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

Transcription

1 Mercantil Servicios Financieros, C.A. Financial Report First Quarter 2017 Mercantil Servicios Financieros (Mercantil) Financial Report First Quarter Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY Caracas, April 28, Mercantil reports its earnings for the quarter ended 31, Summary Net Income: Mercantil posted Bs 4,968 million in net income in 1Q 2017, 42.8% up from Bs 3,479 million registered in 1Q Net earnings per share in 1Q 2017 were Bs (Bs in 1Q 2016). ROE & ROA in 1Q 2017 reached 25.7% and 1.2%, respectively (28.2% and 2.1% in 1Q 2016). Class A and B share prices closed at Bs 17,300 and Bs 17,500, respectively, compared to Bs 12,600 each class A and B share at the end of 2016 and Bs 5,300 each one at 31, Main variations in net quarterly income are: Net Interest Income reached Bs 34,596 million, Bs 19,473 million (128.8%) up from Bs 15,123 million in 1Q 2016, mainly due to the increase in financial assets and liabilities. The financial intermediation ratio (loans-to-deposits) was 51.9% at the close of 1Q 2017 (66.6% at 31, 2016). Commissions and other income totaled Bs 19,332 million, Bs 13,387 million (225.2%) up from Bs 5,945 million in 1Q 2016, mainly due to Bs 14,682 million increase for the use of credit and debit cards, and income from financing insurance policies, among others. Personnel and Operating Expenses reached Bs 49,654 million, Bs 33,835 million (213.9%) up from Bs 15,819 million in 1Q 2016, due to the increase of Bs 8,904 million (187.3%) in personnel expenses, Bs 3,452 million (141.1%) increase in contributions to regulatory agencies, and Bs 21,479 million (249.2%) increase in operating expenses. Personnel and Operating Expenses have affected by the inflationary environment of the Venezuelan economy. Current Corporate Income Tax Expenses reached Bs 1,395 million, Bs 829 million (37.3%) down from Bs 2,224 million in 1Q Special contributors in Venezuela were excluded from the system of adjustment for inflation since Summary of the Financial Statements and Ratios (In millions of Bolivars, except percentages) 2017 December Mar. 17 vs. Dec. 16 Mar. 17 vs. Mar. 16 QUARTERLY RESULTS % % Net Interest Income 34,596 31,024 15, Allowance for losses on loan portfolio 3,564 4,516 1,077 (21.1) Commissions and other income 19,332 14,651 5, Insurance premiums, net of claims 5,657 4,175 1, Salaries and Operating Expenses 49,654 32,875 15, Net Income Quarter 4,968 8,462 3,479 (1.3) 42.8 KEY FINANCIAL INDICATORS Income per share Quarter Bs/ share (41.3 ) 39.4 Market price A share 17,300 12,600 5, Market price B share 17,500 12,600 5, Book value per share Net Income (quarter) / Average Assets (ROA) 1.2% 2.0% 2.1% (40.0) (42.9) Net Income (quarter) / Average Equity (ROE) 25.7% 29.2% 28.2% (12.0) (8.9) 1

2 Assets: During 1Q 2017, total assets recorded Bs 265,100 million (17.9%) quarter-over-quarter growth to Bs 1,749,832 million, and Bs 1,024,294 million (141.2%) year-on-year growth. The main variations of this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 268,215 million (19.6%) quarter-over-quarter growth and Bs 1,016,643 million (164.7%) year-onyear growth. Mercantil Bank, N.A. decreased US$ 41 million (0.5%) in 1Q 2017 and increased US$ 379 million (4.8%) compared to Mercantil Seguros recorded Bs 12,481 million (20.8%) quarter-over-quarter growth and Bs 34,592 million (91.5%) year-on-year growth. Net Loan Portfolio: During 1Q 2017, net loans registered Bs 108,635 million (16.6%) quarter-over-quarter increase to Bs 763,998 million, Bs 379,602 million (98.8%) up from the close of 1Q The main variations of this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 107,097 million (18.0%) quarter-over-quarter increase and Bs 374,136 million (114.0%) year-onyear rise Mercantil Bank, N.A. recorded US$ 115 million (2.0%) quarter-over-quarter growth and US$ 449 million (8.4%) year-on-year increase Deposits: During 1Q 2017, deposits registered Bs 235,096 million (18.3%) quarter-over-quarter increase to Bs 1,516,743, and Bs 922,237 million (155.1%) year-on-year growth. The main variations of this item, taken individually by subsidiary, are as follows: Mercantil Banco Universal registered Bs 235,876 million (19.4%) quarter-over-quarter growth, and Bs 912,276 million (169.7%) year-on-year rise. Mercantil Bank, N.A. decreased US$ 19 million (0.3%) in 1Q 2017, and increased US$ 56 million (0.9%) compared to Shareholders Equity: Totaled Bs 78,168 million, up Bs 2,763 million (3.7%) quarter over quarter from Bs 75,405 million, and up Bs 17,185 million (28.2%) year on year. The quarterly variation is mainly due to Bs 4,968 million in net income for the period, Bs 304 million increase from adjusting available for sale securities to their market value, and Bs 2,514 million dividends declared for the period, among others. Capital Ratios: Equity to risk-weighted assets is 9.0%, according to the standards of the National Security Superintendency (SNV Superintendencia Nacional de Valores) (14.1% at 31, 2016). Mercantil Banco Universal, in accordance with the requirements of the Venezuelan Superintendency of Banking Sector Institutions (SUDEBAN - Superintendencia de las Instituciones del Sector Bancario) its equity to assets ratio is 10.6% and its equity to risk-weighted assets is 12.2% at 31, 2017 (10.1% and 13.1% at 31, 2016). Mercantil Bank, N.A., based on the standards of the Office of the Comptroller of the Currency (OCC), at 31, 2017 the equity to assets ratio is 9.1% and the equity to risk-weighted assets ratio is 12.4% (9.3% and 12.6% at 31, 2016). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Summary of Financial Statements (In Million Bolivars, except percentages) 2017 December Mar. 17 vs. Dec. 16 Mar. 17 vs. Mar. 16 % % Cash and due from banks 714, , , Investment Portfolio 181, , , Loan Portfolio, Net 763, , , Other assets 90,244 73,768 46, TOTAL ASSETS 1,749,832 1,484, , Deposits 1,516,743 1,281, , Financial Liabilities 15,986 14,239 11, Other Liabilities 138, ,441 58, Shareholders Equity 78,168 75,405 60, TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,749,832 1,484, , ASSETS UNDER MANAGEMENT 292, , ,

