Mercantil, C.A. Banco Universal (Subsidiary of Mercantil Servicios Financieros, C.A.)

Report of Independent Accountants and Financial Statements June 30, 2016 and December 31, 2015

Mercantil, C.A. Banco Universal Index to the financial statements June 30, 2016 and December 31, 2015

Pages

I - Report of independent accountants 1 - 2 II - Financial statements 1 - 5 III - Notes to the financial statements 1 - Operations and regulatory environment 6 - 8 2 - Basis of preparation 8 - 16 3 - Cash and due from banks 16 4 - Investment securities 16 - 23 5 - Loan portfolio 23 - 25 6 - Interest and commissions receivable 26 7 - Investments in subsidiaries and affiliates 26 - 29 8 - Available-for-sale assets 29 9 - Property and equipment 29 - 30 10 - Other assets 30 - 31 11 - Deposits 31 - 32 12 - Deposits and liabilities with Banco Nacional de Vivienda y Hábitat (BANAVIH) 32 13 - Borrowings 33 14 - Other liabilities from financial intermediation 33 15 - Interest and commissions payable 34 16 - Accruals and other liabilities 34 17 - Taxes 35 - 36 18 - Employee benefits and employee benefit plans 36 - 39 19 - General and administrative expenses 40 20 - Other operating income 40 21 - Other operating expenses 40 22 - Extraordinary expenses 41 23 - Equity 41 - 42 24 - Financial assets and liabilities in foreign currency 42 - 44 25 - Memorandum accounts 45 - 50 26 - Credit-related commitments 50 - 51 27 - Balances and transactions with related companies 51 - 55 28 - Fundación Mercantil 55 29 - Maturity of financial assets and liabilities 56 30 - Fair value of financial instruments 56 - 57 31 - Risk management 58 - 59 32 - Liabilities and contingencies 59 - 60 33 - Money laundering prevention 60 34 - Investments and loans granted in excess of legal limits 60 35 - Legal contributions 60 - 61

Mercantil, C.A. Banco Universal (Subsidiary of Mercantil Servicios Financieros, C.A.) Balance sheet June 30, 2016 and December 31, 2015

June 30, December 31, 2016 2015 (In bolivars)

Assets Cash and due from banks (Note 3) 197,035,187,883 154,144,272,775 Cash 8,462,665,178 8,491,607,452 Central Bank of Venezuela 174,296,036,753 137,641,396,706 Venezuelan banks and other financial institutions 152,000 339,950 Foreign and correspondent banks 381,807,398 506,838,971 Pending cash items 13,894,526,554 7,504,089,696 Investment securities (Note 4) 80,656,798,492 69,247,832,747 Deposits with the Central Bank of Venezuela and overnight deposits 9,471,843,000 2,100,000,000 Investments in available-for-sale securities 21,245,780,683 18,943,344,378 Investments in held-to-maturity securities 9,627,397,457 12,291,413,348 Restricted investments 777,461,296 659,097,254 Investments in other securities 39,534,316,056 35,253,977,767 Loan portfolio (Note 5) 389,921,945,573 307,411,935,388 Current 401,156,048,751 316,170,494,485 Rescheduled 430,966,004 510,652,762 Overdue 1,174,140,629 627,456,726 In litigation 32,856,683 50,639,821 (Allowance for losses on loan portfolio) (12,872,066,494) (9,947,308,406) Interest and commissions receivable (Note 6) 4,845,154,062 3,989,981,760 Interest receivable on cash and due from banks 3,415 374 Interest receivable on investment securities 1,187,620,600 1,012,443,541 Interest receivable on loan portfolio 3,621,881,422 2,894,614,993 Commissions receivable 116,700,120 121,604,244 Interest and commissions receivable on other accounts receivable 578 2,529 (Provision for interest receivable and other) (81,052,073) (38,683,921) Investments in subsidiaries and affiliates (Note 7) 4,185,497,868 1,393,205,898

Available-for-sale assets (Note 8) 412,768 597,465 Property and equipment (Note 9) 3,890,394,253 2,968,662,509 Other assets (Note 10) 17,278,287,244 11,946,459,365 Total assets 697,813,678,143 551,102,947,907

Memorandum accounts (Note 25) Contingent debtor accounts 3,130,565,016 2,573,471,845 Assets received in trust 33,850,440,792 28,110,445,227 Other special trust services 7,351,903 7,706,986 Other debtor memorandum accounts 968,084,062,314 759,338,795,264 Other debtor control accounts 7,278,699 7,704,280 1,005,079,698,724 790,038,123,602

The accompanying notes are an integral part of the financial statements

1

Mercantil, C.A. Banco Universal (Subsidiary of Mercantil Servicios Financieros, C.A.) Balance sheet June 30, 2016 and December 31, 2015

June 30, December 31, 2016 2015 (In bolivars)

Liabilities and Equity Liabilities Deposits (Note 11) 631,330,107,364 497,141,012,617 Demand deposits 467,642,655,768 349,469,735,940 Non-interest-bearing checking accounts 255,570,843,059 181,423,432,339 Interest-bearing checking accounts 162,150,454,776 126,057,606,370 Checking accounts under Exchange Agreement No. 20 88,126,350 66,362,329 Demand deposits and certificates 49,833,231,583 41,922,334,902 Other demand deposits 6,294,396,980 4,215,561,594 Savings deposits 156,370,247,653 142,548,765,626 Time deposits 529,265,057 530,236,411 Restricted deposits 493,541,906 376,713,046 Deposits and liabilities with Banco Nacional de Vivienda y Hábitat (Note 12) 795,849 1,311,628 Borrowings (Note 13) 205,276,764 69,842,275 Venezuelan financial institutions, up to one year 157,464,529 43,800,051 Foreign financial institutions, up to one year 47,812,235 26,042,224 Other liabilities from financial intermediation (Note 14) 1,433,278 4,136,512 Interest and commissions payable (Note 15) 132,669,085 104,786,598 Expenses payable on deposits 132,599,814 104,742,958 Expenses payable on borrowings 69,271 43,640 Accruals and other liabilities (Note 16) 20,263,430,130 16,442,827,650 Total liabilities 651,933,712,470 513,763,917,280 Equity (Note 23) Capital stock 268,060,233 268,060,233 Contributions pending capitalization 2,890,220,542 2,890,220,542 Capital reserves 282,803,546 281,463,245 Equity adjustments 810,444,234 (1,425,900) Retained earnings 41,112,359,460 33,017,542,783 Unrealized gain on investments (Note 4) 516,077,658 883,169,724 Total equity 45,879,965,673 37,339,030,627 Total liabilities and equity 697,813,678,143 551,102,947,907

The accompanying notes are an integral part of the financial statements

2

Mercantil, C.A. Banco Universal Income statement Six-month periods ended June 30, 2016 and December 31, 2015

June 30, December 31, 2016 2015 (In bolivars)

Interest income (Note 2) 45,103,401,560 33,843,858,139 Income from cash and due from banks 102,182 290,795 Income from investment securities 2,789,022,982 2,293,970,837 Income from loan portfolio (Note 5) 42,123,033,150 31,502,723,655 Income from other accounts receivable 23,439,318 22,621,534 Other interest income 167,803,928 24,251,318 Interest expense (Note 2) (12,653,434,553) (10,216,509,280) Expenses from deposits (12,639,561,593) (10,128,129,155) Expenses from borrowings (221,046) (43,640) Expenses from other liabilities from financial intermediation (12,770,964) (87,326,715) Other interest expense (880,950) (1,009,770) Gross financial margin 32,449,967,007 23,627,348,859 Income from financial assets recovered (Note 5) 258,113,903 319,159,896 Expenses from uncollectible accounts and write-down of financial assets (Notes 2 and 5) (3,727,901,768) (3,215,967,477) Uncollectible loans and other accounts receivable (3,727,901,768) (3,215,967,477) Net financial margin 28,980,179,142 20,730,541,278 Other operating income (Note 20) 9,917,481,676 7,564,554,845 Other operating expenses (Note 21) (4,496,519,135) (3,174,357,899) Financial intermediation margin 34,401,141,683 25,120,738,224 Operating expenses (22,894,768,058) (13,776,506,182) Salaries and employee benefits (Notes 2 and 18) (7,904,401,029) (3,979,326,220) General and administrative expenses (Note 19) (10,930,138,279) (7,073,082,468) Fees paid to the Social Bank Deposit Protection Fund (Note 35) (3,633,096,225) (2,456,177,679) Fees paid to the Superintendency of Banking Sector Institutions (Note 35) (427,132,525) (267,919,815) Gross operating margin 11,506,373,625 11,344,232,042 Income from available-for-sale assets (Note 8) 590,273,100 226,147,985 Sundry operating income 1,590,782,108 157,435,753 Expenses from available-for-sale assets (Note 8) (184,697) (89,358) Sundry operating expenses (Notes 10 and 16) (2,332,369,434) (1,204,458,872) Net operating margin 11,354,874,702 10,523,267,550 Extraordinary expenses (Notes 22) (120,497,009) (61,699,182) Gross income before tax 11,234,377,693 10,461,568,368 Income tax (Note 17) (3,138,220,715) (4,282,216,045) Net income 8,096,156,978 6,179,352,323

Appropriation of net income Retained earnings 8,096,156,978 6,179,352,323

Provision for the Antidrug Law (Notes 16 and 33) 114,695,328 106,288,011

The accompanying notes are an integral part of the financial statements

3

Mercantil, C.A. Banco Universal Statement of changes in equity Six-month periods ended June 30, 2016 and December 31, 2015

Retained earnings Capital reserves Unappropriated surplus Contributions Other Pension plan Unrealized Capital pending Legal mandatory Equity Restricted Unappropriated remeasurement gain (loss) on Total stock capitalization reserve reserves adjustments surplus earnings (Note 2-k) investments equity (In bolivars)

