Mercantil Servicios Financieros, C.A. Financial Report Second Quarter 2017

Transcription

1 Mercantil Servicios Financieros, C.A. Financial Report Second Quarter Mercantil Servicios Financieros (Mercantil). Financial Report Second Quarter Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY Caracas, July 28,. Mercantil announces its earnings for the quarter ended 30,. Summary Net Income: Mercantil posted Bs 15,176 million in net income in 2Q, reflecting 362.4% year-on-year growth from Bs 3,283 million. Compared to the first half of 2016, net income was Bs 20,144 million, up 197.9% from 1H Net earnings per share in 2Q were Bs (Bs 32.4 in 2Q 2016). Net earnings per share in 1H were Bs (Bs 67.3 in 1H 2016). ROE & ROA in 2Q reached 60.1% and 3.2% respectively (23.9% and 1.8% in 2Q 2016). In 1H, these indicators were 39.9% and 2.1%, respectively (24.6% and 1.9% in 1H 2016). Class A and B share prices closed at Bs 49,100 and Bs 49,500, respectively, compared to Bs 17,300 per Class A share and Bs 17,500 per Class B share, respectively at March 31,. At 30, 2016, the prices of each Class A and B shares were Bs 4,785 and Bs 4,700, respectively. Main variations in net quarterly income are: Net Interest Income reached Bs 66,811 million, up Bs 47,989 million (254.9%) from Bs 18,822 million in 2Q 2016, mainly due to the increase in financial assets and liabilities. The financial intermediation ratio (loans-to-deposits) was 56.5% at the close of 2Q (67.2% at 30, 2016). Commissions and other income reached Bs 27,264 million, up Bs 18,322 million (204.9%) from Bs 8,942 million in 2Q 2016, mainly due to Bs 18,225 million increase in income for commissions on the use of debit and credit cards, among other, as well as income from financing insurance policies. Personnel and Operating Expenses reached Bs 64,545 million, up Bs 42,689 million (195.3%) from Bs 21,856 million in 2Q 2016, due to Bs 11,501 million (214.8%) increase in personnel expenses, Bs 3,629 million (142.5%) in expenses for contributions to regulatory entities, and Bs 27,559 million (197.4%) in operating expenses. Personnel and Operating Expenses have been affected by the inflationary environment in the Venezuelan economy. Current Corporate Income Tax Expenses reached Bs 7,203 million, up Bs 4,868 million (208.5%) from Bs 2,335 million in 2Q Summary of Financial Statements and Ratios (In millions of Bolivars, except percentages) March 2016 Jun. 17 vs. Mar. 17 Jun. 17 vs. Jun. 16 QUARTERLY RESULTS % % Net Interest Income 66,811 34,596 18, Allowance for losses on loan portfolio 14,628 3,564 2, Commissions and other income 27,264 19,332 8, Insurance premiums, net of claims 7,485 5,657 2, Salaries and Operating Expenses 64,545 49,654 21, Net Income Quarter 15,176 4,968 3, Net Income 6 Months 20,144 6, KEY FINANCIAL INDICATORS Income per share Quarter Bs / share Income per share 6 Months Bs / share Market price A share 49,100 17,300 4, Market price B share 49,500 17,500 4, Book value per share 2, Net Income (quarter) / Average Assets (ROA) 3.2% 1.2% 1.8% Net Income (quarter) / Average Equity (ROE) 60.1% 25.7% 23.9%

2 Assets: In 2Q total assets registered Bs 1,152,126 million (65.8%) compared to 1Q, to reach Bs 2,901,958 million, up Bs 2,072,125 million (249.7%) at the close of 2Q Main variations for this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 985,020 million (60.3%) increase in 2Q and Bs 1,910,037 million (269.4%) increase compared to Mercantil Bank, N.A. registered US$ 156 million (1.9%) increase in 2Q and US$ 243 million (2.9%) increase compared to Mercantil Seguros registered Bs 22,285 million (30.8%) increase in 2Q and Bs 51,105 million (117.3%) increase compared to Net Loan Portfolio: In 2Q, net loans registered Bs 524,442 million (68.6%) quarter-over-quarter growth to Bs 1,288,440 million and Bs 841,021 million (188.0%) year-on-year growth. Main variations for this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 522,680 million (74.4%) quarter-over-quarter growth and Bs 835,169 million (214.2%) year-on-year growth. Mercantil Bank, N.A. registered US$ 196 million (3.4%) quarter-over-quarter growth and US$ 549 million (10.1%) year-on-year growth. Deposits: In 2Q, deposits registered Bs 829,891 million (54.7%) quarter-over-quarter growth to Bs 2,346,634 million and Bs 1,660,447 million (242.0%) year-on-year growth. Main variations for this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 830,536 million (57.3%) increase in 2Q and Bs 1,655,329 million (264.9%) year-on-year growth. Mercantil Bank, N.A. registered US$ 42 million (0.6%) increase in 2Q and US$ 135 million (2.1%) increase compared to Shareholders Equity: totaled Bs 229,810 million, representing a Bs 151,642 million (194.0%) quarter-over-quarter increase from Bs 78,168 million and Bs 164,608 million (252.5%) year-on-year growth. This quarterly variation is mainly due to Bs 15,176 million in net income, Bs 135,475 million increase in surplus on revaluation of fixed assets and Bs 953 million from adjusting available-for-sale securities to their market value, among other. Capital Ratios: Mercantil s equity to risk-weighted assets ratio at 30, is 14.9%, according to the National Securities Superintendency standards (SUNAVAL Superintendencia Nacional de Valores), (12.7% at 30, 2016). Mercantil Banco Universal, in accordance with the requirements of the Superintendency of Banking Sector Institutions (SUDEBAN Superintendencia de Instituciones del Sector Bancario) has an equity-to-assets ratio of 12.5% at 30,, and equity to risk-weighted assets ratio of 14.4% (11.9% and 14.2% at 30, 2016). Mercantil Bank, N.A. based on the standards of the U.S. Office of the Comptroller of the Currency (OCC) has an equity-to-assets ratio of 9.4% at 30, and an equity to risk-weighted assets ratio of 12.1% (9.4% and 12.5% at 30, 2016). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Summary of Financial Statements (In millions of Bolivars, except percentages) March 2016 Jun. 17 vs. Mar. 17 Jun. 17 vs. Jun. 16 % % Cash and due from banks 1,068, , , Investment Portfolio 183, , , Loan Portfolio, Net 1,288, , , Other assets 361,947 90,244 56, TOTAL ASSETS 2,901,958 1,749, , Deposits 2,346,634 1,516, , Financial Liabilities 27,439 15,986 12, Other Liabilities 298, ,935 66, Shareholders Equity 229,810 78,168 65, TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 2,901,958 1,749, , ASSETS UNDER MANAGEMENT 629, , ,