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 21 Awards and Acknowledgements 21 Appendix I: Summary of the accounting principles used to prepare the financial statements 23 Appendix II: Financial statements of Mercantil Servicios Financieros 24 Appendix III: Consolidated Loan Portfolio by Classification 29 Appendix IV: Statutory percentage of loan portfolio in Venezuela 30 Appendix V: Stock Performance Summary and Financial Indicators of Mercantil Servicios Financieros 31 Appendix VI: Financial statements of Mercantil Banco Universal 33 Appendix VII: Financial statements of Mercantil Bank Holding Corporation 35 Appendix VIII: Financial statements of Mercantil Seguros 37 3

4 Contribution of Subsidiaries 31, 2017 MERCANTIL SERVICIOS FINANCIEROS (1) (In millions of Bolivars, except percentages) Shareholders Equity: Bs 78,168 million Shareholders Equity (2) (2) (2) Mercantil Mercantil Other Banks Mercantil Banco Universal Bank Overseas Seguros Bs Bs Bs Bs Mercantil Merinvest Bs. 794 Others Bs. 948 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 1,591,049 83,305 7,957 65, ,645 1,749,832 % Assets % 0.1% 100.0% Investments 134,359 21,996 3,180 20, ,029 Loans (Net) 702,398 57,798 3, ,998 Deposits 1,446,712 64,867 5, ,516,743 Contribution Income net: Quarter 5, (906) 4,968 Assets under Management 75,899 19,002 6, , ,273 Number of Employees 6, ,177 1 Financial data presented in accordance with SNV 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 % 17.2% Manufacturing Loans % 12.3% Agricultural Loans % 16.9% Morgtgage Loans under the mortgage Debtor Law (Ley Especial del Deudor Hipotecario) % 14.4% Microcredits Loans % 8.5% Gross Loans % 13.4% Savings Deposits % 23.2% Total Deposits % 14.3% Total Deposits + Other Demand Liabilities % 14.1% Total Assets % 14.0% Trust % 17.5% 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 03/31/2017. (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 12/31/2016. (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 Million Bolivars, except percentages) Quarter Ended on Bolivars % Net Interest Income 34,596 15,123 19, Allowance for Losses on Loan Portfolio 3,564 1,077 2, Net Financial Margin 31,032 14,046 16, Commissions and Other Income 19,332 5,945 13, Insurance Premiums, Net of Claims 5,657 1,533 4, Operating Income 56,021 21,524 34, Net Interest Income In 1Q 2017, net interest income was Bs 34,596 million, 128.8% up from Bs million registered in 1Q 2016, mainly due to the increase of financial assets and liabilities. Interest income totaled Bs 44,060 million, registering a 104.4% year-on-year growth, reflected in 112.7% rise in the income from the loan portfolio. Interest expenses reached Bs 9,464 million, 47.1% up from 1Q The financial intermediation ratio (loans-to-deposits) was 51.9% at the close of 1Q 2017 (66.6% at the close of 2016). Mercantil Banco Universal totaled Bs 33,899 million, a 135.5% year-on-year increase from Bs 14,396 million, mainly due to larger volume of financial assets and liabilities. The financial intermediation ratio was 49.5% in 2017 and 62.0% in Mercantil Bank, N.A., registered US$ 48 million, 4.9% up from US$ 46 million in 1Q The Bank maintains a significant amount of assets, US$ 2,136 million, more than 25%, in short-term investments and securities issued by the U.S. government or by government-backed agencies. Mercantil s net interest margin (net interest income-to-average financial assets) was 15.3% at 31, 2017, compared to 12.9% the previous year. Evolution of Net Interest Income 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, % 15.3% 14.5% 13.4% 12.9% 15,123 18,824 24,385 31,024 34,596 1Q Q Q Q Q % 15.5% 14.5% 13.5% 12.5% 11.5% 10.5% 9.5% 8.5% 7.5% Net Interest Income Net Interest Income / Average Financial Assets 6