Balances at June 30, 2015 268,060,233 35,833 268,060,233 12,062,710 (1,083,142) 15,946,621,132 10,984,276,901 (91,367,271) 789,345,199 28,176,011,828 Net income ------6,179,352,323 - - 6,179,352,323 Reserve for the Social Contingency Fund - - - 1,340,302 - - (1,340,302) - - - Adjustment of investments to market value (Note 4) ------93,824,525 93,824,525 Contributions pending capitalization - 2,890,184,709 ------2,890,184,709 Pension plan remeasurement ------407,611,999 (407,611,999) - - Restricted surplus from equity in subsidiaries and affiliates (Note 7) - - - - - 62,380,887 (62,380,887) - - - Translation adjustment of net assets of subsidiaries abroad - - - - (342,758) - - - - (342,758) Reclassification of 50% of net income to restricted surplus (Note 23) - - - - - 3,057,815,567 (3,057,815,567) - - - Balances at December 31, 2015 268,060,233 2,890,220,542 268,060,233 13,403,012 (1,425,900) 19,066,817,586 14,449,704,467 (498,979,270) 883,169,724 37,339,030,627 Net income ------8,096,156,978 - - 8,096,156,978 Reserve for the Social Contingency Fund - - - 1,340,301 - - (1,340,301) - - - Adjustment of investments to market value (Note 4) ------(367,092,066) (367,092,066) Pension plan remeasurement ------321,757,375 (321,757,375) - - Restricted surplus from equity in subsidiaries and affiliates (Note 7) - - - - - (181,775,162) 181,775,162 - - - Translation adjustment of net assets of subsidiaries abroad - - - - 702,528 - - - - 702,528 Adjustment from exchange differences (Note 24) - - - - 811,167,606 - - - - 811,167,606 Reclassification of 50% of net income to restricted surplus (Note 23) - - - - - 4,138,295,920 (4,138,295,920) - - - Balances at June 30, 2016 268,060,233 2,890,220,542 268,060,233 14,743,313 810,444,234 23,023,338,344 18,909,757,761 (820,736,645) 516,077,658 45,879,965,673

Income per share (Note 2)

Six-month periods ended June 30, December 31, 2016 2015

Outstanding common shares 268,060,233 268,060,233

Net income per share Bs 30.2028 Bs 23.0521

The accompanying notes are an integral part of the financial statements

4

Mercantil, C.A. Banco Universal Cash flow statement Six-month periods ended June 30, 2016 and December 31, 2015

June 30, December 31, 2016 2015 (In bolivars)

Cash flows from operating activities Net income 8,096,156,978 6,179,352,323 Adjustments to reconcile net income to net cash provided by operating activities Equity in subsidiaries and affiliates, net 57,013,388 62,380,887 Allowance for losses on loan portfolio 3,673,429,818 3,191,743,810 Provision for interest receivable 54,348,777 24,104,704 Write-offs of uncollectible accounts and decrease in branch provision for doubtful accounts (758,604,236) (416,893,272) Income tax provision (4,048,785,829) 4,493,822,929 Deferred income tax (910,565,114) (211,606,884) Provision for other assets 11,657,361 2,883,623 Write-offs against the provision for other assets (1,787,896) (3,313,255) Release of provision for other assets (397,543) (1,333,935) Other provisions 1,156,574,541 434,035,412 Depreciation of property and equipment 363,001,237 257,307,476 Amortization of deferred expenses and goodwill 553,673,774 260,780,192 Amortization of available-for-sale assets 184,697 89,358 Accrual for length-of-service benefits 1,430,384,300 849,592,522 Payment of length-of-service benefits (821,684,170) (762,968,364) Net change in Deposits with the Central Bank of Venezuela and overnight deposits (7,371,843,000) 2,109,961,000 Interest and commissions receivable (880,803,552) (1,383,359,581) Other assets (4,926,985,308) (4,935,945,150) Interest and commissions payable 27,852,743 17,178,142 Accruals and other liabilities 6,077,099,916 (105,248,062) Net cash provided by operating activities 1,779,920,882 10,062,563,875 Cash flows from financing activities Net change in Deposits 134,143,858,617 154,176,057,384 Deposits and liabilities with Banco Nacional de Vivienda y Hábitat (515,779) (285,484) Borrowings 120,036,804 (5,667,408) Other liabilities from financial intermediation (2,703,234) 2,546,866 Contributions pending capitalization - 2,890,184,709 Net cash provided by financing activities 134,260,676,408 157,062,836,067 Cash flows from investing activities Loans granted during the period (323,689,031,239) (258,111,647,370) Loans collected during the period 238,354,239,632 162,760,395,924 Net change in Available-for-sale investments (2,147,462,222) (984,916,117) Held-to-maturity investments 2,664,015,891 (6,840,349,863) Restricted investments (106,066,957) (449,248,657) Investments in other securities (4,280,338,289) (9,038,935,730) Investments in subsidiaries and affiliates (2,836,864,159) (1,160,613,922) Available-for-sale assets - (475,625) Property and equipment (1,284,732,981) (1,384,814,187) Net cash used in investing activities (93,326,240,324) (115,210,605,547) Cash and due from banks Net change 42,714,356,966 51,914,794,395 Effect of exchange fluctuations 176,558,142 - At the beginning of the period 154,144,272,775 102,229,478,380 At the end of the period 197,035,187,883 154,144,272,775

Supplementary information on non-cash activities Translation adjustment of net assets of subsidiaries abroad 702,528 342,758

Adjustment of available-for-sale investments to market value 367,092,066 93,824,525

Adjustment from net exchange gain Cash and due from banks 176,558,142 - Available-for-sale investments 522,066,149 - Restricted investments 12,297,085 - Loan portfolio 99,614,343 - Interest and commission receivable 19,147,344 - Investments in subsidiaries and affiliates 11,738,672 - Other assets 57,423,153 - Deposits (45,236,130) - Borrowings (15,397,685) - Interest and commissions payable (29,744) - Accruals and other liabilities (27,013,723) - 811,167,606 -

Taxes paid 6,932,867,788 48,627

Interest paid 12,625,552,067 10,199,331,138

Reclassification of (Notes 5 and 6) Interest and commissions receivable to allowance for losses on loan portfolio 9,570,183 13,256,190

The accompanying notes are an integral part of the financial statements

5 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

1. Operations and regulatory environment

Reporting entity Mercantil, C.A. Banco Universal (the Bank), founded in 1925 in the Bolivarian Republic of Venezuela, and its subsidiaries operate in the financial services sector in Venezuela and abroad. The Bank’s primary activities consist in providing financial intermediation services to individuals and corporations through its main office in Caracas, agencies throughout the country, its agency in the United States of America (Coral Gables, FL), and its branch in Curacao.

Most of the Bank’s assets are located in Venezuela. At June 30, 2016, the Bank, its agency, branch and subsidiaries have 6,655 employees.

The Bank’s financial statements at June 30, 2016 and December 31, 2015 were approved by the Board of Directors on July 12 and January 12, 2016, respectively, and approved for issue by the Audit Committee on August 16 and February 16, 2016, respectively.

Regulatory environment Law of the National Financial System This Law aims to supervise and coordinate the National Financial System, which is formed by the group of public, private and communal financial institutions and any other form of organization operating in the banking sector, the insurance sector, the stock market and any other sector or group of financial institutions that the policy-making body deems should form part of the system in order to ensure that financial resources are used and invested for the public interest and for economic and social development.

The Law prohibits institutions belonging to the National Financial System from forming financial groups with each other or with companies from other sectors of the national economy or to associate with international financial groups for purposes other than those defined in the Law.

Law on Banking Sector Institutions This Law, among other things, considers banking as a public service; defines financial intermediation as fundraising for investment in loan portfolios and securities issued or guaranteed by the Venezuelan government or government agencies; limits the bank’s assets and transactions with a single debtor and defines “debtor” in relation to this limitation; regulates the formation and functions of the Board of Directors; establishes disqualification instances to act as directors; defines financial groups; establishes a social contribution to finance projects developed by communal councils and establishes prohibitions.

Income Tax Law The Income Tax Law issued in November 2014 establishes that net operating losses may be carried forward for three years and offset up to a maximum of 25% of annual income, whereas net uncompensated losses arising from the annual inflation adjustment may not be carried forward to future years. In addition, the Law requires institutions engaged in banking, financial, insurance and reinsurance activities to be excluded from the inflation adjustment for tax purposes as from the 2015 tax year (Note 17).

In December 2015 a new Partial Reform of the Income Tax Law was published establishing a 40% proportional tax (previously 34%) for net income derived from banking, financial, insurance or reinsurance activities as from the 2016 tax year. In addition, taxpayers qualified by the Tax Administration as special taxpayers as from the 2016 tax year are excluded from the inflation adjustment for tax purposes.

6 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Law on Tax on Large Financial Transactions In December 2015 the Venezuelan government enacted the Decree Law on Tax on Large Financial Transactions applicable to incorporated and unincorporated entities qualified by the Tax Administration as special taxpayers. The tax rate is equivalent to 0.75% applicable to debits made from bank accounts and operations without the mediation of financial institutions. This Decree became effective as from February 1, 2016.

Sports and Physical Education Law Companies subject to this Law must contribute 1% of their net or accounting profit to the activities contemplated therein. This Law seeks to regulate physical education and the sponsorship, organization and management of sporting activities as public services.

New Labor Law (LOTTT) The new Labor Law extends job security, establishes the retrospective accrual of length-of-service benefits, and improves the indemnity for termination of employment. Based on actuarial studies, the impact of these changes has been estimated and recorded (Note 18).

In addition, the LOTTT regulates certain legal benefits such as working hours, rest days, holidays, vacation, profit sharing, absences and leave. The Bank’s collective labor agreement also establishes the legal benefits that match or exceed benefits established in the Law.

Branch and agency The Bank’s branch and agency abroad, which have not been incorporated separately from the Bank, are subject to specific requirements of regulatory agencies in the countries where they operate regarding prior consultation for certain transactions, quality of assets, and capital and liquidity levels, as explained below:

Mercantil, C.A. Banco Universal - Curacao Branch This branch operates in Curacao. It is supervised and controlled by the Central Bank of Curacao and Saint Marteen and the Superintendency of Banking Sector Institutions (SUDEBAN) in Venezuela.

Mercantil, C.A. Banco Universal - Coral Gables, FL agency (United States of America) This agency is subject to banking regulations in the State of Florida. In addition, it is supervised and regulated by the Federal Reserve Bank and SUDEBAN in Venezuela.

Central Bank of Venezuela (BCV) Deposit and lending rates are regulated by the BCV. The BCV sets maximum and minimum interest rates for deposits and credit operations based on reference rates. In this regard, at June 30, 2016 and December 31, 2015, the annual interest rate for lending operations may not exceed 24% and 29% for credit card transactions. Financial institutions may only charge an additional 3% per annum on amounts overdue from clients.

7 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The maximum interest rates for directed loan portfolios are as follows:

June 30, 2016 December 31, 2015

Agriculture 13% 13% Microcredits 24% 24% Tourism 9.07% or 12.07% 7.82% or 10.82% Mortgages 4.66% to 10.66% 4.66% to 10.66% Manufacturing i) 18% as the maximum interest rate for i) 18% as the maximum interest rate for credit operations for this sector; and ii) an credit operations for this sector; and ii) an annual interest rate not greater than 16.20% annual interest rate not greater than of the previous rate for loans earmarked for 16.20% of the previous rate for loans small and medium industries, state-owned earmarked for small and medium industries, community industries, as well as industries, state-owned industries, joint ventures for manufacturing. community industries, as well as joint ventures for manufacturing.

