SEMI-ANNUAL 2016 REPORT

Transcription

1 2016 SEMI-ANNUAL REPORT

2 2 SEMI ANNUAL 2016 REPORT

3 SEMI ANNUAL REPORT 2016 CONTENTS Presentation 3 Mercantil s Stock Performance 4 Financial Highligths 5 Board of Directors and Administration 6 Notice of Ordinary General Shareholders meeting 7 Board of Directors Report 8 Statutory Auditors Report 18 Financial Statements 19 Economic Climate 23 Management Discussion and Analisys 27 Performance of Subsidiaries 37 Corporate Contacts and Subsidiaries 43 1 Mercantil Servicios Financieros

4 2 SEMI ANNUAL 2016 REPORT

5 Mercantil Servicios Financieros is the first and most comprehensive financial services provider in Venezuela. It operates in 10 countries in the Americas and Europe. It registered Bs 829,633 million in total assets and Bs 65,202 million in equity with over 8,000 employees. It shares are listed on the Caracas Stock Exchange (MVZ.A and MVZ.B), it holds a level 1 American Depositary Receipt program (ADR) in the over-the-counter market (OTC) in the United State of America (MSFZY and MSFJY). Mercantil has played an active role in the development of the various markets and geographical areas where it operates in the banking, insurance and wealth management businesses. The mission of Mercantil Servicios Financieros (Mercantil) is to fulfill the needs of our customer by providing excellent financial products and services, attain the aspirations of our employees, support the development of the communities where Mercantil has presence and add value for our shareholders through a long term outlook. Mercantil operates through the following subsidiaries: Mercantil Banco Universal in Venezuela, founded in At, 2016, it has a national network of 264 branches, one agency in Coral Gables, Florida, one branch in Curaçao and representative offices in Bogotá, Lima, México, Sao Paulo and New York; Mercantil Commercebank, N.A. in the United States of America, with 16 branches in Florida, 7 branches in Houston and one in New York; Mercantil Bank (Schweiz) AG in Switzerland; Mercantil Bank (Curaçao) N.V. in Curaçao; Mercantil Bank (Panamá) with 4 branches in Panama; Mercanti Bank and Trust, Ltd. (Cayman) in the Cayman Islands; Mercantil Merinvest C.A. in Venezuela; Mercantil Capital Markets (Panamá) y Panama; Mercantil Seguros with 33 offices in Venezuela; Mercantil Seguros Panamá in Panama and Mercantil Inversiones y Valores, holding of other support subsidiaries. It also carries out important social commitment in various sectors of the community, in Venezuela through Fundación Mercantil; in South Florida and Houston; through Mercantil Commercebank, N.A.; and in Panama through Mercantil Bank (Panamá). 3 Mercantil Servicios Financieros

6 Mercantil s Stock Performance "Caracas Stock Exchange: MVZ A & MVZ B Level 1 ADR: MSFZY y MSFJY" Semester ended 2016 December 31 December Earnings per share (1) Closing Price Class A share Class B share 4, , , , , , , , Market price/ Earnings per share (1) Class A share Class B share Book value per share (2) Market price / book value (2) Class A share Class B share Number of outstanding shares Class A share Class B share 60,880,929 43,880,032 59,401,343 42,813,618 59,401,343 42,813,618 59,401,343 42,813,618 59,401,343 42,813,618 Daily Average Traded Volume (Shares) Class A share Class B share 5,230 4,297 3,238 1,824 1,651 4,889 44,723 28,005 18,767 1,348 Paid Dividends In stock (new shares for each share held) In cash (Bs per share) Cash dividends for the year / Market price (%) Class A share Class B share (1) Calculated based on weighted average shares issued minus repurchased shares adjusted by stock dividens. (2) Calculated based on outstanding shares issued minus repurchased shares adjusted by stock dividens. Market Quote for Mercantil Class A and B Shares vs. Caracas Stock Exchange (CSEI) Index 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 (1) MVZ.A MVZ.B Adjusted CSEI dec-99 jun-00 dec-00 jun-01 dec-01 jun-02 dec-02 jun-03 dec-03 jun-04 dec-04 jun-05 dec-05 jun-06 dec-06 jun-07 dec-07 jun-08 dec-08 jun-09 dec-09 jun-10 dec-10 jun-11 dec-11 jun-12 dec-12 jun-13 dec-13 jun-14 dec-14 jun-15 dec-15 jun-16 (1) No Stock Exchange activities at this time 4 SEMI ANNUAL 2016 REPORT