3 Table of contents Page Contribution of subsidiaries 4 Market share 5 Credit Ratings 5 Analysis of Consolidated Financial Statements 6 Operating Income Net Interest Income 6 Loan Portfolio Provision 7 Total Commissions and Other Income 8 Total Operating Expenses 9 Efficiency Ratios 10 Balance Sheet Liquidity 10 Investment Portfolio 11 Financial Intermediation Activity Loan Portfolio 12 Deposits 13 Total Assets 14 Financial Obligations 15 Shareholders Equity 15 Capital Ratios 15 Wealth Management 16 Performance of Subsidiaries in accordance to its Local Accounting Standards 17 Corporate Events 20 New Measures announced for the Venezuelan Financial Environment 20 Appendix I: Summary of the accounting principles used to prepare the financial statements 21 Appendix II: Financial statements of Mercantil Servicios Financieros 22 Appendix III: Consolidated Loan Portfolio by Classification 27 Appendix IV: Statutory percentage of loan portfolio in Venezuela 28 Appendix V: Stock Performance Summary and Financial Indicators of Mercantil Servicios Financieros 29 Appendix VI: Financial statements of Mercantil Banco Universal 31 Appendix VII: Financial statements of Mercantil Bank Holding Corporation 33 Appendix VIII: Financial statements of Mercantil Seguros 35 3

4 Contribution of Subsidiaries 30, MERCANTIL SERVICIOS FINANCIEROS (1) (In millions of Bolivars, except percentages) Shareholders Equity: Bs 229,810 millions Shareholders Equity (2) (2) (2) Mercantil Mercantil Other Banks Mercantil Banco Universal Bank Overseas Seguros Bs 208,616 Bs 6,941 Bs 2,791 Bs 17,089 Mercantil Merinvest Bs 878 Others Bs 1,365 Main Activity Venezuelan Universal Bank U.S. Domestic Bank & Brokerage International Banking Insurance in Venezuela and Abroad Investment banking, mutual funds, trading & brokerage Other Minor Investment Main Subsidiaries Mercantil Investment Services (MIS) Mercantil Trust Company (MTC) Mercantil Bank (Schweiz) AG. Mercantil Bank (Panamá) S.A. Mercantil Bank and Trust Limited (Islas Caiman) Mercantil Bank (Curacao) NV Mercantil Seguros Panamá S.A. Mercantil Merinvest, Casa de Bolsa, C.A. Mercantil Capital Markets (Panamá) Mercantil Servicios de Inversión, C.A. Mercantil Sociedad Administradora de Entidades de Inversión Colectiva, C.A. In millions of Bs (1) Total Total Assets 2,497,391 84,940 8,080 83, ,269 2,901,958 % Assets % % Investments 132,800 21,753 3,553 24, ,126 Loans (Net) 1,225,099 59,750 3, ,288,440 Deposits 2,276,523 64,790 5, ,346,633 Contribution Income net: Quarter 14, (68) (208) 15,176 Semester 20, (55) 869 (29) (950) 20,144 Assets under Management 91,528 18,818 6, , ,461 Number of Employees 5, ,951 1 Financial data presented in accordance with SUNAVAL standards (see Appendix I). Includes the effect of inter-company transactions eliminations typical of the consolidation process. Foreign currency transactions and balances are translated at the purchase official exchange rate, see Appendix V. 2 See Summary of Subsidiaries performance according to their Regulatory Accounting Standards (page 17). 4

5 Market Share Venezuela Mercantil Banco (1) Mercantil Seguros (2) USA Mercantil Bank, N.A. (3) Positioning Market Share Commercial and Universal Bank's Private Total Private Tourism Loans % 16.2% Manufacturing Loans % 12.1% Agricultural Loans % 19.7% Morgtgage Loans under the mortgage Debtor Law (Ley Especial del Deudor Hipotecario) % 14.4% Microcredits Loans % 8.7% Gross Loans % 13.7% Savings Deposits % 21.9% Total Deposits % 14.2% Total Deposits + Other Demand Liabilities % 14.1% Total Assets % 14.0% Trust % 17.2% Insurance Market Net Premiums 2 9.7% U.S. (3) Florida (4) Total Deposits (1) Source: Summary of Unconsolidated Financial Statements Published in National newspapers at 03/31/. (2) Source: Venezuelan Superintendency of Insurance at 12/31/2016 (3) Source: American Bankers based on 200 Bank Holdings, Commercial Banks and Saving Institutions with more Deposits in U.S. at 03/31/ (4) Source: Federal Deposit Insurance Corporation (FDIC), to the Florida Stated U.S. at 06/30/2016, Total number of institutions in Florida: 241 in Florida. Credit Ratings Fitch Ratings Clave (*) Mercantil Servicios Financieros National Ratings Long-term Short-term Rating for Unsecured Bonds ( Long-term in local currency) Rating for Commercial Paper (Short-term in local currency) Mercantil Banco Universal National Ratings Long-term Short-term International Ratings Long-term (Foreign and local currency) Short-term (Foreign and local currency) Viability Mercantil Commercebank Florida Bancorp y Mercantil Bank, N.A. Long-term Deposit (Mercantil Bank, N.A. only) Long-term Short-term Viability A+(Ven) F1+(Ven) A2 A1 A+(Ven) F1(Ven) CCC C ccc BB+ BB B bb A2 A1 (*) A credit rating agency in Venezuela 5