7 Loan Portfolio Provision In 1Q 2017, expenses totaled Bs 3,564 million, Bs 2,487 million (230.9%) up from Bs 1,077 million in 1Q Mercantil Banco Universal registered Bs 3,525 million in loan portfolio provisions in 1Q 2017 (Bs 1,055 million in 1Q 2016), aimed mainly to provisions related to the construction, commercial and services sectors, due to the quarterly growth of the loan portfolio. Mercantil Bank, N.A. registered US$ 4.3 million in loan portfolio provisions in 1Q 2017 (US$ 4 million in 1Q 2016), mainly for the commercial sector. The accumulated allowance totaled Bs 23,425 million at 31, 2017, representing 3.0% of gross loans, the same as at December 31, This provision covers 715.7% of past due and non-performing loans (764.4% at December 31, 2016). Evolution Loan Portfolio In million of Bs 900, , , , , , , , , % 3.0% 3.0% 3.0% 3.0% 0.3% 0.3% 0.4% 0.4% 0.4% Mar.2016 Jun.2016 Sep.2016 Dic Mar % 4.0% 3.6% 3.2% 2.8% 2.4% 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% Gross Loans Past Due and Non-Performing Loans Past Due and Non-Performing Loans / Gross Loans Allowance for Losses on Loan Portfolio / Gross Loans 7

8 Total Commissions and Other Income In 1Q 2017, commissions and other income totaled Bs 19,332 million, Bs 13,387 million (225.2%) up from Bs 5,945 million in 1Q 2016, mainly due to: Bs 14,182 million (290.7%) increase in income from commissions on the use of credit and debit cards, income from financing insurance policies, as well as other commissions for client transactions, mostly for higher volume of transactions. 69% Composition of Total Income Bs 22,601 million 2016 Bs 59,585 million 2017 Bs 102 million (34.1%) reduction in earnings from securities trading activities. 58% Insurance Premiums, Net of Claims In 1Q 2017, insurance premiums, net of commissions, reinsurance and claims totaled Bs 5,657 million, 269.0% up from Bs 1,533 million in 1Q This improvement in the insurance activities is mainly due to the Individuals and Property & Casualty businesses. 25% 34% Collected premiums in 1Q 2017 totaled Bs 37,412 million, reflecting Bs 20,763 million (124.7%) year-on-year growth. The main contributors of this growth are the Individual and Automobile businesses. At December 31, 2016, Mercantil Seguros was the second Venezuelan insurance companies in terms of net collected premiums with 9.7% of the market. Claims and administration expenses during 1Q 2017 totaled Bs 17,973 million, Bs 10,518 million (141.1%) up from Bs 7,455 million in 1Q This growth is mainly due to the Health and Automobile businesses. The claims ratio was 63.4% in 1Q 2017 (65.4% in 1Q 2016). The technical result was Bs 310 million, Bs 242 million (355.9%) up from Bs 68 million in 1Q This variation is mainly attributable to claims, and taxes and contributions rise. During 1Q 2017, the Mercantil Seguros Panamá subsidiary registered US$ 15,904 thousand collected premiums in Venezuela. 5% 7% 1% 1% IQ 2016 IQ 2017 Net Interest Income Commissions on Transactions, Insurance Premiums net and Other Other Income Income on Sales Investment Securities 8

9 Total Operating Expenses (In millions of Bolivars, except percentages) Quarter Ended on Bolivars % Operating Income 56,021 21,524 34, Personal and Employee Benefits 13,657 4,753 8, Other Operating expenses 35,997 11,066 24, Taxes Current and Deferred 1,395 2,224 (829) (37.3) Minority Interests (4) (2) (2) (100.0) Net Income 4,968 3,479 1, In 1Q 2017, personnel and operating expenses totaled Bs 49,654 million, 213.9% year-on-year increase from Bs 15,819 million. This increase is mainly due to: Bs 8,904 million in personnel expenses, a 187.3% year-on-year rise. This increase was due to the application of compensation and benefit policies according to the market. At Mercantil Banco Universal, assets per employee in rose from Bs 86.0 million in 2016 to Bs million in At Mercantil Seguros, net collected premiums per employee rose from Bs 12.4 million in 2016 to Bs 37.9 million in In the case of the overseas business, assets per employee rose from US$ 8.0 million in 2016 to US$ 8.9 million in Bs 3,452 million (141.1%) increase in expenses for contributions to regulatory agencies. Bs 1,767 million (172.0%) growth in expenses for taxes and contributions. Bs 19,712 million (259.6%) rise in operating expenses. Total Personal and Operating Expenses Quarter (In millions of Bolivars) Δ % 49,654 15,819 32,869 7,349 13,657 24,080 16,873 4,753 Δ +51.1% 6,691 3,314 5,898 2,446 5,333 6,019 1,929 1Q Q Q 2017 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 operating expenses as a percentage of average assets, was 10.9% in 2017 versus 7.9% in The ratio of operating expenses to total income was 73.4% in 2017 (59.2% in 2016). Personnel and Operating Expenses have been affected by the inflationary environment in the Venezuelan economy. The company has made significant efforts to adapt its organizational and operative structure to the current environment in the countries where it operates. In the case of Venezuela, these efforts have notably reduced the significant effects of inflation. 80.0% 60.0% 40.0% 20.0% 59.2% 7.9% 61.9% 62.6% 61.2% 10.0% 9.4% 9.0% 73.4% 10.9% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 0.0% 1Q Q Q Q Q % Balance Sheet Operating Expenses / Total Income Operating Expenses / Average Assets The main variations in the Balance Sheet during 1Q 2017 are reviewed 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 under Management (In millions of Bolivars, except percentages) December Mar. 17 vs. Dec. 16 Mar. 17 vs. Mar Bolivars % Bolivars % Cash and due from banks 714, , , , , Investment Portfolio 181, , , , Loan Portfolio, Net 763, , , , , Total Assets 1,749,832 1,484, , , ,024, Deposits 1,516,743 1,281, , , , Shareholders Equity 78,168 75,405 60,983 2, , Assets Under Management 292, , ,643 65, , Liquidity At the close of 1Q 2017, cash and due from banks (cash and the legal reserve ratio in Venezuela) plus investments in time deposits and placements, included in the investment portfolio increased by 23.8% to Bs 745,700 million, Bs 143,561 million up from Bs 602,139 million at December 31, This increase is mainly reflected in the accounts held at the Venezuelan Central Bank. Non Interest Bearing Demand Deposits are related to the recent high liquidity levels of the financial system in Venezuela and to the internal risk limits. Compared to 31, 2016, cash and due from banks plus investments in time deposits and placements rose Bs 553,496 million (288.0%), from Bs 192,204 million to Bs 745,700 million. The liquidity ratio, calculated as total cash and due from banks divided by deposits was 47.1%, and the ratio of cash and due from banks plus investments by deposits was 59.0%. At December 2016, these ratios were 44.9% and 59.0%, respectively, and at the close of 1Q 2016 were 29.6% and 49.5%, respectively. Liquidity (In millions of Bolivars) Δ % 602, , , , , ,771 Δ +23.8% 44, ,481 16,267 26,749 31,139 Mar Dec Mar Cash and Due from Banks - Legal Reserves Legal Reserves Investments in Time Deposits and Placements 745,700 10

