mercantil servicios financieros, c.a. financial report second … · 2018-11-06 · contact:...

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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.

Mercantil Servicios Financieros (Mercantil). Financial Report Second Quarter 2017 Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY

Caracas, July 28, 2017. Mercantil announces its earnings for the quarter ended June 30, 2017.

Summary

Net Income: Mercantil posted Bs 15,176 million in net income in 2Q 2017, reflecting 362.4% year-on-year growth from Bs 3,283 million. Compared to the first half of 2016, net income was Bs 20,144 million, up 197.9% from 1H 2016.

✓ Net earnings per share in 2Q 2017 were Bs 148.6 (Bs 32.4 in 2Q 2016). Net earnings per share in 1H 2017 were Bs 197.3 (Bs 67.3 in 1H 2016).

✓ ROE & ROA in 2Q 2017 reached 60.1% and 3.2% respectively (23.9% and 1.8% in 2Q 2016). In 1H 2017, these indicators were 39.9% and 2.1%, respectively (24.6% and 1.9% in 1H 2016).

✓ Class “A” and “B” share prices closed at Bs 49,100 and Bs 49,500, respectively, compared to Bs 17,300 per Class “A” share and Bs 17,500 per Class “B” share, respectively at March 31, 2017. At June 30, 2016, the prices of each Class “A” and “B” shares were Bs 4,785 and Bs 4,700, respectively .

Main variations in net quarterly income are:

✓ Net Interest Income reached Bs 66,811 million, up Bs 47,989 million (254.9%) from Bs 18,822 million in 2Q 2016, mainly due to the increase in financial assets and liabilities. The financial intermediation ratio (loans-to-deposits) was 56.5% at the close of 2Q 2017 (67.2% at June 30, 2016).

✓ Commissions and other income reached Bs 27,264 million, up Bs 18,322 million (204.9%) from Bs 8,942 million in 2Q 2016, mainly due to Bs 18,225 million increase in income for commissions on the use of debit and credit cards, among other, as well as income from financing insurance policies.

✓ Personnel and Operating Expenses reached Bs 64,545 million, up Bs 42,689 million (195.3%) from Bs 21,856 million in 2Q 2016, due to Bs 11,501 million (214.8%) increase in personnel expenses, Bs 3,629 million (142.5%) in expenses for contributions to regulatory entities, and Bs 27,559 million (197.4%) in operating expenses. Personnel and Operating Expenses have been affected by the inflationary environment in the Venezuelan economy.

✓ Current Corporate Income Tax Expenses reached Bs 7,203 million, up Bs 4,868 million (208.5%) from Bs 2,335 million in 2Q 2016.

Summary of Financial Statements and Ratios

(In millions of Bolivars, except percentages)

June 2017

March 2017

June 2016

∆ Jun. 17 vs. Mar. 17

∆ Jun. 17 vs. Jun. 16

QUARTERLY RESULTS % %

Net Interest Income 66,811 34,596 18,822 93.1 254.9 Allowance for losses on loan portfolio 14,628 3,564 2,723 310.4 437.2 Commissions and other income 27,264 19,332 8,942 41.0 204.9 Insurance premiums, net of claims 7,485 5,657 2,436 32.3 207.3 Salaries and Operating Expenses 64,545 49,654 21,856 30.0 195.3 Net Income – Quarter 15,176 4,968 3,283 205.5 362.4 Net Income – 6 Months 20,144 6,762 93.1 197.9

KEY FINANCIAL INDICATORS

Income per share – Quarter Bs / share 149 49 32 205.5 358.5

Income per share – 6 Months Bs / share 197 67 193.1 Market price A share 49,100 17,300 4,785 183.82 926.1 Market price B share 49,500 17,500 4,700 182.9 953.2 Book value per share 2,194 746 622 194 252.5 Net Income (quarter) / Average Assets (ROA) 3.2% 1.2% 1.8% 166.7 77.8 Net Income (quarter) / Average Equity (ROE) 60.1% 25.7% 23.9% 133.9 151.5

Mercantil Servicios Financieros, C.A.

Financial Report Second Quarter 2017

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Assets: In 2Q 2017 total assets registered Bs 1,152,126 million (65.8%) compared to 1Q 2017, to reach Bs 2,901,958 million, up Bs 2,072,125 million (249.7%) at the close of 2Q 2016.

Main variations for this item, taken individually by subsidiary, are as follows:

✓ Mercantil Banco Universal registered Bs 985,020 million (60.3%) increase in 2Q 2017 and Bs 1,910,037 million (269.4%) increase compared to June 2016.

✓ Mercantil Bank, N.A. registered US$ 156 million (1.9%) increase in 2Q 2017 and US$ 243 million (2.9%) increase compared to June 2016.

✓ Mercantil Seguros registered Bs 22,285 million (30.8%) increase in 2Q 2017 and Bs 51,105 million (117.3%) increase compared to June 2016.

Net Loan Portfolio: In 2Q 2017, net loans registered Bs 524,442 million (68.6%) quarter-over-quarter growth to Bs 1,288,440 million and Bs 841,021 million (188.0%) year-on-year growth.


✓ Mercantil Banco Universal registered Bs 522,680 million (74.4%) quarter-over-quarter growth and Bs 835,169 million (214.2%) year-on-year growth.

✓ Mercantil Bank, N.A. registered US$ 196 million (3.4%) quarter-over-quarter growth and US$ 549 million (10.1%) year-on-year growth.

Deposits: In 2Q 2017, deposits registered Bs 829,891 million (54.7%) quarter-over-quarter growth to Bs 2,346,634 million and Bs 1,660,447 million (242.0%) year-on-year growth.


✓ Mercantil Banco Universal registered Bs 830,536 million (57.3%) increase in 2Q 2017 and Bs 1,655,329 million (264.9%) year-on-year growth.

✓ Mercantil Bank, N.A. registered US$ 42 million (0.6%) increase in 2Q 2017 and US$ 135 million (2.1%) increase compared to June 2016.

Shareholders’ Equity: totaled Bs 229,810 million, representing a Bs 151,642 million (194.0%) quarter-over-quarter increase from Bs 78,168 million and Bs 164,608 million (252.5%) year-on-year growth. This quarterly variation is mainly due to Bs 15,176 million in net income, Bs 135,475 million increase in surplus on revaluation of fixed assets and Bs 953 million from adjusting available-for-sale securities to their market value, among other.

Capital Ratios: Mercantil’s equity to risk-weighted assets ratio at June 30, 2017 is 14.9%, according to the National Securities Superintendency standards (SUNAVAL – Superintendencia Nacional de Valores), (12.7% at June 30, 2016).

✓ Mercantil Banco Universal, in accordance with the requirements of the Superintendency of Banking Sector Institutions (SUDEBAN – Superintendencia de Instituciones del Sector Bancario) has an equity-to-assets ratio of 12.5% at June 30, 2017, and equity to risk-weighted assets ratio of 14.4% (11.9% and 14.2% at June 30, 2016).

✓ Mercantil Bank, N.A. based on the standards of the U.S. Office of the Comptroller of the Currency (OCC) has an equity-to-assets ratio of 9.4% at June 30, 2017 and an equity to risk-weighted assets ratio of 12.1% (9.4% and 12.5% at June 30, 2016).

The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums.

Summary of Financial Statements (In millions of Bolivars, except percentages)

June 2017

March 2017

June 2016

∆ Jun. 17 vs. Mar. 17

∆ Jun. 17 vs. Jun. 16

% %

Cash and due from banks 1,068,445 714,561 200,432 49.4 433.1

Investment Portfolio 183,126 181,029 125,955 1.2 45.4

Loan Portfolio, Net 1,288,440 763,998 447,419 68.6 188.0

Other assets 361,947 90,244 56,027 301.1 546.0

TOTAL ASSETS 2,901,958 1,749,832 829,833 65.8 249.7

Deposits 2,346,634 1,516,743 686,187 54.7 242.0

Financial Liabilities 27,439 15,986 12,168 71.6 125.5

Other Liabilities 298,075 138,935 66,276 114.5 349.7

Shareholders’ Equity 229,810 78,168 65,202 194.0 252.5

TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 2,901,958 1,749,832 829,833 65.8 249.7

ASSETS UNDER MANAGEMENT 629,461 292,273 127,817 115.4 392.5

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Table of contents Page

➢ Contribution of subsidiaries 4

➢ Market share 5

➢ Credit Ratings 5

➢ Analysis of Consolidated Financial Statements 6

➢ Operating Income

➢ Net Interest Income 6

➢ Loan Portfolio Provision 7

➢ Total Commissions and Other Income 8

➢ Total Operating Expenses 9

➢ Efficiency Ratios ➢ Balance Sheet

10

➢ Liquidity 10

➢ Investment Portfolio 11

➢ Financial Intermediation Activity

➢ Loan Portfolio 12

➢ Deposits 13

➢ Total Assets 14

➢ Financial Obligations 15

➢ Shareholders’ Equity 15

➢ Capital Ratios 15

➢ Wealth Management 16

➢ Performance of Subsidiaries in accordance to its Local Accounting Standards 17

➢ Corporate Events 20

➢ New Measures announced for the Venezuelan Financial Environment 20

➢ Appendix I: Summary of the accounting principles used to prepare the financial statements 21

➢ Appendix II: Financial statements of Mercantil Servicios Financieros 22

➢ Appendix III: Consolidated Loan Portfolio by Classification 27

➢ Appendix IV: Statutory percentage of loan portfolio in Venezuela 28

➢ Appendix V: Stock Performance Summary and Financial Indicators of Mercantil Servicios Financieros 29

➢ Appendix VI: Financial statements of Mercantil Banco Universal 31

➢ Appendix VII: Financial statements of Mercantil Bank Holding Corporation 33

➢ Appendix VIII: Financial statements of Mercantil Seguros 35

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Contribution of Subsidiaries

Shareholders’ Equity

In millions of Bs(1)

Total

Total Assets 2,497,391 84,940 8,080 83,030 248 228,269 2,901,958 % Assets 86.1 42.9 0.3 2.9 0.0% 7.9 100.0%

Investments 132,800 21,753 3,553 24,812 105 103 183,126 Loans (Net) 1,225,099 59,750 3,591 0 0 0 1,288,440

Deposits 2,276,523 64,790 5,320 0 0 0 2,346,633

Contribution

Income net: Quarter 14,865 91 75 421 (68) (208) 15,176 Semester 20,144 165 (55) 869 (29) (950) 20,144 Assets under Management 91,528 18,818 6,594 88 512,433 0 629,461

Number of Employees 5,866 949 129 935 38 34 7,951

1 Financial data presented in accordance with SUNAVAL standards (see Appendix I). Includes the effect of inter-company transactions eliminations typical of the consolidation process. Foreign currency transactions and balances are translated at the purchase official exchange rate, see Appendix V.

2 See Summary of Subsidiaries’ performance according to their Regulatory Accounting Standards (page 17).

Mercantil Banco Universal

Bs 208,616

Mercantil

Bank Bs 6,941

Other Banks Overseas Bs 2,791

Others Bs 1,365

Mercantil Merinvest

Bs 878

Mercantil Seguros

Bs 17,089

Venezuelan Universal Bank

Insurance in Venezuela and Abroad

Other Minor Investment

Shareholders’ Equity: Bs 229,810 millions

MERCANTIL SERVICIOS FINANCIEROS (1)


U.S. Domestic Bank & Brokerage

International Banking

Investment banking, mutual funds, trading

& brokerage

Main Activity

Mercantil Bank (Schweiz) AG.

Mercantil Bank (Panamá) S.A.

Mercantil Bank and Trust Limited (Islas Caiman)

Mercantil Bank (Curacao) NV

Mercantil Investment Services (MIS)

Mercantil Trust Company (MTC)

Main Subsidiaries

June 30, 2017

Mercantil Merinvest, Casa de Bolsa, C.A.

Mercantil Capital Markets (Panamá)

Mercantil Seguros Panamá S.A.

(2) (2) (2)

Mercantil Servicios de Inversión, C.A.

Mercantil Sociedad Administradora de Entidades de Inversión Colectiva, C.A.

