Mercantil Servicios Financieros, C.A. Financial Report Second Quarter 2018

Transcription

1 Mercantil Servicios Financieros, C.A. Financial Report Second Quarter Mercantil Servicios Financieros (Mercantil). Financial Report Second Quarter Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY Caracas, July 30,. Mercantil announces its earnings for the quarter ended 30,. Summary of Financial Statements and Ratios (In millions of Bolivars, except percentages) March Jun. 18 vs. Mar. 18 Jun. 18 vs. Jun. 17 QUARTERLY RESULTS % % Net Interest Income 10,458,306 1,024,269 66, ,677.8 Net Income Quarter 8,504,416 4,178,068 15, ,936.6 Net Income 6 Months 12,682,484 20,144 62,859.1 KEY FINANCIAL INDICATORS Income per share Quarter Bs / share 83,295 40, ,940.2 Income per share 6 Months Bs / share 124, ,862.5 Market price A share Bs 29,500,000 1,700,000 49,100 1, ,981.5 Market price B share Bs 29,500,000 1,700,000 49,500 1, ,496.0 Net Income (quarter) / Average Assets (ROA) 21.6% 19.8% 3.0% Net Income (quarter) / Average Equity (ROE) 124.4% 120.5% 51.7% Net Income (6 Months ) / Average Assets (ROA) 16.1% 2.0% Net Income (6 Months) / Average Equity (ROE) 92.7% 34.4% Net Interest Income increased as a result of higher financial assets and liabilities, with a larger intermediation ratio (loan portfolio to deposits). The ratio was 71.1% at the close of the second quarter of (56.5% at 30, ). Net income in the second quarter of, includes Bs 5,686,989 million from exchange rate differences, an increase of Bs 4,106,105 million from commissions for the use of credit and debit cards. On the other hand, operating expenses increased Bs 8,521,219 million, which includes the effect of the inflationary and foreign exchange environment of the Venezuelan economy, still significantly affecting this item. Summary of Financial Statements (In millions of Bolivars, except percentages) March Jun. 18 vs. Mar. 18 Jun. 18 vs. Jun. 17 % % Cash and due from banks 91,728,900 35,412,132 1,068, ,485.3 Investment Portfolio 74,177,878 62,114, , ,401.8 Loan Portfolio, Net 193,302,932 36,994,839 1,288, ,902.9 TOTAL ASSETS 396,095, ,001,505 2,901, ,549.3 Deposits 278,344,658 70,757,930 2,346, ,761.4 Shareholders Equity 65,735,200 28,389, , ,504.2 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 396,095, ,001,505 2,901, ,549.3 ASSETS UNDER MANAGEMENT 444,395,314 68,283, , ,499.4 Loan Portfolio, net: as a result of the increase of financial intermediation, during 2Q the net loan portfolio increased Bs 156,308,093 million (422.5%) compared to the previous quarter, and 14,903% compared to the close of 2Q. Deposits: in 2Q, total deposits registered Bs 207,586,728 million (293.4%) quarter-over-quarter growth, and 11,761.4% year-on-year increase. Shareholders Equity: At the closed of 2Q total shareholder s equity reached Bs 65,735,200 million representing 3,184% quarter-over-quarter growth. This variation can be attributed mainly to Bs 8,504,416 million in net income for the period as well as Bs 10,376,465 million from the exchange rate variation of subsidiaries abroad net assets; this variation also generated an increase in the investment portfolio value resulting in higher unrealized gain of Bs 8,620,945 million and an increase in the revaluation surplus of fixed assets for Bs 9,861,021 million. 1

2 Table of contents Page Contribution of subsidiaries 3 Credit Ratings 3 Analysis of Consolidated Financial Statements Operating Income 4 Net Interest Income 4 Allowance for losses on loan portfolio and commissions receivable 5 Total Commissions and Other Income 5 Total Insurance Premiums, Net of Claims 5 Total Operating Expenses 6 Efficiency Ratios 6 Balance Sheet 7 Liquidity 7 Investment Portfolio Financial Intermediation Activity 8 Loan Portfolio 10 Deposits 10 Total Assets 11 Financial Obligations 11 Shareholders Equity 12 Wealth Management 12 Performance of Subsidiaries in accordance to its Local Accounting Standards 13 New Products and Services 16 New measures announced for the Financial Environment 16 Annex I: Summary of the accounting principles used to prepare the financial statements 18 Annex II: Financial statements of Mercantil Servicios Financieros 19 Annex III: Stock Performance Summary and Financial Indicators of Mercantil Servicios Financieros 21 Annex IV: Financial statements of Mercantil Banco Universal 23 Annex V: Financial statements of Mercantil Seguros 24 2

3 Contribution of Subsidiaries Mercantil Servicios Financieros Equity Bs billions Venezuela Mercantil Banco Universal Equity Bs 13,827 billions International Mercantil Banco, S.A. Equity US$ 42 millions Mercantil Bank Curacao NV Equity US$ 24 millions Mercantil Bank & Trust Limited Cayman Equity US$ 14 millions Our Busineses Mercantil Seguros Equity Bs 10,313 billions Mercantil Merinvest Casa de Bolsa Equity Bs 663,171 millions Mercantil Servicios de Inversión, C.A. Equity Bs 361,200 millions Our people employees Our people 646 employees Mercantil Seguros y Reaseguros, S.A. Equity US$ 43 millions Mercantil Servicios de Inversion, S.A. Equity US$ 3.2 millions Mercantil Bank (Schweiz) AG Equity US$ 32 millions Our people 28 employees Our people 29 employees For further information, see Summary of Subsidiaries performance according to their Regulatory Accounting Standards page 13 Credit Ratings Mercantil Banco Universal has the best National Rating given to a Venezuelan private financial institution and the highest International Rating based on the country s sovereign rating ceiling of C 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 A(Ven) F1(Ven) A3 A2 A(Ven) F1(Ven) CC C CC A2 A1 (*) A credit rating agency in Venezuela 3