6 (Million of Bs) Analysis of Consolidated Financial Statements Operating Income (In millions of Bolivars, except percentages) Quarter Semester Ended on Ended on 2016 Bolivars % 2016 Bolivars % Net Interest Income 66,811 18,824 47, ,407 33,946 67, Allowance for Losses on Loan Portfolio 14,628 2,723 11, ,192 3,801 14, Net Financial Margin 52,183 16,101 36, ,215 30,145 53, Commissions and Other Income 27,264 8,942 18, ,596 14,889 31, Insurance Premiums, Net of Claims 7,485 2,436 5, ,142 3,969 9, Operating Income 86,932 27,479 59, ,953 49,003 93, Net Interest Income In 2Q, net interest income was Bs 66,811 million, up 254.9% from Bs 18,822 million in 2Q 2016, mainly due to the increase in financial assets and liabilities. Interest income was Bs 78,816 million, which reflects a 206.3% year-on-year increase. This increase is reflected in the performance of income from the loan portfolio, which grew 222.0%. Financial expenses totaled Bs 12,005 million, up 73.7% compared to 2Q The financial intermediation ratio (loans-to-deposits) was 56.5% at the close of 2Q (67.2% at the close of 2016). Mercantil Banco Universal, reached Bs 66,170 million, up 268.9% from Bs 17,938 million in 2Q 2016, mainly due to the larger volume of financial assets and liabilities. The financial intermediation ratio was 55.2% in and 63.8% in Mercantil Bank, N.A., reached US$ 52 million, up 5.6% from US$ 49 million in 2Q The Bank holds a significant portion of its assets, US$ 2,106 million, more than 24%, in short-term investments and securities issued by the U.S. Government and U.S. government-backed agencies. In 1H, Mercantil s net interest income was Bs 101,407 million, up 198.7% from Bs 33,946 million in 1H Mercantil's net interest margin (net interest income to average financial assets) at 30, was 19.2% compared to 13.4% the previous year. Evolution of Net Interest Income 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, % 15.0% 14.5% 15.3% 13.4% 18,824 24,385 31,024 34,596 66,811 2Q Q Q Q 2Q 21.5% 19.5% 17.5% 15.5% 13.5% 11.5% 9.5% 7.5% Net Interest Income Net Interest Income / Average Financial Assets 6

7 Loan Portfolio Provision In 2Q, expenses totaled Bs 14,628 million, up Bs 11,905 million (437.2%) from Bs 2,723 million in 2Q Mercantil Banco Universal registered Bs 14,594 million in loan portfolio provisions in 2Q (Bs 2,619 million in 2Q 2016), aimed mainly at provisions related to the loan portfolio growth registered during the quarter. Mercantil Bank, N.A. registered US$ 4 million in loan portfolio provisions (US$ 11 million in 2Q 2016), aimed mainly for credits related to the commercial sector. The accumulated allowance amounted to Bs 37,344 million at 30,, representing 2.8% of gross loans (3.0% at March 31, ). This provision covers % of past-due and nonperforming loans (715.7% at March 31, ). In 1H, the loan portfolio provision expenditure registered Bs 18,192 million, up 378.6% from Bs 3,801 million in 1H Evolution Loan Portfolio (Bs. Million) 1,400,000 1,200,000 1,000, , , , , % 3.0% 3.0% 3.0% 2.8% 0.4% 0.4% 0.3% 0.4% 0.2% Jun.2016 Sep.2016 Dec Mar. Jun. Gross Loans Past Due and Non-Performing Loans Past Due and Non-Performing Loans / Gross Loans Allowance for Losses on Loan Portfolio / Gross Loans 3.2% 2.8% 2.4% 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% 7

8 Total Commissions and Other Income In 2Q, commissions and other income totaled Bs 27,264 million, up Bs 18,322 million (204.9%) from Bs 8,942 million in 2Q 2016, mainly the result of: Bs 18,225 million (216.6%) increase in income from commissions for the use of credit and debit cards, financing insurance policies, as well as other commissions from clients operations, among other, mainly due to a larger volume of transactions. 62% Composition of Total Income Bs. 30,202 million % Bs. 101,561 million Bs 135 million (33.3%) decrease in earnings from securities trading. Total Insurance Policies, net of Claims In 2Q, insurance premiums, net of commissions, reinsurance and claims in Venezuela totaled Bs 7,485 million, up 207.3% from Bs 2,436 million in 2Q This improvement is attributable to the Automobile business. Collected premiums in 2Q totaled Bs 47,087 million, representing Bs 28,723 million, up 156.3% from 2Q This improvement is mainly due to the Automobile and Health businesses. At December 31, 2016, Mercantil Seguros was the second largest insurance company in the country in terms of net collected premiums, with a market share of 9.7%. Claims and administrative expenses in 2Q totaled Bs 28,866 million, up Bs 17,424 million (152.3%) from Bs 11,422 million in 2Q This growth is mainly due to the Health business. The claims ratio was 62.3% in 2Q (64.7% in 2Q 2016). The technical result was Bs 381 million, Bs 62 million (19.4%) increase from Bs 319 million in 2Q This variation is mainly due to claims, collected premiums, and taxes and contributions growth. 25% 12% 30% 1% 1% 3% 2Q Q Net Interest Income Commissions on Transactions, Insurance Premiums net and Other Other Income Income on Sales Investment Securities At the close of 1H, insurance premiums, net of commissions, reinsurance and claims reached Bs 13,142 million, up 231.1% compared to 1H Collected premiums totaled Bs 84,510 million, representing Bs 49,486 million and up 141.3% from 1H This growth is mainly due to the Automobile business. Claims and administrative expenses totaled Bs 52,101 million, up Bs 30,927 million (146.1%) compared to 1H