5


Market Share

(1) Source: Summary of Unconsolidated Financial Statements Published in National newspapers at 03/31/2017. (2) Source: Venezuelan Superintendency of Insurance at 12/31/2016 (3) Source: American Bankers based on 200 Bank Holdings, Commercial Banks and Saving Institutions with more Deposits in U.S. at 03/31/2017 (4) Source: Federal Deposit Insurance Corporation (FDIC), to the Florida Stated U.S. at 06/30/2016, Total number of institutions in Florida: 241 in Florida.

(*) A credit rating agency in Venezuela

Credit Ratings

Commercial

and Universal

Bank's

Private Total Private

Tourism Loans 5 3 6.4% 16.2%

Manufacturing Loans 7 4 6.0% 12.1%

Agricultural Loans 3 2 13.0% 19.7%

Morgtgage Loans under the mortgage Debtor Law (Ley Especial del

Deudor Hipotecario)6 3 6.5% 14.4%

Microcredits Loans 4 3 7.1% 8.7%

Gross Loans 4 3 9.7% 13.7%

Savings Deposits 1 1 17.6% 21.9%

Total Deposits 4 3 10.0% 14.2%

Total Deposits + Other Demand Liabilities 4 3 9.7% 14.1%

Total Assets 4 3 9.5% 14.0%

Trust 5 2 6.8% 17.2%

Insurance

Market

Net Premiums 2 9.7%

U.S. (3)

Florida (4)

Total Deposits 136 16

Mercantil Seguros (2)

Venezuela

USA

Mercantil Bank, N.A. (3)

Mercantil Banco (1)

Positioning Market Share

Fitch Ratings Clave (*)

Long-term A+(Ven)

Short-term F1+(Ven)A2 A2

A1 A1

Long-term A+(Ven)Short-term F1(Ven)

Long-term (Foreign and local currency) CCC

Short-term (Foreign and local currency) C

Viability ccc

Long-term Deposit (Mercantil Bank, N.A. only) BB+

Long-term BB

Short-term BViability bb

Mercantil Commercebank Florida Bancorp y

Mercantil Bank, N.A.

Rating for Unsecured Bonds ( Long-term in local currency)

Rating for Commercial Paper (Short-term in local currency)


National Ratings

International Ratings

National Ratings

Mercantil Servicios Financieros

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Analysis of Consolidated Financial Statements

Operating Income

Quarter Semester

Ended on ∆ Ended on ∆


June June June June

2017 2016 Bolivars % 2017 2016 Bolivars %

Net Interest Income 66,811 18,824 47,987 254.9 101,407 33,946 67,461 198.7

Allowance for Losses on Loan Portfolio 14,628 2,723 11,905 437.2 18,192 3,801 14,391 378.6

Net Financial Margin 52,183 16,101 36,082 224.1 83,215 30,145 53,070 176.0

Commissions and Other Income 27,264 8,942 18,322 204.9 46,596 14,889 31,707 213.0

Insurance Premiums, Net of Claims 7,485 2,436 5,049 207.3 13,142 3,969 9,173 231.1

Operating Income 86,932 27,479 59,453 216.4 142,953 49,003 93,950 191.7

Net Interest Income In 2Q 2017, net interest income was Bs 66,811 million, up 254.9% from Bs 18,822 million in 2Q 2016, mainly due to the increase in financial assets and liabilities. Interest income was Bs 78,816 million, which reflects a 206.3% year-on-year increase. This increase is reflected in the performance of income from the loan portfolio, which grew 222.0%. Financial expenses totaled Bs 12,005 million, up 73.7% compared to 2Q 2016. The financial intermediation ratio (loans-to-deposits) was 56.5% at the close of 2Q 2017 (67.2% at the close of June 2016).

• Mercantil Banco Universal, reached Bs 66,170 million, up 268.9% from Bs 17,938 million in 2Q 2016, mainly due to the larger volume of financial assets and liabilities. The financial intermediation ratio was 55.2% in June 2017 and 63.8% in June 2016.

• Mercantil Bank, N.A., reached US$ 52 million, up 5.6% from US$ 49 million in 2Q 2106. The Bank holds a significant portion of its assets, US$ 2,106 million, more than 24%, in short-term investments and securities issued by the U.S. Government and U.S. government-backed agencies.

In 1H 2017, Mercantil’s net interest income was Bs 101,407 million, up 198.7% from Bs 33,946 million in 1H 2016. Mercantil's net interest margin (net interest income to average financial assets) at June 30, 2017 was 19.2% compared to 13.4% the previous year.

18,824 24,385 31,024 34,596 66,811

13.4%

15.0%14.5%

15.3%

19.2%

7.5%

9.5%

11.5%

13.5%

15.5%

17.5%

19.5%

21.5%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017

(Mill

ion o

f B

s)

Evolution of Net Interest Income

Net Interest Income Net Interest Income / Average Financial Assets

7


Loan Portfolio Provision In 2Q 2017, expenses totaled Bs 14,628 million, up Bs 11,905 million (437.2%) from Bs 2,723 million in 2Q 2016.

• Mercantil Banco Universal registered Bs 14,594 million in loan portfolio provisions in 2Q 2017 (Bs 2,619 million in 2Q 2016), aimed mainly at provisions related to the loan portfolio growth registered during the quarter.

• Mercantil Bank, N.A. registered US$ 4 million in loan portfolio provisions (US$ 11 million in 2Q 2016), aimed mainly for credits related to the commercial sector.

The accumulated allowance amounted to Bs 37,344 million at June 30, 2017, representing 2.8% of gross loans (3.0% at March 31, 2017). This provision covers 1.149.9% of past-due and nonperforming loans (715.7% at March 31, 2017). In 1H 2017, the loan portfolio provision expenditure registered Bs 18,192 million, up 378.6% from Bs 3,801 million in 1H 2016.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Gross Loans Past Due and Non-Performing Loans

3.0% 3.0% 3.0% 3.0%2.8%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

Allowance for Losses on Loan Portfolio / Gross Loans

0.3% 0.4%0.4% 0.4%

0.2%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

Jun.2016 Sep.2016 Dec. 2016 Mar. 2017 Jun. 2017

Past Due and Non-Performing Loans / Gross Loans

(Bs. Million)

Evolution Loan Portfolio

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Total Commissions and Other Income

In 2Q 2017, commissions and other income totaled Bs 27,264 million, up Bs 18,322 million (204.9%) from Bs 8,942 million in 2Q 2016, mainly the result of:

• Bs 18,225 million (216.6%) increase in income from commissions for the use of credit and debit cards, financing insurance policies, as well as other commissions from clients operations, among other, mainly due to a larger volume of transactions.

• Bs 135 million (33.3%) decrease in earnings from securities trading.

Total Insurance Policies, net of Claims

In 2Q 2017, insurance premiums, net of commissions, reinsurance and claims in Venezuela totaled Bs 7,485 million, up 207.3% from Bs 2,436 million in 2Q 2016. This improvement is attributable to the Automobile business. Collected premiums in 2Q 2017 totaled Bs 47,087 million, representing Bs 28,723 million, up 156.3% from 2Q 2016. This improvement is mainly due to the Automobile and Health businesses. At December 31, 2016, Mercantil Seguros was the second largest insurance company in the country in terms of net collected premiums, with a market share of 9.7%.

Claims and administrative expenses in 2Q 2017 totaled Bs 28,866 million, up Bs 17,424 million (152.3%) from Bs 11,422 million in 2Q 2016. This growth is mainly due to the Health business. The claims ratio was 62.3% in 2Q 2017 (64.7% in 2Q 2016). The technical result was Bs 381 million, Bs 62 million (19.4%) increase from Bs 319 million in 2Q 2106. This variation is mainly due to claims, collected premiums, and taxes and contributions growth.

At the close of 1H 2017, insurance premiums, net of commissions, reinsurance and claims reached Bs 13,142 million, up 231.1% compared to 1H 2016. Collected premiums totaled Bs 84,510 million, representing Bs 49,486 million and up 141.3% from 1H 2016. This growth is mainly due to the Automobile business. Claims and administrative expenses totaled Bs 52,101 million, up Bs 30,927 million (146.1%) compared to 1H 2016.

Composition of Total Income

Bs. 30,202 million June 2016

Bs. 101,561 million June 2017

62%66%

25%

30%

12%

3%1% 1%

2Q 2016 2Q 2017

Net Interest Income

Commissions on Transactions, Insurance Premiums net and Other

Other Income

Income on Sales Investment Securities

9


Total Operating Expenses

Quarter Semester



June June June June


Operating Income 86,932 27,479 59,453 216.4 142,953 49,003 93,950 191.7

Operating Expenses

Personal and Employee Benefits 16,855 5,354 11,501 214.8 30,512 10,106 20,406 201.9

Other Operating expenses 47,690 16,505 31,185 188.9 83,687 27,571 56,116 203.5

Taxes Current and Deferred 7,203 2,335 4,868 208.5 8,598 4,558 4,040 88.6

Minority Interests (8) (3) (5) (166.7) (12) (5) (7) (140.0)

Net Income 15,176 3,282 11,894 362.4 20,144 6,762 13,383 197.9

In 2Q 2017, personnel and operating expenses totaled Bs 64,545 million, up 195.3% from Bs 21,856 million in 2Q 2016. This increase is mainly due to:

• Bs 11,501 million in personnel expenses, up 214.8% from the same period of 2016. This increase in expenses is due to the application of compensation and benefits policies according to the market. Mercantil Banco Universal’s assets by employee in Venezuela rose from Bs 104.8 million in 2016 to Bs 436.6 million in 2017. Mercantil Seguros’ net collected premiums per employee rose from Bs 14.9 million in 2016 to Bs 32.2 million in 2017. Assets per employee for businesses abroad increased from US$ 8.4 million in 2016 to US$ 9.0 million in 2017.

• Bs 3,629 million (142.5%) increase in expenses for contributions to regulatory entities.

• Bs 2,282 million (160.2%) increase in expenses for taxes (others than IRS) and contributions.

• Bs 25,274 million (201.6%) increase in operating expenses.

In 1H 2017, operating expenses totaled Bs 114,199 million, up 203.1% from Bs 37,677 million in 1H 2016, mainly due to the increase of Bs 20,406 million in personnel expenses and Bs 56,116 million increase in other operating expenses; the latter represent Bs 10,098 million rise in depreciation expenses, property and equipment expenses, amortization of intangibles, and others; Bs 7,801 million increase in contributions to regulatory entities; Bs 4,050 million increase in taxes and contributions, and Bs 34,887 million increase in commissions for the use of the point-of-sale network and ATMs, transfers and communications, among others. Corporate income tax expenses grew by Bs 4,040 million compared to 1H 2016.

2,838 6,019 8,847 2,546

5,898 6,175 11,118

24,080

32,668

5,354

13,657

16,855

2Q 2016 1Q 2017 2Q 2017

Total Personal and Operating Expenses Quarter(In millions of Bolivars)

Salaries and employee benefits

Other operating expenses

Fees paid to regulatory agencies

Depreciation, Property and equipment, Amortization of intangibles and others expenses

21,856

Δ +195.3%

Δ +30.0%

49,654

64,545

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Efficiency Ratios The efficiency ratio measured by calculating operating expenses as a percentage of average assets was 10.7% in June 2017, compared to 9.0% in June 2016. The ratio of operating expenses to total income was 63.4% in June 2017 (61.9% in June 2016). Personnel and Operating Expenses have been affected by the inflationary environment of the Venezuelan economy. The company has made significant efforts to adapt its organizational and operational structure to the current environment in the geographical areas where it operates. In the case of Venezuela, these efforts have reduced the significant effects of inflation.

Balance Sheet The main variations in the Balance Sheet during 2Q 2017 are reviewed and commented below on with respect to the previous quarter. The main year-on-year variations are also indicated for comparison purposes.