4 Analysis of Consolidated Financial Statements Operating Income Quarter Semester Ended on Ended on (In millions of Bolivars, except percentages) Bolivars % Bolivars % Net Interest Income 10,458,306 66,285 10,392,021 15, ,482, ,406 11,382,168 11,336.1 Allowance for Losses on Loan Portfolio 3,155,677 14,592 3,141,085 21, ,366,717 18,115 3,348,602 18,485.2 Net Financial Margin 7,302,629 51,693 7,250,936 14, ,115,857 82,291 8,033,566 9,762.4 Commissions and Other Income 10,105,688 27,228 10,078,459 37, ,417,429 46,282 18,371,147 39,693.9 Insurance Premiums, Net of Claims 680,555 7, ,069 8, ,799 13, ,657 5,597.8 Operating Income 18,088,871 86,407 18,002,464 20, ,282, ,715 27,140,370 19,151.4 Net Interest Income In 2Q, net interest income reached Bs 10,458,306 million, 15,678% higher than the Bs 66,285 million of 2Q, mainly due to the increase in financial assets and liabilities. Interest income was Bs 11,265,251 million, a 14,317 year-on-year increase reflected in the behavior of income from the loan portfolio, which grew 14,176%. Interest expenses totaled Bs 806,945 million, 6,707% up from 2Q. In 1H, net interest income was Bs 11,482,754 million, % more than the Bs 100,406 million obtained in 1H. Mercantil s net interest margin (net interest income-to-average financial assets) was 19.2% similar to the previous period. Loan Portfolio Provision and Commissions Receivable In 2Q, expenses totaled Bs 3,155,677 million, Bs 3,141,085 million (21,526%) up from Bs 14,592 million in 2Q. In 1H, loan portfolio provision expenditure was Bs 3,366,717 million, Bs 3,348,602 million (18,485%) higher than Bs 18,155 in the first half of. The accumulated allowance reached Bs 4,666,430 million at 30,, representing 2.4% of gross loans (2.2% at March 31, ). This provision covers 3,155% of past-due and nonperforming loans (1,550% at March 31, ). 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 (Bs Millions) 250,000, ,000, ,000, ,000,000 50,000,000 0 Evolution of Net Interest Income 25.8% 10.2% 11.5% 12.6% 15.1% 6.8% 254,014 1,041,328 9,960,061 4Q 1Q 2Q Net Interest Income Net Interest Margin Operating Expenses / Average Total Assets Evolution of Loan Portfolio 2.8% 2.2% 2.4% 0.1% 0.1% 0.1% Dec. Mar. Jun. Gross Loans Past Due and Non-Performing Loans Past Due and Non-Performing Loans / Gross Loans Allowance for Losses on Loan Portfolio / Gross Loans 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 3.6% 3.2% 2.8% 2.4% 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% 4

5 Total Commissions and Other Income In 2Q, commissions and other income totaled Bs 10,104,379 million, up Bs 10,077,150 million (37,010%) from Bs 27,228 million in 2Q, mainly due to: Bs 5,687,118 million (4,407,969%) growth from exchange rate differences. Bs 4,105,096 million (14,859%) increase of earnings from commissions for the use of credit and debit cards, income from financing insurance policies, as well as other commissions on client transactions, among others, mainly due to a larger volume of transactions. Bs 284,667 million (105,653%) increase in earnings from securities trading activities. In 1H, Commissions and Other Income totaled Bs 18,416,120 million, reflecting Bs 18,369,838 million (39,691%) year-on-year growth, mainly due to Bs 13,147,479 (10,036,244%) from exchange rate differences, Bs 4,894,573 million (10,653%) increase from commissions for the use of credit and debit cards, income from financing insurance policies, among other commissions from client transactions, and Bs 327,786 million (70,190%) in earnings from securities trading activities. Total Insurance Policies, net of Claims In 2Q, Insurance premiums, net of commissions, reinsurance and claims totaled Bs 680,555 million, 8,992% up from Bs 7,485 million in 2Q. The Insurance Premiums, net of Commissions, Reinsurance and Claims closed at Bs 366,726 million, 4,821% up from Bs 7,453 million in 2Q. This variation is mainly attributable to the Automobile business. 58% 34% Composition of Total Income Bs 100,999 millions 2Q 8% 49% 19% 32% 0% 1% 2Q 2Q Net Interest Income Commissions on Transactions, Insurance Premiums net and Other Other Income Income on Sales Investment Securities Bs 21,244,548 millions 2Q During 2Q, collected premiums reached Bs 2,171,544 million, representing Bs 2,124,446 million (4,511%) year-on-year growth. The claims and administrative expenses during 2Q closed at Bs 263,655 million, reflecting Bs 214,202 million (1,074%) year-on-year rise. The main contributors to this variation were the Health business. The claims ratio was 42.0% in 2Q (46.7% in 2Q ). In 2Q, Insurance Premiums, net of Commissions, Reinsurance and Claims totaled Bs 343,597 million, up 2,257% from 1H, collected premiums showed a 3,098% increase to reached Bs 2,702,661 million in 1H. Claims and administrative expenses totaled Bs 440,485 million, up Bs 399,949 million (986.6%) from 1H. 5