The annual interest rates on savings deposits may not fall below 16% calculated on daily balances up to Bs 20,000 and 12.50% on daily balances greater than Bs 20,000. Annual interest rates on time deposits may not fall below 14.50%.

The annual interest rate to be charged by the BCV on discount, rediscount and advance operations, except as regards those conducted under special regimes, was set at 29.50%.

The BCV has regulated service fees charged by banks to customers in respect of savings and current accounts, and leasing, international, and credit and debit card transactions.

2. Basis of preparation

The accompanying financial statements include the accounts of the Bank and its branch and agency abroad and have been prepared based on the Accounting Manual for Banks, Other Financial Institutions and Savings and Loan Entities (Accounting Manual) and the accounting rules and instructions of SUDEBAN, which differ in certain significant respects from accounting principles generally accepted in Venezuela (VEN NIF).

The Venezuelan Federation of Public Accountants (FCCPV) approved the adoption of VEN NIF as the accounting principles of mandatory application in Venezuela as from January 1, 2008. These standards are mainly based on International Financial Reporting Standards (IFRS) and their interpretations issued by the International Accounting Standards Board (IASB), except for certain criteria concerning adjustments for inflation, among others.

The main differences with VEN NIF applicable to the Bank are:

1) Consolidation The accompanying financial statements show investments in over 50%-owned subsidiaries under the equity method. In accordance with VEN NIF, these subsidiaries and special purpose entities controlled by the Bank or of which the Bank is considered the main beneficiary of their income must be consolidated. If the financial statements were presented on a consolidated basis, assets and liabilities at June 30, 2016 would decrease by Bs 49,413,000 (Bs 47,512,000 at December 31, 2015). A summary of the subsidiaries’ financial statements is shown in Note 7.

8 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

2) Inflation-adjusted financial statements VEN NIF require that the effects of inflation on the financial statements be recognized provided that inflation for the year exceeds one digit. SUDEBAN has stipulated that inflation-adjusted financial statements must be provided as supplementary information. At June 30, 2016, the inflation rates for the first six-month period of 2016 are not available. SUDEBAN deferred the presentation of this information since June 2015. In June 2016, SUDEBAN required that the supplementary information for the first six- month period of 2016 be presented for purposes of comparison at the end of the second six-month period of 2016.

3) Foreign currency Foreign currency transactions, mainly in U.S. dollars, are recorded at the official exchange rate in effect at the transaction date and adjusted to the official rate prevailing at period end. The assets, liabilities and equity of the branch and agency abroad are translated at the prevailing official exchange rate. Income accounts are translated at the average official exchange rate for the period. VEN NIF establish two options to measure transactions and balances in foreign currency: a) at the official exchange rates established in the exchange agreements issued by the BCV or b) on the basis of best estimates of future cash flows in bolivars expected to be obtained using the exchange or settlement mechanisms permitted under Venezuelan law. VEN NIF establish that exchange gains and losses on available-for-sale or held- to-maturity securities must be included in the income statement.

4) Investments in trading and available-for-sale securities According to SUDEBAN rules, investments in trading securities may remain in this category for only 90 days from the date they were classified as held for trading and investments in available-for-sale securities may not remain in this category for more than one year as from the date they were classified as available for sale, except for securities issued and guaranteed by the Venezuelan government and investments in shares of mutual guarantee companies. Under VEN NIF, they may remain in these categories indefinitely.

5) Discounts or premiums on held-to-maturity investments Discounts or premiums on held-to-maturity investments are amortized over the term of the security with a debit or credit to gain or loss on investment securities under other operating income or other operating expenses, respectively. Under VEN NIF, they are accounted for as part of the security’s yield and, therefore, must be recognized under interest income.

6) Permanent losses on investment securities When permanent losses arising from impairment in the fair value of investment securities are recorded, any subsequent recovery in fair value does not affect the new cost basis. Under VEN NIF, any recovery of previously expensed impairment losses on debt securities may be recognized as income.

7) Valuation of reclassified securities a) Reclassification of held-to-maturity securities to available-for-sale securities According to VEN NIF, when held-to-maturity securities for significant amounts are reclassified to available-for-sale securities and such transfer is due to a change in their original intended use not qualified as an isolated, external, nonrecurring or unusual event affecting the Bank, all investments remaining in this category must be reclassified to available-for-sale securities. According to SUDEBAN rules, reclassifications of held-to-maturity securities must be approved by SUDEBAN.

b) Reclassification of available-for-sale securities to held-to-maturity securities SUDEBAN rules establish that available-for-sale investments reclassified to the held-to-maturity category must be recorded at their fair value at the reclassification date. Unrealized gains or losses are maintained separately in equity and are amortized over the investment’s remaining life as an adjustment to yield. Under VEN NIF, the fair value of the investment at the reclassification date becomes the new amortized cost basis, and any gain or loss previously recognized in equity is accounted for as follows: a) gains or losses on fixed maturity investments, as well as any difference between the new amortized

9 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

cost and value at maturity, are taken to profit and loss and amortized over the investment’s remaining life and; b) gains or losses on non-maturity investments will remain in equity until the asset is sold or otherwise disposed of, when they shall be recognized in profit or loss.

8) Investments in other securities Investments in other securities include investment trusts, as well as investments not classified under any of the other categories defined by the Accounting Manual. According to VEN NIF, investments in other securities are recorded under three categories: at fair value through profit or loss, available for sale and held to maturity.

9) Rescheduled loans The Accounting Manual establishes that loans whose original payment schedule, term or other conditions have been modified at the request of the debtor must be reclassified within rescheduled loans. VEN NIF provide no specific guidance. However, they do state that impairment losses on financial assets carried at amortized cost shall be charged to the results for the period in which they are incurred.

10) Overdue and in-litigation loans Loans classified as overdue must be written off within 24 months after inclusion in this category. In-litigation loans are those in the legal collection process. Loans in litigation must be fully provided for after 24 months in the in-litigation category. In addition, overdue monthly loan installments that have been repaid must be reclassified to the category to which they pertained before being classified as overdue. Likewise, when a debtor repays pending loan installments of a loan in litigation, thereby terminating the lawsuit, the Bank must reclassify the loan to the category to which it pertained before being classified as in litigation. Under VEN NIF, they are recorded based on collectibility.

11) Allowance for losses on loan portfolio Allowances for losses on the loan portfolio are determined based on a collectibility assessment for individual loans, a global risk assessment for loans not assessed individually and a general allowance of 1% over loan balances at month end, except for microcredits, which are subject to a general 2% allowance. In addition to the minimum general and specific allowances required for the loan portfolio, SUDEBAN established a general countercyclical allowance equivalent to 0.75% of the gross loan portfolio balance. VEN NIF require the allowance for losses on the loan portfolio to be determined based on asset recoverability, considering the fair value of guarantees, and do not provide for a general allowance, which would have to be accounted for as a reduction of retained earnings in the statement of changes in equity.

12) Assets received as payment and idle assets Assets received as payment must be recorded at the lower of assigned value, book value, market value or appraisal value not older than one year, and are amortized using the straight-line method over 1 to 3 years. Assets idle for more than 24 months are written out of asset accounts. In accordance with VEN NIF, assets received as payment are recorded at the lower of cost and market value and are classified as property and equipment or non-current assets held for sale depending on their use.

13) Property and equipment The Accounting Manual establishes that these assets shall be initially recorded at acquisition or construction cost, as applicable. VEN NIF allow revaluation of property and equipment, and any increase in value is credited to equity under revaluation surplus.

The Bank assesses possible impairment in the value of its long-lived assets when events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized in the results for the period for the amount by which the asset’s carrying amount exceeds fair value. According to VEN NIF, the recoverable amount of an asset or group of assets to be held and used is the higher of fair value less costs to sell and value in use (value in use is the present value of estimated future cash flows to be obtained from an asset or Cash Generating Unit (CGU)).

10 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The CGU represents the lowest level within the entity that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

14) Leasehold improvements Significant leasehold improvements are recorded as amortizable expenses and included under other assets. According to VEN NIF, leasehold improvements are recorded within property and equipment.

15) Goodwill Goodwill relates to the excess of cost over book value of shares at the date of acquisition and is being amortized using the straight-line method over 20 years (Note 10). As from 2008, goodwill must be amortized over no more than 5 years. According to VEN NIF, goodwill should not be amortized but tested for impairment annually or sooner whenever events or circumstances indicate that the value of the respective reporting unit may be impaired. Impairment is determined comparing the book value to the recoverable amount of the CGU, and if the carrying amount exceeds the recoverable amount, an impairment loss is recognized in the income statement.

16) Provisions The Accounting Manual establishes timeframes to record provisions for bank reconciling items, pending items and accounts receivable forming part of other assets, interest receivable and disposal of certain assets, among others.

According to VEN NIF, provisions are recorded based on the probability of collection or recovery. No timeframes are established for creating provisions for these items.

17) Deferred tax The Bank recognizes a deferred tax asset or liability in respect of temporary differences between the tax and the book balance sheets, except for provisions for losses on other than unrecoverable loans. A deferred tax asset is not recognized for any amount exceeding future taxable income. In accordance with VEN NIF, a deferred tax asset or liability is calculated in respect of all temporary differences between the tax balance sheet and the accounting balance sheet (Note 17).

18) Employee stock option plan The Bank has a long-term stock option plan allowing certain key officers to purchase shares of Mercantil Servicios Financieros, C.A. (MERCANTIL) (Note 18). The Bank makes contributions to Fundación BMA for share purchases and records them in the results for the period in which they are made. According to VEN NIF, the related expense is recorded at the fair value of options granted to employees and amortized over the vesting period. The effect of shares purchased for the stock option plan on the financial statements is also recognized.

19) Transactions with derivative instruments Contracted amounts in transactions with derivative instruments, mainly for futures trading, are shown under memorandum accounts instead of in the balance sheet as required by VEN NIF (Note 25).

20) Commissions collected Commissions collected on loans granted are shown as income when collected, whereas under VEN NIF, they are deferred and shown as income over the term of the loan.

21) Interest income Interest on loans, investments and accounts receivable is recorded as income when earned, except: a) interest receivable on loans more than 30 days overdue; b) interest on overdue or in-litigation loans, or other loans classified as real risk, high risk or unrecoverable; c) interest on current and rescheduled loans expected to be collected in 6 months or more and; d) overdue interest, which is recorded as income when collected. According to VEN NIF, interest is recorded as income when earned using the effective interest method.

11 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

In addition, interest accrued but not collected in respect of overdue loans is fully provided for. Interest on loan installments is fully provided for if repayment is more than 30 days past due. According to VEN NIF, interest is provided for based on collectibility.

22) Cash flows For purposes of the cash flow statement, the Bank considers cash and due from banks as cash equivalents. Under VEN NIF, investments and deposits maturing within 90 days are considered cash equivalents.

