BANCO AGRÍCOLA, S. A. AND SUBSIDIARIES

Transcription

1 BANCO AGRÍCOLA, S. A. AND SUBSIDIARIES Interim Consolidated Financial Statements (Unaudited) for the periods ended March 31, 2017 and (Free translation of a report originally issued in Spanish) Deloitte El Salvador, S.A. de C.V.

2 Banco Agrícola, S. A. and subsidiaries TABLE OF CONTENTS PAGES INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2017 AND 2016 (UNAUDITED) INTERIM CONSOLIDATED BALANCE SHEET 1 INTERIM CONSOLIDATED STATEMENT OF INCOME 2 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3-18 MAYO*02*2017*BANCO AGRICOLA-MAR-2017-INGLES

3 Banco Agrícola, S. A. and subsidiaries INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED) MARCH 31, 2017 AND 2016 (Expressed in thousands of dollars of the United States of America) Notes ASSETS INTERMEDIATION ASSETS Cash and banks $ 1,156,496.6 $ 918,986.7 Repurchase agreements and other securities exchange operations 3 2, ,133.4 Financial investments, net 4 198, ,612.9 Loan portfolio, net of allowance for loan losses 5 and 6 2,947, ,862, ,305, ,124,678.5 OTHER ASSETS Foreclosed assets, net of loss provision 7 8, ,757.4 Equity investments 8 4, ,455.6 Miscellaneous, net of loss reserves 23, , , ,888.8 FIXED ASSETS Property, equipment and others, net of depreciation 98, ,337.4 Total assets $ 4,440,290.2 $ 4,242,904.7 LIABILITIES AND SHAREHOLDERS EQUITY INTERMEDIATION LIABILITIES Client deposits 9 $ 3,016,567.5 $ 2,759,917.8 Loans from Banco de Desarrollo de El Salvador 6 and 10 25, ,712.4 Loans from other banks , ,323.4 Structured finance , ,850.0 Securities issued 6 and , ,336.9 Miscellaneous 21, , ,809, ,609,602.0 OTHER LIABILITIES Accounts payable 99, ,676.7 Provisions 20, ,405.9 Miscellaneous 21, , , ,138.0 Total liabilities 3,950, ,751,740.0 Non-controlling interests in subsidiaries SHAREHOLDERS EQUITY Paid-in capital stock 297, ,500.0 Capital reserve, retained earnings and unearned equity 192, ,650.3 Total shareholders equity 489, ,150.3 Total liabilities and shareholders equity $ 4,440,290.2 $ 4,242,904.7 The accompanying notes are an integral part of these interim consolidated financial statements. -1-

4 Banco Agrícola, S. A. and subsidiaries INTERIM CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THREE-MONTH PERIODS ENDED MARCH 31, 2017 AND 2016 (Expressed in thousands of dollars of the United States of America) Notes OPERATING INCOME: Interest income from loans $ 67,674.8 $ 65,460.4 Commissions and other income from loans 7, ,846.7 Interest and other investment income 2, ,045.4 Profit on sale of securities Repurchase agreements and securities exchange operations Interest on deposits Operations in foreign currency Other services and contingencies 13, , , ,003.6 MINUS - OPERATING COSTS: Interest and other deposit costs 10, ,603.9 Interest on loans 8, ,989.1 Interest on securities issued 3, ,913.6 Loss from sale of securities Operations in foreign currency Other services and contingencies 6, , , ,251.6 Provision for loan losses 5 15, , , ,972.4 INCOME BEFORE EXPENSES 48, ,031.2 OPERATING EXPENSES: 19 Executives and employees 15, ,734.3 General 11, ,149.7 Depreciations and amortizations 2, , , ,233.8 Operating profit 18, ,797.4 Other income and expenses, net 4, ,423.3 Profit before tax 23, ,220.7 Income Tax (7,114.3 ) (7,580.5) Special contributions per law (947.1 ) (877.2) Profit before non-controlling interests 15, ,763.0 Non-controlling interests in subsidiaries (0.6 ) (0.1) Net income $ 15,802.3 $ 16,762.9 The accompanying notes are an integral part of these interim consolidated financial statements. -2-