Summary of Balance Sheet and Assets under Management (In millions of Bolivars, except percentages)

∆ ∆ June March June Jun. 17 vs. Mar. 17 Jun. 17 vs. Jun. 16

2017 2017 2017 Bolivars % Bolivars %

Cash and due from banks 1,068,445 714,561 200,432 353,884 49,4 868.013 433.1

Investment Portfolio 183,126 181,029 125,956 2,097 1.2 57.170 45.4

Loan Portfolio, Net 1,288,440 763,998 447,419 524,443 68.6 841.021 188.0

Total Assets 2,901,958 1,749,832 829,833 1,152,127 65.8 2.072.125 249.7

Deposits 2,346,634 1,516,743 686,187 829,891 54.7 1.660.447 242.0

Shareholders´ Equity 229,810 78,168 65,202 151,642 194.0 164.608 252.5

Asset Management 629,461 292,273 127,817 337,187 115.4 501.643 392.5

Liquidity

At the close of 2Q 2017, total cash and due from banks (cash and legal reserve in Venezuela) plus investments in time deposits and placements included in the investment portfolio increased Bs 357,797 million (48.0%) to Bs 1,103,485 million from Bs 745,700 million in March 31, 2017. This increase is mainly reflected in the accounts held at the Venezuelan Central Bank (BCV – Banco Central de Venezuela). Non-Interest Bearing Demand deposits are related to the recent high levels of liquidity levels of the Venezuelan financial system and to the internal risk limits. Compared to June 30, 2016, cash and due from banks plus investments in time deposits grew Bs 882,891 million (400.2%), from Bs 220,594 million to Bs 1,103,485 million. The liquidity ratio calculated by dividing total cash and due from banks by deposits was 45.5%, and the ratio calculated by dividing total cash and due from banks plus investments by deposits was 53.3%, compared to 47.1% and 59.0%, respectively for March 2017, and to 29.2% and 47.6% respectively at the close of 2Q 2016.

20,162 31,139 35,040 152,423

324,568

565,507

48,009

389,993

502,938

Jun. 2016 Mar. 2017 Jun. 2017

Liquidity (In millions of Bolivars)

Cash and Due from Banks - Legal Reserves

Legal Reserves

Investments in Time Deposits and Placements

Δ +400.2%

1,103,485

745,700

220,594 Δ +48.0%

61.9% 62.6% 61.2%

73.4%

63.4%

9.0%

10.0%

9.4%

10.9%10.7%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

0.0%

20.0%

40.0%

60.0%

80.0%

2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017

Operating Expenses / Total Income Operating Expenses / Average Assets

11


Investment Portfolio

At the close of 2Q 2017, the investment portfolio reached Bs 183,126 million, up Bs 2,097 million (1.2%) compared to Bs 181,029 million in the previous quarter.

Compared to June 30, 2016, the investment portfolio grew Bs 57,170 million (45.4%) from Bs 125,955 million to Bs 183,126 million.

The main variations for this item, taken individually by subsidiary, are as follows:

(In millions, except percentages) June March ∆

2017 2017 Abs. %

Mercantil Banco Universal Bs 254,280 177,306 76,974 43.4 Mercantil Seguros Bs 32,543 23,980 8,563 35.7 Mercantil Bank, N.A. US$ 2,157 2,182 (25) (1.1)

Investments by maturity and yield at the close of 2Q 2017 are broken down as follows:

Investments by Maturity and Yield


Trading Available for Sale

Held to Maturity Shares

Time Deposits and Placements

Trust Fund and Restricted

Investments

Years Bs 1 Bs 1 %3 Bs 2 %3 Bs 1 Bs 1 % Bs 1 %3 TOTAL

Less Than 1 209 33,807 4.5% 1,468 5.7% 0 35,040 6.0% 3,198 5.6% 73,721

From 1 to 5 225 9,532 6.8% 16,270 4.8% 0 0 25 17.9% 26,051

Over 5 295 29,463 9.0% 51,816 6.6% 1,670 0 110 15.4% 83,355

729 72,802 69,553 1,670 35,040 3,332 183,126

Public debt bonds issued by the Venezuelan State account for 0.14 time Mercantil’s equity and 1.1% its assets (0.40 and 1.8% in March 2017, respectively). These securities also represent 0.09 times Mercantil Banco Universal’s equity and 0.73% its assets (0.18 and 1.23% in March 2017, respectively). At June 30, 2017, the Mercantil, C.A. Banco Universal subsidiary, in line with regulations issued by the Executive branch, purchased Bs 90,238 million in Mortgage Bonds, CDs, Agriculture Bonds, and Stocks, accounting for 68.0% of the investment portfolio and 0.6 times its equity (Bs 92,569 million representing 69.0% of its investment portfolio and 1.4 times its equity at March 31, 2017). 1 Registered at Market Value 2 Amortized cost 3 The yield of securities is based on amortized cost at the end of the period. Yield is calculated by dividing income investments (including premium amortization or discounts) by the amortized cost or market value.

125,955

181,029 183,126

Jun.2016 Mar. 2017 Jun. 2017

Investments Portfolio(In millions of Bolivars)

Δ +45.4%

Δ+1.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

Venezuelan Central Bank US Government & US Gov.

Guaranteed Agencies

Private Venezuelan Government

and Public Entities

Breakdown of Investments by IssuerJune 2016

March 2017

June 2017

12


Financial Intermediation Activity

Loan Portfolio

At the close of 2Q 2017, the net loan portfolio totaled Bs 1,288,440 million, reflecting 68.6% quarter-over-quarter growth from Bs 763,998 million.

Compared to June 30, 2016, the loan portfolio grew Bs 841,021 million (188.0%), from Bs 447,419 million to Bs 1,288,440 million. The variations for this item, taken individually by subsidiary, are as follows:


2017 2017 Abs. %

Mercantil Banco Universal Bs 1,225,098 702,418 522,680 74.4 Mercantil Bank, N.A. US$ 5,990 5,794 196 3.4

The ratio of past due and non-performing loans to gross loans is 0.2% compared to 0.4% at the close of March 2017. The ratio by subsidiary is as follows:

• Mercantil Banco Universal 0.2% equal to the Venezuelan financial system.

• Mercantil Bank, N.A. reached 0.5% compared to 0.8% at the close of the previous quarter. Non-accrual loans reached 0.9% of the total loan portfolio (1.0% at the close of the previous quarter).

At June 30, 2017, 99.7% of Mercantil’s loan portfolio is outstanding. The allowance for losses on the loan portfolio covers 1,149.9% of past due and non-performing loans (715.7% at March 31, 2017). This ratio is 1,346.2% at Mercantil Banco Universal (859.5% at March 31, 2017) and 257.0% at Mercantil Bank, N.A. (174.3% at March 31, 2017). The analysis of Mercantil’s main subsidiaries and their positioning in the market are shown on pages 5 and 17.

Annex III shows the distribution of the loan portfolio, broken down by economic activity, maturity, country, and type of risk.

447,419

763,998

1,288,440

Jun. 2016 Mar. 2017 Jun. 2017

Loan Portfolio(In millions of Bolivars)

Δ + 188.0%

Δ+68.6%

48% 47% 45% 42%

43%14%15% 15%

16%

17%

37%38%

40%42%

40%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

Jun. 2016 Sep. 2016 Dec. 2016 Mar. 2017 Jun. 2017

Loan Portfolio

by Business Segment(In millions of bolivars)

Individuals

Large Corporation

SME's

13


Deposits

At the close of 2Q 2017, deposits totaled Bs 2,346,634 million, reflecting Bs 829,891 million (54.7%) quarter-over-quarter growth from Bs 1,516,743 million.

Compared to June 30, 2016, deposits grew Bs 1,660,447 million (242.0%) from Bs 686,187 million to Bs 2,346,634 million.

Demand deposits were the main component of total deposits, which reached Bs 1,882,652 million, 61.6% up from the previous quarter, reflecting 80.2% of total deposits. Savings and time deposits increased by Bs 111,797 million (34.0%) and Bs 784 million (3.4%), respectively, in the same period.

The main variations for this item, taken by subsidiary, are as follows:


2017 2017 Abs. %

Mercantil Banco Universal Bs 2,280,333 1,449,797 830,536 57.3 Mercantil Bank, N.A. US$ 6,586 6,544 42 0.6

The analysis of Mercantil’s main subsidiaries and their positioning in the market are shown on pages 5 y 17.

29% 33% 31% 32%33%

24%23%

21%23%

22%

47%44%

48%

45%

45%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2,200,000

2,400,000

2,600,000


Breakdown Deposits

by Business Segment(In millions of bolivars)

Individuals

Large Corporation

SME's

686,187

1,516,743

2,346,634

Jun. 2016 Mar. 2017 Jun. 2017

Deposits(In millions of Bolivars)

Δ + 242.0%

Δ +54.7%

14


Total Assets At the close of 2Q 2017 total assets reached Bs 2,901,958 million, up Bs 1,152,126 million (65.8%) from Bs 1,749,832 million the previous quarter. This growth is due to the combined performance of cash and due from banks and the loan portfolio, which grew Bs 353,884 million and Bs 524,442 million, respectively. The ratio of performing assets to total assets was 60.1%, up Bs 767,367 million (78.5%) compared to the previous quarter. Compared to June 30, 2016, assets grew Bs 2,072,125 million (249.7%), from Bs 829,833 million to Bs 2,901,958 million. The main variations for his item, taken individually by subsidiary, are as follows:


2017 2017 Abs. %

Mercantil Banco Universal Bs. 2,619,096 1,634,076 985,019 60.3 Mercantil Seguros Bs. 94,676 72,391 22,285 30.8 Mercantil Bank, N.A. US$ 8,513 8,357 157 1.9

The analysis of Mercantil´s main subsidiaries and their positioning in the market are show on pages 5 y 17. The loan portfolio remained the main component (44.4%) of total assets, cash and due from banks account for 36.8%, and the investment portfolio accounts for 6.3% at the close of the quarter.

Assets Distribution Total Bs 2,901,958 million

June 2017

829,833

1,749,832

2,901,958

Jun. 2016 Mar. 2017 Jun. 2017

Consolidated Total Assets(In millions of Bolivars)

Δ +249.7%

Δ+65.8%

Cash and Due from Banks 36.8%

Loan Portfolio, Net 44.4%

Venezuelan Central Bank 0.8%

Venezuelan Govermment 4.2%

US Govermment. 0.3%

Private Sector 0.8%

US Govermment Guaranteed Agencies 0.3%

Other Assets 12.4%

15


Financial Obligations At the close of 2Q 2017, financial obligations reached Bs 31,419 million, up 57.1% from Bs 19,997 million the previous quarter. Compared to June 30, 2016, financial obligations grew 121.6%.

June 2017

March 2017

June 2016

(In millions, except percentages) Bs Bs Bs

Publicly Traded Debt Securities Issued by Mercantil 2,874 2,905 878 Subordinated debt 1,106 1,106 1,127

3,980 4,011 2,005 Other Financial Liabilities 27,439 15,986 12,168

31,419 19,997 14,173

Shareholders’ Equity At the close of 2Q 2017, shareholders’ equity reached Bs 229,810 million, reflecting Bs 151,642 million (194.0%) quarter-over-quarter increase from Bs 78,168 million; compared to 2Q 2016 equity increased 252.5% from Bs 65,202 million. The 2Q 2017 variation is mainly due to Bs 15,176 million in net income for the period, Bs 135,475 million increase in surplus on revaluation of fixed assets, and Bs 953 million from adjusting available-for-sale investments to their market value, among other.

Capital Ratios Mercantil’s equity-to-assets ratio at June 30, 2017 is 7.9%, and its equity to risk-weighted assets ratio is 14.90%, based on the standards of the SUNAVAL (7.9% and 12.7% at June 30, 2016).

• Mercantil Banco Universal, in accordance with the requirements of SUDEBAN, has an equity-to-assets ratio of 12.5% and an equity to risk-based assets ratio of 14.4% at June 30, 2017 (11.9% and 14.2% at June 30, 2016).

• Mercantil Bank, N.A., based on the standards of the OCC, has an equity-to-assets ratio of 9.4% and an equity to risk-weighted assets of 12.1% at June 30, 2017 (9.4% and 12.5% at June 30, 2016).

The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimums.