23) Pension plan remeasurement and other post-retirement benefits Pension plan remeasurement and other post-retirement benefits are recorded in the income statement and are subsequently reclassified in equity, whereas under VEN NIF the effect due to experience and changes in actuarial assumptions of the retirement and post-retirement benefit plans must be recorded directly in equity.

Below is a summary of SUDEBAN rules and instructions that do not differ from VEN NIF:

a) Investment securities Investment securities are classified upon acquisition, based on their nature and intended use, as deposits with the BCV and overnight deposits, investments in trading securities, investments in available-for-sale securities, investments in held-to-maturity securities, investments in other securities and restricted investments. They are accounted for as described below:

Deposits with the Central Bank of Venezuela (BCV) and overnight deposits Excess liquidity deposited at the BCV, overnight deposits and debt securities issued by Venezuelan financial institutions are included in this category. These investments are recorded at realizable value, representing cost or par value. In addition, this category includes securities acquired under repurchase agreements, which are recorded at the agreed value.

Investments in available-for-sale securities Investments in available-for-sale debt and equity securities are recorded at fair value. Unrealized gains or losses, net of tax, resulting from differences in fair values are included in equity under unrealized gain (loss) on investments until they are sold. Investments in available-for-sale debt securities not listed on stock exchanges are recorded at fair value based principally on the present value of future cash flows of the securities.

Investments in held-to-maturity securities Investments in debt securities that the Bank has the firm intention and ability to hold until maturity are recorded at cost, which should not differ significantly from fair value at purchase, and are subsequently adjusted for amortization of discounts or premiums. Discounts or premiums are amortized over the term of the securities as a credit or debit to income from investment securities.

The Bank assesses at each balance sheet date, or sooner if circumstances require it, whether there is objective evidence that financial assets are impaired. An impairment in the fair value of held-to-maturity and available-for-sale securities is charged to the results for the period when management considers that it is other than temporary. Certain factors identified as indicators of impairment are, among others: 1) a prolonged period where fair value remains substantially below cost, 2) the financial difficulty and liquidity of the issuer, 3) a fall in the issuer’s credit rating, 4) the disappearance of an active market for the security, and 5) the Bank’s inability to hold the investment long enough to allow for recovery of fair value. For the six-month periods ended June 30, 2016 and December 31, 2015, the Bank has identified no other-than-temporary impairments in the value of its investments.

12 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Restricted investments Restricted investments originating from other investment categories are measured using the same criteria used to record those investments from which they are derived.

b) Investments in subsidiaries and affiliates Investments in shares of 20% to 50%-owned affiliates are shown using the equity method and are recorded in investments in subsidiaries and affiliates (Note 7).

Investments in companies less than 20% owned that the Bank has the intention of holding, and over whose administration it has significant influence, are recorded under the equity method or at cost.

c) Investment securities acquired under resale agreements Securities acquired under resale agreements are recorded as deposits with the BCV and overnight deposits for the amount of funds transacted. The difference with respect to the resale price is recorded within interest income on an accrual basis (Note 4).

d) Loan portfolio As required by SUDEBAN, commercial loans and term, mortgage and credit card loan installments are classified as overdue if repayment is more than 30 days past due. Advances on negotiated letters of credit are classified as overdue if not repaid within 270 days after their due date. Furthermore, the entire principal balance of term, mortgage or credit card loans is classified as overdue if repayment of any installment is more than 90 days late. In addition, the entire balance of loans granted to small businesses is considered past due if repayment of at least one monthly installment is 60 days overdue or one weekly installment is 14 days overdue.

e) Available-for-sale assets Available-for-sale assets other than personal and real property received as payment are recorded at the lower of cost and market value. Gains or losses from the sale of available-for-sale assets are included in income accounts.

f) Property and equipment Property and equipment is shown net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Gains or losses on the sale of personal and real property are shown in income accounts.

g) Deferred expenses Deferred expenses are mainly in respect of office setup, office improvement and software expenses. These expenses are recorded at cost, net of accumulated amortization. Amortization is calculated using the straight-line method over 4 years.

h) Use of estimates in the preparation of financial statements The preparation of financial statements and their notes requires management to make reasonable estimates that affect the reported amounts of assets and liabilities, the amounts of gains and losses recorded during the period, and the disclosure of contingent assets and liabilities at the date of the financial statements.

The areas involving a higher degree of judgment or complexity, or areas where management’s assumptions or estimates are significant to the financial statements are the allowance for losses on the loan portfolio (Note 5), the income tax provision (Note 17) and the determination of fair values (Note 30).

13 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Below is a summary of the main bases used in the preparation of the financial statements:

Contingent loans The provision for contingent loans is determined based on a collectibility assessment aimed at quantifying the specific allowance for possible losses on each loan considering, among other things, economic conditions, client credit risk, credit history and the fair value of guarantees received. The Bank performs its review on a quarterly basis in accordance with SUDEBAN rules.

Loans of a similar nature are assessed as a whole to determine any applicable allowances.

Other assets The Bank assesses the collectibility of items recorded under other assets using the same criteria, where applicable, as those applied to the loan portfolio. Furthermore, the Bank sets aside provisions for those items that require them due to their nature or aging, or following SUDEBAN requirements.

Provision for legal and tax claims The Bank sets aside a provision for legal and tax contingencies considered probable and reasonably quantifiable based on the opinion of its legal advisors and facts known at the assessment date (Notes 16 and 32).

i) Income tax The tax provision is based on management’s projection of tax results. The Bank records a deferred tax asset (liability) when, in the opinion of management, there is reasonable expectation that future tax results will allow its realization. Deferred tax asset (liability) must always be recognized (Note 17).

j) Employee benefits Accrual for length-of-service benefits Based on the provisions of the LOTTT and the Bank’s collective labor agreement, length-of-service benefits are a vested right of employees. Under the LOTTT, the Bank transfers guaranteed length-of- service benefits quarterly and annually to a trust fund on behalf of each employee. In addition, the LOTTT establishes that length-of-service benefits will be calculated retrospectively upon termination of employment considering the last salary earned by the employee and length of service. The LOTTT requires the payment to employees at employment termination of the higher of retrospective length-of- service benefits and total amounts accrued in the employee’s trust fund.

Due to the uncertainty involved in estimating an employee’s last salary, termination date and total amounts to be accrued in the employee’s trust fund at period end, the Bank uses actuarial methods to measure and record its obligation for length-of-service benefits based on assumptions that include discount rates, salary increase rates and employee turnover rates. These assumptions are reviewed annually and changes may affect the amount of the obligation.

Indemnity Under the LOTTT, if an employee is terminated for reasons other than justified dismissal, the employee will be entitled to receive an additional indemnity equal to his or her accrued length-of-service benefits. This amount is recorded within salaries and employee benefits upon termination of employment.

Profit-sharing bonus and vacation leave As established in its collective labor agreement, the Bank grants profit-sharing bonuses and vacation leave to its employees that match or exceed the legal minimums, and accrues the related liabilities as incurred (Note 16).

14 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

k) Employee benefit plans Retirement pension plan The Bank has a long-term defined benefit plan covering all eligible employees which is managed by Fundación BMA. Fundación BMA has assets and liabilities representing this benefit. Related costs and liabilities are calculated using actuarial methods and are recorded in the results for the period. The net costs of the pension plan are based on actuarial assumptions that are revised annually, such as the discount rate of the obligation, the inflation rate and salary increases, and include service costs, interest expense and returns on plan assets. Important changes in assumptions may affect the amount of future contribution.

The Bank uses the projected unit credit method to calculate the present value of the Defined Benefit Obligation (DBO). The Bank makes annual contributions to the plan, except when the DBO is already covered by plan assets. Plan assets are recorded at fair value.

Post-retirement benefits The Supplementary Defined Benefit Plan and the Supplementary Savings Plan include certain additional post-retirement benefits for the Bank’s employees meeting certain conditions in respect of age and length of service, mainly medical insurance. The related costs and liabilities are determined based on actuarial methods.

Past service costs of the pension plan are recorded in the income statement in the period in which the change occurs.

Defined contribution scheme The Bank maintains a defined contribution scheme called MERCANTIL Supplementary Savings Plan (Plan de Ahorro Previsional Complementario MERCANTIL) to replace the Supplementary Defined Benefit Plan (Plan Complementario de Pensiones de Jubilación). Contributions to the plan are recorded in the results for the period in which they are incurred. This Plan is a voluntary programmed savings scheme in the form of individual capitalization accounts that is managed by the Savings and Loan Fund of employees of Mercantil Servicios Financieros, C.A. Under this Plan, employees contribute between 1% and 5% of their basic monthly salary and the Bank doubles the employee’s contribution up to a maximum of 10% of said salary.

l) Stock option plan The Bank has a long-term stock option plan of MERCANTIL shares for certain key officers. Stock options are recorded as equity. The Bank determines the fair value of these options and amortizes the related expense over the vesting period. The fair value of each option is determined at the option grant date using the Black-Scholes-Merton valuation model and does not take into consideration cash dividends that will not be received by the participants.

m) Recognition of revenue, costs and expenses Income, costs and expenses are recorded as earned or incurred. Interest collected in advance is included within accruals and other liabilities as deferred income and recorded as income when earned (Note 16).

Interest on deposits, liabilities and borrowings is recorded as interest expense when incurred.

Income from financial leases and amortization costs of leased property are shown net in the income statement within income from the loan portfolio.

15 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

n) Assets received in trust The Bank acts as custodian, administrator and manager of third-party investments. Assets received in trust, shown under memorandum accounts, are measured using the same parameters used by the Bank to measure its own assets, except investment securities, which are measured as described below:

Investments in debt securities are recorded at cost, which should not differ significantly from fair value at purchase. Discounts or premiums are amortized over the term of the securities as a credit or debit to interest income, resulting in a lower or greater effective yield on investments. Debt securities in foreign currency are adjusted to the prevailing official exchange rate. Investments in equity securities in bolivars and foreign currency are recorded at cost. In accordance with certain trust agreements, investments in debt or equity securities included in these trusts are maintained at cost or market values.

o) Dividends Cash dividends are recorded as liabilities when approved at a Shareholders’ Meeting.

p) Net income per share Basic net income per share has been determined by dividing net income for the period by the weighted average of outstanding common shares during the semester.

3. Cash and due from banks

The balances with the BCV included in cash and due from banks comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Legal reserve 152,423,199,517 113,169,363,912 Demand deposits (1) 21,872,837,236 24,472,032,794 174,296,036,753 137,641,396,706

(1) Includes balances of Exchange Agreement No. 20

At June 30, 2016 and December 31, 2015, the legal reserve is 18.50% of all deposits. The legal reserve for marginal increases in deposits is 28% as from March 2014. Legal reserve funds do not earn interest for the Bank and are not available for use (Note 4-e).