6 Total Operating Expenses Quarter Semester Ended on Ended on (In millions of Bolivars, except percentages) Bolivars % Bolivars % Operating Income 18,088,871 86,407 18,002,464 20, ,282, ,715 27,140,370 19,151,4 Operating Expenses Personal and Employee Benefits 2,834,551 16,532 2,818,018 17, ,090,083 29,862 3,060,221 10,247.9 Other Operating expenses 5,750,372 47,171 5,703,201 12, ,978,893 83,335 6,895,558 8,274.5 Taxes Current and Deferred 1,004,153 7, ,452 12, ,537,768 8,527 4,529,241 53,116.5 Minority Interests 4, ,612 54, ,143 (12) 7,155 59,625.0 Discontinued Operation (165) (100.0) (165) (100.0) Net Income 8,504,416 15,177 8,489,240 55, ,682,484 20,144 12,662,340 62,859.1 In 2Q, personnel and operating expenses totaled Bs 8,584,922 million, 13,376% up from Bs 63,703 million in 2Q. This increase is mainly due to: Bs 2,818,018 million in personnel expenses, reflecting 17,046% year-on-year rise. This increase is due to the application of compensation and benefits according to market. Bs 436,906 million (4,429%) increase in expenses from contributions to regulatory agencies. Bs 5,609,090 million (13,676%) increase in operating expenses. Total Personal and Operating Expenses 2Q 60% 33% 6% 1% Salaries and employee benefits Depreciation, Property and equipment, Amortization of intangibles and others expenses Fees paid to regulatory agencies Other operating expenses In 1H, personnel and operating expenses totaled Bs 10,068,976 million, 8,795% up from Bs 11,197 million in 1H, mainly due to Bs 3,060,221 million increase in personnel expenses and Bs 6,895,558 million increase in other operating expenses affected by the inflationary environment in the country. Efficiency Ratios The efficiency ratio measured by calculating operating expenses as a percentage of average assets was 12.6% in compared to 10.0% in. The ratio of operating expenses to total income was 33.1% in (63.4% in ). The Company has made significant efforts to adapt its organizational and operating structure to the current environment in the geographical areas where it operates. 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 63.4% 10.0% 58.7% 11.5% 56.4% 8.5% 8.2% 15.3% 12.6% 33.1% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 10.0% 2.0% 0.0% 2Q 3Q 4Q 1Q 2Q 0.0% Operating Expenses / Total Income Operating Expenses / Average Assets 6

7 Balance Sheet The main variations in the Balance Sheet during 2Q are reviewed and commented below with respect to the previous quarter. The main yearon-year variations are also indicated for comparison purposes: Summary of Balance Sheet and Assets under Management (In millions of Bolivars, except percentages) March Jun. 18 vs. Mar. 18 Jun. 18 vs. Jun. 17 Bolivars % Bolivars % Cash and due from banks , ,3 Investment Portfolio , ,8 Loan Portfolio, Net , ,9 Total Assets , ,3 Deposits , ,4 Shareholders Equity , ,2 Asset Management , ,4 Liquidity At the close of 2Q, total cash and due from banks (cash and legal reserves in Venezuela) plus investments in time deposits and placements included in the investment portfolio increased Bs 57,156,816 million (159.9%) to a total of Bs 92,903,034 million, compared to Bs 35,746,218 million at March 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 levels of liquidity in the Venezuelan financial system and to the internal risk limits. Compared to 30,, cash and due from banks plus investments in term deposits increased Bs 91,799,549 million (8,319%), going from Bs 1,103,485 million to Bs 92,903,034 million. The liquidity ratio calculated by dividing total cash and due from banks by deposits was 33.0% and the ratio calculated by dividing total cash and due from banks plus investments by deposits was 59.6%, compared to 50.0% and 137.8% in March, and 45.5% and 53.3% respectively at the close of 1H. Liquidity (In millions of Bolivars) 502,9383 Δ +8,319% 25,619,042 Δ % Jun. Mar. Jun. Cash and Due from Banks - Legal Reserves Legal Reserves Investments in Time Deposits and Placements 39,311,842 Investment Portfolio At the close of 2Q, the investment portfolio reached Bs 74,177,878 million, up Bs 12,063,510 million (19.5%) from Bs 62,114,368 million in the previous quarter. This growth is mainly due to the exchange rate adjustments. Compared to 30,, the investment portfolio grew Bs 73,994,731 million (40.402%) going from Bs 183,147 million to Bs 74,177,878 million. This growth is mainly due to the exchange rate movements. Investments Portfolio (In millions of Bolivars) 80,000 70,000 60,000 62,114 74,178 50,000 40,000 30,000 20,000 10, Jun. Mar. Jun. 7

8 Investments by maturity and yield at the close of 2Q, are broken down as follows: Trading Available for Sale Investments by Maturity and Yield (In millions of Bolivars, except percentages) Held to Maturity Shares Time Deposits and Placements Trust Fund and Restricted Investments Years Bs 1 Bs 1 % 3 Bs 2 % 3 Bs 1 Bs 1 % Bs 1 % 3 TOTAL Less Than 1 423,005 7,292, , ,160, ,303, ,754,235 From 1 to 5 358,705 15,361, ,826, ,546,469 Over 5 2,970,611 8,037, ,622, ,233,083 13, ,877,175 3,752,321 30,691,117 7,023,590 15,233,083 1,174,134 16,303,633 74,177,878 Public debt bonds issued by the Venezuelan State account for 0.07 times Mercantil s equity and 1.2% of its assets (0.08 and 1.6% in March, respectively). These securities also represent 0.18 time Mercantil Banco Universal s equity and 1.06% of its assets (0.24 and 2.51% in March, respectively). At 30,, the Mercantil C.A. Banco Universal subsidiary, in line with regulations issued by the Executive branch, purchased Bs 744,753 million in Mortgage Bonds, Certificates of Participation, Agriculture bonds and Shares, representing 13.7% of the investment portfolio and 0.05 times its equity (Bs 319,004 million representing 12.8% of its investment portfolio and 0.06 times its assets at March 31, ). Financial Intermediation Activity Loan Portfolio 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Breakdown of Investments by Issuer Venezuelan Central Bank US Government & US Gov. Guaranteed Agencies Private March Venezuelan Government and Public Entities At the close of 2Q, the net loan portfolio totaled Bs 193,302,932 million, representing 422.5% quarter-over-quarter increase from Bs 36,994,839 million. Compared to 30,, the loan portfolio grew Bs 192,014,493 million (14,903%), from Bs 1,288,440 million to Bs 193,302,932 million. The ratio of past due and non-performing loans to gross loans is 0.08%, compared to 0.14% at the close of March. Mercantil Banco Universal s ratio is 0.04% compared to 0.2% of the Venezuelan financial system. (In millions of Bolivars, except percentages) Loan Portfolio by Economic Activity % March % % Commercial 67,753, ,020, , Foreign trade 50, , , Industrial 15,422, ,792, , Construction 46, , , Credit Cards 35,579, ,759, , Residential mortgage 52, , , Services 8,500, ,185, , Agricultural 26,844, ,306, , Car loans 30, , , Other 43,688, ,675, , ,969, ,826, ,325, 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. 8