7 Financial Highligths Consolidated Earnings (In thousands of Bs except percentages and Other Indicators) Semester ended 2016 December 31 December Balance Sheet Total Assets Loan Portfolio (Net) Deposits Shareholders Equity 829,833, ,418, ,186,861 65,201, ,324, ,140, ,903,166 44,533, ,082, ,400, ,040,095 37,830, ,520, ,382, ,674,670 32,553, ,517, ,840, ,080,975 26,802,902 Income Statement Net Interest Income Commissions and Other Income Operating Expenses Net Income 30,145,648 14,888,097 (37,676,888) 6,761,894 21,458,241 9,474,206 (22,020,643) 7,129,971 15,274,974 5,949,807 (13,529,785) 6,961,792 10,414,687 4,944,737 (10,977,682) 5,880,449 7,666,441 3,317,555 (7,762,908) 3,973,940 Profitability Indicators (%) Net Interest Income / Average Financial Assets (NIM) Commissions and Other Income / Total Income Net Earnings for the Period / Average Equity (ROE) Net Earnings for the Period / Average Assets (ROA) 13.4 % 35.7 % 24.6 % 1.9 % 12.0 % 32.3 % 37.1 % 3.0 % 11.3 % 31.1 % 39.8 % 3.5 % 9.3 % 33.2 % 36.3 % 3.4 % 8.5 % 33.0 % 31.1 % 3.0 % Capital Adequacy Indicators (%) Equity / Risk-Weighted Assets (regulatory minimum 8 %) (1) Equity / Assets 12.7 % 7.9 % 11.4 % 7.0 % 13.4 % 8.2 % 15.2 % 9.2 % 15.9 % 9.3 % Loan Portfolio Quality Indicators (%) Past-Due and Non-Performing Loans / Gross Loan Portfolio Allowances for Loan Losses / Past-Due + Non-Performing Loans Allowances for Loan Losses / Gross Loan Portfolio 0.3 % % 3.0 % 0.2 % 1,273.3 % 3.0 % 0.2 % 1,378.7 % 3.0 % 0.3 % 1,186.9 % 3.1 % 0.4 % % 3.0 % Efficiency Indicators (%) Operating Expenses / Average Total Assets Operating Expenses / Total Income 9.0 % 61.9 % 6.4 % 48.3 % 5.6 % 45.1 % 5.3 % 49.1 % 4.8 % 49.2 % Liquidity Indicators (%) Cash and Due from Banks / Deposits Cash and Due from Banks and Investment Portfolio / Deposits 29.2 % 47.6 % 29.1 % 47.1 % 27.4 % 49.0 % 26.1 % 49.5 % 22.0 % 51.5 % Other Indicators (%) Gross Loans / Deposits Financial Assets / Total Assets Financial Assets / Deposits 67.2 % 70.6 % 85.4 % 66.3 % 70.9 % 84.1 % 68.4 % 74.1 % 89.7 % 69.2 % 76.5 % 92.3 % 68.5 % 80.2 % 97.7 % Number of Employees Employees in Venezuela Employees Abroad 7,952 1,133 8,696 1,161 8,902 1,107 8,850 1,003 8, Banking Distribution Network Branches in Venezuela (2) Branches Abroad Representative Offices Mercantil Aliado Network Correspondent Desk Correspondent Trading Points Automatic Teller Machines (ATM) Point of Sale Terminals (POS) (3) 1,245 52,268 1,333 53,023 1,331 50,293 1,379 50,903 1,385 51,750 (1) In accordance with the standards of the National Securities Superintendency (2) Excludes internal branch for employees, at Edificio Mercantil (Caracas) (3) Physical Points of Sale (POS) 5 Mercantil Servicios Financieros

8 Board of Directors Administration Principal Directors Gustavo Vollmer A. Chairman & CEO Gustavo Vollmer A. * Chairman & CEO Alternate Directors Alfredo Travieso P. 2 Luis A. Romero M. 2 Gustavo Galdo C. 3 Miguel A. Capriles L. 2 Víctor J. Sierra A. 2 Federico Vollmer A. 3 Roberto Vainrub A. 3 Millar Wilson Gustavo Marturet Medina 1 Eduardo Mier y Terán 1 Luis A. Marturet M. 2 Francisco Monaldi M. 3 Claudio Dolman C. 2 Carlos Zuloaga T. 3 Alejandro González Sosa 2 Miguel A. Capriles C. 1 Luis Pedro España N. 1 Alberto Sosa S. 3 Alexandra Mendoza Valdés 1 Rafael Sánchez B. 3 Nelson Pinto A. René Brillembourg C. 1 Nerio Rosales R. 2 Fernando Eseverri I. 1 Oscar A. Machado K. 2 Francisco Torres P. 1 Gustavo A. Vollmer S. 3 Gustavo Machado C. 3 Carlos Acosta 1 Millar Wilson * Executive Director of International Business Alfonso Figueredo D. * Global Executive Vice President of Operations and Administration Fernando Figueredo M. * Global Executive Vice President of Business Nelson Pinto A. * Executive President Mercantil Banco Universal María Silvia Rodríguez F. * Executive President Mercantil Seguros Luis Calvo Blesa * Global Human Resources and Corporate Communications Manager Luis Alberto Fernandes * Global Chief Legal Counsel Vincenza Garofalo S. * Global Chief Risk Officer Rodolfo Gasparri G. * Global Operations and Technology Manager Jorge Pereira * Global Personal Banking Manager Isabel Pérez S. * Global Chief Financial Officer Carlos Tejada G. * Global Commercial Banking Manager Guillermo Ponce Trujillo Board of Directors Secretary Rafael Stern S. Alternate Secretary Anahy Espiga Corporate Strategic Planning Manager Secretary Alternate Secretary Statutory Auditors Guillermo Ponce Trujillo Rafael Stern S. Francisco De León Manuel Martínez Abreu Luis M. Urosa Z. Corporate Compliance Maigualida Pereira C. Compliance Officer - Prevention of Money Laundering and Terrorist Financing Alternate Statutory Auditor Umberto Chirico Gladis Gudiño Legal Counsel Luis Alberto Fernandes Alternate Legal Counsel Paolo Rigio C. (1) Member of the Audit Committe (2) Member of the Compensation Committe (3) Member of the Risk Committe Note: The Audit, Compesation and Risk Committees were created pursuant to provision in the By-laws and in accordance with a resolution by the Board of directors. These commitees are made up of independent Directors and are attended by the Chairman and the CEO (ex-officio). (*) Member of the Committe Executive 6 SEMI ANNUAL 2016 REPORT

9 Notice of Ordinary General Shareholder s meeting MERCANTIL SERVICIOS FINANCIEROS, C.A. Authorized Capital Bs 1,361,892, Subscribed and Paid-In Capital Bs 680,946, Caracas - Venezuela The Board of Directors hereby convenes the General Shareholders Meeting, to be held at the Auditorium of Edificio Mercantil, Av. Andrés Bello, Nº 1, San Bernardino, Caracas, on September 16, 2016 at 9:30 am, with the following: 1. Consideration of the Board of Directors Report and the Company s Audited Financial Statements as of, 2016, in light of the Statutory Auditors Report. 2. Consideration of the Proposal for the 34th Phase of the Company s Share Repurchase Program, presented by the Board of Mercantil Servicios Financieros, C.A. 3. Consideration of the Proposal for Authorizing the Board to Issue and Allocate Debt and/or Securities, presented by the Board of Mercantil Servicios Financieros, C.A. to the consideration of the Ordinary General Shareholders Assembly of September 16, Consideration of an adjustment in the remuneration of the members of the Board. N.B.: The shareholders are hereby notified that the Balance Sheet, Income Statement, Statement of Shareholders Equity, and Statement of Cash Flows for the period ending, 2016, duly audited by the External Auditors Espiñeira, Pacheco y Asociados ; the Statutory Auditors Report; the Board of Directors Report, and the aforementioned proposals, that the Board of Directors of Mercantil Servicios Financieros, C.A., submits to the consideration of the Ordnary General Shareholders Meeting to be held September 16, 2016 will be available to them 15 days in advance of the Meeting, at the Company s headquarters: Av. Francisco de Miranda entre Segunda y Tercera Transversal de la Urbanización Los Palos Grandes, Centro Comercial El Parque, Segunda y Tercera Etapas, P03, Locales C-3-10 y C-3-11, Municipio Chacao, Estado Miranda. Caracas, August 18, 2016 On behalf of Mercantil Servicios Financieros, C.A. Guillermo Ponce Trujillo Secretary of the Board of Directors 7 Mercantil Servicios Financieros