11 Investment Portfolio At the close of 1Q 2017, the investment portfolio totaled Bs 181,029 million, Bs 818 million (0.5%) up from Bs 180,211 million compared to 4Q Compared to 31, 2016, the investment portfolio grew Bs 62,392 million (52.6%), from Bs 118,637 million to Bs 181,029 million. Investments Portfolio (In millions of Bolivars) Δ +52.6% 180, ,029 The main variations for this item, seen individually by subsidiary, are as follows: 118,637 Δ+0.5% (In millions, except percentages) December Abs % Mar.2016 Dec Mar Mercantil Banco Universal Bs 177, ,013 14, Mercantil Seguros Bs 23,980 23, Mercantil Bank, N.A. US$ 2,182 2,331 (150) (6.4) Investments by maturity and yield at the close of 1Q 2017 are broken down as follows: Investments by Maturity and Yield (In millions of Bolivars, except percentages) Trust Fund and Restricted Investments Trading Available for Sale Held to Maturity Shares Time Deposits and Placements Years Bs 1 Bs 1 % 3 Bs 2 % 3 Bs 1 Bs 1 % Bs 1 % 3 TOTAL Less Than , , , , ,783 From 1 to , , ,164 Over , , , , ,080 71,892 1,122 31,127 3, ,029 Government bonds issued by the Venezuelan state account for 0.40 times Mercantil s equity and 1.8% of its assets (0.44 and 2.2% in December 2016, respectively). At Mercantil Banco Universal, these securities represent 0.18 times its equity and 1.23% of its assets (0.24 and 1.7% in December 2016, respectively). At 31, 2017, the Mercantil, C.A. Banco Universal, in line with requirements from the Executive Branch, has purchased Bs 92,569 million in Mortgage Bonds, CDs, Agriculture Bonds and Stocks. This represents 69.0% of the Bank s investment portfolio, and 1.4 times its equity (Bs 90,750 million, representing 70.3% of its investment portfolio and 1.5 times its equity at December 2016). 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 December 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 1Q 2017, the net loan portfolio totaled Bs 763,998 million, representing 16.6% growth from Bs 655,364 million in 4Q Compared to 31, 2016, the loan portfolio increased Bs 379,602 million (98.8%), from Bs 384,396 million to Bs 763,998 million. Loan Portfolio (In millions of Bolivars) Δ % 655, ,998 The main variations for this item, taken individually by subsidiary, are as follows: 384,396 Δ+16.8% Mar Dec Mar (In millions, except percentages) December Abs. % Mercantil Banco Universal Bs 702, , , Mercantil Bank, N.A. US$ 5,794 5, The ratio of past due and non-performing loans to gross loans is 0.4%, the same as at the close of December The ratio by subsidiary is as follows: Mercantil Banco Universal: 0.4% compared to 0.3% of the Venezuelan financial system. Mercantil Bank, N.A.: 0.8% equal to the previous quarter. Non-accrual loans were 1.0% of the total loan portfolio (1.2% at the close of the previous quarter). At 31, 2017, 99.4% of Mercantil s loan portfolio is outstanding. The allowance for losses on the loan portfolio covers 715.7% of past due and non-performing loans (764.4% at December 31, 2016); this ratio was 859.5% at Mercantil Banco Universal (959.4% at December 31, 2016) and 174.3% at Mercantil Bank, N.A. (170.2% at December 31, 2016). The market positioning of Mercantil s main subsidiaries are shown on pages 5 and 17. Appendix 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) 900, , , , , , , , , % 16% 37% 14% 47% 48% 38% 15% 40% 15% Individuals Large Corporation SME's 42% 16% 47% 45% 42% Mar Jun Sep Dec Mar

13 Deposits At the close of 1Q 2017, total deposits reached Bs 1,516,743 million, representing Bs 235,096 million (18.3%) quarter-over-quarter increase from Bs 1,282,647 million. Deposits (In millions of Bolivars) Δ % 1,516,743 Compared to 31, 2016, deposits grew by Bs 922,237 million (155.1%) from Bs 594,506 million to Bs 1,516,743 million. 1,281,647 Demand deposits were the main component of total deposits, reaching Bs 1,165,342 million, 21.9% quarter-over-quarter increase representing 76.8% of total deposits. Savings and term deposits grew by Bs 24,985 million (8.2%) and Bs 1,101 million (5.1%), respectively in the same period. 594,506 Δ +18.3% The main variations for this item, taken individually by subsidiary, are as follows: (In millions, except percentages) December Abs. % Mar Dec Mar Mercantil Banco Universal Bs. 1,449,797 1,213, , Mercantil Bank. N.A. US$ 6,544 6,563 (19) (0.3) The analysis of Mercantil s main subsidiaries and their positioning in the market can be found on pages 5 and 17. Breakdown Deposits by Business Segment (In millions of bolivars) Individuals Large Corporation SME's 1,600,000 1,400,000 1,200,000 1,000, , , , , % 48% 44% 23% 47% 21% 50% 23% 20% 24% 31% 32% 30% 29% 33% Mar Jun Sep Dec Mar

