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 50,000 In millions of Bolivars 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, % 42% 23% 33% 42% 25% 27% 41% 32% Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Jun % 46% 32% 28% 46% 26% 26% 46% 28% 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 Statutory percentage of Mercantil Banco Universal loans by economic sector and interest rates: Sector Agriculture Percentages of compliance Calculated on the average gross loans at 12/31/2010 and 12/31/2009, monthly compliance. Maximum per customer 5% of the current portfolio. It requires a minimum number of new clients. Additionally the portfolio must be quarterly classified between strategic a non-strategic sectors in accordance with the Ministry for Agriculture and Land. The concentration of new customers in the strategic segment of the loan portfolio must not be less than 70% and medium and long-term credits less than 10% of the total agricultural loan portfolio. % of Compliance Reached Jun-11 % of Compliance required 24.8% % Jun-11 Interest Rates Set weekly by the Central Bank (BCV). At 06/30/2011 this is 13%. Mortgage Calculated on the gross loan portfolio at 12/31/2010, distributed as follows: 5.8% in long term loans and 4.2% in short-term loans. Annual Compliance and includes other considerations for others sectors. 8.2% - Set semi-annually by the Housing and Habitat Ministry, based on the weighted average lending rate of leading banks in Venezuela. Set in accordance with family income of debtors, ranging between 4.66% and 14.39%. Microcredits 3% Calculated on the gross loan portfolio at 12/31/2010. Monthly Compliance. 3.1% 3.0% Within minimum and maximum rates established by the Central Bank. At 06/30/2011 the rate can not be higher than 24%. Tourism It s calculated based on the average of the Loan Portfolio figures at year-end 2010 and In February 2011 the Tourism Ministry set the minimum that banks must lend at 3%. Compliance must be reached by December 31, 2011 (1.5% semiannually) and includes other considerations for others sectors. 2.8% 1.5% The Central bank establishes a preferential rate for the sector on a monthly basis. As of June 30, 2011 the rate is 12% and can be as low as 9% in some cases in accordance with the Law for Tourism Loans. Industrial Calculated on the gross loan portfolio at 12/31/2010. Monthly Compliance 17.5% 11.0% 2 Set by the Central Bank at 19%. Total Assets At the close of 2Q 2011, total assets reached Bs 87,599 million (US$ 20,423 million) 1, Bs 5,170 (6.3%) more than the Bs 82,429 million (US$ 19,217 million) 1 recorded for 1Q This quarterly growth includes: a) 7.4% growth of the domestic operation, and b) 1.1% decline in the overseas operation in dollar terms. Compared to June 30, 2010, assets grew Bs 14,722 million (20.2%) from Bs 72,877 million to Bs 87,599 million. This growth includes: a) 19.5% growth of the domestic operation, and b) 0.7% growth of the overseas operation in dollar terms. 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 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 53,840 million (US$ 12,552 million) 1 at June 30, This is Bs 5,914 million (12.3%) more than the Bs 47,926 million (US$ 11,174 million) 1 recorded in the 1Q Year-on-year growth was 33.7%, up from Bs 40,258 million (US$ 9,386 million) 1. At the close of 2Q 2011, the total assets of Mercantil Commercebank Florida Bancorp (a Holding for Mercantil Commercebank N.A.) were US$ 6,527 million. This reflects a quarter-over-quarter decline of US$ 207 million (3.1%) from US$ 6,734 million. It also represents a year-on-year increase of 2.1% from US$ 6,395 million. At the close of June 2011, the Total Assets of Mercantil Seguros were Bs 3,811 million (US$ 888 million) 1, 6.2% up on the Bs 3,589 million (US$ 837 million ) 1 recorded for the previous quarter. Year-on-year growth was 33.3% from Bs 2,859 million (US$ 668 million) 1. The analysis of Mercantil s main subsidiaries and its market positions can be found on pages 5 and 18. The following figure shows the composition of Mercantil s assets: Assets in Venezuela Loan Portfolio (56%) Venezuelan Gov. (14%) Deposits whith B.C.V. (5%) Private (1%) Cash & Equivalents (11%) Other Assets (4%) Due from B.C.V. (9%) Assets