9 Total Operating Expenses (In millions of Bolivars, except percentages) Quarter Semester Ended on Ended on 2016 Bolivars % 2016 Bolivars % Operating Income 86,932 27,479 59, ,953 49,003 93, Operating Expenses Personal and Employee Benefits 16,855 5,354 11, ,512 10,106 20, Other Operating expenses 47,690 16,505 31, ,687 27,571 56, Taxes Current and Deferred 7,203 2,335 4, ,598 4,558 4, Minority Interests (8) (3) (5) (166.7) (12) (5) (7) (140.0) Net Income 15,176 3,282 11, ,144 6,762 13, In 2Q, personnel and operating expenses totaled Bs 64,545 million, up 195.3% from Bs 21,856 million in 2Q This increase is mainly due to: Bs 11,501 million in personnel expenses, up 214.8% from the same period of This increase in expenses is due to the application of compensation and benefits policies according to the market. Mercantil Banco Universal s assets by employee in Venezuela rose from Bs million in 2016 to Bs million in. Mercantil Seguros net collected premiums per employee rose from Bs 14.9 million in 2016 to Bs 32.2 million in. Assets per employee for businesses abroad increased from US$ 8.4 million in 2016 to US$ 9.0 million in. Bs 3,629 million (142.5%) increase in expenses for contributions to regulatory entities. Bs 2,282 million (160.2%) increase in expenses for taxes (others than IRS) and contributions. Bs 25,274 million (201.6%) increase in operating expenses. In 1H, operating expenses totaled Bs 114,199 million, up 203.1% from Bs 37,677 million in 1H 2016, mainly due to the increase of Bs 20,406 million in personnel expenses and Bs 56,116 million increase in other operating expenses; the latter represent Bs 10,098 million rise in depreciation expenses, property and equipment expenses, amortization of intangibles, and others; Bs 7,801 million increase in contributions to regulatory entities; Bs 4,050 million increase in taxes and contributions, and Bs 34,887 million increase in commissions for the use of the point-of-sale network and ATMs, transfers and communications, among others. Corporate income tax expenses grew by Bs 4,040 million compared to 1H Total Personal and Operating Expenses Quarter (In millions of Bolivars) Δ % 49,654 64,545 16,855 13,657 21,856 5,354 24,080 Δ +30.0% 32,668 11,118 5,898 6,175 2,546 6,019 8,847 2,838 2Q Q 2Q Salaries and employee benefits Other operating expenses Fees paid to regulatory agencies Depreciation, Property and equipment, Amortization of intangibles and others expenses 9

10 Efficiency Ratios The efficiency ratio measured by calculating operating expenses as a percentage of average assets was 10.7% in, compared to 9.0% in The ratio of operating expenses to total income was 63.4% in (61.9% in 2016). Personnel and Operating Expenses have been affected by the inflationary environment of the Venezuelan economy. The company has made significant efforts to adapt its organizational and operational structure to the current environment in the geographical areas where it operates. In the case of Venezuela, these efforts have reduced the significant effects of inflation. 80.0% 60.0% 40.0% 20.0% 61.9% 62.6% 61.2% 10.0% 9.4% 9.0% 73.4% 10.9% 63.4% 10.7% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 0.0% 2Q Q Q Q 2Q 6.0% Balance Sheet Operating Expenses / Total Income Operating Expenses / Average Assets The main variations in the Balance Sheet during 2Q are reviewed and commented below 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 under Management (In millions of Bolivars, except percentages) March Jun. 17 vs. Mar. 17 Jun. 17 vs. Jun. 16 Bolivars % Bolivars % Cash and due from banks 1,068, , , ,884 49, Investment Portfolio 183, , ,956 2, Loan Portfolio, Net 1,288, , , , Total Assets 2,901,958 1,749, ,833 1,152, Deposits 2,346,634 1,516, , , Shareholders Equity 229,810 78,168 65, , Asset Management 629, , , , Liquidity At the close of 2Q, total cash and due from banks (cash and legal reserve in Venezuela) plus investments in time deposits and placements included in the investment portfolio increased Bs 357,797 million (48.0%) to Bs 1,103,485 million from Bs 745,700 million in March 31,. This increase is mainly reflected in the accounts held at the Venezuelan Central Bank (BCV Banco Central de Venezuela). Non-Interest Bearing Demand deposits are related to the recent high levels of liquidity levels of the Venezuelan financial system and to the internal risk limits. Compared to 30, 2016, cash and due from banks plus investments in time deposits grew Bs 882,891 million (400.2%), from Bs 220,594 million to Bs 1,103,485 million. The liquidity ratio calculated by dividing total cash and due from banks by deposits was 45.5%, and the ratio calculated by dividing total cash and due from banks plus investments by deposits was 53.3%, compared to 47.1% and 59.0%, respectively for March, and to 29.2% and 47.6% respectively at the close of 2Q Liquidity (In millions of Bolivars) Δ % 745, , , , , ,568 Δ +48.0% 48, ,423 20,162 31,139 35,040 Jun Mar. Jun. Cash and Due from Banks - Legal Reserves Legal Reserves Investments in Time Deposits and Placements 1,103,485 10

11 Investment Portfolio At the close of 2Q, the investment portfolio reached Bs 183,126 million, up Bs 2,097 million (1.2%) compared to Bs 181,029 million in the previous quarter. Compared to 30, 2016, the investment portfolio grew Bs 57,170 million (45.4%) from Bs 125,955 million to Bs 183,126 million. The main variations for this item, taken individually by subsidiary, are as follows: Investments Portfolio (In millions of Bolivars) Δ +45.4% 125, , ,126 (In millions, except percentages) March Abs. % Mercantil Banco Universal Bs 254, ,306 76, Mercantil Seguros Bs 32,543 23,980 8, Mercantil Bank, N.A. US$ 2,157 2,182 (25) (1.1) Δ+1.2% Jun.2016 Mar. Jun. Investments by maturity and yield at the close of 2Q 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 Trust Fund and Restricted Investments Years Bs 1 Bs 1 % 3 Bs 2 % 3 Bs 1 Bs 1 % Bs 1 % 3 TOTAL Less Than , % 1, % 0 35, % 3, % 73,721 From 1 to , % 16, % % 26,051 Over , % 51, % 1, % 83, ,802 69,553 1,670 35,040 3, ,126 Public debt bonds issued by the Venezuelan State account for 0.14 time Mercantil s equity and 1.1% its assets (0.40 and 1.8% in March, respectively). These securities also represent 0.09 times Mercantil Banco Universal s equity and 0.73% its assets (0.18 and 1.23% in March, respectively). At 30,, the Mercantil, C.A. Banco Universal subsidiary, in line with regulations issued by the Executive branch, purchased Bs 90,238 million in Mortgage Bonds, CDs, Agriculture Bonds, and Stocks, accounting for 68.0% of the investment portfolio and 0.6 times its equity (Bs 92,569 million representing 69.0% of its investment portfolio and 1.4 times its equity at March 31, ). Breakdown of Investments by Issuer 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Venezuelan Central Bank US Government & US Gov. Guaranteed Agencies Private 2016 March Venezuelan Government and Public Entities 1 Registered at Market Value 2 Amortized cost 3 The yield of securities is based on amortized cost at the end of the period. Yield is calculated by dividing income investments (including premium amortization or discounts) by the amortized cost or market value. 11