65,202 78,168

229,810

Jun. 2016 Mar. 2017 Jun. 2017

Evolution of Shareholders´Equity(In millions of Bolivars)

Δ +252.5%

Δ+194.0%

Capital StructureJune 2017

Capital stock 6%Capital reserve 1%Share premium 1%Traslation adjustments of net assets of subsidiaries abroad 2%Retained earnings 31%Unrealized gain fron adjustments of investments to market value 1%59%Remedición por plan de pensiones -1%Repurchased Shares -1%

16


Wealth Management The Wealth Management business comprises: trust fund, securities brokerage, mutual funds and portfolio management services. Net assets under management recorded off-balance sheet as of June 30, 2017 reached Bs 629,461 million, representing a 115.4% quarter-over-quarter increase and 392.5%, year-on-year growth. They are broken down as follows:

At the close of 2Q 2017, the Trust Fund manages Bs 77,593 million, which reflects 26.2% quarter-over-quarter rise and 92.6% year-on-year growth. At June 30, 2017, Mercantil’s trust fund ranks second in the private banking sector, and fifth in the fiduciary market in Venezuela. At the close of June 2017, Mercantil continues to lead the trust fund industry in Venezuela. Mutual Fund assets under management grew 21.5% and 67.1% compared to March 2017 and June 2016, respectively, to Bs 5,195 million. Mercantil offers its clients investment products and services (as broker-dealers, investment advisers and custody) in global financial markets. At the close of June 2017, the total value of client assets was Bs 546,673 million, up 141.4% from March 2017 (547.6% up from June 2016).

TOTAL ASSETS UNDER MANAGEMENT (In millions, except percentages)

June 2017

March 2017

June 2017

∆ Jun. 17 vs Mar.17

%

Jun. 17 vs Jun. 16

%

Trust Funds 77,593 61,501 40,297 26.2 92.6

Mutual Fund 5,195 4,275 3,109 21.5 67.1

Brokerage 21,130 21,526 18,500 (1.8) 16.4

Financial Advisory 520,094 199,621 60,340 160.5 761.9

Custody of Securities Trading 5,449 5,351 5,571 1.8 (2.2)

Total Assets under Management Bs 629,461 292,273 127,817 115.4 392.5

17


Performance of Subsidiaries according to Local Accounting Standards Mercantil Banco Universal Mercantil Banco Universal’s total assets grew Bs 969,279 million (60.9%) compared to March 2017. During 2Q 2017, the net loan portfolio grew Bs 537,880 million (76.3%) and deposits increased Bs 847,425 million (57.7%) to reach Bs 1,243,159 million and Bs 2,317,135 million, respectively. The quality of the loan portfolio remains favorable, with a 0.2% ratio of past due and non-performing loans to gross loans, equal to the Venezuelan financial system. The loan portfolio provision covers 1,346.2% of past due and non-performing loans (859.5% at March 31, 2017). At June 30, 2017, the Mercantil Banco Universal subsidiary ranks fourth in the Venezuelan financial system in terms of total assets, with 9.5% of the market. The leading institution has 19.6% of the market, and Venezuela’s four main banks account for 58.6% of the country’s financial system. Mercantil Banco Universal also ranks second in the Venezuelan private financial system in terms of agriculture loans with 13.0% of the market, and third in terms of tourism, mortgage and microcredit loans, with market shares of 6.4%, 6.5% and 7.1%, respectively. It ranks fourth in terms of manufacture loans, with 6.0% of the market. Mercantil Banco is the first bank in Venezuela in terms of savings deposits with 17.6% of the market. Shareholders’ equity grew Bs 82,514 million (121.3%) compared to the previous quarter, to Bs 150,567 million. This growth is mainly due to Bs 14,644 million in net quarterly income, Bs 4,859 million in non-capitalized contributions to equity and Bs 62,914 million from adjustment for revaluation of fixed assets, among others. At June 30, 2017, the equity-to-assets ratio is 12.5% (minimum requirement is 9%) and the equity to risk-weighted assets ratio, according to the standards of SUDEBAN in Venezuela is 14.4% (minimum requirement is 12%). In 2Q 2017, the Bs 14.644 million in net earnings reflected Bs 9,925 million (210.3%) year-on-year increase, mainly due to Bs 49,291 million increase in net interest income as a result of higher financial assets and liabilities, Bs 16,309 million in earnings from commissions for the use of credit and debit cards, as well as other commissions from other client transactions, Bs 11,974 million in expenses for loan portfolio provisions; Bs 34,641 million increase in personnel and operating expenses, Bs 2,879 million rise in contributions to regulatory agencies, and Bs 6,129 million growth in corporate income tax expenses. The company has made significant efforts to adapt its organizational and operational structure to the current environment. These efforts have reduced the significant impacts of inflation. In semi-annual terms, net earnings were Bs 20,169 million, representing Bs 12,073 million (149.1%) year-on-year growth. This increase is mainly associated with Bs 68,862 million increase in net interest income, Bs 29,096 million growth in net earnings from commissions on the use of credit and debit cards, as well as from other client transactions, Bs 14,436 million increase in loan portfolio provision expenses, Bs 59,617 million rise in personnel and operating expenses, Bs 5,811 million increase in contributions to regulatory entities and Bs 6,021 million rise in corporate income tax expenses.

Mercantil C.A., Banco Universal Consolidated (In millions of Bolivars)

Jun. 2017

Mar. 2017

Jun. 2016

Total Assets 2,560,254 1,590,975 697,764 Investments Portfolio 132,782 134,308 80,798 Loan Portfolio 1,243,159 705,279 389,922 Deposits 2,317,135 1,469,710 631,272 Shareholders´ Equity 150,567 68,053 45,880 Net Income Quarter 14,644 5,525 4,719 Net Income Semester 20,169 8,096 Historic figures in accordance with the standards of SUDEBAN.

18,017 23,156 29,582 34,008 67,309

10.5%

11.7%10.9%

9.4%

11.6%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017

Net Interest Income

Net Interest Margin

7.4%8.3% 7.9%

8.6% 8.3%

Evolution of Net Interest Income

Operating Expenses / Average Total Assets

18


Mercantil Bank, N.A. Total assets growth reflects US$ 161 million (1.9%) quarter-over-quarter growth and US$ 246 million (3.0%) year-on-year increase. The net loan portfolio totaled US$ 5,995 million, up US$ 196 million from the previous quarter, and 10.1% up from 2Q 2016. At June 30, 2017, the bank continues to hold US$ 2,106 million (24.6% of total assets) mainly in short-term investments and bonds issued or guaranteed by the U.S. government. The Bank’s deposits reached US$ 6,642 million at the close of June 2017, US$ 44 million (0.7%) up from March 2017 and US$ 142 million (2.2%) up from 2Q 2016 Non-performing assets (non-accrual loans and assets received in lieu of payment) fell US$ 7 million compared to March 2017. Non-performing assets account for 0.6% compared to 0.7% in March 2017. The ratio of non-performing assets to total loans was 0.9% at the close of June 2017, similar to 1.1% in 2Q 2016. The Bank´s equity rose to US$ 795 million at the close of June 2017, US$ 15 million up from the previous quarter, which reflects US$ 12 million in quarterly income, US$ 4 million increase from adjusting available-for-sale investments to their market value, and US$ 1.5 million in dividends paid. The equity-to-assets and equity to risk-weighted assets ratios were 9.4% and 12.1%, respectively at June 30, 2017 (9.4% and 12.5%, respectively at June 30, 2016), based on the standards of the OCC. In 2Q 2017, net earnings totaled US$ 12 million, representing US$ 4 million (54.1%) year-on-year increase, attributable to US$ 2 million increase in net interest income, US$ 4 million growth in commissions and other income, US$ 3 million increase in corporate income tax expenses, and US$ 3 million decline in required loan portfolio provision, among others. In semi-annual terms, net earnings of US$ 20 million represent US$ 6 million (44.9%) increase compared to 1H 2016, attributable to US$ 5 million increase in net interest income, US$ 2 million reduction in required loan portfolio provision, US$ 4 million increase in commissions and other income, and US$ 4 million increase in corporate income tax expenses.

Mercantil Bank, N.A. Consolidated (In millions of US$)

Jun. 2017

Mar. 2017

Jun. 2016

Total Assets 8,543 8,382 8,297 Investments Portfolio 2,106 2,136 2,426 Loan Portfolio 5,995 5,799 5,443 Deposits 6,642 6,598 6,499 Shareholders´ Equity 795 780 780 Net Income Quarter 12 8 8 Net Income 6 Months 20 14 Figures presented according to accounting principles generally accepted in the United States (USGAAP)

1.1%1.3% 1.2%

1.0%0.9%

1.5%

1.6%

2.2%

1.2% 1.2%

11.4%

12.8%

14.9%

8.8%9.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

1%

2%

3%


Assets Quality Ratios

NA(w/o Commitments) /Total Lns.

Total Class Lns /Total Lns.

Total Class+OREO /Tier 1+ALLL

19


Mercantil Seguros During 2Q 2017, collected premiums registered 156.3% year-on-year growth to Bs 47,098 million from Bs 18,375 million. At the close of December 31, 2016, Mercantil Seguros was the second insurance company in Venezuela in terms of collected premiums, with 9.7% of the market. Total assets stood at Bs 198,362 million at June 30, 2017, 74.5% up from March 2017. The company registered Bs 67,669 million in shareholders’ equity, meeting the statutory solvency requirements in place. The figures presented include all the mandatory and voluntary reserves required to guarantee the company’s operations, including outstanding claims reserves and end-of-period payments. At the close of June 30, 2017, the company’s investment portfolio was Bs 173,843 million, 77.6% up from the previous quarter. Total investments representing technical reserves reached Bs 70,885 million (4.2% up from 1Q 2017 and 105.4% higher than at the close of June 2016), while liquidity levels amply meet all the statutory requirements on commitments towards policyholders, insurance brokers, and reinsurers. In 2Q 2017, the technical result closed at Bs 381 million, with a combined operating ratio1 of 98.9%. Net income for 2Q 2017 totaled Bs 11,078 million (2,350.9% up from the close of 2Q 2016). The claims ratio was 62.3% (64.7% in 2016). In semi-annual terms, the technical result reached Bs 691 million, with a combined operating ratio of 98.9%. Net income for 1H 2017 was Bs 12,634 million (245.7%) up from the result in 1H 2016. The claims ratio was 62.8% at the close of 1H 2017 (65.0% at4’ June 30, 2016).

1 Combined ratio = (incurred claims + commissions + operating expenses)/ earned premiums

Mercantil Seguros C.A. (In millions of Bolivars)

Jun. 2017

Mar. 2017

Jun. 2016

Total Assets 198,362 113,681 65,798 Investments suitable for representing 70,885 68,043 34,506 Investments not-suitable for representing Technical Reserves 102,958 29,842 17,957 Shareholders´ Equity 67,669 51,902 27,158 Net Income Quarter 11,078 1,556 452 Income net 6 Months 12,634 3,654 Premiums Received Quarter 47,098 37,412 18,375 Premiums Received 6 months 84,510 35,024 Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg)

18,375 20,872 28,863 37,412 47,098

2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017

Evolution of Net Collected Premiums and Combined Ratio1

Net Collected Premiums

97.7%97.1%

95,6%98,8% 98.9%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

Combined Ratio

20


Corporate Events Extraordinary Shareholders' Meeting of Mercantil, C.A. Banco Universal In June 2017, the Extraordinary General Meeting of Shareholders of Mercantil, C.A. Banco Universal approved an increase of the social capital, through the capitalization of the share premium account, raising the shares nominal value of each one from Bs 1.00 to Bs 10.80. This capitalization is awaiting approval by SUDEBAN.