9 At 30,, 99.9% of Mercantil s loan portfolio is outstanding. The allowance for losses on the loan portfolio covers 3,115% of past due and nonperforming loans (1,550% at March 31, ). This ratio is 6,187% at Mercantil Banco Universal (1,310% at March 31, ). Loan Portfolio by Business Segment Loan Portfolio (In millions of Bolivars) Δ + 14,903% 27% 193,302,932 9% 64% SME's Large Corporation Individuals 1,288,440 36,994,839 Δ % Jun. Mar. Jun. The analysis of the distribution of the loan portfolio broken down by economic activity and interest rates at 30, is as follows: 30, Balance Anual Interest manteined Rates (In millions of Achieved Required Maxium Sector bolivars) % % % Calculation Base Agriculture (a) 27,245,820, % Gross loans at march 31, Microenterprise 6,777,832, % Gross loans at december 31, Mortage 66,960,441 Between 4,66% and 10,66% Turism (c) 500,138, % or 6.09% Gross loans at december 31, Manufacturing (b) 8,961,679,072 18% or 16,20% 43,552,431, (a) In September, Mercantil C.A. Banco Universal, acquires Bs 31,019 million in Bandes Participation Certificate; which can be attributed to the mandatory agricultural portfolio as established in Circular No. SIB-II-GGR-GNP dated October 13, ; the amount of the agricultural portfolio adding up this investment amounts to Bs 27,276,840 million as of 30,. (b) In November 2016, the Ministry for Industries and the Ministry for Finance ratified the strategic development sectors to which at least 60% of the resources of the manufacturing loan portfolio must be allocated, as well as a minimum percentage of 40% allocated for the financing of small and medium-sized industries, joint ventures, as well as state-owned companies whose main activity is framed in the Classifier of Venezuelan Economic Activities (CAEV). (b) In November 2013, Mercantil C.A. Banco Universal acquires 115,014 shares at Bs 1,800.00, Bs 207 million, which is attributable to the fulfillment of the portfolio destined to the tourism sector. The total amount of the tourist portfolio adding these investments amounts to Bs 500,346 million. 9

10 Deposits At the close of 2Q, deposits totaled Bs 278, million, reflecting Bs 207,586,728 million (293.4%) quarter-over-quarter increase from Bs 70,757,930 million. Compared to 30,, deposits grew Bs 275,998,024 million (11,761%), from Bs 2,346,634 million to Bs 278,344,658 million. Demand deposits were the main component of total deposits, reaching Bs 206,584,416 million, 355.2% quarter-over-quarter increase accounting for 74.2% of total deposits. Savings deposits increased Bs 24,865,521 million (319.3%) and term deposits increased Bs 21,515,165 million (122.3%), in the same period. Breakdown Deposits by Business Segment Deposits (In millions of Bolivars) Δ + 11,761% 49% 39% 278,344,658 12% 2,346,634 70,757,930 Δ % Individuals Large Corporation SME's Jun. Mar. Jun. Total Assets At the close of 2Q total assets increased 177.0%, to Bs 396,095,811 million, up Bs 253,094,308 million from Bs 143,001,503 million the previous quarter. This growth is due to the combined performance of cash and due from banks and the loan portfolio, which grew Bs 56,316,768 million and Bs 156,308,093 million, respectively. The ratio of performing assets to total assets was 73.4%, up Bs 188,934,426 million (185.7%) from the previous quarter. Consolidated Total Assets (In millions of Bolivars) Δ +13,549% 396,095,811 Compared to 30,, assets grew Bs 393,193,853 million (13,549%), from Bs 2,901,958 million to Bs 396,095,811 million. 143,001,505 2,901,958 Δ % Jun. Mar. Jun. 10

11 The loan portfolio remained the main element (48.8%) of total assets, cash and due from banks accounting for 23.2%, and the investment portfolio for 18.7% at the close of the quarter. Assets Distribution Total Bs 396,095,811 millions Cash and Due from Banks 23.2% Loan Portfolio, Net 48.8% Venezuelan Central Bank 0.0% Venezuelan Govermment 1.3% US Govermment. 4.1% Private Sector 13.2% US Govermment Guaranteed Agencies 0.1% Other Assets 9.3% Financial Obligations At the close of 2Q, financial obligations reached Bs 3,962,097 million, up 136.7% from Bs 1,673,808 million the previous quarter. Compared to 30,, obligations grew 12,539%. March (In millions, except percentages) Bs Bs Bs Publicly Traded Debt Securities Issued by Mercantil 145,200 49,500 2,874 Subordinated debt 0 0 1, ,200 49,500 3,980 Other Financial Liabilities 3,816,897 1,624,308 27,369 3,962,097 1,673,808 31,349 Shareholders Equity At the close of 2Q, shareholders equity reached Bs 65,735,200 million representing Bs 37,345,909 million (131.5%) quarter-over-quarter increase from Bs 28,389,291 million. Compared to 2Q, shareholders equity increased 28,504%, from Bs 229,810 million. The 2Q variation is mainly due to Bs 8,504,416 million in quarterly net income, as well as to Bs 10,376,465 million from the adjustment of the exchange rate of net assets of subsidiaries abroad; in addition, this adjustment increased the value of the investment portfolio, resulting in higher unrealized gain of Bs 8,620,945 million, and Bs 9,861,021 million increase in the revaluation surplus of fixed assets. Evolution of Shareholders Equity (In millions of Bolivars) Δ + 28,504% 28,389,291 65,735, ,810 Δ % Jun. Mar. Jun. 11