5 Banco Agrícola, S. A. and subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2017 AND 2016 (UNAUDITED) (Expressed in thousands of dollars of the United States of America, except the amount per share) 1. OPERATIONS Banco Agrícola, S.A. is a Salvadorian company (sociedad anónima) of fixed capital, whose main purpose is to engage in all banking and financial business allowed by the laws of the Republic of El Salvador. The Bank is part of a financial conglomerate whose holding company of exclusive purpose is Inversiones Financieras Banco Agrícola, S.A. These financial statements are expressed in thousands of dollars of the United States of America. Additional explanation paragraph about the translation into English of the original financial statements issued in Spanish. These financial statements have been translated into English for the convenience of English-speaking readers and have been derived from the financial statements originally issued in Spanish. In the event of a discrepancy, the Spanish language version prevails. 2. SIGNIFICANT ACCOUNTING POLICIES The accounting standards used in the preparation of these interim consolidated financial statements were issued by the former Superintendency of the Financial System; notwithstanding, such accounting standards remain in effect in accordance with that established in the Law of Supervision and Regulation of the Financial System (Note 36) Technical standards and accounting principles - The Bank has prepared the accompanying interim consolidated financial statements based on the accounting standards issued by the Superintendence of the Financial System, which shall prevail in the event of any conflict with the International Financial Reporting Standards - IFRS (Note 34). Banks shall use the most conservative approach of the IFRS when the Superintendence has not expressed a preference for one of the options permitted; if the transaction or accounting operation is not regulated therein, they must be accounted for using the conceptual framework of the Accounting Standards for Banks in El Salvador. The presentation requirements for the financial statements and notes, as well as their disclosures, are established by NCB-017 Standards for the Preparation of Financial Statements of Banks. Banco Agrícola, S. A. and subsidiaries publishes its financial statements based on NCB-018 Standards for the Publication of Financial Statements of Banks. -3-

6 Below is a summary of the significant accounting policies: 2.2. Consolidation of financial statements - Banco Agrícola, S. A. consolidates its financial statements with those companies in which it holds more than fifty percent of the common shares. These companies are referred to as subsidiaries in articles 23, 24, 118 and 145 of the Banking Law. All significant accounts and intercompany transactions have been eliminated in order to prepare interim consolidated financial statements. The Bank s subsidiaries are listed below: Company Type of business Bank s equity interest Initial investment Investment per books Result of the period 2017 Arrendadora Financiera, S.A. Financial leasing 99.62% $ 7,851.4 $ 3,822.5 $ Credibac, S.A. de C.V. Credit card issuer * 99.90% $ 7,851.5 $ 3,836.3 $ Arrendadora Financiera, S.A. Financial leasing 99.62% $ 7,851.4 $ 3,632.7 $ 6.5 Credibac, S.A. de C.V. Credit card issuer * 99.90% $ 7,851.5 $ 3,646.5 $ (*) Currently, the Company s main activity is the recovery of the portfolio cleaned in previous years Mandatory policies - The mandatory accounting policies deal with the following matters: a) Investments in securities b) Interest provision and suspension of the provision c) Property and equipment d) Severance payments and voluntary retirement e) Loan loss reserves on risk assets f) Past due loans and interest g) Equity investments h) Foreclosed assets i) Operations in foreign currency j) Interest payable k) Revenue recognition l) Loss recognition on loans and accounts receivable m) General bank risk charges n) Country risk reserve o) Derivatives p) Employee benefits q) Commissions charged and paid out r) Membership dues, for guarantee and fraud protection s) Loyalty program t) Credit card operations exchange The policies on the matters mentioned above are published by the Superintendence of the Financial System in bulletins and other forms of publication Monetary unit - The Monetary Integration Law approved on November 30, 2000 establishes that as of January 1, 2001 the dollar of the United States of America shall be the currency of legal tender and that all transactions conducted within the financial system will be expressed in dollars. The Bank s books are kept in dollars of the United States of America, represented by the symbol $ in the accompanying financial statements. -4-

7 2.5. Use of accounting estimates in the preparation of the financial statements - The preparation of the financial statements requires the Bank s management to make certain estimates and assumptions that affect the balances of the assets and liabilities, the disclosures of contingent liabilities as of the date of the financial statements, as well as the amounts of revenue and expense of the reporting period. The assets and liabilities are recognized in the financial statements when it is probable that future economic benefits will flow to or from the entity and the different items have a cost or value that can be measured reliably. If in the future these estimates and assumptions, which are based on the management s best judgment as of the date of the financial statements, change with respect to the current circumstances, the original estimates and assumptions shall be appropriately modified in the year in which such changes occur. 3. REPURCHASE AGREEMENTS AND SECURITIES EXCHANGE OPERATIONS As of March 31, 2017, the Bank maintains repurchase agreements and other securities in the amount of $2,132.3 ($29,133.4 in 2016) that are securities traded in the Stock Exchange of El Salvador. 4. FINANCIAL INVESTMENTS AND THEIR PROVISIONS As of March 31, 2017 and 2016, the Bank recorded financial investments for $198,807.0 and $313,612.9, respectively. As of March 31, 2017, the Bank had established a provision for investment valuation of $150.8, on investment securities of $1, The coverage ratio is 10.0%. The coverage ratio is the quotient expressed as a percentage, resulting from dividing the provision amount by the asset amount. As of March 31, 2017 and 2016, the Bank has no securities securing loans received from correspondent banks. As of March 31, 2017 and 2016, the Bank has no restricted investments. The average yield of return on the financial investments is 5.27% in 2017 (3.87% in 2016), in the context of the interim consolidated financial statements taken as a whole. The average yield of return is the percentage that results from dividing investment portfolio income (including interest and commissions) by the average balance in the gross investment portfolio for the reporting period. 5. LOAN PORTFOLIO, CONTINGENCIES AND THEIR PROVISIONS As of March 31, 2017 and 2016, the Bank has the following balances in the portfolio of credit risk assets: Loans Contingencies Loans Contingencies Gross portfolio $ 3,032,641.5 $ 123,703.8 $ 2,947,635.8 $ 88,986.4 Minus: Reserves 85, , , ,160.2 Net risk portfolio $ 2,947,594.2 $ 109,442.5 $ 2,862,945.5 $ 74,