Pending cash items relate mainly to clearinghouse operations conducted by the BCV and other banks.

4. Investment securities

Investment securities comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Investments Deposits with the BCV and overnight deposits 9,471,843,000 2,100,000,000 Available-for-sale securities 21,245,780,683 18,943,344,378 Held-to-maturity securities 9,627,397,457 12,291,413,348 Restricted investments 777,461,296 659,097,254 Other securities 39,534,316,056 35,253,977,767 80,656,798,492 69,247,832,747

16 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

a) Deposits with the Central Bank of Venezuela (BCV) and overnight deposits Deposits with the BCV and overnight deposits comprise the following:

Book value June 30, December 31, 2016 2015 (In bolivars)

Deposits with the BCV, maturing between July and August 2016 (maturing in January 2016 at December 31, 2015) 9,207,434,000 (1) (a) 2,100,000,000 (1) (a) Investment securities under repurchase agreement acquired under resale agreements with the BCV, maturing in July 2015 (Note 25) 264,409,000 (1) (a) - 9,471,843.000 2,100,000,000

(1) Shown at par value, which is considered as fair value.

Custodian of investments (a) Central Bank of Venezuela

Deposits with the BCV and overnight deposits earn the following annual interest:

June 30, 2016 December 31, 2015 Minimum Maximum Minimum Maximum rate rate rate rate % % % %

Deposits with the BCV 6.00 7.00 6.00 6.00 Investment securities under repurchase agreement 6.00 5.00 - -

b) Investments in available-for-sale securities Investments in available-for-sale securities comprise the following:

June 30, 2016 December 31, 2015 Book value Book value (equivalent (equivalent Acquisition Unrealized Unrealized to market Acquisition Unrealized Unrealized to market cost gain loss value) cost gain loss value)

(In bolivars)

Securities issued or guaranteed by the Venezuelan government National Public Debt Bonds, maturing between December 2016 and June 2032, with a par value of Bs 11,124,840,156 (maturing between May 2016 and 2029, with a par value of Bs 10,917,584,859 at December 31, 2015) 12,815,692,020 702,522,278 (81,724,540) 13,436,489,758 (1) (a) 12,426,468,011 974,507,172 (18,335,321) 13,382,639,862 (1) (a) Fixed Interest Bonds (TIF) issued by the Bolivarian Republic of Venezuela, maturing between November 2016 and March 2032, with a par value of Bs 3,274,046,446 (maturing between December 2015 and March 2029, with a par value of Bs 2,078,768,256 at December 31, 2015) 3,897,390,887 4,952,530 (103,907,560) 3,798,435,857 (1) (a) 2,517,747,309 29,392,478 (89,598,883) 2,457,540,904 (1) (a) Principal and Interest Covered Bonds (TICC), maturing between April 2017 and March 2019, with a reference par value of US$112,414,707 payable in bolivars at the official exchange rate (maturing between April 2017 and March 2019, with a reference par value of US$842,132 at December 31, 2015) 1,095,662,110 3,004,944 (904,858) 1,097,762,196 (1) (a, f) 688,517,524 1,880,783 (628,524) 689,769,783 (1) (a) Sovereign Bonds, maturing between October 2019 and 2024, with a par value of US$20,917,489 82,515,993 11,098,597 - 93,614,590 (1) (a) - - - - Debenture bonds issued by Petróleos de Venezuela, S.A. (PDVSA), maturing between July 2016 and 2017, with a par value of Bs 373,060,000 (maturing between July 2015 and 2017, with a par value of Bs 466,325,000 at June 30, 2015) 382,190,085 - (3,960,220) 378,229,865 (1) (a) 382,190,085 - (3,960,220) 378,229,865 Treasury Notes issued by the Bolivarian Republic of Venezuela, with a par value of Bs 2,199,848,215, maturing between December 2016 and June 2017 (maturing between January and December 2016, with a par value of Bs 1,809,333,000 at December 31, 2,190,800,876 2,441,117 (3,657,912) 2,189,584,081 (1) (a) 1,795,310,541 9,958,505 (2,820,649) 1,802,448,397 (1) (a) 2015) 20,464,251,971 724,019,466 (194,155,090) 20,994,116,347 17,810,233,470 1,015,738,938 (115,343,597) 18,710,628,811 Equity in non-financial private-sector companies Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo, S.A. (SOGATUR) 207,025,200 - - 207,025,200 (1) (b) 207,025,200 - - 207,025,200 (1) (b) Sociedad Nacional de Garantías Recíprocas para la Pequeña y Mediana Industria, S.A. (SOGAMPI) 1,000 - - 1,000 (1) (c) 1,000 - - 1,000 (1) (c) 207,026,200 - - 207,026,200 207,026,200 - - 207,026,200

17 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

June 30, 2016 December 31, 2015 Book value Book value (equivalent (equivalent Acquisition Unrealized Unrealized to market Acquisition Unrealized Unrealized to market cost gain loss value) cost gain loss value)

(In bolivars)

Debt securities issued by foreign public and private-sector companies Debt securities issued and guaranteed by government agencies of the United States of America, maturing between November 2022 and October 2042, with a par value of US$4,071,058 (maturing between July 2037 and October 2042, with a par value of US$11,651,000 at June 30, 2015) 24,584,168 221,626 (41,227) 24,764,567 (2) (d) 26,774,735 - (1,085,368) 25,689,367 (2) (d) Debt securities issued by foreign private-sector companies, maturing between August 2016 and April 2020, with a par value of US$111,584,608 (maturing between January 2019 and June 2021, with a par value of US$6,114,000 at June 30, 2015) 19,374,443 266,838 - 19,641,281 (2) (d) - - - - Debt securities issued by foreign financial institutions, maturing in December 2016, with a par value of COL$68,024,805 232,288 - - 232,288 (1) (e) - - - - 44,190,899 488,464 (41,227) 44,638,136 26,774,735 - (1,085,368) 25,689,367 20,715,469,070 724,507,930 (194,196,317) 21,245,780,683 18,044,034,405 1,015,738,938 (116,428,965) 18,943,344,378

(1) Based on the present value of estimated future cash flows.

(2) Market value based on prices listed on the stock exchange.

Custodians of investments (a) Central Bank of Venezuela (b) Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turism o, S.A. (SOGATUR) (c) Sociedad Nacional de Garantías Recíprocas para la Pequeña y Mediana Industria, S.A. (SOGAMPI) (d) Bank of New York, Inc. (e) Representation Office in Colombia (f) Mercantil Bank (Panama), S.A.

At June 30, 2016, the market value of securities owned by the Bank is lower than cost by Bs 194,196,000 (Bs 116,429,000 at December 31, 2015). This loss is included in equity as an unrealized gain (loss) on investments. The Bank believes that these losses arise from normal stock market fluctuations and, consequently, are temporary. Management does not expect to realize these securities at a price below their book value. The Bank has the ability to hold these securities for a sufficient period of time to recover unrealized losses.

Investments in available-for-sale securities earn the following yield:

June 30, 2016 December 31, 2015 Minimum Maximum Minimum Maximum rate rate rate rate % % % %

National Public Debt Bonds in local currency 9.84 16.20 10.28 16.65 National Public Debt Bonds in local currency (Agriculture Bonds) 9.10 9.10 9.10 9.10 Fixed Interest Bonds (TIF) 9.88 18.00 9.88 18.00 Sovereign Bonds 7.75 8.25 - - Principal and Interest Covered Bonds (TICC) 5.25 8.62 5.25 6.25 Debt securities issued and guaranteed by government agencies of the United States of America 2.02 3.00 1.00 2.53 Debt securities issued by foreign private-sector companies 2.12 4.59 0.12 0.27

Below is the classification of the weighted average maturity of investments in available-for-sale securities:

June 30, December 31, 2016 2015 (Months)

National Public Debt Bonds in local currency 80 62 National Public Debt Bonds in local currency (Agriculture Bonds) 7 12 Fixed Interest Bonds (TIF) 88 48 Principal and Interest Covered Bonds (TICC) 12 39 Treasury Notes 4 4 Debt securities issued and guaranteed by government agencies of the United States of America 265 205 Debt securities issued by foreign private-sector companies 61 19 Sovereign Bonds 70 -

18 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Below is the classification of investments in available-for-sale securities according to maturity:

June 30, 2016 December 31, 2015 Book value Book value (equivalent (equivalent to market to market Cost value) Cost value) (In bolivars)

Up to 6 months 3,544,721,963 3,488,561,090 3,124,508,288 3,176,285,633 6 months to 1 year 1,684,413,513 1,682,406,279 1,183,836,050 1,199,228,067 1 to five years 2,757,205,313 2,759,391,177 2,663,970,794 2,666,188,203 5 to 10 years 10,183,429,741 10,830,934,382 10,001,540,173 10,738,499,617 Over 10 years 2,545,698,540 2,484,487,755 1,070,179,100 1,163,142,858 20,715,469,070 21,245,780,683 18,044,034,405 18,943,344,378

The equity account unrealized gain (loss) on investments comprises the following:

June 30, December 31, 2016 2015 (In bolivars)

Investments in available-for-sale securities 530,311,613 899,309,973 Investments in held-to-maturity securities, reclassified from investments in available-for-sale securities (3,913,049) (7,993,072) Restricted investments - (515,901) Investments in subsidiaries and affiliates (10,320,906) (7,631,276) 516,077,658 883,169,724

During the six-month period ended June 30, 2016, the Bank recorded gains and losses on sale of investments in available-for-sale securities of Bs 1,179,547,000 and Bs 667,233,000 respectively (Bs 678,849,000 and Bs 344,856,000, respectively, during the six-month period ended December 31, 2015), which are shown under other operating income and other operating expenses, respectively (Notes 20 and 21). The Bank received cash payments of Bs 157,988,861,000 for the aforementioned sales (Bs 136,445,281,000 during the six-month period ended December 31, 2015).

During the six-month period ended December 31, 2012, the Bank transferred investment securities at fair value of Bs 1,135,003,000 from the available-for-sale investment portfolio to the held-to-maturity investment portfolio, of which Bs 435,300,000 and Bs 870,600,000 at June 30, 2016 and December 31, 2015, respectively, will mature shortly. The net unrealized loss of Bs 52,420,000 associated with these investments, recorded in equity at the date of its transfer, will be amortized until the maturity date of the securities as an adjustment to yield. During the six-month periods ended June 30, 2016 and December 31, 2015, Bs 4,243,000 and Bs 5,530,000 have been amortized in this connection, and are shown under other operating expenses (Note 21).

During the six-month period ended December 31, 2007, the Bank transferred investment securities at fair value of Bs 749,155,000 from the available-for-sale investment portfolio to the held-to-maturity investment portfolio. At December 31, 2015, these investments were transferred to the available-for- sale investment portfolio. During the six-month period ended December 31, 2015, Bs 1,317,000 has been amortized in this connection, shown under other operating expenses.