New Measures Announced in the Venezuelan Finance Sector The Ministries of Productive Agriculture and Lands, Economy and Finances, Fish and Aquaculture, and Urban Agriculture established the percentage of the Agriculture Portfolio during the March 2017-February 2018 productive cycle. The minimum percentages for the agriculture loan portfolio, that banks must allocate each month to the agriculture sector, were established between 13% and 22% for the March 2017-February 2018 period. Resources for the agriculture portfolio, for the northern winter and summer productive cycles, must be distributed as follows: i) short-term vegetables (63%); ii) medium- and long-term vegetables (maximum 5%); iii) ruminants (7%); iv) poultry and pigs (maximum 8%); v) fishing and aquaculture (5%); vi) mechanization (maximum 10%); and, vii) rural savings funds program (2%). Also, the total of loans granted on mid- and long-terms during the northern winter and summer cycles must not exceed 24% of the agriculture loan portfolio. The obligation remains of financing at least 80% of the cost structure of agriculture items. The Ministry of Economy and Finances and the Venezuelan Central Bank issued Exchange Agreement N° 38, on the Foreign Exchange System of Supplementary Floating Market Exchange Rate (DICOM System) The DICOM Foreign Exchange system was established in May 2017, through a mechanism of ordinary and contingent foreign exchange auctions, which may be carry out with positions held by individuals and businesses of the private sector wishing to submit bids and offers and by the BCV. Public sector entities can only take part as bidders. Businesses may acquire monthly the equivalent to 30% of the updated gross monthly average income declared as Income Tax in the previous fiscal year, and up to a maximum of US$ 400,000, and individuals up to US$ 500 quarterly. The exchange rate of each auction is established through a system of floating exchange-rate bands monitored by the BCV. At June 30, 2017, the DICOM foreign exchange rate was Bs 2,640/US$, corresponding to the last contingency auction. The allocates bids will be setlled by the BCV through authorized exchange operators, in the foreign currency accounts indicated in Exchange Agreement N° 20. The Venezuelan Central Bank issued a Resolution repealing the regulation that reduced legal reserves coefficients by 3 percentage points The BCV issued a Resolution whereby, as of June 22 of this year, it repealed the rules that reduced the legal reserve ratio by 3 percentage points.

21


APPENDIX I

Summary of the Accounting Principles used to prepare the Financial Statements

Financial statements are presented in accordance with the accounting standards of the SUNAVAL, in bolivars. A summary of some of the main accounting principles applied is given below:

Investment Portfolio Securities Held for Trading - Unrealized gains or losses resulting from differences in market value due to market fluctuations are included in the results for the period. Available-for-Sale Securities – Recorded at their market value. Unrealized gains or losses resulting from differences in market value and exchange rate fluctuations are included in shareholders’ equity. Held-to-Maturity Securities – Recorded at their acquisition cost, adjusted for amortization of premiums or discounts. For all portfolio investments, permanent losses in market value are recorded as a charge to income in the period in which they occur. Permanent investments – are investments that represent 20% to 50% stock ownership. Those greater than 50% are recorded as an equity interest and consolidated, except when control is likely to be temporary.

Loan Portfolio Loans are classified as overdue 30 days after their maturity. Allowances for loan portfolio losses are determined through a collectability assessment that quantifies the amount that must be set aside for each loan. These assessments take into account such aspects as economic conditions, credit risk by customer, credit history and the collateral received. When assessing loans for small amounts of the same nature, these are grouped together to determine the provisions required. Recognition of income and expenditure Income, costs and expenses are recorded as they are earned or incurred. Interest earned on past-due loan portfolios is recorded as income when collected. Fluctuations in the market value of derivatives are recognized as income in the period in which they occur. Insurance premiums are recorded as income when earned. Consolidation The consolidated financial statements include the accounts of Mercantil and its more than 50%-owned subsidiaries and other institutions in which Mercantil has a controlling interest. See the principal subsidiaries on page 4 and the conciliation of its accounting standards with SUNAVAL regulations on pages 4. Inflation Adjustment According to SUNAVAL standards, Mercantil’s financial statements, as of December 31, 1999 must be presented in historic figures. Since then Mercantil has ceased to adjust for inflation in its primary financial statements. As a result, fixed and other assets are shown at their inflation-adjusted value up to December 31, 1999. The market value determined by independent assessments is higher than the inflation cost adjusted for inflation indicated above. New additions are being recorded at their acquisition value. Assets and liability in Foreign currency Transactions and balances in foreign currency are translated according to the best estimate of the expectations of the future flows of bolivars obtained, making use of mechanisms legally established, see Appendix V. Main differences between the accounting standards of SUNAVAL and the accounting standards of other subsidiaries

The main accounting differences for the reconciliation of items under SUNAVAL and SUDEBAN for Mercantil Servicios Financieros are:

• Amortization of premiums or discounts of securities carried out on a straight-line basis under SUDEBAN standards and in accordance with the constant amortization rate under SUNAVAL standards.

• Foreign exchange rate fluctuations are recorded in the results, with the exception of those that SUDEBAN indicates to be included in equity and are subsequently recorded in the results when SUDEBAN authorized.

The main accounting differences for Mercantil Servicios Financieros between the SUNAVAL standards and the USGAAP are:

• Deferred Income Tax: USGAAP allows deferred tax to be recognized for the total amount of loan portfolio loss allowances, while SUNAVAL standards only allow recognition of allowances for loans classified as high risk and unrecoverable.

• Provision for assets received in lieu of payment: SUNAVAL standards stipulate that 100% allowance for real estate property received in lieu of payment after one year from the date of incorporation; under IFRS no amortization deadlines are established (See reconciliation SUNAVAL to USGAAP, p. 33).

22


APPENDIX II

MERCANTIL SERVICIOS FINANCIEROS, C.A. CONSOLIDATED BALANCE SHEET

UNAUDITED FIGURES


∆ ∆

June March June Jun. 17 vs Mar. 17 Jun. 17 vs Jun. 16


CASH AND DUE FROM BANKS

Cash 33,131 35,564 8,523 (2,433) (6.8) 24,608 288.7

Venezuelan Central Bank 972,680 634,244 174,296 338,436 53.4 798,384 458.1

Venezuelan Banks and Other Financial Institutions 10,991 8,176 344 2,815 34.4 10,647 3,095.1

Foreign Banks and Other Financial Institutions 2,155 2,136 3,271 19 0.9 (1,116) (34.1)

Pending Cash Items 49,488 34,441 13,998 15,047 43.7 35,490 253.5

1,068,445 714,561 200,432 353,884 49.4 868,013 433.1

INVESTMENT PORTFOLIO

Investments in Trading Securities 729 564 286 165 29.3 443 154.9

Investments in Securities Available for Sale 72,802 73,080 52,260 (278) (0.4) 20,542 39.3

Investments in Securities Held to Maturity 69,553 71,892 49,489 (2,339) 3.3 20,064 40.5

Share Trading Portfolio 1,670 1,122 467 548 48.8 1,203 257.6

Investments in Time Deposits and Placements 35,040 31,127 20,162 3,913 12.6 14,878 73.8

Restricted Investments 3,332 3,244 3,291 88 2.7 41 1.2

183,126 181,029 125,955 2,097 1.2 57,171 45.4

DIRECT PRODUCTIVE ASSETS 18,123 2,898 0 15,225 525.4 18,123 100.0

LOAN PORTFOLIO

Current 1,321,415 782,915 459,335 538,500 68.8 862,080 187.7

Rescheduled 1,121 1,235 431 (114) (9.2) 690 160.1

Past Due 3,112 3,111 1,437 1 0 1,675 116.6

Litigation 136 162 33 (26) (16.0) 103 312.1

1,325,784 787,423 461,236 538,361 68.4 864,548 187.4

Allowance for Losses on Loan Portfolio (37,344) (23,425) (13,817) (13,919) 59.4 (23,527) 170.3

1,288,440 763,998 447,419 524,442 68.6 841,021 188.0

INTEREST AND COMMISSIONS RECEIVABLE 12,664 9,409 6,353 3,255 34.6 6,311 99.3

LONG-TERM INVESTMENTS 4,987 4,295 4,125 692 16.1 862 20.9

ASSETS AVAILABLE FOR SALE 2,142 1,699 872 443 26.1 1,270 145.6

PROPERTY AND EQUIPMENT 234,676 8,484 6,901 226,192 2.666.1 227,775 3,300.6

OTHER ASSETS 89,355 63,459 37,776 25,896 40.8 51,579 136.5

TOTAL ASSETS 2,901,958 1,749,832 829,833 1,152,126 65.8 2,072,125 249.7

23


APPENDIX II

MERCANTIL SERVICIOS FINANCIEROS. C.A.

CONSOLIDATED BALANCE SHEET UNAUDITED FIGURES


∆ ∆

June March June Jun. 17 vs Mar. 17 Jun. 17 vs Jun. 16


DEPOSITS

Non-interest Bearing 1,538,667 948,421 262,320 590,246 62.2 1,276,347 486.6

Interest-Bearing 343,985 216,921 227,867 127,064 58.6 116,118 51.0

Savings Deposits 440,379 328,582 175,742 111,797 34.0 264,637 150.6

Time Deposits 23,603 22,819 20,258 784 3.4 3,345 16.5

2,346,634 1,516,743 686,187 829,891 54.7 1,660,447 242.0

DEPOSITS AUTHORIZED BY THE VENEZUELAN SECURITIES AND EXCHANGE COMMISSION

2,874 2,905 878 (31) (1.1) 1,996 227.3 Publicly Traded Debt Securities Issued

FINANCIAL LIABILITIES 27,439 15,986 12,168 11,453 71.6 15,271 125.5 INTEREST AND COMMISSION PAYABLE 132 168 217 (36) (21.4) (85) (39.2)

OTHER LIABILITIES 293,914 134,718 64,025 159,196 118.2 229,889 359.1

SUBORDINATED DEBT 1,106 1,106 1,127 0 0 (21) (1.9)

TOTAL LIABILITIES 2,672,099 1,671,626 764,602 1,000,473 59.9 1,907,497 249.5

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 49 38 29 11 28.9 20 69.0

SHAREHOLDERS’ EQUITY

Paid in Capital 13,095 13,095 681 0 0 12,414 1.822.9

Capital Inflation Adjustment 192 192 192 0 0 0 0

Share Premium 299 299 12,713 0 0 (12,414) (97.6)

Capital Reserves 167 167 167 0 0 0 0 Translation Adjustments of net Assets of Subsidiaries Abroad 6,403 6,385 6,397 18 0.3 6 0.1

Retained Earnings 73,730 58,492 44,757 15,238 26.1 28,973 64.7

Shares repurchased and held by Subsidiary (659) (617) (601) (42) 6.8 (58) 9.7

Pension Plan Remeasurement (1,878) (1,878) (505) 0 0 (1,373) 271.9

Surplus on Revaluation of Fixed Assets 135,475 0 0 135,475 100.0 135,475 100.0

Unrealized Gain (Loss) from Adjustment on Investments Available for Sale to Market Value 2,986 2,033 1,401 953 46.9 1,585 113.1

TOTAL SHAREHOLDERS´ EQUITY 229,810 78,168 65,202 151,642 194.0 164,608 252.5

TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 2,901,958 1,749,832 829,833 1,152,126 65.8 2,072,125 249.7

24


APPENDIX II

MERCANTIL SERVICIOS FINANCIEROS. C.A. CONSOLIDATED INCOME STATEMENT

UNAUDITED FIGURES (In millions of Bolivars, except percentages)

Quarters ∆

Semesters

∆ Ended on Ended on

June June June June 2017 2016 Bolivars % 2017 2016 Bolivars %

Income from Cash and Due from Banks 78 358 (280) (78.2) 126 674 (548) (81.3)

Income from Investment Securities 2,602 1,882 720 38.3 5,171 3,635 1,536 42.3

Income from Loan Portfolio 75,658 23,494 52,164 222.0 117,101 42,982 74,119 172.4

Income from Direct Productive Assets 478 0 478 100.0 478 0 478 100.0

INTEREST INCOME 78,816 25,734 53,082 206.3 122,876 47,291 75,585 159.8

Interest for Demand and Savings Deposits 10,993 6,459 4,534 70.2 20,043 12,530 7,513 60.0