8 As of March 31, 2017 and 2016, the Bank has a total of $99,308.6 and $98,850.5 respectively, in loan loss reserves to cover possible losses. The movement recorded during the reporting period in loan loss accounts is summarized as follows: Loans and interest Contingencies Total Balances as of December 31, 2015 $ 85,820.1 $ 14,059.2 $ 99,879.3 Plus: Reserves created 11, ,543.6 Minus: Reserves released (860.1 ) (17.1 ) (877.2 ) Settlement of loans and interest (11,695.2 ) - (11,695.2 ) Balances as of March 31, 2016 $ 84,690.3 $ 14,160.2 $ 98,850.5 Balances as of December 31, 2016 $ 83,751.8 $ 14,141.9 $ 97,893.7 Plus: Reserves created 14, ,830.3 Minus: Reserves released (426.1 ) (19.6 ) (445.7 ) Settlement of loans and interest (12,969.7 ) - (12,969.7 ) Balances as of March 31, 2017 $ 85,047.3 $ 14,261.3 $ 99,308.6 Loss reserves on contingencies are presented under other liabilities - miscellaneous. As of March 31, 2017, the Bank released $445.7 ($877.2 in 2016) from loss reserves. This amount is presented under item for other income and expenses, net in the interim consolidated statement of income. As of March 31, 2017 and 2016, the Bank maintains $22,128.7 and $21,601.3, respectively, in voluntary reserves with respect to those required by the Superintendence of the Financial System. The coverage ratio is 3.15% (3.26% in 2016). The coverage ratio for each type of reserve is the quotient expressed as a percentage, resulting from dividing the provision amount by the asset amount. The average rate of return on the loan portfolio is 9.75% in 2017 and 9.78% in The average rate of return is the percentage that results from dividing the loan portfolio income (including interest and commissions) by the average balance in the gross loan portfolio for the reporting period. Loans with adjustable interest rates account for 97.47% (97.58% in 2016) of the loan portfolio, and fixed interest rate loans account for 2.53% (2.42% in 2016). Interest earned on the loan portfolio and not recognized as results in the reporting period amount to a $1,304.2 ($1,258.3 in 2016). As of March 31, 2017, the Bank recovered $3,974.8 ($3,860.2 in 2016) in loans and interest receivable settled as uncollectible in previous years. This amount is presented under the item other income and expenses, net in the interim consolidated statement of income. 6. PLEDGED PORTFOLIO The Bank has raised the following funds using the loan portfolio as collateral: a. Loans received from Banco de Desarrollo de El Salvador for $34,272.9 ($30,413.6 in 2016), which are secured with category A and B loans for an amount of $25,798.3 ($23,672.0 in 2016); as of March 31, 2017 the loan balance plus interest is $25,866.5 ($23,712.4 in 2016). -6-

9 b. CIBAC$15 investment certificates issue, placed through the Stock Exchange of El Salvador, for $20,000.0 ($40,981.1 in 2016), and accrued interest for $24.1 ($66.3 in 2016), which is secured with category A mortgage loans for $28,713.7 ($26,135.7 in 2016). The maturity date is August 24, c. CIBAC$16 investment certificates issue, placed through the Stock Exchange of El Salvador, for $110,000.0 ($122,000.0 in 2016), and accrued interest for $57.5 ($83.8 in 2016), which is secured with category A mortgage loans for $138,233.9 ($138,590.8 in 2016). The maturity date is April 30, d. CIBAC$17 investment certificates issue, placed through the Stock Exchange of El Salvador, for $89,000.0, and accrued interest for $68.9, which is secured with category A mortgage loans $92, The maturity date is November 30, Records of the loans listed above are identifiable in order to answer to creditors for legal liabilities deriving from the relevant contracts. 7. ASSETS RECEIVED AS REPAYMENT (FORECLOSED ASSETS) As of March 31, 2017 and 2016, the Bank maintains $8,632.7 and $7,757.4, respectively, in foreclosed assets. The movement in foreclosed assets during the reporting periods is summarized as follows: Asset amount Reserve amount Net amount of reserve Balances as of December 31, 2015 $ 57,440.6 $ 49,188.1 $ 8,252.5 Plus: Acquisitions 1, ,507.0 (14.8 ) Minus: Disposals (1,896.3 ) (1,416.0) (480.3 ) Balances at March 31, 2016 $ 57,036.5 $ 49,279.1 $ 7,757.4 Balances as of December 31, 2016 $ 60,755.0 $ 51,820.8 $ 8,934.2 Plus: Acquisitions 1, , Minus: Disposals (2,480.3 ) (2,126.7) (353.6 ) Balances at March 31, 2017 $ 59,425.3 $ 50,792.6 $ 8,632.7 For the three-month period ended March 31, 2017, the Bank created loss reserves on foreclosed assets in the amount of $1,098.5 ($1,507.0 in 2016). This amount is presented under the item other income and expenses, net in the interim consolidated statement of income. During the reporting periods, the following foreclosed assets were written-off: a. Due to sales: Sale price Acquisition cost Provision created Profit 2017 $ 1,959.0 $ (2,480.3 ) $ 2,126.7 $ 1, $ 1,574.6 $ (1,896.4 ) $ 1,416.0 $ 1,094.2 b. Due to transfer to property and equipment: During the periods ended March 31, 2017 and 2016, no assets received as repayment were transferred to the Bank s property and equipment. -7-