19 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

c) Investments in held-to-maturity securities Investments in held-to-maturity securities comprise the following:

June 30, 2016 December 31, 2015 Amortized Fair Amortized Fair Cost cost value Cost cost value (In bolivars)

Fixed Interest Bonds (TIF) issued by the Bolivarian Republic of Venezuela, maturing between November 2010 and February 2032, with a par value of Bs 1,665,680,724 (maturing between February 2021 and 2030, with a par value of Bs 801,061,724) 1,876,081,638 1,858,676,047 2,022,486,832 (1) (a) 896,122,497 887,565,342 1,027,557,575 (1) (a) Dematerialized Certificate of Participation issued by Fondo Simón Bolívar para la Reconstrucción, S.A., maturing between June 2023 and July 2024, with a par value of Bs 7,328,970,824 (maturing between May 2016 and July 2024, with a par value of Bs 10,524,702,714 at December 31, 2015) 7,328,970,824 7,328,970,824 7,328,970,824 (2) (a) 10,524,702,714 10,524,702,714 10,524,702,714 (2) (a) Debt securities issued by Fondo de Desarrollo Nacional FONDEN, S.A., maturing in April 2017, with a par value of Bs 435,300,000 (maturing between April 2016 and 2017, with a par value of Bs 870,600,000) 460,025,475 439,750,586 460,025,475 (2) (a) 909,779,177 879,145,292 909,779,177 (2) (a) 9,665,077,937 9,627,397,457 9,811,483,131 12,330,604,388 12,291,413,348 12,462,039,466

(1) Fair value is determined from trading operations on the secondary market. (2) Shown at par value, which is considered as fair value,

Custodian of investments (a) Central Bank of Venezuela

During the six-month period ended December 31, 2015, the Bank transferred investment securities at their amortized cost of Bs 478,251,000 from the held-to-maturity investment portfolio to the available-for- sale investment portfolio, resulting in a loss from valuation of Bs 6,182,000, recorded in equity under unrealized gain (loss) on investments.

Subsequent events In July 2016, the Bank transferred National Public Debt Bonds in bolivars from the available-for-sale investment portfolio to the held-to-maturity investment portfolio for Bs 7,878,982,000. Unrealized losses amounted to Bs 11,879,000 when reclassified, which will be amortized until maturity of securities subject to reclassification.

Investments in held-to-maturity securities earn the following yield:

June 30, 2016 December 31, 2015 Minimum Maximum Minimum Maximum rate rate rate rate % % % %

Fixed Interest Bonds (TIF) issued by the Bolivarian Republic of Venezuela 14.50 17.00 15.25 16.5 Dematerialized Certificate of Participation issued by Fondo Simón Bolívar para la Reconstrucción, S.A. 6.05 6.05 3.75 6.05 Debt securities issued by Fondo de Desarrollo Nacional FONDEN, S.A. 9.10 9.10 9.10 9.10

Below is the classification of the weighted average maturity of investments in held-to-maturity securities:

June 30, December 31, 2016 2015 (Months)

Fixed Interest Bonds (TIF) issued by the Bolivarian Republic of Venezuela 151 158 Dematerialized Certificate of Participation issued by Fondo Simón Bolívar para la Reconstrucción, S.A. 92 66 Debt securities issued by Fondo de Desarrollo Nacional FONDEN, S.A. 10 10

20 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Below is the classification of investments in held-to-maturity securities according to maturity:

June 30, 2016 December 31, 2015 Amortized Fair Amortized Fair cost value cost value (In bolivars)

Up to 6 months - - 3,632,314,073 3,645,485,591 6 months to 1 year 439,750,586 460,025,475 - - 1 to 5 years 631,529,839 676,661,069 442,563,108 460,025,475 5 to 10 years 7,536,310,377 7,558,410,792 7,543,846,001 7,547,706,764 Over 10 years 1,019,806,655 1,116,385,795 672,690,166 808,821,636 9,627,397,457 9,811,483,131 12,291,413,348 12,462,039,466

d) Restricted investments Restricted investments comprise the following:

June 30, 2016 December 31, 2015 Book value Book value (equivalent (equivalent to market to market Cost value) Cost value) (In bolivars)

As guarantee Trust fund for MasterCard transactions 602,384,633 602,384,633 (3) (c) 587,562,615 587,562,615 (3) (c) Trust fund for the Social Contingency Fund 20,290,137 20,290,137 (3) (c) 18,121,541 18,121,541 (3) (c) Debt securities issued and guaranteed by government agencies of the United States of America, maturing in November 2022, with a par value of US$2,807,532 (maturing in March 2021, with a par value of US$3,000,000 at December 31, 2015) 29,414,141 29,247,721 (1) (a) 20,779,336 20,263,434 (1) (a) Certificates of deposit issued by Mercantil Commercebank, N.A., Deutsche Bank and Standard Chartered Bank, N.Y., maturing between September 2016 and August 2018, with a par value of US$12,585,344 (maturing between March and June 2016, with a par value of US$5,275,081 at December 31, 2015) 125,538,805 125,538,805 (2) (a, b) 33,149,664 33,149,664 (2) (a,b) 777,627,716 777,461,296 659,613,156 659,097,254

(1) Based on the present value of estimated future cash flows. (2) Shown at par value, which is considered as fair value. (3) Trust funds maintained with Banco Provincial, S.A. Banco Universal.

Custodians of investments (a) Bank of New York, Inc. (b) Mercantil Commercebank, N.A. (c) Mercantil, C.A. Banco Universal.

Restricted investments earn the following yield:

June 30, 2016 December 31, 2015 Minimum Maximum Minimum Maximum rate rate rate rate % % % %

Debt securities issued and guaranteed by the government agencies of the United States of America 2.53 2.53 4.59 4.59 Investment trust 10.00 10.00 2.00 10.00 Certificates of deposit 0.10 0.87 0.10 0.40

Below is the classification of the weighted average maturity of restricted investments:

June 30, December 30, 2016 2015 (Months)

Debt securities issued and guaranteed by government agencies of the United States of America 216 216 Certificates of deposit 4 4

21 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Below is the classification of restricted investments according to maturity:

June 30, 2016 December 31, 2015 Fair Fair Cost value Cost value (In bolivars)

Up to 6 months 673,401,075 673,401,075 638,833,820 638,833,820 6 months to 1 year 72,817,500 72,817,500 - - 5 to 10 years 1,995,000 1,995,000 20,779,336 20,263,434 Over 10 years 29,414,141 29,247,721 - - 777,627,716 777,461,296 659,613,156 659,097,254

At June 30, 2016 and December 31, 2015, restricted investments include securities of the Coral Gables agency with a market value of US$2,932,000 and US$3,225,000, respectively, pledged to regulatory agencies in compliance with state requirements in the United States of America.

e) Investments in other securities As required by the Venezuelan government, at June 30, 2016 and December 31, 2015, the Bank has investment securities issued by the Bolivarian Republic of Venezuela, public companies and decentralized entities to finance social projects for agricultural development and housing construction, as follows:

June 30, 2016 December 31, 2015 Weighted Weighted Book average Book average Guarantee Maturity Yield value maturity value maturity Issuer % (In bolivars) (months) (In bolivars) (months) Characteristics H Investments in other securities Imputable to Fondo Simón Bolivarian mortgage portfolio Bolívar para la Republic compliance Reconstrucción, S.A. of Venezuela 2020-2028 4.66-6.48 37,580,812,056 91 33,242,488,767 78 (1, 2, 5) (a) (Note 5) Reduces the legal 2017 4.66 1,315,669,000 12 1,315,669,000 18 reserve (Note 3) Imputable to Banco Nacional de BANAVIHI’s mortgage portfolio Vivienda y Hábitat current loan compliance (BANAVIH) portfolio 2021 2.00 637,835,000 66 695,820,000 73 (2) (a) (Note 5)

Total investments in other securities 39,534,316,056 35,253,977,767 Available-for-sale Debenture bonds Imputable to investments Bolivarian agricultural loan Petróleos de Venezuela, S.A. Republic of portfolio compliance (PDVSA) Venezuela 2016-2017 9.10 378,229,865 7 378,229,865 15 (2, 3) (a) (Notes 4-b and 5)

Sociedad de Garantías Recíprocas para People’s Power Imputable to la Pequeña y Mediana Empresa del Ministry for tourism loan Sector Turismo, S.A. (SOGATUR) Tourism - - 207,025,200 - 207,025,200 - (4) (b) portfolio compliance Total available-for-sale investments 585,255,065 585,255,065

Held-to-maturity investments Fondo Simón Bolivarian Bolívar para la Republic Reduces the legal Reconstrucción, S.A. of Venezuela 2023-2024 6.05 7,328,970,824 92 10,524,702,714 11 (2,5) (a) reserve (Note 3)

Imputable to agricultural loan Fondo de Desarrollo portfolio compliance Nacional FONDEN, S.A. Debenture bonds 2017 9.10 439,750,586 10 879,145,292 10 (2) (a) (Notes 4-b and 5) Total held-to-maturity investments 7,768,721,410 11,403,848,006

Total investments required 47,888,292,531 47,243,080,838

(1) At June 30, 2016, the Bank maintains Bs 37,580,812,056 in Bolivarian Housing Securities issued by Fondo Simón Bolívar para la Reconstrucción, S.A., of which the entire amount is imputable to the mortgage portfolio from previous years, to finance Venezuela’s Great Housing Mission (Bs 33,242,488,767 at December 31, 2015, of which Bs 15,161,534.576 was imputable to the mortgage portfolio for 2015).

(2) These securities may be traded with the BCV at 100% of their par value for purposes of liquidity injection and credit assistance. The Bank has the intention to hold them until maturity. These securities are recorded at cost. These securities are not currently traded on the Stock Exchange.

(3) These securities may be traded on the Bicentennial Public Stock Exchange at market value. They are available for sale and are recorded at the price quoted on the Bicentennial Public Stock Exchange.

(4) At June 30, 2016 and December 2015, the Bank maintains Bs 207,025,200 in Class “B” shares of Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo, S.A. (SOGATUR) imputable to tourism loan portfolio compliance.

(5) At June 30, 2016, reduces the legal reserve by 3% and Bs 7,328,970,824 (3% and Bs 10,524,702,714 at December 31, 2015).

Custodians of investments (a) Central Bank of Venezuela (b) Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo, S.A. (SOGATUR)

22 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The Bank’s control environment includes policies and procedures to determine investment risks by type of issuer and economic sector. At June 30, 2016, the Bank has investment securities issued by the Venezuelan government and public entities, deposits with the BCV, securities issued by the government of the United States of America and government agencies and securities issued by the Venezuelan and international private sector, among others, representing 86.98%, 11.74%, 0.07% and 1.21%, respectively, of its investment securities portfolio (94.69%, 3.03%, 0.04% and 2.24%, respectively, at December 31, 2015).