Distribution Total Bs. 87,599 million (US$ 20,423 million) 1 June % 35% 5% 56% Assets in USA Loan Portfolio (59%) Venezuelan Gov. (1%) U.S. Goverment (19%) U.S. Gov. Guaranteed Ag. (13%) Private (3%) Other Assets (5%) Investment (36%) Investment (20%) 3% Mercantil Banco Universal's Branches Mercantil Commercebank (U.S.A.) Other Companies (Venezuela) Mercantil Banco Universal (Venezuela) Other Countries 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 2011, deposits totaled Bs 69,038 million (US$ 16,095 million) 1, representing an increase of Bs 5,017 (7.8%) quarter-over-quarter growth from Bs 64,021 million (US$ 14,926 million) 1. This variation corresponds to: a) 8.8% growth of the domestic operation, and b) 1.0% decline in the overseas operation in dollar terms. Compared to June 30, 2010, deposits grew Bs 12,258 million (21.6%) from Bs 56,780 million to Bs 69,038 million. This growth includes: a) 21.1% growth of the domestic operation, and b) 0.5% increase in the overseas operation in dollar terms. Mercantil Commercebank s deposits at June 30, 2011 totaled US$ 5,020 million, reflecting a USS$ 140 million (2.7%) quarter-overquarter decline from US$ 5,160 million and a US$ 100 million (2.0%) year-on-year increase from US$ 4,920 million. The analysis of Mercantil s main subsidiaries and its market positions can be found on pages 5 and 18. Breakdown of Deposits by Business Segment 70,000 In millions of Bolivars 60,000 21% 20% Large Corporation 50,000 40,000 25% SME's 23% 25% Individuals 25% 30,000 28% 22% 20,000 23% 23% 24% 24% 57% 54% 10,000 53% 52% 53% 48% 0 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Jun-2011 Financial Obligations At the close of 2Q 2011, financial obligations totaled Bs 3,903 million (US$ 910 million) 1, representing a quarter-over-quarter decrease of 0.6% from Bs 3,925 (US$ 915 million). Obligations were down 8.5% from their June 30, 2010 level. Jun-11 Mar-11 Jun-10 (In million of bolivars and dollars) US$ 1 Bs. Bs. Bs. Publicly Traded Debt Securities Issued by Mercantil Subordinated debt Other Financial Liabilities * 3,424 3,436 3,648 3,903 3,925 4,266 * 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 has been in place in Venezuela since February

16 Shareholders Equity At the close of 2Q 2010, shareholders equity totaled Bs 9,139 million (US$ 2,130 million) 1, representing 7.4% quarter-overquarter growth from Bs 8,506 million (US$ 1,983 million) 1. This figure was 21.3% up on the Bs 7,533 million (US$ 1,755 million) 1 recorded in 2Q The main contributions to the variation in 2Q 2011 were Bs 549 million in net income for the period; a Bs 65 million increase from adjusting investments available for sale to their market value; and Bs 14 million from the effect of translating the net assets of overseas subsidiaries. Mercantil s Equity/Assets ratio at June 30, 2011 is 10.4% and its Equity/Risk-Weighted Assets ratio is 19.7%, based on the standards of the National Securities Commission (10.3% and 21.0% at June 30, 2010). The capital ratios of Mercantil s main subsidiaries can be found on page 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 III. Exchange control has been 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 Assets by Currency Mercantil's assets and liabilities in foreign currency amount to US$ 7,710 million and US$ 6,350 million respectively as of June 30, Bs. 72,877 million (US$ 16,990 million 1 ) June 2010 Bs. 87,599 million (US$ 20,423 million 1 ) June 2011 The estimated effect of each Bs 0.10/US$1 increase on the exchange rate of Bs /US$1 at June 30, 2010 would be an increase of Bs 771 million in assets and Bs 136 million in equity, Bs 33 million of which would be recorded as income for the period. 55.8% 62.2% 44.2% 37.8% Bolivars US$ Bolivars US$ At June 30, 2011 Mercantil s shareholders equity was Bs 9,139 million, equivalent to US$ 2,130 million 1, which is partially covered in U.S. dollars by the following assets: Allocation by Subsidiary: 100% Assets in US$ US$ 1,360 Mercantil Commercebank Florida Bancorp and subsidiaries (39%) Other Foreign Subsidiaries (13%) 80% 60% Assets in US$ in Mercantil Banco Universal & Other Subsidiaries in Venezuela (40%) Principal and Interest Covered Bonds (Ticc) 61.7% (*) US Treasuries 3.1% Mercantil and Venezuelan Subsidiaries (40%) Mercantil Banco Universal and its overseas branch and agencies (8%) 40% 20% 0% Cash & due from Banks(foreign banks) 22.3% Loan Portfolio & Other Assets 12.9% 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 III. Exchange control has been in place in Venezuela since February * Issued in US$ or under indexation clause (See Investment Portfolio, page 10) 17