10 c. Due to destruction/liquidation: During the periods ended March 31, 2017 and 2016, no foreclosed assets were destroyed or liquidated. d. Due to donation: During the periods ended March 31, 2017 and 2016, there were no donations of foreclosed assets. Provisions on foreclosed assets are recorded in equity accounts. For presentation purposes, such provisions are deducted from the related asset. 8. EQUITY INVESTMENTS The Bank s equity investments in joint ventures are as follows: Company name Type of business Percentage of equity share Initial investment date Initial investment amount Investment per books March 31, 2017 SERFINSA, S.A. de C.V. Financial services 47.8% August 18, 1993 $ $ 1,133.7 SERSAPROSA Armored transportation services 25.0% February 23, ,000.6 Garantías y Servicios SGR, S.A. de C.V. Mutual guarantee services 2.4% May 5, ACH de El Salvador, S.A. de C.V. Administration and operation of electronic payments 25.0% May 31, $ $ 4,635.3 March 31, 2016 SERFINSA, S.A. de C.V. Financial services 47.8% August 18, 1993 $ $ 1,133.7 SERSAPROSA Armored transportation services 25.0% February 23, ,872.0 Garantías y Servicios SGR, S.A. de C.V. Mutual guarantee services 2.4% May 5, ACH de El Salvador, S.A. de C.V. Administration and operation of electronic payments 25.0% May 31, $ $ 4,455.6 During the reporting periods as of March 31, 2017 and 2016 no income from the equity interest in the companies mentioned above was recorded. 9. CLIENT DEPOSITS The Bank s deposit portfolio is distributed as follows: Deposits from the public $ 2,693,945.8 $ 2,453,125.0 Deposits from other banks 30, ,583.1 Deposits from government entities 237, ,870.4 Restricted and inactive deposits 54, ,339.3 $ 3,016,567.5 $ 2,759,917.8 The Bank s deposit portfolio in foreign currency at its equivalent in U.S. dollars, as of March 31, 2017 and 2016, amounts to $282.9 and $235.3, respectively, and corresponds to deposits from the public.

11 The Bank s different types of deposits are as follows: Current account deposits $ 811,679.6 $ 744,548.6 Savings account deposits 1,267, ,153,417.7 Time deposits 936, , $ 3,016,567.5 $ 2,759,917.8 Following is the detail of the Bank s types of deposits in foreign currency at their equivalent in U.S. dollars for the reporting periods: Current account deposits $ $ The average cost rate is 1.46% (1.39% in 2016), in the context of the interim consolidated financial statements taken as a whole. The average cost rate of the deposits portfolio is the percentage that results from dividing the deposit taking cost by the average balance of the deposits portfolio. 10. LOANS FROM BANCO DE DESARROLLO DE EL SALVADOR (BANDESAL) As of March 31, 2017, the Bank has loans from Banco de Desarrollo de El Salvador for an amount of $25,866.5 ($23,712.4 in 2016), which includes the principal plus interest. 11. LOANS FROM OTHER BANKS As of March 31, 2017, the loan obligations with foreign banks amount to $220,268.6 ($290,323.4 in 2016), which includes the principal plus interest. 12. STRUCTURED FINANCING As of March 31, 2017, the Bank has structured financing amounting to $305,793.8 ($305,850.0 in 2016), which includes the principal plus interest. On June 18, 2015, the Bank signed a loan agreement with Bank of America, N. A. in the amount of $300,000.0 (three hundred million U.S. dollars and 00/100) referred to as a Senior Unsecured Loan Agreement, for a 5-year term, at a fixed interest rate of 6.75%. The interest payments will be paid semi-annually, with the first payment due in December 2015 and the payment of principal due upon maturity. This loan is one component of a structured financing transaction, whose funding corresponds to the following structure: a) On May 19, 2015, a Declaration of Trust called Agricola Senior Trust was signed, with the original trustee being Intertrust SPV (Cayman) Limited, whose sole purpose is to issue notes for the amount of $300,000.0 (three hundred million U.S. dollars and 00/100), at a fixed annual interest rate of 6.75% and maturing in July b) The funds raised through the issuance of notes in international markets for institutional investors (144-A) by the Trust were used to acquire a stake in the loan granted by Bank of America, N.A. to Banco Agrícola, S.A.