10 Board of Directors Report Caracas, August 18, 2016 Dear Shareholders: We are please to present the consolidated results and main activities of Mercantil Servicios Financieros for the first semester of The Financial Statements of Mercantil Servicios Financieros, included in this report, consolidate the activities of its subsidiaries and were prepared in accordance with the standards of the National Securities Superintendency. Financial Results Mercantil reported semi-annual net income of Bs 6,762 million, compared with Bs 7,130 million achieved in the second half of. The main contributions to this income were Mercantil, C.A., Banco Universal with Bs 8,743 million; Mercantil Seguros, C.A. with Bs 891 million; Mercantil Commercebank Florida Bancorp with Bs 29 million and Mercantil Merinvest, C.A. with 27 million. It should be noted that in accordance with various regulatory provisions both in Venezuela and abroad, several Mercantil s subsidiaries have made contributions to various government agencies in Venezuela and abroad, totalling Bs 8,830 million and accounting for 20.9 % of Mercantil s expenses. These, combined with Corporate Income Tax, amount to Bs 13,416 million and represent 31.8 % of its expenses. Bs 8,768 million of the Bs 8,830 million correspond to the amount paid in Venezuela and Bs 62 million to the amount paid abroad. Mercantil Servicios Financieros total assets grew 30.8 % to Bs 829,833 million compared to December and shareholders equity closed at Bs 65,202 million, 46.4 % more than in December. The net loan portfolio grew 30.0 % to Bs 447,419 million compared with Bs 344,141 million at the close of. Loan portfolio quality remained at acceptable levels. The ratio of past-due and nonperforming loans to total loans was 0.3 %, considering the overall loan portfolio of Mercantil Servicios Financieros, which consolidates the portfolios of Mercantil, C.A., Banco Universal, Mercantil Commercebank Florida Bancorp, Mercantil Bank (Schweiz) AG, Mercantil Bank (Curaçao) N.V. and Mercantil Bank (Panamá) S.A. The ratio of allowances for loan losses over past-due and nonperforming loans was %, compared to 1,273.3 % at the close of. 8 SEMI ANNUAL 2016 REPORT

11 For this six-month period, the efficiency ratio measured by calculating operating expenses as a percentage of average assets, was 9.0 %, compared to 6.4 % at the close of ; while the efficiency ratio, measured by calculating operating expenses as a percentage of total net income was 61.9 %, compared to 48.3 % in. The equity/risk-weighted assets ratio was 12.7 % (regulatory minimum 8 %). This ratio was 11.4 % at the close of and is determined according to the guidelines of the National Securities Superintendency, which are based on the standards of the Basel Committee on Banking Supervision of the Bank for International Settlements. The Ordinary General Shareholders' Meeting held on March 18, 2016, approved an ordinary cash dividend to be paid out of the profits at December 31,, for each common Class A and B outstanding shares, payable in two portions (one for Bs 2.25 and another for Bs 3.00 per share), the first on April 10, 2016 and the second on October 10, It also announced an extraordinary cash dividend for each common Class A and B outstanding share paid at the rate of Bs per common share payable on May 27, The amount paid for the first portion of the ordinary cash dividend was Bs 229,983,662.25, while the sum paid out in extraordinary dividends was Bs 1,414,272,973.50, for a total of Bs 1,644,256, During 1H 2016, Mercantil had placed the entire series 1 and 2 of Issue -I of Unsecured Bonds amounting to Bs 100 million. In addition, series 8 of Issue -I of Commercial Papers was placed, for Bs 40 million, and series 1 to 5 of Issue -II of Commercial Papers for Bs 440 million. Similarly, Mercantil has the following outstanding Unsecured Bonds for series 1 and 2 of Issue 2013-I for Bs 60 million, series 1 and 2 of Issue 2014-I for Bs 40 million and series 1 and 2 of Issue 2014-II for Bs 100 million. In addition series 3, 4, 6 and 7 of Issue -I for Bs 220 million of Commercial Papers are outstanding. The Stock Repurchase Program initiated in May 2000 is currently in its Thirty-Third Phase, as approved at the Shareholders' Meeting held on March 18, Given the stock market situation, no new shares were repurchased between January 1 and, At the close of the first half of 2016 Mercantil did not hold any shares in Treasury. 9 Mercantil Servicios Financieros