12 Capital Ratios Mercantil s equity-to-assets ratio at 30, is 16.6% and its equity-overrisk-weighted assets is 18.8%, based on the standards of SUNAVAL (7.9% and 14.9% at 30, ). Mercantil Banco Universal, in accordance with the requirements of SUDEBAN in Venezuela, has an equity-to-assets ratio 10.2% and an equity to risk-weighted assets of 14.2% at 30, (12.5% and 14.4% at 30, ). Capital Structure The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums. Capital stock 0.0% Capital reserve 0.0% Share premium 0.0% Traslation adjustments of net assets of subsidiaries abroad 39.0% Retained earnings 19.7% Unrealized gain fron adjustments of investments to market value 25.4% Surplus on revaluation of fixed Assets 16.0% Remedición por plan de pensiones 0.0% Wealth Management The Wealth Management business comprises: trust fund, securities brokerage, mutual funds and portfolio management services. Net assets under management recorded off-balance sheet as of 30, reached Bs 444,395,314 million, representing a 550.8% quarter-over-quarter growth and 70,499% year-on-year increase, respectively, broken down as follows: TOTAL ASSETS UNDER MANAGEMENT (In millions, except percentages) March Jun. 18 vs Mar.18 % Jun. 18 vs Jun. 17 % Trust Funds 28,435,848 12,405,976 77, ,547.6 Mutual Fund 14,060 10,860 5, Brokerage 385,703,019 42,855, , ,060.3 Financial Advisory 18,851,831 8,057,171 5, ,876.9 Custody of Securities Trading 11,390,556 4,953,266 21, ,807.2 Total Assets under Management Bs 444,395,314 68,283, , ,499.4 Mercantil offers its clients investment products and services (as broker-dealers, investment advisers and custody) in global financial markets. At the close of the total value of client assets was Bs 415,945,406 million, up 644.5% from the close of the previous quarter (74,987% increase from the close of ). At the close of 2Q, the Trust Fund manages Bs 28,435,848 million, which reflects 129.2% and 36,548% increases from the previous quarter and, respectively. At 30,, Mercantil s trust fund ranks fourth in the private banking and eight in the Venezuelan fiduciary market. At the close of, Mercantil continues to lead the mutual funds industry in Venezuela. Mutual Fund assets under management grew 29.5% and 170.6% compared to the close of the previous quarter and with, respectively, reaching Bs 14,060 million. 12

13 Summary of Subsidiaries performance according to their local Accounting Standards Mercantil Banco Universal Mercantil Banco Universal s total assets grew Bs 192,722,995 million (396.2%) compared to March. During 2Q the net loan portfolio grew Bs 126,531,453 million (742.4%) and deposits increased Bs 170,848,650 million (416.7%) to reach Bs 143,348,375 million and Bs 211,845,217 million, respectively. The quality of the loan portfolio remains favorable, with a 0.04% ratio of past due and nonperforming loans to gross loans, compared to 0.2% of the Venezuelan financial system. The loan portfolio provision covers 6,187.1% of past due and non-performing loans (1,309.5% at March 31, ). In Venezuela, assets per employee rose from Bs million in to Bs 54,284.5 million in. At 30,, the Mercantil Banco Universal subsidiary ranks fourth in the Venezuelan financial system in terms of total assets, with 7.7% of the market. The leading institution has 34.6% and Venezuela s four main banks account for 69.0% of the Venezuelan financial system. Mercantil C.A., Banco Universal Consolidated (In millions of Bolivars) Mercantil Banco Universal also ranks second in the private Venezuelan financial system in terms of loans for tourism and manufacturing, with 12.1% and 17.7% of the market, respectively. In terms of agriculture and microcredit loans, it ranks fourth and third with market shares of 17.7% and 15.9%, respectively. Mercantil ranks second in Venezuela in terms of savings deposits, with 17.5% of the market. Shareholders Equity registered Bs 8,687,791 million (169.0%) quarter-over-quarter growth to Bs 13,827,438 million. This growth mainly includes Bs 2,904,435 million in net quarterly income, Bs 5,776,445 million increase in exchange rate fluctuations registered on equity, among others. At 30,, the equity-to-assets ratio is 10.2% (minimum requirement is 7%) and the equity to risk-weighted assets ratio, according to the standards of SUDEBAN in Venezuela is 14.2% (minimum requirement 11%). In 2Q, net earnings of Bs 2,904,435 million reflected Bs 2,889,792 million (19,735%) year-on-year increase, mainly due to Bs 9,892,752 million increase in net interest income as a result of higher financial assets and liabilities, Bs 3,185,930 million in net income from commissions on the use of credit and debit cards, as well as other commissions from client transactions, Bs 3,133,151 million in expenses for loan portfolio provisions, Bs 5,446,703 million increase in personnel and operating expenses, Bs 40,705 million in contributions to regulatory agencies, and Bs 1,568,332 million growth in corporate income tax expenses. The Company has made significant efforts to adapt its organizational and operational structure to the current environment. In semi-annual terms, net earnings were Bs 3,138,208 million, representing Bs 3,118,039 million (15,460%) year-on-year growth. This increase is mainly associated with Bs 10,900,071 million increase in net interest income, Bs 3,597,522 million increase in earnings from commissions for the use of credit and debit cards, as well as from other commissions on client transactions, Bs 3,357,847 million increase in loan portfolio provision expenses, Bs 6,266,279 million increase in personnel and operating expenses, Bs 81,410 million increase in contributions to regulatory agencies, and Bs 1,592,608 growth in corporate income tax expenses. The Company has made significant efforts to adapt its organizational and operational expenses to the current environment. March Total Assets 241,370,616 48,647,661 2,560,254 Investments Portfolio 5,417,092 2,489, ,782 Loan Portfolio 143,348,375 16,816,922 1,243,159 Deposits 211,845,217 40,996,567 2,317,135 Shareholders Equity 13,827,438 5,139, ,567 Net Income Quarter 2,904, ,773 14,643 Net Income Semester 3,138,208 20,169 Historic figures in accordance with the standards of SUDEBAN. Evolution of Net Interest Income 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, % 10.2% 11.5% 12.6% 15.1% 6.8% 254,014 1,041,328 9,960,061 4Q 1Q 2Q Net Interest Income Net Interest Margin Operating Expenses / Average Total Assets 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 13