12 c) Payments made by Banco Agrícola to Bank of America N.A for principal and interest will be transferred to the Trust in accordance with the Participation Agreement signed by Bank of America N.A. and Intertrust SPV (Cayman) Limited as administrator of the Trust. d) The party under obligation to pay the holders of the notes is the Trust. e) Banco Agrícola, S.A. is guarantor before the Trust for the fulfillment of its obligations in the loan agreement with Bank of America and, in its absence, to provide the amount of principal and interest to the Trust for the payment of the notes. 13. REPURCHASE AGREEMENTS AND OTHER SECURITIES EXCHANGE OBLIGATIONS As of March 31, 2017 and 2016, the Bank does not have any obligations recorded for repurchase agreements and other securities exchange obligations. 14. SECURITIES ISSUED The following table presents securities issued based on Article 53 of the Banking Law in order to raise funds from the public: Issue March 31, 2017 Issue amount Amount placed Balance of principal plus interest Interest rate Date of issue Term agreed Type of Guarantee CIBAC$15 $ 150,000.0 $ 20,000.0 $ 20, % August 1, years Category A loans CIBAC$16 200, , , % April 30, to 12 years Category A loans CIBAC$17 400, , , % July 29, to 7 years Category A loans and equity Totals $ 750,000.0 $ 219,000.0 $ 219,150.5 March 31, 2016 CIBAC$14 $ 100,000.0 $ 51,000.0 $ 51, % July 10, to 7 years Category A loans CIBAC$15 150, , , % August 1, to 10 years Category A loans and equity CIBAC$16 200, , , % April 30, years Category A loans and equity Totals $ 450,000.0 $ 213,981.1 $ 214, BONDS CONVERTIBLE INTO SHARES As of March 31, 2017 and 2016, the Bank does not present any balance for this item. 16. LOANS CONVERTIBLE INTO SHARES As of March 31, 2017 and 2016, the Bank does not present any balance for this item. 17. RECOVERY OF WRITTEN DOWN ASSETS As of March 31, 2017 and 2016, the Bank does not present any balance for this item. -10-

13 18. EARNINGS PER SHARE The earnings per share for the reporting periods are as follows: Earnings per share (in U.S. dollars) $ 0.90 $ 0.96 The above amount is based on the net earnings presented in the statement of income and the average amount of outstanding shares of 17,500,000 in 2017 and OPERATING EXPENSES The operating expenses are detailed as follows: Expenses for executives and employees Salaries $ 8,740.4 $ 8,846.6 Personnel benefits 6, ,449.2 Severance payments Directors expenses Other personnel expenses , ,734.3 General expenses 11, ,149.7 Depreciations and amortizations 2, ,349.8 Total $ 29,689.1 $ 29, TRUSTS As of March 31, 2017, the Bank manages $44,171.8 ($49,324.7 in 2016) in total trust assets. During the periods ended March 31, 2017 and 2016, the trusts obtained income of $74.3 and $72.7, respectively. The amounts for each trust are detailed as follows: Trust Asset amount Bank Asset proceeds amount Bank proceeds Trust A $ 2,445.8 $ 2.8 $ 2,462.8 $ 3.0 Trust B Trust C Trust D , Trust E Trust F Trust G Trust H Trust I 7, , Trust J 5, , Trust K 4, , Trust L , Trust M Trust N Trust Ñ 3, , Carried over $ 25,173.6 $ 39.4 $ 29,890.0 $

14 Trust Asset amount Bank Asset proceeds amount Bank proceeds Brought forward $ 25,173.6 $ 39.4 $ 29,890.0 $ 42.7 Trust O Trust P 4, , Trust Q 2, , Trust R , Trust S 1, , Trust T Trust U 2, , Trust V Trust W Trust X 1, , Trust Y Trust Z Trust AA Trust AB Trust AC Trust AD Trust AE Trust AF Trust AG Trust AH Trust AI Trust AJ Trust AK 1, Trust AL Trust AM HUMAN RESOURCES INDICATORS $ 44,171.8 $ 74.3 $ 49,324.7 $ 72.7 As of March 31, 2017 and 2016, the Bank has maintained an average (calculated based on the number of employees at the end of each month divided by 12) of 2,930 employees (2,906 in 2016). Of this number of employees, according to payroll records, approximately 60.6% (61.8% in 2016) is involved in the banking business and the rest work in human resources, administration and support areas. 22. PENDING LAWSUITS During the ordinary course of operations, the Bank and its subsidiaries are party to lawsuits brought against them by various interested parties. Typically these actions relate to events or information that may positively or negatively affect the Bank s or its subsidiaries legal, economic or financial situation. As of March 31, 2017, the Bank does not report any significant pending legal or administrative lawsuits. 23. RELATED PARTIES AND RELEVANT SHAREHOLDERS Per the Banking Law, related parties are those holders of three percent or more of a bank s shares. Shares owned by spouses and first-degree relatives are considered as owned by those holders in order to determine this percentage, as well as their interest in companies that are bank shareholders. The term related parties also includes a group that the Banking Law calls relevant shareholders, and these are holders of at least ten percent of the bank s shares. Bank directors and managers are also considered related parties. -12-