12 Financial Intermediation Activity Loan Portfolio At the close of 2Q, the net loan portfolio totaled Bs 1,288,440 million, reflecting 68.6% quarter-over-quarter growth from Bs 763,998 million. Compared to 30, 2016, the loan portfolio grew Bs 841,021 million (188.0%), from Bs 447,419 million to Bs 1,288,440 million. Loan Portfolio (In millions of Bolivars) Δ % 1,288,440 The variations for this item, taken individually by subsidiary, are as follows: 763,998 (In millions, except percentages) March Abs. % 447,419 Δ+68.6% Mercantil Banco Universal Bs 1,225, , , Mercantil Bank, N.A. US$ 5,990 5, Jun Mar. Jun. The ratio of past due and non-performing loans to gross loans is 0.2% compared to 0.4% at the close of March. The ratio by subsidiary is as follows: Mercantil Banco Universal 0.2% equal to the Venezuelan financial system. Mercantil Bank, N.A. reached 0.5% compared to 0.8% at the close of the previous quarter. Non-accrual loans reached 0.9% of the total loan portfolio (1.0% at the close of the previous quarter). At 30,, 99.7% of Mercantil s loan portfolio is outstanding. The allowance for losses on the loan portfolio covers 1,149.9% of past due and non-performing loans (715.7% at March 31, ). This ratio is 1,346.2% at Mercantil Banco Universal (859.5% at March 31, ) and 257.0% at Mercantil Bank, N.A. (174.3% at March 31, ). The analysis of Mercantil s main subsidiaries and their positioning in the market are shown on pages 5 and 17. Annex III shows the distribution of the loan portfolio, broken down by economic activity, maturity, country, and type of risk. Loan Portfolio by Business Segment (In millions of bolivars) Individuals Large Corporation SME's 1,400,000 1,300,000 1,200,000 1,100,000 1,000, , , , , , , , , , % 37% 15% 14% 40% 17% 42% 40% 15% 16% 43% 48% 47% 45% 42% Jun Sep Dec Mar. Jun. 12

13 Deposits At the close of 2Q, deposits totaled Bs 2,346,634 million, reflecting Bs 829,891 million (54.7%) quarter-over-quarter growth from Bs 1,516,743 million. Compared to 30, 2016, deposits grew Bs 1,660,447 million (242.0%) from Bs 686,187 million to Bs 2,346,634 million. Deposits (In millions of Bolivars) Δ % 2,346,634 Demand deposits were the main component of total deposits, which reached Bs 1,882,652 million, 61.6% up from the previous quarter, reflecting 80.2% of total deposits. Savings and time deposits increased by Bs 111,797 million (34.0%) and Bs 784 million (3.4%), respectively, in the same period. 686,187 1,516,743 Δ +54.7% The main variations for this item, taken by subsidiary, are as follows: (In millions, except percentages) March Abs. % Jun Mar. Jun. Mercantil Banco Universal Bs 2,280,333 1,449, , Mercantil Bank, N.A. US$ 6,586 6, The analysis of Mercantil s main subsidiaries and their positioning in the market are shown on pages 5 y 17. Breakdown Deposits by Business Segment (In millions of bolivars) Individuals Large Corporation SME's 2,600,000 2,400,000 2,200,000 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , % 45% 48% 22% 44% 23% 47% 21% 23% 33% 24% 29% 33% 31% 32% Jun Sep Dec Mar. Jun. 13

14 Total Assets At the close of 2Q total assets reached Bs 2,901,958 million, up Bs 1,152,126 million (65.8%) from Bs 1,749,832 million the previous quarter. This growth is due to the combined performance of cash and due from banks and the loan portfolio, which grew Bs 353,884 million and Bs 524,442 million, respectively. The ratio of performing assets to total assets was 60.1%, up Bs 767,367 million (78.5%) compared to the previous quarter. Compared to 30, 2016, assets grew Bs 2,072,125 million (249.7%), from Bs 829,833 million to Bs 2,901,958 million. The main variations for his item, taken individually by subsidiary, are as follows: Consolidated Total Assets (In millions of Bolivars) Δ % 1,749,832 2,901,958 (In millions, except percentages) March Abs. % 829,833 Δ+65.8% Mercantil Banco Universal Bs. 2,619,096 1,634, , Mercantil Seguros Bs. 94,676 72,391 22, Mercantil Bank, N.A. US$ 8,513 8, Jun Mar. Jun. The analysis of Mercantil s main subsidiaries and their positioning in the market are show on pages 5 y 17. The loan portfolio remained the main component (44.4%) of total assets, cash and due from banks account for 36.8%, and the investment portfolio accounts for 6.3% at the close of the quarter. Assets Distribution Total Bs 2,901,958 million Cash and Due from Banks 36.8% Loan Portfolio, Net 44.4% Venezuelan Central Bank 0.8% Venezuelan Govermment 4.2% US Govermment. 0.3% Private Sector 0.8% US Govermment Guaranteed Agencies 0.3% Other Assets 12.4% 14