Interest for Time Deposits 77 68 9 13.2 153 118 35 29.7

Interest for Securities Issued by the Bank 72 36 36 100.0 96 63 33 52.4

Interest on Financial Liabilities 863 349 514 147.3 1,177 634 543 85.8

INTEREST EXPENSE 12,005 6,912 5,093 73.7 21,469 13,345 8,124 60.9

NET INTEREST INCOME 66,811 18,824 47,989 254.9 101,407 33,946 67,461 198.7

Provision for losses on loan portfolio 14,628 2,723 11,905 437.2 18,192 3,801 14,391 378.6

NET FINANCIAL MARGIN 52,183 16,099 36,084 224.1 83,215 30,145 53,070 176.0

Trust Fund Operations 286 124 162 130.6 514 198 316 159.6

Foreign Currency Transactions 69 19 50 263.2 110 14 96 685.7

Commissions on Transactions 9,467 1,781 7,686 431.6 15,568 3,096 12,472 402.8 Commissions on Letters of Credit and Guarantees Granted 5 7 (2) (28.6) 8 13 (5) (38.5)

Equity in Long-Term Investments 483 453 30 6.6 559 29 530 1,827.6

Exchange Gains and Losses (129) (331) 202 (61.0) (131) 860 (991) (115.2)

Income (Loss) on Sale of Investment Securities 271 406 (135) (33.3) 469 705 (236) (33.5)

Other Income 16,812 6,483 10,329 159.3 29,498 9,973 19,525 195.8

TOTAL COMMISSIONS AND OTHER INCOME 27,264 8,942 18,322 204.9 46,596 14,889 31,707 213.0

Total insures premiums, net of claims 7,485 2,436 5,049 207.3 13,142 3,969 9,173 231.1

OPERATING INCOME 86,932 27,477 59,455 216.4 142,953 49,003 93,950 191.7

Salaries and employee benefits 16,855 5,354 11,501 214.8 30,512 10,106 20,406 201.9 Depreciation, Property and Equipment Expenses, Amortization of Intangibles and Others 8,847 2,838 6,009 211.7 14,865 4,767 10,098 211.8

Fees paid to regulatory agencies 6,175 2,546 3,629 142.5 12,073 4,992 7,081 141.8

Other operating expenses 32,668 11,118 21,550 193.8 56,749 17,812 38,937 218.6

TOTAL OPERATING EXPENSES 64,545 21,856 42,689 195.3 114,199 37,677 76,522 203.1

INCOME BEFORE TAXES AND MINORITY INTEREST 22,387 5,621 16,764 298.3 28,754 11,325 17,424 153.9

Total Taxes 7,203 2,335 4,868 208.5 8,598 4,558 4,040 88.6

Minority Interests (8) (3) (5) (167.0) (12) (5) (7) (140.0)

NET INCOME 15,176 3,283 11,893 362.4 20,144 6,762 13,382 197.9

25


1 Includes: Cash and Cash Equivalents, Cash and Due from banks, Investments in time deposits and placements within 90 days maturity.

APPENDIX II

MERCANTIL SERVICIOS FINANCIEROS. C.A. CONSOLIDATED STATEMENT OF CASH FLOWS

UNAUDITED FIGURES (In Millions of Bolivars)

Quarter ended on Semester ended on

June 2017

June 2016

June 2017

June 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net income 15,177 3,282 20,144 6,762 Adjustments to reconcile net income to net cash provided

Operating activities - Allowance for losses on the loan portfolio 14,628 2,745 18,192 3,801 Net foreign exchange gain - - - - Depreciation and amortization 1,199 727 2,068 1,160 Amortization of assets available for sale 13 - 28 - Pension Plan Remeasurement - - - - Provision for interest receivable and other assets 157 340 337 527 Gain on equity in long-term investment (483) (453) (559) (28) Minority interest expense 8 2 12 5 Deferred Income Tax (1,648) (106) (1,351) (28) Accrual for employee termination benefits 3,029 981 4,607 1,173

Payment of employee termination benefits (2,613) (507) (3,591) (1,349) Net change in operating assets and liabilities -

Interest and commissions receivables (3,255) (932) (4,199) (1,300) Interest and commissions payables (36) (29) 17 62 Available for sale and other assets (40,769) (6,733) (57,801) (13,230) Other liabilities 160,096 5,476 180,236 16,919

Net cash provided by operating activities 145,502 4,796 158,139 15,075

CASH FLOWS FROM INVESTING ACTIVITIES

Net change in investments securities 2,870 (2,943) (3,136) (17,122) Net change in Long-Term Investments (190) (1,454) 440 931 Loans granted (840,988) (81,985) (1,289,224) (234,462) Loans collected 301,917 16,217 637,954 127,384 Additions to fixed assets, net of depreciation and write-offs (91,231) (829) (91,640) (2,144)

Net cash flows from investing activities (627,622) (70,995) (745,605) (125,413)

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in Deposits 829,889 91,680 1,064,986 151,284 Short-term financial liabilities 11,354 (508) 12,302 1,455 Publicly Traded Debt Securities Issued (31) (109) 2,173 (9) Debt securities by Mercantil - - (21) 421 Long-term financial liabilities received (650) 944 150 2,333 Long-term financial liabilities paid 748 (4) 748 2 Cash dividends (1,250) 222 1,250 25 Capital Increase - 2,697 - 12,730 Repurchased shares (42) (341) (43) (366)

Net cash flows from financing activities 840,019 94,589 1,079,044 167,874

CASH AND CASH EQUIVALENTS1

Net increase for the period 357,899 28,391 491,557 57,536 At the beginning of the period 735,676 192,202 601,998 163,057

At the end of the period 1,039,575 220,593 1,093,575 220,593

26


APPENDIX II

MERCANTIL SERVICIOS FINANCIEROS. C.A. Statement of Shareholders’ Equity

UNAUDITED FIGURES (In millions of Bolivars)

Shares repurchased

held by subsidiary

Pension Plans

Remeasure-ment

Unrealized Gain

(loss) from adjustments

on investments Available for

sale to market value

Total Capital stock

Capital inflation

adjustment

Share Premium

Capital Reserves

Translation adjustment

of the assets in

subsidiaries Abroad

Retained earnings

Surplus on Revaluation

of Fixed Assets

Balance as of June 30, 2016 681 192 12,713 167 6,397 44,757 (601) (505) 1,401 - 65,202

Net income 2,811 2,811 Unrealized income on Investments available for sale 277

277

Translation effect of net assets in subsidiaries abroad 3

3

Balance as of September 30, 2016 681 192 12,713 167 6,399 47,568 (601) (505) 1,677 - 68,292

Net income 8,462 8,462

Pension Plans Remeasurement (1,373) (1,373)

Share repurchased (15) (15) Unrealized income on Investments available for sale 52

52

Cash dividends 8 8 Translation effect of net assets in subsidiaries abroad (22)

(22)

Balance as of December 31, 2016 681 192 12,713 167 6,377 56,040 (616) (1,878) 1,729 - 75,405

Net income 4,968 4,968

Capital Increase 12,414 (12,414) -

Share repurchased (1) (1) Unrealized income on Investments available for sale 304

304

Cash dividends (2,514) (2,514) Translation effect of net assets in subsidiaries abroad 8

8

Balance as of March 31, 2017 13,095 192 299 167 6,385 58,492 (617) (1,878) 2,033 - 78,168

Net income 15,177 15,176

Share repurchased (42) (43) Unrealized income on Investments available for sale 953 953

Cash dividends 61 61

Surplus on Revaluation of Fixed Assets 135,475 135,475 Translation effect of net assets in subsidiaries abroad 18 18

Balance as of June 30, 2017 13,095 192 299 167 6,403 73,730 (659) (1,878) 2,986 135,475 229,810

27


APPENDIX III

MERCANTIL SERVICIOS FINANCIEROS. C.A.

Consolidated Loan Portfolio by Classification


By Economic Activity June 2017 %

March 2017 %

June 2016 %

Commercial 662,694 49.9 358,112 45.4 207,205 44.6

Credit Cards 244,554 18.4 182,811 23.2 83,311 18.1

Agricultural 218,601 16.5 108,137 13.7 66,203 14.4

Industrial 50,555 3.8 28,530 3.6 22,631 4.9

Services 68,693 5.2 39,896 5.1 26,214 5.7

Residential mortgage 16,882 1.3 15,157 1.9 11,534 2.5

Foreign trade 2,738 0.2 3,087 0.4 2,214 0.5

Construction 8,183 0.6 7,945 1.0 6,657 1.4

Car loans 16,933 1.3 12,306 1.6 8,173 1.8

Other 35,951 2.8 31,443 4.2 27,093 6.1

1,325,784 100.0 787,423 100.0 461,236 100.0

By Maturity June 2017 %

March 2017 %

June 2016 %

Up to six months 525,226 39.6 342,857 43.5 135,670 29.4

Six months to one year 489,237 36.9 191,566 24.3 127,472 27.6

One to two years 97,446 7.4 52,790 6.7 51,837 11.2

Two to three years 65,221 4.9 60,508 7.7 41,770 9.1

Three to four years 36,465 2.8 31,678 4.0 20,102 4.4

Four to five years 21,688 1.6 21,560 2.7 16,518 3.6

Over five years 90,501 6.8 86,464 11.0 67,867 14.7

1,325,784 100.0 787,423 100.0 461,236 100.0

By Geographical Location of the Debtor June 2017 %

March 2017 %

June 2016 %

Venezuela 1,263,969 95.2 727,578 92.3 405,561 87.8

United States of America 52,444 4.0 50,073 6.4 45,087 9.8

Mexico 445 0.0 389 0.0 882 0.2

Colombia 1,034 0.1 1,272 0.2 961 0.2

Brazil 1,120 0.1 1,006 0.1 914 0.2

Switzerland 1,000 0.1 1,135 0.1 1,215 0.3

Peru 304 0.0 347 0.0 832 0.2

Other countries 5,468 0.5 5,621 0.8 5,784 1.4

1,325,784 100.0 787,423 100.0 461,236 100.0

By Type of Risk June 2017 %

March 2017 %

June 2016 %

Normal 1,317,217 99.4 778,982 98.9 454,742 98.6

Potential 2,989 0.2 2,984 0.4 2,522 0.5

Real 3,483 0.3 3,494 0.4 2,405 0.5

High 1,784 0.1 1,693 0.2 1,309 0.3

Unrecoverable 311 0.0 270 0.0 257 0.1 1,325,784 100.0 787,423 100.0 461,236 100.0

28


APPENDIX IV

Statutory percentage of loan portfolio in Venezuela

June 2017

June 2017

Sector Porcentajes de cumplimiento

% of Compliance

Reached

% of Compliance

required

Interest Rates

Agriculture

Calculated on the gross loan portfolio as of December 31, 2016. Monthly Compliance. The portfolio must be quarterly classified among areas: Vegetable (short-term) 63%, Vegetable (medium and long-term) 5%, Ruminants 7%, Poultry and Pork 8%, Fisheries and Aquaculture 5%, Mechanization 10% and Rural Box Programs 2%. A maximum of 24% should be earmarked for medium and long-term loans.

35.58%1 22.0%

Set by the Venezuelan Central Bank. The maximum is 13%.

Mortgage

Calculated on the gross loan portfolio at 12/31/2016, distributed as follows: 6% for home purchase, 1% for self-construction, improvements and expansion, and 13% for self-construction. Annual Compliance.

2.15%

Set by the Housing and Habitat Ministry. Set in accordance with family income of debtors, ranging between 4.66% and 10.66%.

Microcredits

3% calculated on the gross loan portfolio at 12/30/2016. Monthly Compliance

5.4% 3.0%

Within minimum and maximum rates established by the Venezuelan Central Bank. At 06/30/2017 the rate cannot be higher than 24%.

Tourism

Calculated on the average gross loans at 12/31/2016 and 12/31/2015. The Tourism Ministry set in 5.25% the percentage that full service banks have to earmark to the tourism sector in 2017. Compliance must be achieved at 12/31/2017.

3.40%1 2.50%

The Venezuelan Central Bank establishes a preferential rate for the sector on a monthly basis. As of 06/30/2017, the maximum rate is 10.27% and, in some cases, could be decreased in 3 bps (minimum 7.27%) in accordance with the Law for Tourism Loans.