5. Loan portfolio

The loan portfolio is classified as follows:

December 31, June 30, 2016 2015 Current % Rescheduled % Overdue % In litigation % Total % Total % (In bolivars)

Economic activity Commercial 163,482,674,474 41 100,161,959 24 643,916,592 55 27,478,147 83 164,254,231,172 41 128,905,488,891 41 Credit cards 83,272,720,294 21 - - 33,915,536 2 - - 83,306,635,830 21 71,464,699,723 23 Agriculture 66,093,402,473 16 62,371,786 14 47,583,745 4 - - 66,203,358,004 16 48,962,440,677 15 Industrial 22,580,603,927 6 13,334,049 3 35,910,061 3 885,000 3 22,630,733,037 6 19,206,396,204 6 Services 21,915,209,116 6 4,847,350 1 31,540,211 3 4,484,849 14 21,956,081,526 6 15,025,808,761 5 Home purchases and improvements 9,826,893,473 2 161,239 - 60,455,985 5 5,268 - 9,887,515,965 2 8,849,274,821 3 Construction 4,502,610,779 1 - - 725 - - - 4,502,611,504 - 3,625,296,091 1 Car loans 8,054,926,753 2 - - 55,533,625 5 - - 8,110,460,378 2 3,222,277,190 1 Foreign trade - - - 8,921,888 1 - - 8,921,888 1 9,501,333 - Other 21,427,007,462 5 250,089,621 58 256,362,261 22 3,419 - 21,933,462,763 5 18,088,060,103 5 401,156,048,751 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,794,012,067 100 317,359,243,794 100

Guarantee Unsecured 129,573,938,818 32 134,374,990 31 243,672,471 21 - - 129,951,986,279 32 105,267,528,294 33 Mortgage 55,853,053,117 14 166,636,658 39 107,618,724 9 8,687 - 56,127,317,186 14 41,731,436,039 13 Debenture 195,894,699,476 49 129,954,356 30 817,023,786 70 32,847,996 100 196,874,525,614 49 161,595,340,420 51 Pledge 19,834,357,340 5 - - 5,825,648 - - - 19,840,182,988 5 8,764,939,041 3 401,156,048,751 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,794,012,067 100 317,359,243,794 100

Maturity Up to 3 months 80,408,828,690 20 9,619,938 2 564,585,517 48 - - 80,983,034,145 20 73,713,531,259 23 3 to 6 months 41,776,018,463 10 4,452,453 1 327,952,555 28 10,893,463 33 42,119,316,934 10 25,866,391,580 8 6 months to 1 year 125,307,359,857 31 29,255,641 7 223,060,338 19 21,954,533 67 125,581,630,369 31 96,049,655,121 30 1 to 2 years 41,733,896,033 10 94,813,795 22 31,523,819 3 - - 41,860,233,647 10 30,421,939,033 10 2 to 3 years 34,441,807,190 9 83,980,750 19 11,181,020 1 - - 34,536,968,960 9 37,080,092,442 12 3 to 4 years 14,945,379,910 4 8,581,736 2 8,048,337 1 - - 14,962,009,983 4 9,515,086,673 3 4 to 5 years 11,963,323,611 3 15,783,533 4 5,974,894 - - - 11,985,082,038 3 9,953,938,510 3 Over 5 years 50,579,434,997 13 184,478,158 43 1,814,149 - 8,687 - 50,765,735,991 13 34,758,609,176 11 401,156,048,751 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,794,012,067 100 317,359,243,794 100

Loan Promissory note 273,522,783,775 68 180,715,143 42 717,744,218 61 32,847,996 100 274,454,091,132 68 211,650,726,707 67 Credit cards Mortgage and vehicles 97,671,487,999 24 112,273,705 26 166,657,156 14 - - 97,950,418,860 24 84,203,208,464 27 Installment 14,944,590,801 4 137,977,156 32 61,031,196 5 8,687 - 15,143,607,840 4 13,235,309,762 4 Financial leases 265,720,265 ------265,720,265 - 501,555,117 - Factoring and discounts 243,997,924 ------243,997,924 - 288,003,182 - Checking accounts 220,333,127 - - - 41,206,390 4 - - 261,539,517 - 154,116,110 - Letters of credit - - - - 8,921,888 1 - - 8,921,888 - 9,501,341 - Other 14,287,134,860 4 - - 178,579,781 15 - - 14,465,714,641 4 7,316,823,111 2 401,156,048,751 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,794,012,067 100 317,359,243,794 100

Geographic location Venezuela 400,902,452,581 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,540,415,897 100 317,323,405,327 100 United States of America 54,096,170 ------54,096,170 - 35,838,467 - Other Latin American countries 199,500,000 ------199,500,000 - - - 401,156,048,751 100 430,966,004 100 1,174,140,629 100 32,856,683 100 402,794,012,067 100 317,359,243,794 100

Below is the classification of the loan portfolio by type of risk of the Bank and branch and agency abroad in accordance with parameters set by SUDEBAN:

June 30, 2016 December 31, 2015 In bolivars % In bolivars %

Risk Normal 397,613,561,667 99 314,295,661,746 100 Potential 2,018,310,676 1 1,089,177,478 - Real 1,641,257,476 - 801,478,028 - High 1,294,676,855 - 1,068,133,569 - Unrecoverable 226,205,393 - 104,792,973 - 402,794,012,067 100 317,359,243,794 100

23 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

At June 30, 2016, regulations require universal banks to earmark a minimum nominal percentage of 29.50% of their gross loan portfolio to finance loans for agriculture, small businesses and tourism (62.25% for agriculture, small businesses, tourism, mortgages and manufacturing at December 31, 2015), as follows:

June 30, 2016 Maximum Balance Number of annual maintained Earmarked Required Number of loans interest rate Activity in bolivars % % debtor s granted % Calculation basis Average gross loan portfolio balance at December 31, Agriculture (a) 66,203,358,004 27.59 24.00 2,231 4,387 13.00 2015 and 2014

Small businesses 14,214,569,495 4.48 3.00 12,183 12,471 24.00 Gross loan portfolio at December 31, 2015

Mortgages (b, e) 9,071,025,267 2.86 - 21,966 21,966 Between 4.66 Gross loan portfolio at December 31, 2015 and 10.66

Tourism (c) 8,482,852,089 3.58 2.50 71 207 12.07 but 9.07 may be applied in some cases Average gross loan portfolio balance at December 31, 2015 and 2014

Manufacturing (d, e) 22,630,733,036 7.13 - 1,721 2,861 18 but 16.20 may be applied in some cases Gross loan portfolio at December 31, 2015

December 31, 2015 Maximum Balance Number of annual maintained Earmarked Required Number of loans interest rate Activity in bolivars % % debtors granted % Calculation basis Average gross loan portfolio balance at December 31, Agriculture (a) 48,962,440,677 38.42 25.00 2,492 4,910 13.00 2014 and 2013

Small businesses 10,857,878,595 4.89 3.00 14,705 15,542 24.00 Gross loan portfolio at June 30, 2015

Mortgages (b) 9,366,727,303 17.14 20.00 24,187 24,188 Between 4.66 Gross loan portfolio at December 31, 2014 and 10.66

Tourism (c) 6,979,686,206 5.50 4.25 71 204 10.82 but 7.82 may be applied in some cases Average gross loan portfolio balance at December 31, 2014 and 2013

Manufacturing (d) 19,206,396,202 11.40 10.00 2,057 3,891 18 but 16.20 may be applied in some cases Gross loan portfolio at December 31, 2014

(a) In May and July 2012, Fondo de Desarrollo Nacional FONDEN, S.A. and PDVSA, respectively, issued non-convertible bearer bonds to strengthen and finance Venezuela’s Great Agro Mission of the Ezequiel Zamora Fund. In April 2009, the Venezuelan government approved the issue of National Public Debt Bonds to finance the Integral Agricultural Development Plan for 2009-2010. These bonds may be imputed to the mandatory agricultural loan portfolio for an amount of up to 30% of the total loan portfolio, as authorized by the People’s Power Ministry for Agriculture and Land in July 2012. The loan portfolio plus these investments amount to Bs 67,021,338,455 at June 30, 2016 (Bs 50,219,815,834 at December 31, 2015) (Note 4-e).

At June 30, 2016, the Bank earmarked 88.65% for strategic items, 3.88% for non-strategic items and 7.07% earmarked for agroindustrial investment and 0.40% for marketing. In addition, at June 30, 2016, short and long-term loans represent 59.70% of the total agricultural portfolio (42.37% at December 31, 2015).

(b) At June 30, 2016, the Bank maintains Bs 37,580,812,056 (Bs 33,242,488,767 at December 31, 2015) in Bolivarian Housing Securities issued by Fondo Simón Bolívar para la Reconstrucción, S.A., to finance Venezuela’s Great Housing Mission, which is imputable (Bs 15,161,534,576 at December 31, 2015) to the mortgage portfolio for 2015. In January 2016, this Fund disclosed the prospectus of the Private Issue of Bolivarian Housing Securities 2015-II, according to which the acquisition of Bonds for Bs 4,338,323,289 was assigned to the Bank, earmarked for compliance with the construction tranche at December 31, 2015; therefore, 14.56% compliance at that date reaches a maximum computable of 17.14% (Note 4-e).

(c) At June 30, 2016 and December 31, 2015, the Bank complied with the minimum required percentage of the tourism loan portfolio (includes SOGATUR shares for Bs 207,025,200). The tourism portfolio plus these investments amount to Bs 8,689,877,289 (Bs 7,186,711,406 at December 31, 2015) (Note 4-e).

(d) In June 2013, the People’s Power Ministries for Industries and for Finance established the activities to which universal banks shall allocate the funds of the manufacturing loan portfolio. Of the manufacturing loan portfolio resources, 60% shall be allocated to the strategic development sectors and a minimum percentage of 40% to finance small and medium-sized companies, joint ventures and communal and state companies.

(e) Portfolio measurement and compliance are required on an annual basis.

24 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The Bank has allowances for losses on the loan portfolio exceeding the minimum requirements set by SUDEBAN. Below is the movement in the allowance for losses on the loan portfolio:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Balance at the beginning of the period 9,947,308,406 7,159,201,678 Provided in the period, including the branch 3,673,429,818 3,191,743,810 Effect of translating allowances in foreign currency 362,323 - Write-offs of uncollectible accounts (758,561,422) (416,572,631) Decrease in branch allowance (42,814) (320,641) Reclassification to the provision for interest receivable 9,570,183 13,256,190 Balance at the end of the period 12,872,066,494 9,947,308,406

During the six-month period ended June 30, 2016, the Bank wrote off unrecoverable loans of Bs 758,561,000 (Bs 416,573,000 during the six-month period ended December 31, 2015), against the allowance for losses on loan portfolio. The Bank also collected loans written off as uncollectible in previous six-month periods for Bs 258,114,000 (Bs 319,160,000 during the six-month period ended December 31, 2015), included in the income statement under income from financial assets recovered.