15 Financial Obligations At the close of 2Q, financial obligations reached Bs 31,419 million, up 57.1% from Bs 19,997 million the previous quarter. Compared to 30, 2016, financial obligations grew 121.6%. March 2016 (In millions, except percentages) Bs Bs Bs Publicly Traded Debt Securities Issued by Mercantil 2,874 2, Subordinated debt 1,106 1,106 1,127 3,980 4,011 2,005 Other Financial Liabilities 27,439 15,986 12,168 31,419 19,997 14,173 Shareholders Equity At the close of 2Q, shareholders equity reached Bs 229,810 million, reflecting Bs 151,642 million (194.0%) quarter-over-quarter increase from Bs 78,168 million; compared to 2Q 2016 equity increased 252.5% from Bs 65,202 million. The 2Q variation is mainly due to Bs 15,176 million in net income for the period, Bs 135,475 million increase in surplus on revaluation of fixed assets, and Bs 953 million from adjusting available-for-sale investments to their market value, among other. Evolution of Shareholders Equity (In millions of Bolivars) Δ % 229,810 65,202 78,168 Δ+194.0% Jun Mar. Jun. Capital Ratios Mercantil s equity-to-assets ratio at 30, is 7.9%, and its equity to riskweighted assets ratio is 14.90%, based on the standards of the SUNAVAL (7.9% and 12.7% at 30, 2016). Capital Structure Mercantil Banco Universal, in accordance with the requirements of SUDEBAN, has an equity-to-assets ratio of 12.5% and an equity to riskbased assets ratio of 14.4% at 30, (11.9% and 14.2% at 30, 2016). Mercantil Bank, N.A., based on the standards of the OCC, has an equityto-assets ratio of 9.4% and an equity to risk-weighted assets of 12.1% at 30, (9.4% and 12.5% at 30, 2016). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Capital stock 6% Capital reserve 1% Share premium 1% Traslation adjustments of net assets of subsidiaries abroad 2% Retained earnings 31% Unrealized gain fron adjustments of investments to market value 1% 59% Remedición por plan de pensiones -1% Repurchased Shares -1% 15

16 Wealth Management The Wealth Management business comprises: trust fund, securities brokerage, mutual funds and portfolio management services. Net assets under management recorded off-balance sheet as of 30, reached Bs 629,461 million, representing a 115.4% quarter-over-quarter increase and 392.5%, year-on-year growth. They are broken down as follows: TOTAL ASSETS UNDER MANAGEMENT (In millions, except percentages) March Jun. 17 vs Mar.17 % Jun. 17 vs Jun. 16 % Trust Funds 77,593 61,501 40, Mutual Fund 5,195 4,275 3, Brokerage 21,130 21,526 18,500 (1.8) 16.4 Financial Advisory 520, ,621 60, Custody of Securities Trading 5,449 5,351 5, (2.2) Total Assets under Management Bs 629, , , At the close of 2Q, the Trust Fund manages Bs 77,593 million, which reflects 26.2% quarter-over-quarter rise and 92.6% year-on-year growth. At 30,, Mercantil s trust fund ranks second in the private banking sector, and fifth in the fiduciary market in Venezuela. At the close of, Mercantil continues to lead the trust fund industry in Venezuela. Mutual Fund assets under management grew 21.5% and 67.1% compared to March and 2016, respectively, to Bs 5,195 million. Mercantil offers its clients investment products and services (as broker-dealers, investment advisers and custody) in global financial markets. At the close of, the total value of client assets was Bs 546,673 million, up 141.4% from March (547.6% up from 2016). 16

17 Mercantil Banco Universal Performance of Subsidiaries according to Local Accounting Standards Mercantil Banco Universal s total assets grew Bs 969,279 million (60.9%) compared to March. During 2Q, the net loan portfolio grew Bs 537,880 million (76.3%) and deposits increased Bs 847,425 million (57.7%) to reach Bs 1,243,159 million and Bs 2,317,135 million, respectively. The quality of the loan portfolio remains favorable, with a 0.2% ratio of past due and non-performing loans to gross loans, equal to the Venezuelan financial system. The loan portfolio provision covers 1,346.2% of past due and non-performing loans (859.5% at March 31, ). At 30,, the Mercantil Banco Universal subsidiary ranks fourth in the Venezuelan financial system in terms of total assets, with 9.5% of the market. The leading institution has 19.6% of the market, and Venezuela s four main banks account for 58.6% of the country s financial system. Mercantil Banco Universal also ranks second in the Venezuelan private financial system in terms of agriculture loans with 13.0% of the market, and third in terms of tourism, mortgage and Mercantil C.A., Banco Universal Consolidated (In millions of Bolivars) microcredit loans, with market shares of 6.4%, 6.5% and 7.1%, respectively. It ranks fourth in terms of manufacture loans, with 6.0% of the market. Mercantil Banco is the first bank in Venezuela in terms of savings deposits with 17.6% of the market. Shareholders equity grew Bs 82,514 million (121.3%) compared to the previous quarter, to Bs 150,567 million. This growth is mainly due to Bs 14,644 million in net quarterly income, Bs 4,859 million in non-capitalized contributions to equity and Bs 62,914 million from adjustment for revaluation of fixed assets, among others. At 30,, the equity-to-assets ratio is 12.5% (minimum requirement is 9%) and the equity to risk-weighted assets ratio, according to the standards of SUDEBAN in Venezuela is 14.4% (minimum requirement is 12%). In 2Q, the Bs million in net earnings reflected Bs 9,925 million (210.3%) year-on-year increase, mainly due to Bs 49,291 million increase in net interest income as a result of higher financial assets and liabilities, Bs 16,309 million in earnings from commissions for the use of credit and debit cards, as well as other commissions from other client transactions, Bs 11,974 million in expenses for loan portfolio provisions; Bs 34,641 million increase in personnel and operating expenses, Bs 2,879 million rise in contributions to regulatory agencies, and Bs 6,129 million growth in corporate income tax expenses. The company has made significant efforts to adapt its organizational and operational structure to the current environment. These efforts have reduced the significant impacts of inflation. In semi-annual terms, net earnings were Bs 20,169 million, representing Bs 12,073 million (149.1%) year-on-year growth. This increase is mainly associated with Bs 68,862 million increase in net interest income, Bs 29,096 million growth in net earnings from commissions on the use of credit and debit cards, as well as from other client transactions, Bs 14,436 million increase in loan portfolio provision expenses, Bs 59,617 million rise in personnel and operating expenses, Bs 5,811 million increase in contributions to regulatory entities and Bs 6,021 million rise in corporate income tax expenses. Jun. Mar. Jun Total Assets 2,560,254 1,590, ,764 Investments Portfolio 132, ,308 80,798 Loan Portfolio 1,243, , ,922 Deposits 2,317,135 1,469, ,272 Shareholders Equity 150,567 68,053 45,880 Net Income Quarter 14,644 5,525 4,719 Net Income Semester 20,169 8,096 Historic figures in accordance with the standards of SUDEBAN. Evolution of Net Interest Income 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, % 7.4% 11.7% 10.9% 8.3% 7.9% 9.4% 11.6% 8.6% 8.3% 18,017 23,156 29,582 34,008 67,309 2Q Q Q Q 2Q Net Interest Income Net Interest Margin Operating Expenses / Average Total Assets 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 1.0% 17