14 Mercantil Seguros During 2Q, collected premiums totaled Bs 2,171,544 million, reflecting 4,511% year-on-year growth from Bs 47,098 million. At the close of April 30,, Mercantil Seguros ranked fourth among Venezuelan insurance companies in terms of collected premiums, with 9.7% of the market. Net collected premiums per employee in Venezuela rose from Bs 32.2 million in to Bs 3,403.7 million in. Total assets reached at Bs 13,191,156 million at 30,, reflecting 473.0% quarter-over-quarter growth. The company registered Bs 10,312,123 million in shareholders equity, meeting the statutory requirements in place. The figures presented include all the mandatory and voluntary reserves required to guarantee the company s operations, including outstanding claims reserves and end-of-period payments. At the close of 30,, the company s investment portfolio was Bs 11,973,588 million, up 520.5% from the previous quarter. Total investments representing technical reserves reached Bs 6,221,181 million Mercantil Seguros C.A. (In millions of Bolivars) (819.7% quarter-over-quarter growth and 8,676% year-on-year rise), while liquidity levels amply meet all the statutory requirements on commitments towards policyholders, insurance brokers and reinsurers. In 2Q, the technical result closed at Bs 107,401 million, with a combined 1 operating ratio of 86.0%. Net income for 2Q closed at negative Bs 68,394 million (717.4% below the close of 2Q ). The claims ratio was 42.0% (62.3% in ). In semi-annual terms, the technical result reached Bs million, with a combined operating ratio of 91.2%. Net income for 2H totaled Bs 24,928 million (97.3%) up from 1H. The claims ratio was 46.7% at the close of 1H (62.8% at 30, ). March Total Assets 13,191,156 2,302, ,369 Investments suitable for representing 6,221, ,463 70,885 Investments not-suitable for representing Technical Reserves 5,752,407 1,253, ,958 Shareholders Equity 10,312, ,405 67,669 Net Income Quarter (68,394) 93,322 11,078 Income net 6 Months 24,928 12,634 Premiums Received Quarter 2,171, ,116 47,098 Premiums Received 6 months 2,702,661 84,510 Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg) Evolution of Net Collected Premiums and Combined Ratio 1 130% 120% 110% 112.5% 100% 98.8% 90% 80% 95,6% 171, ,116 2,171,544 4Q 1Q 2Q Net Collected Premiums Combined Ratio 1 Combined ratio = (incurred claims + commissions + operating expenses)/ earned premiums 14

15 Other Subsidiaries of Mercantil Servicios Financieros Mercantil includes a brokerage house, a mutual fund and investment portfolio management society, and other banks abroad, in addition to other nonfinancial subsidiaries in Venezuela. A summary of the activities of these subsidiaries is presented as follows: Mercantil Bank (Schweiz) AG started operations in 1988 as BMS Finanz AG, providing correspondent banking services and facilitating foreign trade. Twelve years later in 2000, the Swiss authorities granted the bank a license to operate as a bank and securities intermediary under the name Banco Mercantil (Schweiz) AG, offering personal, corporate and private banking services. In 2012 it dedicated its activities exclusively to private banking and wealth management, always complying with international standards. At the close of, its total assets reached US$ 164 million and its assets under management were US$ 456 million; the net income for 2Q was US$ 0.5 million. Mercantil Banco, S.A. started banking operations in 1977 under an international license as Banco del Centro. Later, in 2008 they were authorized to operate under a general license and changed their name to Mercantil Bank (Panamá) and initiated an expansion process. Over the last five years, the bank has developed a full range of financial services, breaking into the areas of insurance and wealth management. At 30, Mercantil Banco, S.A. s total assets amounted for US$ 457 million, 0.4% up from the close of March. The net loan portfolio reached US$ 323 million, 11.6% up from the previous quarter. Deposits grew US$ 12 million compared to the close of the previous quarter to US$ 408 million at the close of. Net income of 2Q reached US$ 0.9 million, US$ 0.3 million up from the result for the same period of the previous year. Mercantil Seguros y Reaseguros total assets at 30, closed at US$ 65 million, 11.6% up from the close of March. The investment portfolio reached US$ 50 million, reflecting a quarter over quarter increase of 20.7%. Shareholders Equity reached US$ 43 million, 7.5% up from the close of March. Net income for 2H reached US$ 3.7 million, US$ 0.7 million up from the result for the same period of the previous year. In semi-annual terms, the net result was U$ 6.7 million, 18.0% up from 1H. Mercantil Merinvest Casa de Bolsa, C.A. founded in Venezuela, to carry out brokerage activities (securities trading) and financial advisory in the stock market. At 30, total assets were Bs 730,642 million, reflecting a 685.7% increase from March 31,. This variation is mainly reflected in the investment portfolio, with 1,313.6% growth from the previous quarter to Bs 679,172 million at 30,. The net income for 2Q was Bs 359,385 million, Bs 359,313 million up from earnings in the same period of the previous year. Mercantil Inversiones y Valores holds Mercantil s non-financial companies, such as Servibien, Almacenadora Mercantil and others, with various investments in securities. At the close of 30,, Mercantil Inversiones y Valores C.A. s consolidated assets and shareholders equity was Bs 484,133 million and Bs 483,957 million, respectively. 15