12 Credit Ratings Mercantil Servicios Financieros obtained A1 and A2 risk ratings from Fitch Ratings and Clave Sociedad Calificadora de Riesgo, for its commercial paper and unsecured bond issues, respectively. These are among the highest possible ratings for a debt instrument, in Venezuela. In its recent evaluation issued in April 2016, Fitch Ratings also ratified Mercantil Servicios Financieros' long-term national rating of "A+ and its short-term national rating of F1+. In January 2016, Fitch Ratings also affirmed Mercantil Banco's national risk ratings of AA-(ven) long term, and F1+(ven) short term, the best national qualifications granted to a private financial institution in Venezuela. In addition, Fitch Ratings ratified Mercantil Banco Universal's international risk ratings of CCC for the long-term, C for short-term, and ccc for Viability. These ratings are in line with Venezuela's sovereign rating, considering that the Bank's international ratings are largely dependent on the country risk. Fitch Ratings also affirmed in June 2016 the international ratings of Mercantil Commercebank Holding Corp., Mercantil Commercebank Florida Bancorp and Mercantil Commercebank N.A. subsidiaries at BB long term with a "Stable" outlook, B short term and bb Viability. Venezuela s sovereign rating also influences these ratings. Products and Services The Mercantil Banco subsidiary continued to offer products and services to suit the needs of more than 4,899,000 customers, around 110,000 of which were incorporated during the sixmonth period. In the credit card product the bank has a market share of %, for a total portfolio of Bs 83,307 million (including parallel lines of credit). During the first half of the year, the bank implemented a strategy focused on selectively increasing credit limits to the best clients in its portfolio, to promote loyalty and preference, which resulted in an additional exposure of almost Bs 7,700 million. In addition, the credit limits of the parallel lines Préstame and CrediPlan/CrediFácil instant loans products were increased to Bs 600,000, throughout various promotional strategies for these modalities. The bank continued to implement its consolidation process to include the unbanked sector of the population and support the Majorities Banking segment through the Mercantil Aliado network, operating in 14 states and the Capital District, and through the offer of Microenterprise Credits product. At the close of, 2016 the Microenterprises Credits reached Bs 14,216 million, with 12,182 active borrowers, reflecting a 31 % increase from December and 106 % from June. More than 291,429 Tarjetas Efectivo (Cash Cards) are in operation, representing 10 % more than at the close of. 10 SEMI ANNUAL 2016 REPORT

13 There are over 7,200 active users in Mercantil Business Mobile and over 600,000 users in Mercantil Personal Mobile, which together carried out over 65 million transactions. It should be note the growth of the Online Fast Business Credit (Pronto Crédito Empresarial) functionality, which generated 91 % of a total 5,979 requests for credit, representing 89 % of total amount of loans settled (Bs 20,070 million). The boost and development of the Mercantil Business Mobile new app, has been of particular significance, which allows clients to carry out banking transactions using their mobile device (smartphone or tablet), available 24 hours daily. Mercantil Banco has been the first bank to grant loans through a mobile application maintaining the security standards usually applied by the Bank, thereby increasing clients loyalty. During the first half of 2016, 9,012 mobile devices have been registered, being associated with 7,291 companies affiliated to Mercantil Business Online Banking, which generated over 700,000 transactions through this new mobile application corresponding to 609,000 consultations, and more than 91,000 financial transactions, of which 323 were requests for Online Fast Business Credit (Pronto Crédito Empresarial) and 91,296 for money transfers. Mercantil Online Banking continues to garner preference among clients, reaching at the end of June 2016 more than 1,390,000 users of Mercantil Personal Online Banking and more than 86,000 active users in Mercantil Business Online Banking. Together Mercantil Online Banking processed over 382 million transactions, representing 58 % of the transactions carried out through all channels. At the close of June 2016, the Mercantil Vía Rápida fast-track self service areas processed more than 3 million transactions, % of the total transactions managed through branch offices were processed by Mercantil Vía Rápida. The distribution of transactions by channel for the period was as follows: PRODUCT Mercantil Business and Personal Online Banking Point-of-sale Automatic Teller Machine Network Mobile Devices (Personal and Business) Office Network Mercantil Customer Call Center Mercantil Aliado Network TRANSACTIONS (In MillIons ) WEIGHT (%) Mercantil Servicios Financieros

14 At the close of the semester, the official Twitter account of the had more than 234,000 followers. This account is primarily intended to provide information and advice on bank s services products and activities. With more than 38,700 approaches in three and a half years, this account is ranked fourth in the Venezuelan financial sector, according to the Klout indicator, which measures the account followers influence interactions. The Mercantil Commercebank subsidiary, maintaining the focus on providing client-friendly services, updated its Mercantil Mobile platform. The new system has better navigation and a fingerprint recognition sensor. This app is available to AppleWatch users, also allowing the user to select the language of their choice, English or Spanish. The new platform continues the goal of improving the quality of new technologies. Also during this last semester, in order to reduce the risk of check fraud, it made available to clients the Positive Pay service, which allows the clients to provide the Bank with a list of the issued checks daily to be compared electronically when presented for payment; in the case of discrepancies, it generates a client alert through Online Banking. Also available is the ACH Collections service, which allows clients to manage and collect transactions, both incoming and outgoing, in an efficient and cost-effective manner. During the semester, the Mercantil Seguros subsidiary continued to consolidate the sales channel Business Referral for Individuals and Companies, increasing the ratio of new client and reaching high levels of contact and effectiveness; focusing on the high profitability products such as Línea Vital (Personal Accidents Life, Funeral and Income Protection insurance) and Industry and Commerce (SME), with new options for contracting the Renta Vital and Tranquilidad Vital policies. On the other hand, the range of options offered in policies covered in foreign currency has been expanded, which allow better protection and safeguarding of the insured persons or goods, minimizing the effects of inflation, also providing services abroad for International Health Products. Mercantil Seguros has started a process of client acquisition and loyalty through alliances with providers and service centers, actively participating in events; organized by them which allow an approach to potential new clients to whom the benefits of the available products and services are shown, expanding channels sales. At the same time, the direct marketing strategy was strengthened, with campaings for the renewal and sale of marketing, considered as a reference in the insurance market, allowing clients and advisors to select the best contract options in a fast and easy way. As part of the optimization process implemented in order to offer greater advantages at the time of claim payments, Mercantil Seguros implemented electronic transfers to the insured s account, as a payment method, for claims declared as total loss in the vehicle segment, reducing response times, improving quality of service and attention to clients. 12 SEMI ANNUAL 2016 REPORT