Manufacturing

10% calculated on the gross loan portfolio at 12/31/2016. The percentage of compliance must be earmarked to strategic development sectors in 60% and to the financing of SME, joint ventures, community and state-owned companies in 40%. Annual compliance. On June 2017, 8% must be maintain.

8.22% 8.0%

Set by the Venezuelan Central Bank at 18%. For SME, state-owned industries, community industries and joint ventures, the applicable interest rate may not exceed 90% of the rate set by the Venezuelan Central Bank. At 06/30/2017 this is equivalent to 16.2%.

1 Includes Bs 189 million in Agricultural Bonds issued by the Venezuelan State and Government Entities valid for the compulsory agricultural portfolio; and Bs 207 million in Class "B" shares of the company guaranteeing the loans of tourism SMEs "Sociedad de Garantías Recíprocas para la Pequeña y Mediana empresa " applicable for compliance with the tourism portfolio.

29


APPENDIX V

Stock Performance

Quarter Ended on

Semester Ended on

June 2017 June 2016 June 2017 June 2016

Net income in billions of Bolivars 15,176 3,282 20,144 6,762

Mercantil’s stock indicators

Class A share:

Number of outstanding shares (Issued shares minus repurchased shares) 60,880,929 60,880,929

Market Price Bs 49,100,00 4,785,00

Average daily volume (# of shares) 1,600 7,335 5,539 5,230

Market Price / Book value per share 22.4 7.7

Market Price / Period Net Earnings per share 330.3 147.6 248.9 71.1

Dividends received in Cash / Market price A 0.02 0.3 0.02 0.3

Class B share:

Number of outstanding shares (Issued shares minus repurchased shares) 43,880,032 43,880,032

Market Price Bs 49,500,00 4,700,00

Average daily volume (# of shares) 979 6,621 3,855 4,297

Market Price / Book value per share 22.6 7.6

Market Price / Period Net Earnings per share 333.0 145.0 250.9 69.8

Dividends received in Cash / Market price B 0.02 0.3 0.02 0.3

Book value per share in Bs (Equity / # of outstanding shares)1 2,193,67 622,38

Total weighted outstanding shares 102,106,659 101,286,972 102,107,326 100,461,555

Earnings per share (Net Result / weighted outstanding shares) 148.63 32.42 197.29 67.31

1 Issued shares minus repurchased shares

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Market Quote Mercantil Class A and Class B Shares vs. Caracas Stock Exchange (CSE) Index

Price MVZ/A Adjusted CSE Price MVZ/B

30


APPENDIX V

Quarter Ended on

Semester Ended on

June 2017 June 2016 June 2017 June 2016

Balance Structure indicators

Gross Loans/Deposits 56.5% 67.2%

Profitability Ratios (%):

Net Interest Income / Average Financial Assets (NIM) 25.3% 14.8% 19.2% 13.4%

Commissions and other income / Total income 34.2% 35.7% 37.1% 31.0%

Return on average assets (ROA) 3.2% 1.8% 2.1% 1.9%

Return on average equity (ROE) 60.1% 23.9% 39.9% 24.6%

Efficiency Ratios (%):

Operating expenses / Average total assets 12.2% 10.6% 10.7% 9.0%

Operating expenses / Total income 57.5% 63.9% 63.4% 61.9%

Liquidity Ratios (%):

Cash and due from banks / Deposits 45.5% 29.2%

Cash and due from banks and Investments Portfolio / Deposits 53.3% 47.6%

Asset Quality Ratios (%):

Non-performing loans/ Gross loans 0.2% 0.3%

Allowance for loan losses / Non-performing loans 1,149.9% 940.3%

Allowance for loan losses / Gross loans 2.8% 3.0%

Capital Adequacy Ratios (%):

Shareholders equity / Assets 7.9% 7.9%

SUNAVAL-Risk based capital (minimum required 8%) 14.9% 12.7%

Number of employees

Employees in Venezuela 6,854 7,952

Employees Abroad 1,097 1,133

Distribution network

Branches in Venezuela 264 297

Bank branches 240 264

Insurance branches 24 33

Branches Abroad 33 34

Representative Offices 4 5

Number of ATMs 1,118 1,245

Number of points of sale (POS) 50,666 52,268

Mercantil Aliado Network:

Correspondent Desk 26 85

Correspondent Trading Points 221 68

Exchange and inflation rates

Exchange rate Bs/US$1 (Controlled since February 2003) 9.975 9.975

Average Exchange Rate for the quarter (Bs/US$1) 9.975 9.975 9.975 8.7447

Summary of Financial Ratios

31


APPENDIX VI

MERCANTIL C.A. BANCO UNIVERSAL

According to rules issued by SUNAVAL 1 UNAUDITED CONSOLIDATED FIGURES


∆ ∆

June March June Jun. 17 vs. Mar. 17 Jun. 17 vs. Jun. 16


SUMMARY OF BALANCE SHEET ASSETS Cash and Cash Equivalents 1,055,591 704,497 197,059 351,094 49.8 858,532 435.7 Investments Portfolio 254,280 177,306 92,681 76,974 43.4 161,599 174.4 Loan Portfolio 1,225,098 702,418 389,929 522,680 74.4 835,169 214.2 Properties and Equipment and Other Assets 84,127 49,855 29,389 34,272 68.7 54,737 186.2

TOTAL ASSETS 2,619,096 1,634,076 709,059 985,019 60.3 1,910,037 269.4

LIABILITIES AND SHAREHOLDERS'EQUITY Deposits 2,280,333 1,449,797 625,004 830,536 57.3 1,655,330 264.9 Financial Liabilities and Other Liabilities 129,913 73,871 27,020 56,042 75.9 102,893 380.8

TOTAL LIABILITIES 2,410,247 1,523,668 652,024 886,579 58.2 1,758,223 269.7

SHAREHOLDERS´ EQUITY 208,849 110,408 57,035 98,441 89.2 151,814 266.2

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,619,096 1,634,076 709,059 985,019 60.3 1,910,037 269.4

Quarter

Semester


June 2017

June 2016 Bolivars %

June 2017

June 2016 Bolivars %

SUMMARY OF INCOME STATEMENT 77,255 24,498 52,757 215.4 120,227 44,968 75,259 167,4 Interest Income

Interest Expense 11,084 6,561 4,524 69.0 20,157 12,635 7,522 59,5

Net Interest Income 66,171 17,937 48,233 268.9 100,069 32,333 67,737 209,5 Provision for Losses on Loan Portfolio 14,594 2,619 11,975 457.3 18,119 3,674 14,445 393,2

Net Financial Margin 51,577 15,319 36,258 236.7 81,951 28,659 53,291 185,9 Commissions and Other Income 25,055 7,488 17,567 234.6 42,260 12,670 29,591 233,6

Operating Income 76,631 22,807 53,825 236.0 124,211 41,329 82,882 200,5 Operating Expenses 54,144 16,347 37,797 231.2 94,731 28,942 65,789 227,3

Income before taxes 22,488 6,460 16,028 248.1 29,481 12,387 17,093 138,0 Taxes 7,552 1,761 5,792 328.9 9,267 3,596 5,670 157,7

NET INCOME 14,935 4,699 10,236 217.8 20,214 8,791 11,423 129,9

1 These financial statements are presented in accordance with SUNAVAL standards and adjusted for inflation up to December 31, 1999 (See accounting principles used). They reflect Mercantil Banco Universal’s contribution to Mercantil´s results. These Standards of the SUNAVAL are described in Appendix I.

2 Historic figures in accordance with the standards of the Superintendency of Banking SUDEBAN in Venezuela.

Conciliation of Net Income SUNAVAL and SUDEBAN (In millions of Bolivars)

Quarter Semester

Ended on Ended on

June June June June

2017 2016 2017 2016

Net income2 14,643 4,719 20,169 8,096

Deferred Income Tax 292 (20) 45 695

Long term interest bearing loans, investments in securities adjusted for amortization, and other consolidation effects 14,935 4,699 20,214 8,791

Net income SUNAVAL (70) (48) (70) (48)

Inter-company eliminations 14,865 4,651 20,144 8,743

32


APPENDIX VI

MERCANTIL C.A. BANCO UNIVERSAL

According to rules issued by SUDEBAN 1 UNAUDITED CONSOLIDATED FIGURES


∆ ∆



SUMMARY OF BALANCE SHEET ASSETS Cash and Cash Equivalents 1,055,591 704,496 197,036 351,095 49.8 858,555 435.7 Investments Portfolio 132,782 134,308 80,798 (1,526) (1.1) 51,984 64.3 Loan Portfolio 1,243,159 705,279 389,922 537,880 76.3 853,237 218.8 Properties and Equipment and Other Assets 128,722 46,892 30,008 81,830 174.5 98,714 329.0

TOTAL ASSETS 2,560,254 1,590,975 697,764 969,279 60.9 1,862,490 266.9

LIABILITIES AND SHAREHOLDERS'EQUITY Deposits 2,317,135 1,469,710 631,272 847,425 57.7 1,685,863 267.1 Financial Liabilities and Other Liabilities 92,552 53,212 20,612 39,340 73.9 71,940 349.0

TOTAL LIABILITIES 2,409,687 1,522,922 651,884 886,765 58.2 1,757,803 269.6

SHAREHOLDERS´ EQUITY 150,567 68,053 45,880 82,514 121.3 104,687 228.2

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,560,254 1,590,975 697,764 969,279 60.9 1,862,490 266.9

Quarter Semester


June June June June


SUMMARY OF INCOME STATEMENT Interest Income 79,382 24,591 54,791 222.8 122,514 45,107 77,407 171.6 Interest Expense 12,073 6,575 5,500 83.7 21,197 12,652 8,545 67.6

Net Interest Income 67,309 18,017 49,291 273.6 101,317 32,455 68,862 212.2 Provision for Losses on Loan Portfolio 14,628 2,654 11,974 451.2 18,164 3,728 14,436 387.2

Net Financial Margin 52,681 15,364 37,317 242.9 83,153 28,727 54,426 189.5 Commissions and Other Income 24,189 7,880 16,309 206.9 41,453 12,357 29,096 235.5

Operating Income 76,870 23,244 53,626 230.7 124,606 41,084 83,522 203.3 Operating Expenses 54,676 17,103 37,573 219.7 95,278 29,850 65,428 219.2

Income before taxes 22,194 6,141 16,053 261.4 29,328 11,234 18,094 161.1 Taxes 7,550 1,422 6,128 430.9 9,159 3,138 6,021 191.9

NET INCOME 14,644 4,719 9,925 210.3 20,169 8,096 12,073 149.1


Indicators1 from Consolidated Financial Statements

System June June

Average2 2017 2016

Net Interest Income / Average assets 11.4% 11.6% 10.2%

Return on average assets (ROA) 2 2.3% 4.0% 2.6%

Return on average equity (ROE) 2 67.4% 41.0% 39.5%

Non-performing loans / Gross loans 0.2% 0.2% 0.3%

Allowance for loan losses / Past-Due and Non-performing loans 1,456.8% 1,346.2% 1,066.4%

Allowance for loan losses / Gross loans 2.4% 2.8% 3.2%

Operating expenses / average total assets 7.1% 8.3% 7.4%

Equity / Assets 6.8% 5.9% 6.6%

Equity / Assets minus Venezuelan Government Investments N.D. 12.5% 11.9%

Equity / Risk-weighted Assets N.D. 14.4% 14.2%

1 Consolidated. 2 Based on annualized figures. N.A: Not Available

33


APPENDIX VII

MERCANTIL BANK HOLDING CORPORATION According to rules issued by SUNAVAL 1 UNAUDITED CONSOLIDATED FIGURES (In millions of US$, except percentages)

∆ ∆


2017 2017 2016 US$ % US$ %

SUMMARY OF BALANCE SHEET ASSETS Cash and Cash Equivalents 125 122 148 3 2.8 (23) (15.5) Investments Securities 2,157 2,182 2,450 (25) (1.1) (293) (11.9) Loan Portfolio 5,990 5,794 5,441 196 3.4 549 10.1 Properties and Equipment and Other Assets 241 259 1 (18) (6.9) 10 4.1

TOTAL ASSETS 8,513 8,357 8,270 156 1.9 243 2.9

LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits 6,586 6,544 6,451 42 0.6 135 2.1 Financial Liabilities, Other Liabilities and Subordinated Debt 1.232 1,132 1,140 101 8,9 94 8.3

TOTAL LIABILITIES 7,818 7,676 7,591 143 1.9 229 3.0 SHAREHOLDERS´ EQUITY 695 681 679 14 2.0 15 2.2

TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 8,513 8,357 8,270 156 1.9 243 2.9

Quarter Semester


June June June June

2017 2016 US$ % 2017 2016 US$ %

SUMMARY OF INCOME STATEMENT Interest Income 67 60 7 11.1 130 174 (44) (25.3) Interest Expense 15 11 4 35.3 30 33 (3) (8.5)

Net Interest Income 52 49 3 5.6 100 142 (41) (29.1) Allowance for Losses on Loan Portfolio 4 11 (8) (67.7) 8 19 (11) (58.9)

Net Financial Margin 48 38 10 27.4 93 123 (30) (24.6) Commissions and Other Income 17 14 3 21.2 31 43 (11) (26.7)

Operating Income 66 52 13 25.7 124 166 (42) (25.1) Operating Expenses 51 49 2 3.7 100 148 (47) (32.1)

Income before taxes 15 3 12 388.2 24 18 6 32.6 Taxes 5 5 0 6.5 7 9 (2) (21.1)

NET INCOME US$ 9 (2) 11 530.0 17 9 8 86.7

1 These financial statements are presented in accordance with rules of the SUNAVAL (see accounting principles used) to reflect the contribution of Mercantil Florida Bancorp to the results of

Mercantil. These Standards of the SUNAVAL are described in Appendix I.