16 New Products and Services Electronic Current Account, a new product Mercantil Banco Universal presents to its clients This product allows clients to mobilize funds all day long, using all the services of electronic banking through the Llave Mercantil debit card, eliminating the need for a checkbook. Among its features include: Its sole mobilizing instrument is the Llave Mercantil (debit card), electronic channels are available 24 hours a day, 365 days a year to comfortably carrying out transactions, accepted at points-of-sale, at the Mercantil ATM network and other interbank networks nationwide; provides a digital account statement. In order to open an account, the client may request an appointment at any of our branch offices. Mobile Payments of Mercantil Banco Universal, a mobile phone becomes a point-of-sale Mercantil Banco Universal introduced Mobile Payments into the Venezuelan market, a service that uses a smart device as a point-of-sale. This solution is directed to individuals with personal businesses or free exercise of their profession (doctors, dentists, accountants, among others), and to businesses. It consists of a downloadable app, available at the ios and Android app stores, and a card reader for credit cards (Visa, MasterCard and Diners), debit cards (Maestro) and the CestaTicket card. Using a Bluetooth connection, the smart device connects to the card reader (mpos or PINPad) in order to work as a point-of-sale. Transfers from Mercantil Online Banking of Mercantil Banco Universal will now take less clicks In order to enhance clients experience when carrying out transactions through Mercantil en Línea, Mercantil Banco Universal made an improvement that allows them to transfer to other accounts in Mercantil and to other banks without the required previous affiliation. Another novelty is the possibility of carrying out several transactions simultaneously. The goal of this change is that transfers can be made with greater comfort and agility, thereby simplifying life. The initiative is the result of the evaluation of clients needs and requests, within the framework of the company s digital evolution. Venezuelan Financial Environment New Measures announced in the Financial Environment The Tourism Ministry established the percentage of the Tourism Loan Portfolio The Tourism Ministry published a Resolution establishing at 5.25% the percentage of the loan portfolio directed to the tourism sector by Banks during the fiscal year, calculated on the gross loan portfolio as of December 31,. This percentage must be achieved as follows: a) 2.50% at 30, and b) 5.25% at December 31,. The Office of the President disposed a Monetary Reconversion The National Executive ordered that the unit of the monetary system of the Bolivarian Republic of Venezuela must be re-expressed in the equivalent of BsS. 1 to Bs 100,000 current. Said restatement will become effective on August 20,, as from that moment the financial statements will be presented in the new monetary denomination. MERCANTIL has adapted its operating and information systems to the new monetary system. The Ministries of Productive Agriculture and Lands, of Economy and Finance, of Fishing and Aquaculture, and of Urban Agriculture established the percentage of the Agriculture Loan Portfolio during April -March 2019 productive cycle The minimum percentages of the loan agriculture portfolio that banks must dedicate to the agriculture sector during the April -March 2019 period, were set between 14% and 28% of the gross loan portfolio at the closed of the immediate previous quarter. Resources to be granted in the loan portfolio must be distributed as follows: i) short-term vegetables: 61%; ii) mid- and long-term vegetables: up to 5%; iii) ruminants: up to 10%; iv) poultry and pork: up to 10%; v) fishing and aquaculture: up to 5%; vi) mechanization: up to 8%; and, vii) rural savings program: up to 1%. Banks must grant a minimum of 1% of the closing gross loan portfolio of the preceding semester to Micro-enterprise Loan Portfolio, for the established strategic items, in the same standard. SENIAT issues Official Gazette adjusting the Tax Unit The Tax Unit was adjusted, from Bs 850 to Bs 1,200, from its publication on 20,. Panamanian Financial Environment The Panamanian Superintendency of Banks (SBP Superintendencia de Bancos de Panamá) establishes regulations for country risk management The SBP issued an Agreement establishing regulations for country risk management, abolishing all articles in General Resolution N of September 8, 2000 and its amendments. 16

17 ANNEX I Summary of the Accounting Principles used to prepare the Financial Statements Financial statements are presented in accordance with the accounting standards of the SUNAVAL, in bolivars. A summary of some of the main accounting principles applied is given below: Investment Portfolio Securities Held for Trading - Unrealized gains or losses resulting from differences in market value due to market fluctuations are included in the results for the period. Available-for-Sale Securities Recorded at their market value. Unrealized gains or losses resulting from differences in market value and exchange rate fluctuations are included in shareholders equity. Held-to-Maturity Securities Recorded at their acquisition cost, adjusted for amortization of premiums or discounts. For all portfolio investments, permanent losses in market value are recorded as a charge to income in the period in which they occur. Permanent investments are investments that represent 20% to 50% stock ownership. Those greater than 50% are recorded as an equity interest and consolidated, except when control is likely to be temporary. Loan Portfolio Loans are classified as overdue 30 days after their maturity. Allowances for loan portfolio losses are determined through a collectability assessment that quantifies the amount that must be set aside for each loan. These assessments take into account such aspects as economic conditions, credit risk by customer, credit history and the collateral received. When assessing loans for small amounts of the same nature, these are grouped together to determine the provisions required. Recognition of income and expenditure Income, costs and expenses are recorded as they are earned or incurred. Interest earned on past-due loan portfolios is recorded as income when collected. Fluctuations in the market value of derivatives are recognized as income in the period in which they occur. Insurance premiums are recorded as income when earned. Consolidation and discontinued operation The consolidated financial statements include the accounts of Mercantil and its more than 50%-owned subsidiaries and other institutions in which Mercantil has control. See the main subsidiaries on page 3. The net assets of Mercantil Bank Holding Corporation are presented as discontinued operations, given that their shares were given in dividends in December. Inflation Adjustment According to SUNAVAL standards, Mercantil s financial statements, as of December 31, 1999 must be presented in historic figures. Since then Mercantil has ceased to adjust for inflation in its primary financial statements. As a result, fixed and other assets are shown at their inflation-adjusted value up to December 31, The market value determined by independent assessments is higher than the inflation cost adjusted for inflation indicated above. New additions are being recorded at their acquisition value. Fixed assets The buildings and land of the main MERCANTIL headquarters are presented at market values determined by experts, the revaluation of assets is recorded in equity, net of deferred corporate tax income. The rest of the fixed assets are presented at their historical cost. Depreciation expense is recorded in the results of the period. Assets and liability in foreign currency Transactions and balances in foreign currency are translated according to the best estimate of the expectations of the future flows of bolivars obtained, making use of mechanisms legally established, see Annex III. Main differences between the accounting standards of SUNAVAL and the accounting standards of other subsidiaries The main accounting differences for the reconciliation of items under SUNAVAL and SUDEBAN for Mercantil Servicios Financieros are: Amortization of premiums or discounts of securities carried out on a straight-line basis under SUDEBAN standards and in accordance with the constant amortization rate under SUNAVAL standards. Foreign exchange rate fluctuations are recorded in the results, with the exception of those that SUDEBAN indicates to be included in equity and are subsequently recorded in the results when SUDEBAN authorized. 17