15 Always at the forefront of technological advances, differentiating new features were added to the digital platforms in order to facilitate attention processes via the Advisor Portal, expanding the web service for individual vehicles policies: allowing to select the amount, deductibles and coverages options to hire in a quickly and easy manner in addition to other self-management possibilities already offered in this Portal. In terms of internal and external communications, the Coffee sessions with the Expert continued, as an institutional voice mechanism to reinforce the communication channels and boost new businesses, focusing on Property Insurance products, Línea Vital and Single Payment of certain illnesses, with the active participation of insurance advisors and staff. In Venezuela the Mercantil Fixed Income Portfolio, Fondo Mutual de Inversión de Capital Abierto, C.A. mantained its leading position in the investment services business reaching Bs 3,036 million in assets for a total of 195,113 clients, with an increase of 15 % in the period. Within the Mercantil Fixed Income Fund, the Plan Crecer Mercantil product, which is a systematic form of investment affordable to anyone, continued its expansion to Bs 2,169 million in assets. The Mercantil Fixed Income Portfolio celebrates, this year, 20 years of presence in the Venezuela securities market, acknowledging the loyalty of its clientes during all these years. On the other hand, the Mercantil, C.A., Banco Universal Trust recorded a managed volume of Bs 33,850 million, 20 % up from the close of, mainly due to Occupational Contingency Trust and Escrow Trust. During this period, the activities focused on the optimization of the quality of service, improving the information provided to clients. In the United States, Mercantil Commercebank Investment Services, Inc. (MCIS), a subsidiary of Mercantil Commercebank, N.A., offers Brokerage and Investment Advisory services. The first half of 2016 closed with 3,232 clients. The volume of assets under management grew by 0.3 % compared to, mainly due to the stock markets performance. In 2016, the effort on continuous improvement to generate operational efficiencies and increase the customer base. In terms of trust, Mercantil Commercebank Trust Company, N.A. registered 3.0 % increase in consolidated assets under management over the same period in, for the same reasons cited for Mercantil Commercebank Investment Services, Inc. (MCIS). It should be noted that efforts continued aimed at optimizing customer service levels, focusing on the needs of estate planning and inheritance, as well as identifying opportunities to increase efficiency. 13 Mercantil Servicios Financieros

16 Prevention and Control of Money Laundering and Terrorism Financing Prevention and control of money laundering and terrorism financing is a priority for Mercantil and an integral part of our organizational culture. The company has maintained internal control and monitoring of its subsidiaries' activities to ensure early detection of suspicious transactions, and has stepped up staff training in this area. To ensure compliance with anti-money laundering legislation, Mercantil has in place a wellstructured Comprehensive Money Laundering and Terrorism Financing Prevention and Control System at its Venezuelan and overseas subsidiaries, in addition to Operational and Follow-Up Plans, and Monitoring and Oversight programs. The company's Know your Customer policy is the main guideline in this area. Corporate Social Commitment During the first half of 2016, Mercantil executed a social investment through its Mercantil Banco Universal, Mercantil Seguros, Mercantil Merinvest and Mercantil Commercebank subsidiaries, as well as Fundación Mercantil, which targeted various programs, projects and initiatives undertaken by renowned educational and social development organizations in Venezuela and the United States. Mercantil earmarked 17 % of the contributions to Elementary and Higher Educational Institutions, particularly entrepreneurship and college scholarships programs; and 83 % for Social Development Organizations that foster health prevention programs, social programs for children and young people. Mercantil s strategy and focus has been the joint development, with various social institutions in the geographical areas where the companies operate, of several initiatives with a direct impact on the communities and its citizens, whose added value tends to strengthen the organization of these institutions and, at the same time, create opportunities for better educational and entrepreneurial formation of the young and the promotion of values, as well as other social assistance actions. 14 SEMI ANNUAL 2016 REPORT

17 During the first half of 2016, highlights the continued programs of Fe y Alegría, and the support to the educational sector through the Asociación Venezolana de Escuelas de Educación Católica (AVEC - Venezuelan Association of Catholic Schools), that benefits approximately 500,000 students; as well as the contributions and support to programs and initiatives of several social, health and cultural institutions, such as: Fundación para el Desarrollo de la Educación, Asociación Venezolana de Buena Voluntad, Fundación Alzheimer, Un Techo para mi País Venezuela A.C., Fundación Patronato del Hospital J.M. de los Ríos, Fundación Jacinto Convit and the Caracas Archidiocese, all welknown social institution that carry out community support programs. As part of Mercantil s Social Commitment a new program was promoted by Fundación Mercantil, together with Alianza Social VenAmCham and Red Venezolana de Organizaciones para el Desarrollo Social, named Institutional Strengthening of Social Development Organizations. The purpose of which is to provide tools and methodologies to those institutions; in order to serve as a formation program to support the management of their activities in a more efficient way promoting their sustaintability in the long term. More than 100 representatives of 22 organizations in the country were part of this program. Mercantil continued to develop the Online Donation Program in Venezuela Un Aporte por Venezuela, as well as the culture support program that develops Espacio Mercantil, a place of diffusion and promotion of the historiography of the national art. During this semester the Revisiones exhibition was presented (two decades of Venezuelan artists paintings). In the United States, as part of its Corporate Social Commiment, several programs developed by educational, social and health organizations in South Florida and Houston were supported, among which stand out: Florida National University, FIU Foundation, Miami-Dade College Foundation, Accion USA, American Cancer Society, Habitat for Humanity, Saludarte Foundation, Museum of Fine Arts, Houston and Miami Symphony Orchestra. Special mention and recognition deserves Mercantil s volunteers in Venezuela, for their participation in various nationwide activities and programs, such as: support to Fe y Alegría and the Hospital Ortopédico Infantil. Also highligthts, the participation in environmental activities of the Ponle Cariño a tu Escuela and Árboles Para Vivir programs carried out jointly with the Sociedad de Ciencias Naturales La Salle. In the United States, volunteers from Mercantil worked together with the League Against Cancer, Habitat for Humanity and the March of Dimes. 15 Mercantil Servicios Financieros