14 Total Assets At the close of 1Q 2017 total assets registered 17.9% increase to Bs 1,749,832 million, Bs 265,100 million up from Bs 1,484,732 million in 4Q This is the result of the combined performance of total cash and due from banks, investments and the loan portfolio, which grew Bs 139,171 million and Bs 108,635 million, respectively. The ratio of performing assets to total assets was 55.9%, Bs 111,236 million (12.8%) quarter-over-quarter growth. Compared to 31, 2016, assets grew Bs 1,024,294 million (141.2%), from Bs 725,538 million to Bs 1,749,832 million. Consolidated Total Assets (In millions of Bolivars) Δ % 1,484,732 1,749,832 The main variations of this item, taken individually by subsidiary, are as follows: 725,538 Δ+17.9% Mar Dec Mar (In millions, except percentages) December Abs. % Mercantil Banco Universal Bs 1,634,076 1,365, , Mercantil Seguros Bs 72,391 59,911 12, Mercantil Bank, N.A. US$ 8,357 8,398 (41) (0.5) The analysis of Mercantil s main subsidiaries and their position in the market are shown on pages 5 and 17. The loan portfolio remained the main component (43.7%) of total assets, cash and due from banks accounted for 40.8%, and the investment portfolio accounted for 10.3% at the end of the quarter. Assets Distribution Total Bs 1,749,832 million 2017 Cash and Due from Banks 40.8% Loan Portfolio, Net 43.7% Venezuelan Central Bank 1.2% Venezuelan Govermment 7.1% US Govermment. 0.3% Private Sector 1.1% US Govermment Guaranteed Agencies 0.7% Other Assets 5.1% 14

15 Financial Obligations At the close of 1Q 2017, financial obligations reached Bs 19,997 million, representing 24.5% quarter-over-quarter growth from Bs 16,067 million; compared to 31, 2016, financial obligations rose 44.5% December (In millions of Bolivars) Bs. Bs. Bs. Publicly Traded Debt Securities Issued by Mercantil 2, Subordinated debt 1,106 1, ,011 1, Other Financial Liabilities 15,986 14, ,997 16, Shareholders Equity At the close of 1Q 2017, shareholders equity reached Bs 78,168 million, representing Bs 2,763 million (3.7%) quarter-over-quarter growth from Bs 75,405 million, and compared to 1Q 2016 shareholders equity grew 28.2%, from Bs 60,983 million. The variation in 1Q 2017 is mainly due to Bs 4,968 million in net income for the period, and Bs 2,514 million in dividends declared. Evolution of Shareholders Equity (In millions of Bolivars) 60,983 Δ +28.2% 75,405 78,168 Δ+3.7% Mar Dec Mar Capital Ratios Mercantil s equity to assets ratio at 31, 2017 is 4.5%, and it s equity to risk-weighted assets is 9.0%, according to SNV regulations (8.4% and 14.1% at 31, 2016). Capital Structure 2017 Mercantil Banco Universal, in accordance with SUDEBAN requirements has an equity to assets ratio of 10.6% at 31, 2017, and an equity to risk-weighted ratio of 12.2% (10.1% and 13.1% at 31, 2016). Mercantil Bank, N.A., based on the standards of the OCC, has an equity to assets ratio of 9.1% at 31, 2017, and an equity to riskweighted assets ratio of 12.4% (9.3% and 12.6% at 31, 2016). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Capital stock 17% Capital reserve 1% Share premium 0% Traslation adjustments of net assets of subsidiaries abroad 7% Retained earnings 74% Unrealized gain fron adjustments of investments to market value 3% Remedición por plan de pensiones -2% Repurchased Shares -1% 15

16 Wealth Management The Wealth Management business comprises trust services, securities brokerage, mutual funds and portfolio management services. Net assets under management recorded off-balance sheet at 31, 2017 reached Bs 292,273 million, representing a 29.0% quarter-over-quarter growth and 144.3% year-on-year increase. They are broken down as follows: TOTAL ASSETS UNDER MANAGEMENT (In millions of Bolivars, except percentages) 2017 December Mar. 17 vs Dec.16 % Mar. 17 vs Mar. 16 % Trust Funds 61,501 52,831 37, Mutual Fund 4,275 3,701 2, Brokerage 199, ,403 56, Financial Advisory 5,351 5,218 5, (5.8) Custody of Securities Trading 21,525 20,355 17, Total Assets under Management Bs 292, , , At the end of 1Q 2017, the Trust Fund managed Bs 61,501 million in assets, which reflects increases of 16,4% and 64,3% compared to the previous quarter and the previous year, respectively. At 31, 2017, Mercantil s trust fund ranked second in private banking and fourth in the fiduciary market in Venezuela. At the close of 2017, Mercantil maintains its leading position in Venezuela s mutual fund industry. Mutual Funds under management increased 15.5% and 49.6% compared to December 2016 and 2016, respectively, at Bs 4,275 million. Mercantil offers its clients products and services (as broker-dealers and investment advisers) in global financial markets. At the close of 2017, total client assets reached Bs 204,972 million, up 37.0% compared to the previous quarter, and 232.2% up from the close of