18 Mercantil Bank, N.A. Total assets growth reflects US$ 161 million (1.9%) quarter-over-quarter growth and US$ 246 million (3.0%) year-on-year increase. The net loan portfolio totaled US$ 5,995 million, up US$ 196 million from the previous quarter, and 10.1% up from 2Q At 30,, the bank continues to hold US$ 2,106 million (24.6% of total assets) mainly in short-term investments and bonds issued or guaranteed by the U.S. government. The Bank s deposits reached US$ 6,642 million at the close of, US$ 44 million (0.7%) up from March and US$ 142 million (2.2%) up from 2Q 2016 Non-performing assets (non-accrual loans and assets received in lieu of payment) fell US$ 7 million compared to March. Non-performing assets account for 0.6% compared to 0.7% in March. The ratio of non-performing assets to total loans was 0.9% at the close of, similar to 1.1% in 2Q Mercantil Bank, N.A. Consolidated (In millions of US$) Jun. Mar. Jun Total Assets 8,543 8,382 8,297 Investments Portfolio 2,106 2,136 2,426 Loan Portfolio 5,995 5,799 5,443 Deposits 6,642 6,598 6,499 Shareholders Equity Net Income Quarter Net Income 6 Months Figures presented according to accounting principles generally accepted in the United States (USGAAP) The Bank s equity rose to US$ 795 million at the close of, US$ 15 million up from the previous quarter, which reflects US$ 12 million in quarterly income, US$ 4 million increase from adjusting available-for-sale investments to their market value, and US$ 1.5 million in dividends paid. The equity-to-assets and equity to risk-weighted assets ratios were 9.4% and 12.1%, respectively at 30, (9.4% and 12.5%, respectively at 30, 2016), based on the standards of the OCC. In 2Q, net earnings totaled US$ 12 million, representing US$ 4 million (54.1%) year-on-year increase, attributable to US$ 2 million increase in net interest income, US$ 4 million growth in commissions and other income, US$ 3 million increase in corporate income tax expenses, and US$ 3 million decline in required loan portfolio provision, among others. In semi-annual terms, net earnings of US$ 20 million represent US$ 6 million (44.9%) increase compared to 1H 2016, attributable to US$ 5 million increase in net interest income, US$ 2 million reduction in required loan portfolio provision, US$ 4 million increase in commissions and other income, and US$ 4 million increase in corporate income tax expenses. Assets Quality Ratios 3% 14.9% 16% 12.8% 14% 2% 11.4% 1.5% 2.2% 1.6% 9.7% 8.8% 1.2% 1.2% 12% 10% 8% 1% 1.1% 1.3% 1.2% 1.0% 0.9% 6% 4% 2% 0% Jun Sep Dec Mar. Jun. 0% NA(w/o Commitments) /Total Lns. Total Class Lns /Total Lns. Total Class+OREO /Tier 1+ALLL 18

19 Mercantil Seguros During 2Q, collected premiums registered 156.3% year-on-year growth to Bs 47,098 million from Bs 18,375 million. At the close of December 31, 2016, Mercantil Seguros was the second insurance company in Venezuela in terms of collected premiums, with 9.7% of the market. Mercantil Seguros C.A. (In millions of Bolivars) Jun. Mar. Jun Total assets stood at Bs 198,362 million at 30,, 74.5% up from March. The company registered Bs 67,669 million in shareholders 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. Total Assets 198, ,681 65,798 Investments suitable for representing 70,885 68,043 34,506 Investments not-suitable for representing Technical Reserves 102,958 29,842 17,957 Shareholders Equity 67,669 51,902 27,158 Net Income Quarter 11,078 1, Income net 6 Months 12,634 3,654 Premiums Received Quarter 47,098 37,412 18,375 Premiums Received 6 months 84,510 35,024 At the close of 30,, the company s investment portfolio was Bs 173,843 million, 77.6% up from the previous quarter. Total Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg) investments representing technical reserves reached Bs 70,885 million (4.2% up from 1Q and 105.4% higher than at the close of 2016), while liquidity levels amply meet all the statutory requirements on commitments towards policyholders, insurance brokers, and reinsurers. In 2Q, the technical result closed at Bs 381 million, with a combined operating ratio 1 of 98.9%. Net income for 2Q totaled Bs 11,078 million (2,350.9% up from the close of 2Q 2016). The claims ratio was 62.3% (64.7% in 2016). In semi-annual terms, the technical result reached Bs 691 million, with a combined operating ratio of 98.9%. Net income for 1H was Bs 12,634 million (245.7%) up from the result in 1H The claims ratio was 62.8% at the close of 1H (65.0% at4 30, 2016). Evolution of Net Collected Premiums and Combined Ratio 1 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% 97.7% 97.1% 95,6% 98,8% 98.9% 18,375 20,872 28,863 37,412 47,098 2Q Q Q Q 2Q Net Collected Premiums Combined Ratio 1 Combined ratio = (incurred claims + commissions + operating expenses)/ earned premiums 19