15 24. LOANS TO RELATED PARTIES Arts. 203, 204, 205 and 206 of the Banking Law ban banks and their subsidiaries from granting loans, credits, guarantees and bonds to individuals or legal entities directly or indirectly related to an entity s ownership or directly to an entity s management, or from purchasing securities issued by such entities in a global amount that exceeds five percent (5%) of the paid-in capital and capital reserves of each of the consolidated entities. As of March 31, 2017 and 2016, capital stock and capital reserves amount to $435,032.0 in 2017 ($430,191.4 in 2016). Related party loans and credits as of March 31, 2017, amount to $17,616.3 ($15,954.9 in 2016), and account for 4.05% (3.71% in 2016) of the Bank s paid-in capital stock and capital reserves. This amount is distributed among 544 debtors (551 in 2016). During the reporting period, in the context of the interim consolidated financial statements taken as a whole, the Bank complied with the related lending provisions mentioned above. 25. LOANS TO FOREIGN SUBSIDIARIES Pursuant to Article 23 of the Banking Law, lending by banks to their foreign subsidiaries cannot exceed the lower between fifty percent (50%) of the equity and ten percent (10%) of the loan portfolio, of the lender. As of March 31, 2017 and 2016, there are no loans with foreign subsidiaries pursuant to the provisions in Article 23 of the Banking Law. During the reporting period, in the context of the interim consolidated financial statements taken as a whole, the Bank complied with the related lending provisions mentioned above. 26. LOANS TO DOMESTIC SUBSIDIARIES Pursuant to Article 24 of the Banking Law, lending by banks to their domestic subsidiaries cannot exceed the lower between fifty percent (50%) of the equity and ten percent (10%) of the loan portfolio, of the lender. As of March 31, 2017, the Bank s equity was $472,479.1 ($470,113.1 in 2016) and the gross loan portfolio is $3,032,641.5 ($2,947,635.8 in 2016). As of March 31, 2017, the total credits granted to domestic subsidiaries is $3,231.7 ($3,547.1 in 2016), accounting for 0.7% (0.8% in 2016) of the entity s equity and 0.1% (0.1% in 2016) of the gross loan portfolio. During the periods ended March 31, 2017 and 2016, in the context of the interim consolidated financial statements taken as a whole, the Bank complied with the related lending provisions mentioned above. 27. LENDING LIMITS Pursuant to Article 197 of the Banking Law, banks and their subsidiaries cannot grant loans nor have an interest that exceeds twenty-five percent (25%) of their own equity, to one individual or group of individuals with economic relationships. It also establishes that the excess over fifteen percent (15%) in loans, with respect to their own equity, must be covered by sufficient actual guarantees or guarantees from first-rate local or foreign banks. As of March 31, 2017 and 2016, there are no loans granted to one individual or economic group exceeding twenty-five percent of the Bank s equity. -13-

16 During the reporting period, in the context of the interim consolidated financial statements taken as a whole, the Bank complied with the provisions of Article 197 of the Banking Law. 28. RELATED PARTY CONTRACTS Pursuant to Article 208 of the Banking Law, the Superintendence of the Financial System may object to the signing of contracts between a bank and its related parties. Related parties are those individuals who are directly or indirectly linked to a bank s ownership or directly related to management. As of March 31, 2017 and 2016, in the context of the interim consolidated financial statements taken as a whole, there are no contracts signed with related parties pursuant to Article 208 of the Banking Law. During the period ended March 31, 2017 and 2016, the Superintendence of the Financial System did not object to related party contracts. 29. LENDING AND BORROWING OPERATIONS RATIOS IN FOREIGN CURRENCY Pursuant to Article 62 of the Banking Law, the Superintendence of the Financial System will determine the standards related to banks lending and borrowing ratios with the aim of maintaining currency exchange risk within reasonable limits. To fulfill this purpose, the Superintendence of the Financial System has established that the absolute difference between assets and liabilities in foreign currency cannot exceed 10% of equity. As of March 31, 2017 and 2016, the Bank has complied with the provision mentioned above by maintaining a ratio of 0.01% (0.38% in 2016). 30. EQUITY OR NET EQUITY REQUIREMENTS Pursuant to Article 41 of the Banking Law, with the purpose of remaining solvent, banks must present at all times the following minimum ratios: i) 12.0%, capital to risk weighted assets amount as established in the cited law; ii) 7.0%, capital to liabilities and contingencies; and iii) 100% or more, capital to minimum paid-in capital referred to in Article 36 of the Banking Law. As of March 31, 2017 and 2016, the Bank s situation in the context of the interim consolidated financial statements taken as a whole is as follows: Capital to risk weighted assets ratio 14.57% 15.23% Capital to liabilities and contingencies ratio 11.61% 12.29% Capital to minimum paid-in capital ratio % % 31. RISK RATING Article 235 of the Banking Law requires the Bank to publish risk ratings given by a risk rating agency registered with the Superintendence of Securities (currently the Superintendence for the Financial System). The Bank s ratings are as follows: Local Rating Fitch Ratings Zumma Ratings S. A. de C. V. Fitch Ratings Zumma Ratings S. A. de C. V (1) 2017 (1) 2016 (2) 2016 (2) Rating given as issuer EAAA (slv) EAAA.sv EAAA (slv) EAAA.sv