18 Awards and Acknowledgements The Banker magazine once again included Mercantil Servicios Financieros among the World s Top 500 Banking Brands. Mercantil ranks 273rd, raising 61 steps from, and the first among the Venezuelan institutions included in the ranking. Mercantil Servicios Financieros leads venezuelan companies included among the World s Biggest 2,000 public companies according to Forbes magazine. It is the first of four venezuelan companies included in this year s list. The Global 2,000 is a ranking based on total income, profit, assets and market value. The Global Finance magazine, in its February 2016 edition has selected Mercantil Banco, for the 11th 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 Hewitt international consulting firm granted the Mercantil Banco and Mercantil Commercebank the 2016 Best Employer award. Among other criteria, the consulting firm takes into account workers opinion of the banks commitment, leadership, performance culture, and brand, compiled in the Organizational Climate and Commitment research for. The Banker magazine included Mercantil Bank (Panamá) among the Top 10 Central America Banks, for the fourth consecutive year, to rank 76 and 34 among Panamá s banks. Development and Working Environment During the first half of 2016, Mercantil in Venezuela continued to apply compensation policies to benefit and support workers, in order to improve their economic situation and quality of life, a distinctive mark of Mercantil s competitiveness in this matter among other financial institutions. Mercantil increased ordinary salaries by 20 %, effective from January 1, 2016, which served as the basis for the calculation of the annual wage increase policy for performance applied from March 1, 2016, which reached 35 % on average. Therefore, the average salary increase between January and June 2016 was 62 %. Similarly, a new social benefit denominated Educational Scholarship Aid for workers or their children was implemented for an amount of Bs 6,000 per month. Monthly payments related to the Food Tickets have been maintained, which have been increased according to the current legislation. It should be noted that Mercantil will continue implementing actions in this area. 16 SEMI ANNUAL 2016 REPORT

19 Mercantil and its Venezuelan subsidiaries have also implemented a Special Program which aims to identify and develop retention benefits for Key Managerial, Professional and Technical staff. All these benefits are complemented with various activities to promote community and recreational spaces for workers and their families nationwide. Relations between bank officials and employees have continued to evolve within the traditional spirit of harmony and cooperation, and the Board of Directors wishes to acknowledge them for their efficiency and dedication to their work. Pursuant to the National Superintendency Securities (formerly National Securities Commission) resolution, please note that form CNV-FG-010 reflects Bs 21, in remunerations paid to Company Directors and Executives in the second half of During the first half of 2016, a number of Alternate Directors attended Board meetings, either standing in as Principal Directors in their absence, or as invitees. On the occasion of the Chairman of the Board's temporary absences, some of his CEO functions were delegated to members of the Executive Committee. Sincerely, Gustavo J. Vollmer A. Alfredo Travieso P. Luis A. Romero M. Gustavo Galdo C. Víctor J. Sierra A. Miguel Ángel Capriles L. Roberto Vainrub A. Federico Vollmer A. Gustavo Marturet M. Millar Wilson 17 Mercantil Servicios Financieros

20 Statutory Auditors Report 18 SEMI ANNUAL 2016 REPORT

21 Financial Statements (In accordance with the standards of the National Securities Superintendency) Balance Sheet Unconsolidated (in thousands of Bs) Semester ended 2016 December 31 Assets Cash and Due from Banks Investment Portfolio Other Assets Total Assets 181,047 68,661,036 (36,841) 68,805, ,265 49,424,889 (20,944) 49,895, ,142 39,163, ,101 39,875,843 Liabilities and Shareholders Equity Unsecured Bonds and Commercial Paper Other Liabilities Total Liabilities 960,000 2,643,745 3,603, ,000 4,366,607 5,361, ,000 1,575,035 2,045,035 Shareholders Equity 65,201,497 44,533,603 37,830,808 Total Liabilities and Shareholder s Equity 68,805,242 49,895,210 39,875,843 Income Statement Unconsolidated (in thousands of Bs) Semester ended 2016 December 31 Income Financial Income Equity Investments in subsidiaries and affiliates and others Total Income 121,465 8,163,622 8,285,087 14,549 7,346,229 7,360,778 20,871 7,109,422 7,130,293 Expenses Operating Financial Deferred Corporate Income Tax Total Expenses (765,732) (95,461) (662,000) (1,523,193) (202,349) (28,458) 0 (230,807) (132,270) (36,231) 0 (168,501) Net Income 6,761,894 7,129,971 6,961,792 Aury Oliveros Administration Manager Alfonso Figueredo Davis Global Executive Vice President of Operations and Administration Isabel Pérez Sanchis Global Chief Financial Officer Gustavo Vollmer A. Chairman and CEO 19 Mercantil Servicios Financieros

22 Consolidated (In thousand of Bs) Semester ended Balance Sheet Assets 2016 December 31 December Cash and Due from Banks Cash and Due from Banks Central Bank of Venezuela Venezuelan Banks and other Financial Institutions Foreing Banks and Other Financial Institutions Pending Cash Items 8,522, ,296, ,497 3,271,021 13,998,482 8,541, ,641, ,861 1,663,855 7,525,966 4,641,783 86,758, ,789 1,549,800 10,350,988 4,363,473 66,235, ,286 1,641,022 3,740,214 2,776,144 43,118, ,485 1,562,580 4,019, ,433, ,660, ,026,284 76,901,152 51,994,333 Invesments Portfolio Invesments in Trading Securities Invesments in Securities Available-for-Sale Invesments in Securities Held-to-Maturity Share Trading Portfolio Invesments in Time Deposits and Placements Restricted Investments and Repos 285,568 52,259,664 49,487, ,218 20,162,053 3,291,082 6,554 38,773,837 47,804, ,732 7,396,830 1,651,470 5,576 40,338,224 31,963, ,768 8,338, ,138 11,519 36,684,481 26,404, ,313 4,813, ,892 66,784 37,899,125 21,164, ,850 9,333, , ,973,076 96,020,224 81,624,618 68,867,934 69,666,239 Loan Portfolio Current Restructured Past-Due In Litigation 459,334, ,966 1,436,562 32, ,346, , ,495 50, ,024, , , ,742, , ,681 8, ,524, , ,802 28,105 (Allowance for losses on Loan Portfolio) 461,235,116 (13,816,864) 447,418, ,685,460 (10,544,876) 344,140, ,107,944 (7,707,467) 251,400, ,783,020 (6,400,735) 197,382, ,681,935 (4,841,632) 156,840,303 Interest and Commissions Receivable Long-Term Investments Assets Available for Sale Property and Equipment Other Assets 6,352,737 4,105, ,979 6,900,603 37,778,222 5,053,051 1,613, ,827 5,348,577 26,109,903 2,980, ,831 40,054 4,311,714 14,462,872 2,481, ,801 28,116 2,044,681 7,476,461 2,078, ,807 42,503 1,291,680 5,434,708 Total Assets 829,833, ,324, ,082, ,520, ,517,063 Aury Oliveros Administration Manager Alfonso Figueredo Davis Global Executive Vice President of Operations and Administration Isabel Pérez Sanchis Global Chief Financial Officer Gustavo Vollmer A. Chairman and CEO 20 SEMI ANNUAL 2016 REPORT