17 Mercantil Banco Universal Performance of Subsidiaries according to Local Accounting Standards Total assets of Mercantil Banco Universal grew Bs 256,396 million (19.2%) compared to December During 1Q 2017 the net loan portfolio grew Bs 109,977 million (18.5%) and total deposits rose Bs 243,443 million (19,9%) quarter over quarter to Bs 705,279 million and Bs 1,469,710 million, respectively. Loan portfolio quality remains at favorable levels, with 0.4% ratio of past due and non-performing loans to gross loans, compared to 0.3% of the Venezuelan financial system. Loan portfolio provision covers 859.5% of past due and non-performing loans (959.4% at December 31, 2016). At 31, 2017 the Mercantil Banco Universal subsidiary ranks fourth in the Venezuelan financial system in terms of total assets, with 9.6% of the market. The leading institution has a 19.4% share and Venezuela s four main banks account for 58.8% of the country s financial system. It also ranks third in the Venezuelan private financial system in terms of loans for the tourism, agriculture, mortgage, and microcredits, with market shares of 7.2%, 10.8%, 6.3% and 6.6%, Mercantil C.A., Banco Universal Consolidated (In millions of Bolivars) respectively. The bank ranks fourth in loans for the manufacturing sector, with 5.4% of the market. Mercantil is the leading bank in Venezuela in terms of savings deposits with 19.1% of the market. Shareholders equity grew Bs 6,703 million (10.9%) quarter-over-quarter to Bs 68,053 million. This increase includes, mainly Bs 5,526 million of net quarterly income, Bs 4,027 million in non-capitalized contributions, and Bs 2,632 milion in dividends declared, among others. At 31, 2017 the equity to assets ratio was 10.6% (minimum requirement 9%), and the equity to risk-weighted assets ratio, according to SUDEBAN standards is 12.2% (minimum requirement 12%). In 1Q 2017, net earnings of Bs 5,526 million reflected Bs 2,148 million (63.6%) growth compared to 1Q 2016, mainly due to Bs 19,569 million increase in net interest income resulting from higher assets and liabilities, Bs 12,788 million in net income from commissions on the use of credit and debit cards, as well as from other clients transactions, Bs 2,462 million increase in loan portfolio provision, Bs 24,924 million increase in personnel and operating expenses and Bs 2,932 million in contributions to regulatory agencies. Mercantil has made significant efforts to adapt its organizational and operative structure to the current environment, in order to reduce the significant effects of inflation. Mar Dec Mar Total Assets 1,590,975 1,334, ,776 Investments Portfolio 134, ,796 79,789 Loan Portfolio 705, , ,275 Deposits 1,469,710 1,226, ,939 Shareholders Equity 68,053 61,349 41,038 Net Income Quarter 5,526 7,043 3,377 Historic figures in accordance with the standards of SUDEBAN. Evolution of Net Interest Income 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, % 10.5% 7.0% 7.4% 11.7% 10.9% 8.3% 7.9% 9.4% 8.6% 14,439 18,017 23,156 29,582 34,008 1Q Q Q Q Q 2017 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 reached US$ 8,382 million (0.5%) less than in December 2016, and US$ 396 million (5.0%) year-on-year increase. The net loan portfolio was US$ 5,799 million, up US$ 116 million from the previous quarter and 8.0% up from 1Q At 31, 2017, the Bank holds US$ 2,136 million (25.5% of total assets) mainly in short-term investments and bonds issued or guaranteed by the U.S. government or U.S. government-backed agencies. Deposits totaled US$ 6,598 million at the close of 2017, 0.3% down from December 2016 and US$ 63 million, 1.0% up from 1Q Non-performing assets (non-accrual loans and assets received in lieu of payment) declined US$ 9 million compared to December The ratio of non-performing assets to total assets is 0.7% compared to 0.8% in December The ratio of non-performing loans to total loans was 1.0% at the close of 2017, compared to 1.2% in 4Q Mercantil Bank, N.A. Consolidated (In millions of US$) Mar Dec Mar Total Assets 8,382 8,424 7,986 Investments Portfolio 2,136 2,290 2,257 Loan Portfolio 5,799 5,683 5,330 Deposits 6,598 6,619 6,534 Shareholders Equity Net Income Quarter Figures presented according to accounting principles generally accepted in the United States (USGAAP) The Bank s equity at 31, 2017 grew to US$ 780 million, US$ 8 million quarter-over-quarter growth, which includes the quarterly result of US$ 8 million, US$ 2 million increase from adjusting available-for-sale securities to their market value, and US$ 1.5 million in paid dividends. At 31, 2017 the equity to assets ratio and the equity to risk-weighted assets ratios were 9.1% and 12.4%, respectively, according to the standards of the OCC (9.3% and 12.6%, respectively at 31, 2016). In 1Q 2017, net earnings totaled US$ 8 million, US$ 2 million (32.9%) up from 1Q 2016, mainly attributable to US$ 3 million in net interest income. Assets Quality Ratios 3% 14.9% 16% 2% 10.1% 1.3% 11.4% 1.5% 12.8% 1.6% 2.2% 8.8% 1.2% 14% 12% 10% 8% 1% 1.1% 1.1% 1.3% 1.2% 1.0% 6% 4% 2% 0% Mar Jun Sep Dec Mar % NA(w/o Commitments) /Total Lns. Total Class Lns /Total Lns. Total Class+OREO /Tier 1+ALLL 18