20 Corporate Events Extraordinary Shareholders' Meeting of Mercantil, C.A. Banco Universal In, the Extraordinary General Meeting of Shareholders of Mercantil, C.A. Banco Universal approved an increase of the social capital, through the capitalization of the share premium account, raising the shares nominal value of each one from Bs 1.00 to Bs This capitalization is awaiting approval by SUDEBAN. New Measures Announced in the Venezuelan Finance Sector The Ministries of Productive Agriculture and Lands, Economy and Finances, Fish and Aquaculture, and Urban Agriculture established the percentage of the Agriculture Portfolio during the March -February 2018 productive cycle. The minimum percentages for the agriculture loan portfolio, that banks must allocate each month to the agriculture sector, were established between 13% and 22% for the March -February 2018 period. Resources for the agriculture portfolio, for the northern winter and summer productive cycles, must be distributed as follows: i) short-term vegetables (63%); ii) medium- and long-term vegetables (maximum 5%); iii) ruminants (7%); iv) poultry and pigs (maximum 8%); v) fishing and aquaculture (5%); vi) mechanization (maximum 10%); and, vii) rural savings funds program (2%). Also, the total of loans granted on mid- and long-terms during the northern winter and summer cycles must not exceed 24% of the agriculture loan portfolio. The obligation remains of financing at least 80% of the cost structure of agriculture items. The Ministry of Economy and Finances and the Venezuelan Central Bank issued Exchange Agreement N 38, on the Foreign Exchange System of Supplementary Floating Market Exchange Rate (DICOM System) The DICOM Foreign Exchange system was established in May, through a mechanism of ordinary and contingent foreign exchange auctions, which may be carry out with positions held by individuals and businesses of the private sector wishing to submit bids and offers and by the BCV. Public sector entities can only take part as bidders. Businesses may acquire monthly the equivalent to 30% of the updated gross monthly average income declared as Income Tax in the previous fiscal year, and up to a maximum of US$ 400,000, and individuals up to US$ 500 quarterly. The exchange rate of each auction is established through a system of floating exchange-rate bands monitored by the BCV. At 30,, the DICOM foreign exchange rate was Bs 2,640/US$, corresponding to the last contingency auction. The allocates bids will be setlled by the BCV through authorized exchange operators, in the foreign currency accounts indicated in Exchange Agreement N 20. The Venezuelan Central Bank issued a Resolution repealing the regulation that reduced legal reserves coefficients by 3 percentage points The BCV issued a Resolution whereby, as of 22 of this year, it repealed the rules that reduced the legal reserve ratio by 3 percentage points. 20

21 APPENDIX I Summary of the Accounting Principles used to prepare the Financial Statements Financial statements are presented in accordance with the accounting standards of the SUNAVAL, in bolivars. A summary of some of the main accounting principles applied is given below: Investment Portfolio Securities Held for Trading - Unrealized gains or losses resulting from differences in market value due to market fluctuations are included in the results for the period. Available-for-Sale Securities Recorded at their market value. Unrealized gains or losses resulting from differences in market value and exchange rate fluctuations are included in shareholders equity. Held-to-Maturity Securities Recorded at their acquisition cost, adjusted for amortization of premiums or discounts. For all portfolio investments, permanent losses in market value are recorded as a charge to income in the period in which they occur. Permanent investments are investments that represent 20% to 50% stock ownership. Those greater than 50% are recorded as an equity interest and consolidated, except when control is likely to be temporary. Loan Portfolio Loans are classified as overdue 30 days after their maturity. Allowances for loan portfolio losses are determined through a collectability assessment that quantifies the amount that must be set aside for each loan. These assessments take into account such aspects as economic conditions, credit risk by customer, credit history and the collateral received. When assessing loans for small amounts of the same nature, these are grouped together to determine the provisions required. Recognition of income and expenditure Income, costs and expenses are recorded as they are earned or incurred. Interest earned on past-due loan portfolios is recorded as income when collected. Fluctuations in the market value of derivatives are recognized as income in the period in which they occur. Insurance premiums are recorded as income when earned. Consolidation The consolidated financial statements include the accounts of Mercantil and its more than 50%-owned subsidiaries and other institutions in which Mercantil has a controlling interest. See the principal subsidiaries on page 4 and the conciliation of its accounting standards with SUNAVAL regulations on pages 4. Inflation Adjustment According to SUNAVAL standards, Mercantil s financial statements, as of December 31, 1999 must be presented in historic figures. Since then Mercantil has ceased to adjust for inflation in its primary financial statements. As a result, fixed and other assets are shown at their inflation-adjusted value up to December 31, The market value determined by independent assessments is higher than the inflation cost adjusted for inflation indicated above. New additions are being recorded at their acquisition value. Assets and liability in Foreign currency Transactions and balances in foreign currency are translated according to the best estimate of the expectations of the future flows of bolivars obtained, making use of mechanisms legally established, see Appendix V. Main differences between the accounting standards of SUNAVAL and the accounting standards of other subsidiaries The main accounting differences for the reconciliation of items under SUNAVAL and SUDEBAN for Mercantil Servicios Financieros are: Amortization of premiums or discounts of securities carried out on a straight-line basis under SUDEBAN standards and in accordance with the constant amortization rate under SUNAVAL standards. Foreign exchange rate fluctuations are recorded in the results, with the exception of those that SUDEBAN indicates to be included in equity and are subsequently recorded in the results when SUDEBAN authorized. The main accounting differences for Mercantil Servicios Financieros between the SUNAVAL standards and the USGAAP are: Deferred Income Tax: USGAAP allows deferred tax to be recognized for the total amount of loan portfolio loss allowances, while SUNAVAL standards only allow recognition of allowances for loans classified as high risk and unrecoverable. Provision for assets received in lieu of payment: SUNAVAL standards stipulate that 100% allowance for real estate property received in lieu of payment after one year from the date of incorporation; under IFRS no amortization deadlines are established (See reconciliation SUNAVAL to USGAAP, p. 33). 21