Conciliation of Net Income SUNAVAL and USGAAP

(In millions of US$) Quarter Semester

Ended on Ended on

June June June June

2017 2016 2017 2016

Mercantil Bank N.A. Consolidated - Net Income 12 8 20 14

Results for the Holding and other Affiliates (3) (5) (3) (6)

Mercantil Bank Holding Corporation - Net Income 9 3 17 8

Deferred Income Tax (1) (3) 0 (4)

Provision for available for sale assets 0 0 (1) 0

Others 1 (2) 1 (1)

Contribution to Mercantil's Results1 9 (1) 17 3

34


ANEXO VII

MERCANTIL BANK. N.A. According to USGAAP

UNAUDITED CONSOLIDATED FIGURES (In millions of US$, except percentages)

∆ ∆


2017 2017 2016 US$ % US$ %

SUMMARY OF BALANCE SHEET

ASSETS Cash and Cash Equivalents 26 20 21 6 30.4 6 26.2 Investments Securities 2,106 2,136 2,426 (30) (1.4) (320) (13.2) Loan Portfolio 5,995 5,799 5,443 196 3.4 552 10.1 Properties and Equipment and Other Assets 416 427 407 (11) (2.5) 9 2.2

TOTAL ASSETS 8,543 8,382 8,297 161 1.9 246 3.0

LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits 6,642 6,598 6,499 44 0.7 142 2.2 Financial Liabilities, Other Liabilities and Subordinated Debt 1.107 1,005 1,017 102 10,2 90 8.8

TOTAL LIABILITIES 7,748 7,602 7,517 146 1.9 232 3.1

SHAREHOLDERS´ EQUITY 795 780 780 15 1.9 15 1.9

TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 8,543 8,382 8,297 161 1.9 246 3.0

Quarter

Semester


June June June June

2017 2016 Dólares % 2017 2016 Dólares %

SUMMARY OF INCOME STATEMENT Interest Income 67 60 6 10.6 130 117 13 10.9 Interest Expense 13 10 4 40.6 26 18 8 41.9

Net Interest Income 53 51 3 4.9 103 98 5 5.1 Allowance for Losses on Loan Portfolio 4 7 (3) (40.1) 9 11 (2) (21.5)

Net Financial Margin 49 44 5 12.4 95 87 7 8.4 Commissions and Other Income 18 14 3 23.1 32 28 3 12.2

Operating Income 67 58 9 15.0 127 116 11 9.4 Operating Expenses 50 48 1 2.8 98 97 1 1.4

Income before taxes 17 10 7 75.1 29 19 10 49.5 Taxes 5 2 3 155.6 9 5 3 61.6

NET INCOME 12 8 4 54.1 20 14 6 44.9

Mercantil Bank. N.A. Indicators1

Similar June June

Group1 2017 2016

Net Interest Income / Average Financial Assets 3.4% 2.6% 2.6%

Return on average assets (ROA) 2 1.1% 0.5% 0.3%

Return on average equity (ROE) 2 9.4% 5.1% 3.6%

Non-Accrual / Gross loans 0.6% 0.9% 1.1%

Allowance for loan losses / Gross loans 1.0% 1.4% 1.3%

Operating expenses / average total assets 2.4% 2.3% 2.4%

Equity / Assets 9.9% 9.4% 9.4%

Equity / Risk-weighted Assets N.A. 12.1% 12.5%

1 Based on March, 2017. 2 Annualized N.A.: Not Available

35


APPENDIX VIII

MERCANTIL SEGUROS

According to rules issued by SUNAVAL 1 Unaudited Consolidated Figures


∆ ∆



SUMMARY OF BALANCE SHEET ASSETS Cash and Cash Equivalents 11,539 10,305 942 1,234 12.0 10,596 1,124.4 Investments Portfolio 32,543 23,980 18,434 8,563 35.7 14,110 76.5 Premiums receivable 23,261 18,657 11,248 4,605 24.7 12,014 106.8 Property and equipment 1,560 1,556 1,532 4 0.3 28 1.9 Other assets 25,773 17,894 11,416 7,879 44.0 14,358 125.8

TOTAL ASSETS 94,676 72,391 43,571 22,285 30.8 51,105 117.3

LIABILITIES AND SHAREHOLDERS’ ÉQUITY Uncollected Premium 44,220 35,910 20,453 8,310 23.1 23,768 116.2 Reserves 14,441 12,338 7,211 2,103 17.0 7,230 100.3 Financial Liabilities 4,163 2,500 2,871 1,663 66.5 1,292 45.0 Accounts Payable Reinsures 0 851 855 (851) (100.0) (855) (100.0) Other provisions and other liabilities 15,009 10,011 5,266 4,998 49.9 9,744 185.0

TOTAL LIABILITIES 77,833 61,610 36,655 16,222 26.3 41,177 112.3

SHAREHOLDERS’ ÉQUITY 16,844 10,781 6,916 6,063 56.2 9,928 143.6

TOTAL LIABILITIES AND SHAREHOLDERS’ ÉQUITY 94,676 72,391 43,571 22,285 30.8 51,105 117.3

Quarter

Semester


June June June June


SUMMARY OF INCOME STATEMENT Earned Premiums Received 35,873 13,706 22,167 161.7 64,241 25,114 39,127 155.8 Claims Incurred (22,354) (8,862) (13,492) 152.2 (40,327) (16,317) (24,010) 147.1 Commissions and Acquisition Expenses (5,333) (1,842) (3,491) 189.5 (9,545) (3,822) (5,723) 149.7 Management Expenses (4,501) (1,221) (3,280) 268.8 (8,001) (2,245) (5,756) 256.4 Taxes and Contributions (3,230) (1,092) (2,137) 195.7 (5,536) (1,955) (3,581) 183.2

Technical Result 456 690 (233) (33.8) 833 776 57 7.4 Income from Investments 390 588 (198) (33.7) 902 859 43 5.0 Foreign exchange gains 9 1,248 (1,239) (99.3) 9 1,471 (1,463) (99.4) Taxes (288) (1,858) 1,570 (84.5) (598) (2,005) 1,407 (70.2) Contracts of excess of lost (200) (146) (54) 37.4 (356) (228) (128) 56.3

NET INCOME 367 522 (155) (29.7) 789 873 (84) (9.6)

1 These financial statements are presented in accordance with SUNAVAL standards and adjusted for inflation up to December 31, 1999 (See accounting principles used, Appendix I). They reflect Mercantil Seguros contribution to Mercantil’s results. These Standards of the SUNAVAL are described in Appendix I.

Conciliation of Net Income SUNAVAL and SUDEASEG (In millions of Bolivars)

Quarter Semester

Ended on Ended on

June June June June

2017 2016 2017 2016

Mercantil Seguros (Consolidated) - Net Income 11,078 452 12,634 3,654

Earned premiums 4 5 28 8

Exchange Gains and Losses (10,745) (380) (11,880) (3,209)

Valuation of Investments and Others 31 445 8 420

Net income SUNAVAL 367 522 789 873

Inter-company eliminations 54 0 80 18

Contribution to Mercantil's Results 421 522 869 891

36


APPENDIX VIII

MERCANTIL SEGUROS

According to rules issued by SUDEASEG Unaudited Consolidated Figures


∆ ∆



SUMMARY OF BALANCE SHEET ASSETS Investments suitable for representing Technical Reserves 70,885 68,043 34,506 2,842 4.2 36,379 105.4 Investments no-suitable for representing Technical Reserves 102,958 29,842 17,957 73,116 245.0 85,001 473.3 Other assets 24,519 15,796 13,335 8,723 55.2 11,185 83.9

TOTAL ASSETS 198,362 113,681 65,798 84,681 74.5 132,565 201.5

LIABILITIES AND SHAREHOLDERS’ EQUITY Technical Reserves 58,789 48,248 27,663 10,541 21.8 31,126 112.5 Other provisions and other liabilities 71,904 13,532 10,976 58,372 431.4 60,929 555.1

TOTAL LIABILITIES 130,693 61,779 38,639 68,914 111.5 92,054 238.2

SHAREHOLDERS’ ÉQUITY 67,669 51,902 27,158 15,767 30.4 40,511 149.2

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 198,362 113,681 65,798 84,681 74.5 132,565 201.5

Quarter

Semester


June June June June


SUMMARY OF INCOME STATEMENT Earned Premiums Received 35,870 13,701 22,168 161.8 64,214 25,106 39,107 155.8 Claims Incurred (22,354) (8,862) (13,492) 152.2 (40,327) (16,317) (24,010) 147.1 Commissions and Acquisition Expenses (5,404) (2,207) (3,197) 144.8 (9,659) (4,202) (5,457) 129.8 Management Expenses (4,501) (1,221) (3,280) 268.8 (8,001) (2,245) (5,756) 256.4 Taxes and Contributions (3,230) (1,092) (2,137) 195.7 (5,536) (1,955) (3,581) 183.2

Technical Result 381 319 62 19.3 691 387 304 78.4 Income from Investments 431 507 (76) (15.0) 1,008 819 189 23.1 Foreign exchange gains 10,754 1,628 9,126 560.4 11,889 4,681 7,208 154.0 Taxes (288) (1,858) 1,570 (84.5) (598) (2,005) 1,407 (70.2) Contracts of excess of lost (200) (146) (54) 37.4 (356) (228) (128) 56.3

NET INCOME 11,078 452 10,626 2,353.1 12,634 3,654 8,980 245.7

1 Combined ratio = (incurred claims + commissions + operating expenses) / earned premiums 2 In numbers 3 Market Share at 12/31/2016

Mercantil Seguros Indicators

(In millions of Bolivars, except percentages and insured persons) Quarter Semester

Ended on Ended on

June June June June

2017 2016 2017 2016

Premiums Received Net 47,098 18,375 84,510 35,024

Market Share 9.7%3 12.2%3

Equity / Total Assets 34.1% 41.3%

Incurred Claims / Earned Premiums (%) 62.3% 64.7% 62.8% 65.0%

Commissions and Acq. Expenses / Earned Premiums (%) 15.1% 16.1% 15.0% 16.7%

Administrative Expenses / Earned Premiums (%) 12.5% 8.9% 12.5% 8.9%

Combined Ratio (%) 1 98.9% 97.7% 98.9% 98.5%

Insured Persons 2 2,125,770 1,876,203

mercantil servicios financieros, c.a. financial report second … · 2018-11-06 · contact:...

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