19 Mercantil Seguros In 1Q 2017, collected premiums registered Bs 37,412 million (124.7%) year-on-year growth from Bs 16,649 million. At the close of December 31, 2016, Mercantil Seguros was the second country s insurance company in terms of net collected premiums, with 9.7% of the market. Total assets stood at Bs 113,681 million at 31, 2017, representing 8.4% increase compared to December The company registered Bs 51,902 million in shareholders equity, which complies with statutory solvency requirements. 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. Mercantil Seguros C.A. (In millions of Bolivars) Mar Dec Mar Total Assets 113, ,825 56,760 Investments suitable for representing 68,043 64,576 31,123 Investments not-suitable for representing Technical Reserves 29,842 25,300 15,276 Shareholders Equity 51,902 51,770 26,499 Net Income Quarter 1,556 1,299 3,203 Premiums Received Quarter 37,412 28,863 16,649 At the close of 31, 2017, the company s investments portfolio was Bs 97,885 million, up 8.9% from the previous quarter. Total investments representing technical reserves reached Bs 68,043 million Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg) (5.4% up from the previous quarter, and 118.6% year-on-year growth) while liquidity levels amply meet all statutory requirements on commitments towards policyholders, insurance brokers and reinsurers. In 1Q 2017, the technical result closed at Bs 310 million, with a combined 1 operating ratio of 98.9%. Net earnings for 1Q 2017 totaled Bs 1,556 million (51.4% down from 1Q 2016). The claims ratio was 63.4% (65.4% in 2016). Evolution of Net Collected Premiums and Combined Ratio 1 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% 99.4% 97.7% 95,6% 98.9% 98,8% 16,649 18,375 20,872 28,863 37,412 1Q Q Q Q Q 2017 Net Collected Premiums Combined Ratio 1 Combined ratio = (incurred claims + commissions + operating expenses)/ earned premiums 19

20 Corporate Events Shareholders Meetings The Shareholders Meetings of Mercantil Servicios Financieros and its subsidiaries in Venezuela and abroad were held during the first quarter of They approved the reports presented by the Board of Directors for consideration by the shareholders, the audited financial statements and Statutory Auditors Report as of December 31, 2016, the proposal made in accordance with the bylaws to appoint the members of the Board of Directors, the Statutory Auditors and set their remunerations Stock Repurchase Program The Shareholders Meeting authorized the Thirty- fifth phase of Mercantil Servicios Financieros Stock Repurchase Program, which started from April 19, 2017, giving continuity to the program initiated in May 2000 to add value to the company. Dividends The Shareholders s Meeting of Mercantil Servicios Financieros approved a cash dividend of Bs 24.0 per common share, payable as follows: two ordinary cash dividends for each Class A and B outstanding share at the rate of Bs 3.5 per common share, payable on April 10 and October 10, 2017, respectively, and an extraordinary cash dividend at the rate of Bs 17.0 per common share, payable in two portions, each one of Bs 8.5 on May 10 and November 10, 2017, respectively. Mercantil Bank (Schweiz) launched a new investment product with long-term maturity In 2016, Mercantil Bank (Schweiz) launched a new product for discretionary funds management with maturities between 8 and 12 years. This product is specifically aimed at customers in the private banking segment. One of the advantages is that the bondholder may obtain financing on the value of the investment. It also allows the portfolio manager to notice and review coupons and face value payment to optimize yields. Mercantil Bank (Panamá) launched new products and services Mercantil Bank (Panamá) launched between the end of 2016 and the beginning of 2017 new products and services that complement and expand the offer available to its clients. One of them is the Soft Token, which is an app for mobile devices (smartphones and tablets), enabling clients to affiliate beneficiaries for wire transfers, both national and international, with high levels of security. Additionally, Mercantil Bank (Panamá) launched the MasterCard Debit card which, in contrast with the previous debit card, can be used for online payments and at points-of-sale worldwide. An additional advantage of this new product is that it incorporates the Chip technology to provide maximum security when used in ATMs and points-ofsale adapted to that technology. Mercantil Seguros launches the Mercantil Global Benefits mobile app Mercantil Seguros launched the Mercantil Global Benefits mobile app, through which insurance advisors, clients and general public may find quotes for the Global Benefits policy plans (Global Benefits, Global Benefits Plus, Global Benefits Vital, and Global Benefits Premier).The purpose of this tool is to boost self-management and speeding up the quote process of insurance plans. The app is available in the App Store or Play Store depending on the operating system of your mobile device. Mercantil Seguros renewed its webpage Mercantil Seguros updated its webpage, and now users may access it from office computers, laptops, smartphones and tablets. Among other benefits are: user-friendly, faster location of products and services, faster browsing speed, and shorter times in digital self-management processes. All of this, with a more functional, intuitive and simple design in its structure to make it more friendly and ease-to-use, without affecting browsing security. To enjoy the new browsing experience, access to and update your browser. 20