18 Performance of Subsidiaries The earnings of Mercantil s subsidiaries are presented in accordance with the regulatory accounting standards applicable to each of them in their corresponding jurisdiction. Mercantil Banco Universal Compared to the close of March 2011, Mercantil Banco Universal s total assets grew Bs 5,798 million (12.1%); net loans Bs 4,759 million (17.7%) to Bs 31,630 million, and government deposits Bs 5,368 million (12.8%) to Bs 47,371 million. Also, The ratio of loans to deposits increased from 64.0% to 66.8% (61.2% in June 2010). Loan portfolio quality remains very favorable, with a ratio of past-due and nonperforming loans to gross loans of 0.9%, compared to 3.1% for the Venezuelan financial system as a whole. At June 30, 2011 the Mercantil Banco Universal subsidiary ranks fifth in Venezuela s financial system in terms of total assets, with an 11.4% market share. The leading institution s share is 14.0% and the country s five main banks account for Mercantil C.A. Banco Universal Consolidated (In millions of Bs and US$) US$ Total Assets 12,518 53,695 47,897 40,234 Investments Portfolio 2,138 9,169 9,700 6,524 Loan Portfolio 7,374 31,630 26,871 21,279 Deposits 11,044 47,371 42,003 34,780 Shareholders Equity 1,143 4,903 4,544 4,224 Income net Quarter Income net Semester Historic figures in accordance with the standards of the Venezuelan Superintendency of Banking Sector Institutions (SUDEBAN). 60.4% of the country s financial system. It also ranks second in terms of agricultural loans, mortgages and total deposits with 13.4%, 14.2% and 13.4% of the market, respectively. Mercantil Banco Universal is Venezuela's leading bank in terms of savings deposits, gross loans, tourism and manufacturing loans with 20.6%, 15.0%, 16.3% and 17.8% of the market respectively. Shareholders Equity grew Bs 359 million (7.9%) to Bs 4,903 million, compared to the previous quarter. This increase mainly includes Bs 472 million in net quarterly income, a Bs 10 million increase from adjusting available-for-sale investments to their market value and a Bs 123 decline as a result of from posting exchange earnings as equity in June 2010, following the instructions of the Superintendency of Banking Sector Institutions (SUDEBAN). The equity/assets ratio as of June 30, 2011 is 10.6% (minimum requirement 8%) and the equity/risk-weighted assets ratio, according to the standards of the Superintendency of Banks in Venezuela, is 16.1% (minimum requirement 12%). In 2Q 2011 Net income registered Bs 207 million (78.1%) year-on-year growth to Bs 472 million, mainly due to a Bs 390 million increase in net interest income; Bs 123 million in income from posting exchange earnings previously registered as equity following the instructions of the Superintendency of Banking Sector Institutions (SUDEBAN); Bs 86 million in net income from commissions on services; Bs 69 million increase in contributions to regulatory bodies; Bs 55 million in allowances for losses on loan portfolio; Bs 91 million increase in personnel expenses; and Bs 134 million in income tax expenditure, among others. In semi-annual terms, net income registered Bs 336 million (76.0%) year-on-year growth to Bs 778 million, mainly associated with the Bs 675 million increase in net interest income; Bs 324 million in income from posting exchange earnings previously registered as equity following the instructions of the Superintendency of Banking Sector Institutions (SUDEBAN); Bs 101 million in net income from commissions on services; Bs 137 million increase in contributions to regulatory bodies; Bs 145 million increase in allowances for losses on loan portfolio; Bs 152 million in personnel expenses; and Bs 145 million in income tax expenditure, among others. 18