17 (1) The reference date of the risk ratings for the 2017 period is as of June 30, (2) The reference date of the risk ratings for the 2016 period is as of June 30, The ratings descriptions are as follows: EAAA Given to entities that show the highest repayment ability on their obligations under agreed terms and conditions, which would not be affected by changes in the entity, its industry, and the economy. Risk factors are insignificant. The + sign Indicates an upward trend toward the immediately higher rating category, while the - sign reflects a downward trend toward the immediately lower category. sv and slv In the ratings mean El Salvador. 32. SEGMENT INFORMATION As of March 31, 2017 and 2016, the consolidated Bank was engaged mainly in banking services in El Salvador. 33. DERIVATIVES As of March 31, 2017, the Bank negotiated a Forward contract to hedge the exchange rate from the risk associated with fluctuations in the contractual exchange rate, for an amount of $4,267.0 on a delivery basis. 34. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) AND ACCOUNTING STANDARDS ISSUED BY THE SUPERINTENDENCE OF THE FINANCIAL SYSTEM The Bank s Management has initially established the following significant differences, regarding its line of business, between the International Financial Reporting Standards (IFRS) and accounting standards issued by the Superintendence of the Financial System. 1. IFRS 1 sets out the basic requirements for adopting IFRS for the first time. It stipulates that an entity must use the same accounting policies to prepare its opening balance sheet and for all the periods presented in the first IFRS financial statements. Furthermore, such accounting policies must relate to all and each of the IFRS in effect as of the date of the first IFRS report. 2. Investments are classified as held- to-maturity and available-for-sale securities, and are presented at the lower of cost or market value. IFRS require entities to classify investments into the following categories: financial assets at fair value through profit or loss; loans and accounts receivable originated by the entity; available-for-sale financial assets; and held-to-maturity investments. Investment classification is the basis for determining the corresponding method of valuation. Additionally, when written off financial assets entail the purchase of a new financial asset, the entity will recognize the new financial asset at fair value. Furthermore, not all disclosures related to the use of financial instruments are being made; for example: i. Objectives and policies related to financial risk management, including hedging policy, itemized by each type of main expected operations. ii. Information on the nature of the risks covered, such as credit risk, market risk, currency risk, and interest rate risk. -15-

18 3. The IFRS require a maturity analysis on derivative and non-derivative financial liabilities (including financial guarantee contracts) that show remaining contract maturities. 4. The IFRS require entities to disclose the fair value of each class or group of financial assets and liabilities. 5. Minimum credit risk provisions are established based on standards issued by the Superintendence of the Financial System; additionally, the Bank s policy is to create reserves in excess to requirements established by the regulator; according to the IFRS, when preparing financial statements, the portfolio s credit risk profiles must be considered based on variables such as the economy s behavior, historic delinquency trends, geographic location, economic activity, etc. in order to establish reserves adequate for the risk of recovering these loans. The IFRS suggest that the analysis for establishing reserves would have to be based on future cash flows applying historic loss rates, including the guarantee s present realization value. 6. According to the IFRS, voluntary reserves are not part of results, but rather they are appropriations on retained earnings. 7. Reserves created in previous years that are later released become credits to other non-operating income; according to the IFRS, operations of the same nature must be shown net. 8. The accounting policy on interest recognition indicates that no interest is estimated on past due loans. IFRS require the entity to recognize interest on all financial assets, as well as their respective impairment. Furthermore, commissions charged and paid out to affiliated businesses and/or other credit card issuers shall be recognized upon completion of the respective service. 9. Property, plant and equipment revaluations are approved by the Superintendence of the Financial System at the request of the Bank, and are not updated periodically; the IFRS require periodic updates of property, plant and equipment revaluations in order to reflect fair market values of such revaluated assets. The useful life of the fixed assets is determined based on fiscal periods; according to the IFRS, the useful life of the fixed assets must be determined based on the economic life of the asset; furthermore, the IFRS have revised the definition of residual value of the assets. 10. No deferred tax is recorded; the IFRS require entities to recognize deferred taxes when the tax basis valuation of assets and liabilities differs from financial accounting amounts. 11. IFRS 5 shall be applied to foreclosed assets, and it states that an impairment loss shall be recognized on any asset written off originally or subsequently at fair value minus selling costs. Under the IFRS, statutory reserves on foreclosed assets are not part of the results of the period; they are appropriations on retained earnings. 12. Current standards state that profits on the financed sale of foreclosed assets shall be recognized as income until such profit is received, which is not in accordance with the IFRS. 13. The IFRS require entities to record estimates on asset impairment, based on future asset related cash flows, discounted at the proper interest rate. This process should be completed when previously established impairment indicators are met. The accounting policy does not require such estimates. -16-