21 New Measures Announced in the Venezuelan Finance Sector The Office of the President extended the deadline for the withdrawal of 100 bolivars bills In December 2016, the Office of the President issued a Decree establishing the withdrawal from circulation of 100 bolivars bills (banknotes). At the same time, it announced that the exchange of those bills for legal tender should be made in public and private banks. Subsequently, the Office of the Presidency has extended on four occasions, by Decree, the circulation period of the 100 bolivars bills issued by the Venezuelan Central Bank, and therefore those bills would be valid through April 20, The Ministry of Housing and Habitat established the loan financing conditions for Acquisition, Self-construction, and Extensions to Main Dwelling using FAOV and FAVV resources The Ministry of Housing and Habitat established, among other financing conditions the following: i) Increase the maximum financing amount for main dwellings: Bs. 20 million for acquisition, Bs. 15 million for self-construction, Bs. 10 million for extensions and Bs. 6 million for improvements; ii) Loans will be paid in ordinary or extraordinary monthly installments (formerly ordinary installments); iii) Grants at 50% of the minimum interest rate may be applicable to group of families with incomes between 1 and 4 (minimum wages) for the acquisition of main dwellings, during the first five years of the loan; iv) Mortgage guarantee is added to loans for self-construction, extensions and improvements to main dwellings (formerly bail or pledge); v) Loan applicants must have been contributors to the Savings Fund for at least 12 months, consecutive or not. The Office of the President issued a Decree establishing the minimum percentage of the mortgage loan portfolio during 2017 The minimum percentage of the loan portfolio that banks must earmark for the construction, acquisition and self-construction, improvements and extensions of main dwellings, during 2017, was kept in 20%, according to a Decree issued by the Office of the President, distributed as follows: i) 65% to loans for the construction of main dwellings; ii) 30% to mortgages for the acquisition of main dwellings; and, iii) 5% for the self-construction, improvements and extensions of main dwellings. The distribution of the percentage for construction of main dwellings will follow the guidelines established by the Ministry competent in Habitat and Housing. The upper limit of the monthly income that family groups must dispose to qualify for loans for the acquisition of main dwellings with resources from the Compulsory Loan Portfolio of Banks, remains at 20 minimum wages. The Office of the President issues a Decree with guidelines for accounts in foreign currency held by state-owned companies The Office of the President issued a decree establishing that state-owned companies may only hold accounts in foreign currency in the Venezuelan Central Bank and/or in the Venezuelan Economic and Social Development Bank (BANDES) either inside or outside of the country. Therefore, they may not hold accounts in Banks other than those two, except through authorization from the President of the Republic. A period of 15 days is established to send to the Office of the Executive Vice President the list of accounts in foreign currency that state-owned companies hold in other banks and their corresponding amounts, and a period of 60 days for the relocation of those funds. PDVSA, its subsidiaries, and the joint venture state-owned companies to which the President grants an exemption are excluded. The Ministry of Economy and Finances established the percentage of compliance of the manufacturing loan portfolio The minimum percentage of the loan portfolio that Banks must earmark to the manufacturing sector in 2017 was set at 10%, based on the gross loan portfolio at the close of December 31, The compliance assessment will take place as of December 31, 2017, and should be adjusted to the following: a) 8% as of June 30, 2017 and b) 10% as of December 31, Likewise, financing parameters were set as follow: 60% minimum for strategic development sectors of the manufacturing industry and of large industries, and 40% to the small and medium-sized industries, joint ventures and state-owned companies. The Ministry of Tourism established the percentage of the tourism loan portfolio The Ministry of Tourism issued a Resolution establishing at 5.25% the compliance percentage of the loan portfolio for the tourism sector of banks for 2017, based on the average of the gross loan portfolio at the close of December 31, 2015 and of December The percentage must be achieved as follows: a) 2.50% as of June 30, 2017, and b) 5.25% as of December 31, The Superintendency of Banking Sector Institutions (SUDEBAN) established regulations for the revaluation of assets SUDEBAN issued Rules for the Application of Revaluation of Assets in Banking Institutions, highlighting that their application is mandatory, as follows: i) Assets subject to revaluation are those recorded in Group 170 Fixed Assets, with the exception of Land, Works in Progress, and Other Goods ; ii) It requires appraisals by registered experts who have not served in the company for the last five years; iii) The registered value must be certified by an External Auditor s report; iv) the first revaluation must be less or equal to the Tier I Equity, considered for calculating the capital adequacy ratio. However, the historical cost, accumulated depreciation and goodwill must also be considered; v) The first revaluation will be based on the financial statements at the close of 12/31/2016; vi) The revaluation will be recorded under Item 351 Adjustment for revaluation of assets ; vii) The request for authorization to register the first revaluation, together with the external auditors report must be submitted to the Regulator up to 04/27/

22 SUDEBAN published guidelines to calculate the equity to assets ratio and contingent operations, applying risk-based weighted criteria SUDEBAN granted regulatory exemptions for calculating the equity to assets ratio and contingency operations, as follows: i) For the Accounting Capital Adequacy Ratio, the balance of Immediate Collection Effects and the variations of the Sub-Account National Bills and Coins will be temporarily deducted from Total Assets; ii) For the Total Capital Adequacy Ratio, the Immediate Collection Effects will be accounted with 0% risk-weighted. These exceptions have been ratified by the Entity and will remain in force for the calculation of capital adequacy ratios in April Awards and Acknowledgments Mercantil Banco selected as Venezuela s Best Trade Finance Provider in 2017 The Global Finance magazine, selected the Mercantil Banco Universal subsidiary, for the 12th consecutive year, as the Venezuela s Best Trade Finance Provider in The magazine selection process took into consideration the volume of transactions, geographical coverage, customer services, price competitiveness, new business development and technological innovations. Aon included Mercantil Banco, Mercantil Seguros and Mercantil Bank, N.A. in the 2017 Best Employer category Aon, international consulting firm on human resources included Mercantil Banco, Mercantil Seguros and Mercantil Bank, N.A. in the 2017 Best Employer category, based on the results from the Organizational Climate and Commitment 2016 Study. Four key ratios were considered to grant this recognition: leadership, commitment, corporate culture and brand. Mercantil Banco and Mercantil Seguros ratios were above the Venezuelan average and those of Mercantil Bank, N.A. were above the U.S. average. 22