18 ANNEX II MERCANTIL SERVICIOS FINANCIEROS. C.A. CONSOLIDATED BALANCE SHEET UNAUDITED FIGURES (In millions of Bolivars, except percentages) March Jun. 18 vs Mar. 18 Jun. 18 vs Jun. 17 Bolivars % Bolivars % CASH AND DUE FROM BANKS 91,728,900 35,412,132 1,068,445 56,316, ,660,455 8,485.3 INVESTMENT PORTFOLIO 74,177,878 62,114, ,147 12,063, ,994,731 40,401.8 DIRECT PRODUCTIVE ASSETS 692, ,951 18, , ,314 3,720.8 LOAN PORTFOLIO 193,302,932 36,994,839 1,288, ,308, ,014,492 14,902.9 OTHER ASSETS 36,193,664 8,266, ,803 27,927, ,849,861 10,427.4 TOTAL ASSETS 396,095, ,001,503 2,901, ,094, ,193,853 13,549.3 DEPOSITS 278,344,658 70,757,930 2,346, ,586, ,998,024 11,761.4 DEPOSITS AUTHORIZED BY THE VENEZUELAN SECURITIES AND EXCHANGE COMMISSION 145,200 49,500 2,874 95, ,326 4,952.2 FINANCIAL LIABILITIES 3,816,897 1,624,308 27,369 2,192, ,789,528 13,846.1 OTHER LIABILITIES 48,042,384 42,177, ,222 5,864, ,747,162 16,173.3 TOTAL LIABILITIES 330,349, ,609,310 2,672, ,739, ,677,040 12,262.9 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 11,472 2, , ,423 23,312.2 TOTAL SHAREHOLDERS EQUITY 65,735,200 28,389, ,810 37,345, ,505,390 28,504.2 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 396,095, ,001,505 2,901, ,094, ,193,853 13,549.3 MERCANTIL SERVICIOS FINANCIEROS, C.A. CONSOLIDATED INCOME STATEMENT UNAUDITED FIGURES (In millions of Bolivars, except percentages) Quarter Semester Ended on Ended on Jun. Jun. Jun. Jun. Bolivars % Bolivars % INTEREST INCOME 11,265,251 78,139 11,187,112 14, ,666, ,578 12,544,938 10,318.4 INTEREST EXPENSE 806,945 11, ,091 6, ,183,942 21,172 1,162,770 5,492.0 NET INTEREST INCOME 10,458,306 66,285 10,392,021 15, ,482, ,406 11,382,168 11,336.1 Provision for losses on loan portfolio 3,155,677 14,592 3,141,085 21, ,366,717 18,115 3,348,602 18,485.2 NET FINANCIAL MARGIN 7,302,629 51,693 7,250,936 14, ,115,857 82,291 8,033,566 9,762.4 TOTAL COMMISSIONS AND OTHER INCOME 10,105,688 27,228 10,078,459 37, ,417,429 46,282 18,371,147 39,693.9 Total insures premiums, net of claims 680,555 7, ,069 8, ,799 13, ,657 5,597.8 OPERATING INCOME 18,088,871 86,407 18,002,464 20, ,282, ,715 27,140,370 19,151.4 TOTAL OPERATING EXPENSES 8,584,922 63,703 8,521,219 13, ,068, ,197 9,955,779 8,795.1 INCOME BEFORE TAXES AND MINORITY INTEREST 9,503,949 22,704 9,481,245 41, ,213,109 28,518 17,184,591 60,258.8 Total Taxes 1,004,153 7, ,452 12, ,537,768 8,527 4,529,241 53,116.5 Minority Interests 4, ,612 54, ,143 (12) 7,155 (59,625.0) Discontinued operation (165) (100.0) (165) (100.0) NET INCOME 8,504,416 15,177 8,489,240 55, ,682,484 20,144 12,662,340 62,

19 ANNEX II MERCANTIL SERVICIOS FINANCIEROS. C.A. CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED FIGURES (In Millions of Bolivars) Quarter ended on Semester ended on CASH FLOWS FROM OPERATING ACTIVITIES Continued Operation 8,504,416-4,178,068 - Discontinued operation Net income 8,504,416 15,177 20,144 18,036 Adjustments to reconcile net income to net cash provided 5,969, ,502 44,883, ,139 CASH FLOWS FROM INVESTING ACTIVITIES (159,078,959) (627,622) (231,687,830) (745,605) CASH FLOWS FROM FINANCING ACTIVITIES 209,833, , ,919,087 1,079,044 CASH AND CASH EQUIVALENTS 1 Net increase for the period 56,724, ,678 84,114, ,577 Effect of exchange rate changes on cash 35,646, ,998 8,256, ,998 At the beginning of the period 92,371, ,676 92,371,102 1,093,575 At the end of the period 56,724, ,678 84,114, ,577 MERCANTIL SERVICIOS FINANCIEROS. C.A. Statement of Shareholders Equity UNAUDITED FIGURES (In millions of Bolivars) Second Quarter First Quarter Second Quarter Beginning balance 78, ,594 28,389,291 Net income 15,177 4,178,068 8,504,416 Pension Plans Remeasurement ,615 Recompras de acciones (42) 0 (41,552) Share repurchased 953 8,090,267 8,620,945 Cash dividends 61 (11,943) 0 Amortization of the surplus of fixed assets revaluation Fixed assets revaluation 135, ,861,021 Translation effect of net assets in subsidiaries abroad 17 15,268,304 10,376,465 Final balance 229,810 28,389,291 65,735,200 1 Includes: Cash and Cash Equivalents, Cash and Due from banks, Investments in time deposits and placements within 90 days maturity. 19