23 Consolidated (In thousand of Bs) Semester ended Balance Sheet Liabilities and Shareholders Equity Liabilities Deposits Non-Interest Bearing Checking Accounts Interest Bearing Cheking Accounts Saving Deposits Time Deposits ,320, ,866, ,742,175 20,257,668 December ,706, ,429, ,482,821 11,284, ,259, ,338, ,662,570 9,779,713 December ,244, ,175,773 91,069,337 8,184, ,747,401 84,327,523 70,921,341 7,084, ,186, ,903, ,040, ,674, ,080,975 Debt Authorized by the National Securities Superintendency Publicly Offered Debt Securities 878, , , , , , , , , ,240 Financial Liabilities Obligations with Banks and Savings and Loan Institutions In Venezuela up to one year Abroad up to one year Abroad for more than one year Liabilities Under Repurchase Agreements Other Liabilities up to one year 2,870,818 4,241,869 4,349, ,250 8,116 12,168,153 3,357,500 2,490,114 2,048, ,894 42,042 8,378,199 2,000,004 3,801,941 1,805, ,894 14,946 8,061, ,127 2,620,511 1,805, , ,739 5,293, ,127 2,859,311 1,522, , ,837 5,818,042 Interest and Commissions Payable Other Liabilities Subordinated Debt 216,613 64,025,984 1,127, ,268 44,737, , ,424 32,920, ,414 93,504 21,573, ,338 63,632 17,877, ,058 Total Liabilities 764,602, ,767, ,233, ,950, ,701,990 Minority Interest in Consolidated Subsidiaries 29,019 23,722 18,168 15,831 12,171 Shareholders Equity Capital Maintenance of Paid-In Capital Premium for Issuing Stock Capital Reserves Adjustment for Conversion of Net Assets by Subsidiaries Abroad Retained Earnings Shares Repurchased and Held by Subsidiaries Pension plan remeasurement Unrealized Gain from Adjustment at Market Value of Investments 680, ,709 12,713, ,715 6,396,559 44,756,752 (600,633) (504,556) 1,400, , , ,715 2,983,244 39,914,413 (234,638) (504,556) 1,352, , , ,715 2,998,777 32,366,773 (144,753) (93,223) 1,680, , , ,715 2,982,241 27,054,686 (91,626) (93,223) 1,679, , , ,715 3,005,619 21,145,563 (15,149) (69,185) 1,761,841 Total Shareholders Equity 65,201,497 44,533,603 37,830,808 32,553,965 26,802,902 Total Liabilities and Shareholders Equity 829,833, ,324, ,082, ,520, ,517,063 Aury Oliveros Administration Manager Alfonso Figueredo Davis Global Executive Vice President of Operations and Administration Isabel Pérez Sanchis Global Chief Financial Officer Gustavo Vollmer A. Chairman and CEO 21 Mercantil Servicios Financieros

24 Consolidated (In thousand of Bs) Semester ended Income Statement 2016 December 31 December Interest Income Income from Cash and Due from Banks Income from Investment Portfolio Income from Loan Portfolio 674,244 3,635,361 42,981, ,769 2,944,593 32,071, ,943 2,473,136 20,890, ,598 2,163,700 15,375,964 26,066 2,513,251 9,871,519 Total Interest Income 47,291,304 35,364,164 23,480,008 17,729,262 12,410,836 Interest Expenses Interest on Demand and Savings Deposits Interest on Time Deposits Interest on Securities issued by the institution Interest on Financial Liabilities (12,529,533) (118,446) (63,290) (633,575) (10,112,307) (71,190) (28,458) (429,096) (6,341,427) (74,334) (26,481) (103,152) (5,224,271) (50,224) (22,817) (78,632) (3,634,021) (60,899) (7,696) (106,829) Total Interest Expenses (13,344,844) (10,641,051) (6,545,394) (5,375,944) (3,809,445) Net Interest Income 33,946,460 24,723,113 16,934,614 12,353,318 8,601,391 Provision for Losses on Loan Portfolio (3,800,812) (3,264,872) (1,659,640) (1,938,631) (934,950) Net Financial Margin 30,145,648 21,458,241 15,274,974 10,414,687 7,666,441 Commissions and Other Income Trust Fund Operations Foreing Currency Transactions Commissions for account Transactions Commissions on Letters of Credit and Guarantees Granted Equity in Long-Term Investment Exchange Gains Income on Sale of Investments Securities Other income 198,275 14,097 3,095,782 13,402 61, , ,409 9,971, ,251 33,134 2,240,251 11, ,692 (1,480) 585,872 6,237, ,785 (2,540) 1,107,201 12, , , ,014 4,016, ,950 32, ,360 18, ,393 (32,250) 190,797 3,603,474 60,458 3, ,738 11,266 69, , ,533 2,217,001 Total Commissions and Other Income 14,888,097 9,474,206 5,949,807 4,944,737 3,317,555 Insurance Premiums. Net of Claims Premiums Claims 25,142,841 (21,174,294) 16,864,906 (14,053,190) 10,991,945 (9,315,390) 7,734,901 (6,500,123) 5,642,528 (4,716,228) Total Insurance Premiums. Net of Claims 3,968,547 2,811,716 1,676,555 1,234, ,300 Operating Income 49,002,292 33,744,163 22,901,336 16,594,202 11,910,296 Operating Expenses Salaries and Employee Benefits Depreciation, Property and Equipment Expenses, Amortization of Intangibles and Other Fees Paid to Regulatory Agencies Other Operating Expenses (10,106,429) (4,767,470) (4,992,482) (17,810,507) (5,551,487) (3,281,473) (3,385,344) (9,802,339) (4,501,073) (1,433,701) (2,457,415) (5,137,596) (3,492,659) (1,029,856) (1,885,215) (4,569,952) (2,781,564) (683,612) (1,448,810) (2,848,922) Total Operating Expenses (37,676,888) (22,020,643) (13,529,785) (10,977,682) (7,762,908) Net before Income taxes, Extraordinary items and Minority Interest 11,325,404 11,723,520 9,371,551 5,616,520 4,147,388 Taxes Current Deferred (4,585,986) 27,664 (4,764,354) 174,543 (2,672,860) 266,978 (66,366) 334,393 (151,335) (20,244) Total Taxes (4,558,322) (4,589,811) (2,405,882) 268,027 (171,579) Minority Interest (5,188) (3,738) (3,877) (4,098) (1,869) Net Income for the Year 6,761,894 7,129,971 6,961,792 5,880,449 3,973,940 Aury Oliveros Administration Manager Alfonso Figueredo Davis Global Executive Vice President of Operations and Administration Isabel Pérez Sanchis Global Chief Financial Officer Gustavo Vollmer A. Chairman and CEO 22 SEMI ANNUAL 2016 REPORT