19 14. The consolidation of financial statements is based on equity interest. The IFRS require consolidation based on control, showing minority interest in the balance sheet, statement of income and statement of changes in equity as equity. 15. The IFRS require entities to disclose qualitative and quantitative information on their exposure to risks arising from financial instruments, including credit, liquidity and market risks. Additionally, entities are required to disclose a sensitivity analysis on each type of market risk to which they are exposed, as well as the methods used and assumptions made. The current accounting policy does not require these types of disclosures. 16. The accounting policy related to the loyalty programs requires creating a provision to cover program redemptions. The IFRS require entities to recognize obligations arising from a liability related to deferred income at fair value from miles not redeemed from the loyalty program when they become known. 17. There is no disclosure of an accounting policy on fiduciary activity. The current accounting policy does not require such disclosure. 18. Derivatives are disclosed only in a specific note to the financial statements. The IFRS require entities to account for assets and liabilities resulting from derivative operations. Furthermore, the Bank is required to assess the existing ratio between hedging instruments and hedged financial instruments in order to establish the accounting treatment of resulting profits or losses between the hedge and the hedged instruments. 19. The IFRS establish that the interim financial information must include at a minimum, the following information: condensed balance sheet, condensed statement of comprehensive income, condensed statement of changes in equity, condensed statement of cash flows and selected explanatory notes. Likewise, the condensed balance sheet is presented comparatively with the balance sheet of the immediately preceding annual accounting period. 35. RELEVANT FACTS AND SUBSEQUENT EVENTS The most relevant events that took place during the periods ended March 31, 2017 and 2016 are summarized below: 1. The General Ordinary Shareholders Meeting of Banco Agrícola, S. A. held on February 8, 2017 (February 10, 2016), agreed to a dividend payment of three U.S. dollars and seventy-two cents per share (four U.S. dollars and twelve cents per share in 2016); the total distribution amount was $65,100.0 ($72,100.0 in 2016); additionally, a decision was made to transfer $23,544.2 to the capital reserves-voluntary reserves account from the results of the year 2016 ($18,703.6 to the capital reserves account from the results of the year 2015). 2. The General Ordinary and Extraordinary Shareholders Meeting of Credibac, S. A. de C. V., held on February 7, 2017 (February 9, 2016), agreed to a dividend payment of three hundred ninety-four U.S. dollars and sixty-three cents per share (four hundred forty-two U.S. dollars and forty-five cents per share in 2016); the total distribution amount was $453.8 ($508.8 in 2016) corresponding to distributable net earnings and voluntary capital reserves for the years 2016 and 2015, respectively. 3. At the General Shareholders Meeting held on April 18, 2016, the resignation of Juan Carlos Mora Uribe from the position of Alternate Director of the Board was announced. Ricardo Mauricio Rosillo Rojas was appointed to take over this position for the period. The Board was composed as follows: -17-

20 Position President: Vice President: Secretary: Director: Alternate Director: Alternate Director: Alternate Director: Alternate Director: Director Jaime Alberto Velásquez Botero Gonzalo de Jesús Toro Bridge Ramón Fidelio Ávila Qüehl Joaquín Alberto Palomo Déneke Maria Cristina Arrastía Uribe Ricardo Mauricio Rosillo Rojas Eduardo David Freund Waidergorn Ricardo Antonio Juan Luis Balzaretti Cepeda 4. The General Shareholders Meeting held on February 10, 2016 agreed to appoint the following as members of the Board of Directors for the period: Position President: Vice President: Secretary: Director: Alternate Director: Alternate Director: Alternate Director: Alternate Director: Director Jaime Alberto Velásquez Botero Gonzalo de Jesús Toro Bridge Ramón Fidelio Ávila Qüehl Joaquín Alberto Palomo Déneke Maria Cristina Arrastía Uribe Juan Carlos Mora Uribe Eduardo David Freund Waidergorn Ricardo Antonio Juan Luis Balzaretti Cepeda 5. On September 4, 2016 the CIBAC$14 investment certificates issue, placed through the Stock Exchange of El Salvador, for $100,000.0 matured. As of March 31, 2016 the amount placed was $51,000.0, and $205.7 in accrued interest, which was secured with category A mortgage loans for an amount of $64,536.3 and the Bank s equity. 6. On July 29, 2016, tranche 1 CIBAC$17 investment certificates were placed for an amount of $40, This issue was authorized by the Superintendency of the Financial System at meeting No. CD-23/2016 held on June 23, 2016, for an amount of $400, LAW OF SUPERVISION AND REGULATION OF THE FINANCIAL SYSTEM On January 14, 2011 the Legislative Assembly of El Salvador approved Legislative Decree No. 592, through which the Law of Supervision and Regulation of the Financial System was enacted. The Financial Supervision and Regulatory System was established by the Superintendency of the Financial System and the Central Reserve Bank of El Salvador, with this Superintendency being the entity responsible for the supervision of the participants in the financial system and others that are supervised in accordance with this Law. The regulatory and prudent framework that is necessary for the proper application of this Law and other Laws that regulate the participants in the financial system and others that are supervised corresponds to the Central Reserve Bank of El Salvador. * * * * * * -18-