19 Mercantil Commercebank N.A. At June 30, 2011, total assets registered 3.0% quarter-overquarter decline to US$ 6,576 million, and 2.2% year-on-year growth. The ratio of Non-performing Assets to Total Assets declined from 6.4% to 5.0%. Deposits and investments sold under repurchase agreement reached US$ 5,064 million at the close of June 2011, 2.3 % more than in 1Q 2011 and 8.9 % above the figure for 2Q Net loans reached US$ 3,869 million, up 0.2% compared to the previous quarter and 6.8% more than in 2Q The nonperforming loans ratio improved from 10.2% at the close of 2Q 2010 to 7.2% at the close of 2Q At June 30, 2011 the Bank s equity totaled US$ 671 million, reflecting a quarter-over-quarter increase of US$ 12 million (1.8%), mainly due to US$ 2 million in quarterly income and a US$ 11 million increase from adjusting available-for-sale investments to their fair market value. In 2Q 2011, the US$ 2 million recorded in net income remained similar to the figure registered twelve months earlier. The result is mainly attributed to the US$ 2 million (5.7%) increase in net interest income of US$ 35 million in 2Q The level of loan portfolio was the same as in 2Q In semi-annual terms, US$ 5 million in net income reflects US$ 1 million (42.4%) year-on-year growth. This is mainly attributed to semi-annual growth of US$ 5 million (7.5%) in net interest income and US$ 2 million (7.0%) in loan portfolio provisions from US$ 68 million and US$ 26 million respectively. Income Tax expenditure also increased 64.9% to US$ 3 million in the first half of The main capital adequacy indicators for Mercantil Commercebank N.A. are 9.2% for Equity/Assets and 17.3% for equity/riskweighted assets, in line with the standards of the Office of Comptroller of the Currency (OCC). Mercantil Seguros Premium income in 2Q 2011 grew 32.3% to Bs 1,123 million compared with Bs 849 million at the close of 2Q At June 31, 2011, this subsidiary was the country s second insurance company in terms of net collected premiums, with a market share of 10.9%. Total Assets stood at Bs 3,929 million at June 30, 2011 reflecting 8.3% quarter-over-quarter growth. The Company s registered Bs 1,066 in equity, meeting the statutory solvency requirements in place. The figures presented include all the mandatory and voluntary reserves required to guarantee the Company s operations, including outstanding claims reserves and end-of-period payments. At the close of June 2011 the company s investment portfolio was Bs 3,445 million (12.2% up on the previous quarter). Total investments representing technical reserves reached Bs 2,949 Mercantil Commercebank N.A. Consolidated. (In millions of US$) Total Assets 6,576 6,782 6,435 Investments Portfolio 2,316 2,471 2,340 Loan Portfolio 3,869 3,859 3,623 Deposits 4,726 4,776 4,480 Investments Sold under Repurchase Agreements Shareholders Equity Income net Quarter Income net Semester 5 4 Figures presented according to accounting principles generally accepted in the United States (USGAAP ) Mercantil Seguros C.A. Consolidated (In million of Bs. and US$) US$ Total Assets 916 3,929 3,627 2,899 Investments suitable for representing Technical Reserves 688 2,949 2,818 2,230 Investments not-suitable for representing Technical Reserves Shareholders Equity 249 1, Income net Quarter Income net Semester Premiums Received Net Quarter 262 1,123 1, Premiums Received Net Semester 521 2,237 1,750 Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg) million (4.6% more than in the previous quarter), and liquidity levels meet all the statutory requirements on commitments towards policyholders, insurance advisers and reinsurers. In 2Q 2011 the technical result closed at Bs 48 million, which represents a 1,262% increase compared with 1Q 2010, with a combined operating ratio (COR) of 113.9%. Net income for 2Q 2011 registered Bs 84 million, 41.3% less than at the close of 2Q In semi-annual terms the technical result closed at Bs 91 million, which represents a 192% increase compared with 1Q 2010 with a COR of 113.8%. Net semi-annual income at June 30, 2011 was Bs 152 million, 24.6% lower than in the first half of The decline in net income is mainly due to the fact that Bs 116 million in exchange gains were included in 2010 using the new exchange rate set by the Venezuelan Central Bank for the valuation of assets and liabilities in foreign currency which went from Bs /US$ to Bs /US$. 19