25 Economic Climate World Economy During the first half of the year, world economy continues to recover, although with lower pre-crisis growth rates, in both developed and emerging economies and with high diversity in the current and expected growth rates between countries. Factors that currently cause the weak growth rate are centered on the inestability of financial markets, the evolution of prices of the main crude oil markets, the U.S. monetary policy, the change in the Chinese economic growth model, and the expansive monetary policy implemented by the European Central Bank (ECB) a little over a year ago. In the first quarter of 2016 there was some turbulence in the financial markets, with declining stock ratios or indexes, increasing interest rate spreads, and the general toughening of financing conditions as a result of market response to the significant decline of oil prices, the deceleration of the Chinese economy and its side effects on the world economy and the doubts regarding the capacity of central banks to continue boosting the economy with unconventional liquidity injections. These financial imbalances threatened to enunciate growth deceleration, or even induce a recession. However, during the second quarter of 2016 this outlook improved, partly due to economic policy measures: a somewhat expansive Chinese fiscal policy, the delay in increasing interest rates by the Federal Reserve, and the reinforced expansive monetary measures by the ECB. Following the first increase of the official interest rates since 2006, the Federal Reserve has announced that this upward trend will continue, however will act prudently and in line with the evolution of the economic data. On the other hand, the new orientation of the Chinese economic model towards domestic consumption, from exports and investments, had resulted more complex than expected. The economy has slowed below 7 % and this year s growth is expected to decelerate to 6.5 %, and to 6 % in An even larger slowdown than expected would reinforce the downward pressure on commodities and oil prices, as well as increase financial markets volatility and aversion to risk. In the Euro Zone, the ECB increased the purchases of assets from 60 billion to 80 billion per month, and reduced interest rates on bank deposits to 0.4 %. Finally, the results of the June 23 Referendum in Great Britain to decide whether or not the UK would remain in the European Union (Brexit) surprised world financial markets and, for some time, provoked some fear of additional declining of the world economic growth. In response to that event the International Monetary Fund (IMF) updated its World Economic Outlook (WEO) in July showing 0.1 % decline in its world economy growth forecast to 3.1 % in 2016 and to 3.4 % in 2017, compared to its April report. 23 Mercantil Servicios Financieros

26 The United States Economic growth during the first quarter of 2016 was limited by the strength of the US Dollar and the weak world demand still affecting US exports. Production also suffered from corporations attempts of reducing stock surplus, together with lower oil prices, which have caused deep cuts in capital spending. During the same period, according to the Bureau of Economic Analysis (BEA), the US economy grew at an annual 1.1 % rate, twice the initial estimate. For the second quarter of 2016, an annualized expansion between 2.5 % and 3 % is expected. Advance activity indicators, such as retail sales and a healthy real estate market, seem to confirm the previous statement. Retail sales in June rose by 0.6 % month-on-month to reach US$ 457 billion. This represents a 2.7 % year-on-year increase. On the other hand, when evaluating the average of the second quarter of 2016, retail sales increased by 8.4 % compared to the same period of, while in the first quarter of 2016 retail sales showed a slightly 2.8 % growth. The real estate market has benefited from the low interest rates for mortgages and from an increased demand of new buyers (the so-called millennials). The sale of homes in the secondary market registered a 1.1 % year-on-year increase in June, to reach 5.57 million units sold, the highest growth since February 2007, while in the primary market (10 % of the total market), the sale of homes registered a 3.5 % month-on-month increased to 592 thousand units sold, the largest variation since February There are also better results in the labor market in terms of generation of jobs and slight increases in salaries. According to the Bureau of Labor Statistics (BLS), 287,000 new jobs were added by the close of June, which represents a significant trend change, also showing that employers continue to hiring at a solid pace. During the first half of 2016, the US monetary policy continued its expansive trend, with the aim of generating additional improvements to the already strong labor market and reaching the 2 % inflation target. Therefore, the Federal Open Market Committee (FOMC) has kept the target rate for the federal funds between 0.25 % and 0.5 % since December. According to the BLS, inflation measured using the Consumer Price Index increased in June, as in May, by 0.2 %, rising prices in the real estate, energy and health sectors, which further reduces the fears of deflation. Price registered 1 % year-on-year growth, below the 1.7 % annual average of the last 10 years. (1) Highlights that the first estimates of April showed a growth of 0,5 % adjusted in May forecast to 0,8 % growth. (2) This date was the first adjustments of the federal funds rates, in the target range, since June Latin America During the first half of 2016, as in, the region continued to show, on one hand, a significant weakness in its growth, due to the decline of external demand for its products and to the lower domestic consumption and investments. On the other hand, there are progressively more subregional differences in macroeconomic performance, with Mexico and Central America gaining advantage with lower energy prices, improved exports and larger remittances, while the Sourthern economies have been affected by the deterioration terms of trade, the lower Asian external demand and the reduction of areas for policies to promote internal spending. 24 SEMI ANNUAL 2016 REPORT