Below is a breakdown of certain balances and transactions of the overdue and in-litigation loan portfolio:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

No earning interest (1) 1,206,997,312 678,096,547 Interest accrued but not recorded as income 575,810,538 520,503,502 Interest collected on uncollectible loans written off in previous periods 373,987,406 394,981,959

(1) At June 30, 2016, Bs 8,921,888 corresponds to overdue letters of credit (Bs 6,567,000 at December 31, 2015).

The Bank’s control environment includes policies and procedures to determine credit risks by client and economic sector. Concentration of risk is limited since loans are granted to a variety of economic sectors and a large number of clients. At June 30, 2016 and December 31, 2015, the Bank’s loan portfolio does not have significant risk concentrations in terms of individual clients and groups of related companies.

25 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

6. Interest and commissions receivable

Interest and commissions receivable comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Interest receivable on cash and due from banks 3,415 374 Interest receivable on investment securities Deposits with the Central Bank of Venezuela (BCV) and overnight deposits 48,813,214 6,450,000 Available for sale 347,887,295 343,093,200 Held to maturity 229,156,522 235,520,742 Other securities 561,086,729 425,273,582 Restricted investments 676,840 2,106,017 1,187,620,600 1,012,443,541 Interest receivable on loan portfolio Current 3,503,463,454 2,728,140,016 Rescheduled 42,663,823 44,632,853 Overdue 75,754,145 121,842,124 3,621,881,422 2,894,614,993 Commissions receivable 116,700,120 121,604,244 Interest and commissions receivable on other accounts receivable 578 2,529 Provision for interest receivable and other (81,052,073) (38,683,921) 4,845,154,062 3,989,981,760

7. Investments in subsidiaries and affiliates

Investments in subsidiaries and affiliates recorded at cost by the equity method comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Inversiones Platco, C.A., 573,985 fully paid common shares with a par value of Bs 100 each, equivalent to 50% of its capital stock 3,982,727,839 1,193,571,336 Inversiones y Valores Mercantil V. C.A., 31,724,500 fully paid common shares with a par value of Bs 1 each, equivalent to 100% of its capital stock 199,888,229 195,394,762 Corporación Andina de Fomento, 24 fully paid common shares with a par value of US$5,000 each, equivalent to 0.003% of its capital stock 1,011,833 637,450 Proyecto Conexus, C.A., 500,000 fully paid common shares with a par value of Bs 1 each, equivalent to 33.33% of its capital stock 943,478 2,915,143 Society for Worldwide Interbank Financial Telecommunication (SWIFT), 27 fully paid common shares with a par value of €125 each, equivalent to 0.01% of its capital stock 594,452 368,560 Inmobiliaria Asociación Bancaria, C.A., 28,862 fully paid common shares with a par value of Bs 1 each, equivalent to 7.4% of its capital stock 167,370 167,370 Caja Venezolana de Valores, S.A., 1,298,412 fully paid common shares with a par value of Bs 3 each, equivalent to 18.01% of its capital stock 128,480 128,480 Banco Interamericano de Ahorro y Préstamo (BIAPE), 1,214 fully paid common shares with a par value of US$1 each, equivalent to 0.15% of its capital stock 24,737 15,584 Súper Octanos, C.A., 84,800 fully paid common shares with a par value of Bs 1 each, equivalent to 2% of its capital stock 16,960 16,960 Banco Latinoamericano de Comercio Exterior, S.A. (BLADEX), 32,376 fully paid common shares with a par value of US$1 each, equivalent to 0.19% of its capital stock 11,450 7,213 Mantex, S.A., 415 fully paid common shares with a par value of Bs 1 each, equivalent to 0,00051% of its capital stock 162 162 Provision for investments in subsidiaries and affiliates (17,122) (17,122) 4,185,497,868 1,393,205,898

During the six-month period ended June 30, 2016, the Bank recorded net losses in respect of its equity in the results of subsidiaries and affiliates of Bs 57,013,000 (net losses of Bs 62,381,000 during the six- month period ended December 31, 2015), shown under other operating income and other operating expenses, respectively (Notes 20 and 21).

26 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

During the six-month period ended June 30, 2016, the Bank made cash contributions for future capital increases of Bs 2,839,467,000 to its affiliate Inversiones Platco, C.A. During the six-month period ended December 31, 2015, the Bank made a contribution for future capital increases of Bs 216,135,000 by assigning points of sale (POS) at their book value of Bs 497,634,000, which generated goodwill of Bs 281,499,000, shown under other assets (Note 10). In addition, the Bank made a cash contribution of Bs 945,164,000.

Below is the summary of the financial statements of the main subsidiaries and affiliates shown under the equity method, as well as the branch and agency abroad:

a) Subsidiaries and affiliates

Balance sheet June 30, 2016 Inversiones y Valores Mercantil V, Proyectos Inversiones C.A. and Conexus, Platco, subsidiaries C.A. (1) C.A. (1) (In bolivars)

Assets Cash and due from banks 746,480 20,151,941 946,380,528 Investment securities 99,432,909 3,413,533 - Interest and commissions receivable 1,535,834 - - Investments in subsidiaries and affiliates abroad 98,921,887 - - Property and equipment - 3,751,749 2,565,067,700 Other assets 8,934,110 26,883,676 5,261,208,993 Total assets 209,571,220 54,200,899 8,772,657,221

Liabilities and Equity Liabilities Other liabilities 9,682,991 51,370,471 807,201,544 Total liabilities 9,682,991 51,370,471 807,201,544 Equity 199,888,229 2,830,428 7,965,455,677 Total liabilities and equity 209,571,220 54,200,899 8,772,657,221

Income statement Six-month period ended June 30, 2016 Inversiones y Valores Mercantil V, Proyectos Inversiones C.A. and Conexus, Platco, subsidiaries (1) C.A. (1) C.A. (1) (In bolivars)

Gross financial margin 5,973,784 1,816,574 773,806 Operating income, net (9,793,559) 14,412,644 2,159,244,940 Total expenses (2,746,935) (16,638,792) (2,260,639,055) Net loss (6,566,710) (409,574) (100,620,309)

Equity method (6,566,710) (136,523) (50,310,155)

27 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Balance sheet December 31, 2015 Inversiones y Valores Mercantil V, Proyectos Inversiones C.A. and Conexus, Platco, subsidiaries C.A. (1) C.A. (1) (In bolivars)

Assets Cash and due from banks 1,338,327 19,704,720 1,376,394,686 Investment securities 87,110,063 3,067,520 - Interest and commissions receivable 1,245,695 - - Investments in subsidiaries and affiliates abroad 99,798,510 - - Property and equipment - 1,575,044 565,278,237 Other assets 8,758,657 22,434,399 908,128,309 Total assets 198,251,252 46,781,683 2,849,801,232

Liabilities and Equity Liabilities Other liabilities 2,856,491 38,036,271 462,658,561 Total liabilities 2,856,491 38,036,271 462,658,561 Equity 195,394,761 8,745,412 2,387,142,671 Total liabilities and equity 198,251,252 46,781,683 2,849,801,232

Income statement Six-month period ended December 31, 2015 Inversiones y Valores Mercantil V, Proyectos Inversiones C.A. and Conexus, Platco, subsidiaries (1) C.A. (1) C.A. (1) (In bolivars)

Gross financial margin 5,317,564 3,082,220 4,066,562 Operating income, net (831,072) 12,258,968 190,472,075 Total expenses (1,629,271) (14,275,954) (325,725,009) Net income (loss) 2,857,221 1,065,234 (131,186,372)

Equity method 2,857,221 355,079 (65,593,186)

(1) Based on unaudited financial statements.

b) Branch and agency abroad (combined)

Balance sheet June 30, 2016 December 31, 2015 Thousands of Equivalent Thousands of Equivalent U.S. dollars in bolivars U.S. dollars in bolivars

Assets Cash and due from banks 9,174 91,508,535 8,778 55,159,987 Investment securities 118,606 1,185,819,102 116,373 731,317,472 Loan portfolio 5,328 53,149,487 5,603 35,211,284 Interest and commissions receivable 1,744 17,392,817 1,838 11,547,380 Other assets 92 920,287 13 79,356 Total assets 134,944 1,348,790,228 132,605 833,315,479

Liabilities and Equity Deposits 2,107 21,019,118 2,404 15,103,974 Borrowings 4,172 41,614,803 4,172 26,217,117 Interest and commissions payable 7 73,076 7 48,168 Accruals and other liabilities 247 2,462,449 183 1,151,485 Total liabilities 6,533 65,169,446 6,766 42,520,744 Equity 128,411 1,283,620,782 125,839 790,794,735 Total liabilities and equity 134,944 1,348,790,228 132,605 833,315,479

28 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Income statement Six-month period ended Six-month period ended June 30, 2016 December 31, 2015 Thousands of Equivalent Thousands of Equivalent U.S. dollars in bolivars U.S. dollars in bolivars

Gross financial margin 3,700 32,353,056 6,540 41,096,740 Other operating income, net 22,459 199,570,532 4,824 30,316,181 Total expenses (23,581) (206,209,210) (9,750) (61,272,853) Net Income 2,578 25,714,378 1,614 10,140,068

8. Available-for-sale assets

Available-for-sale assets comprise the following:

December 31, June 30, 2015 Additions Disposals 2016

(In bolivars)

Idle assets 738,783 - - 738,783 Amortization (141,318) (184,697) - (326,015) Net 597,465 (184,697) - 412,768

During the six-month period ended June 30, 2016, the Bank sold fully amortized idle assets that had been recorded under memorandum accounts at a gain of Bs 590,273,000 (Bs 226,148,000 during the six-month period ended December 31, 2015), shown in the income statement under income from available-for-sale assets.

During the six-month period ended June 30, 2016, the Bank recorded amortization expense in respect of available-for-sale assets of Bs 185,000 (Bs 89,000 during the six-month period ended December 31, 2015), included in the income statement under expenses from available-for-sale assets.

Fully amortized available-for-sale assets are recorded under memorandum accounts (Note 25).

9. Property and equipment

Property and equipment comprises the following:

December 31, June 30, 2015 Additions Disposals Other 2016

(In bolivars)

Cost Buildings 757,291,895 - - - 757,291,895 Furniture and equipment 3,164,783,986 1,285,180,865 (447,884) - 4,449,516,967 Equipment for Chip Project 14,157,100 - - - 14,157,100 Vehicles 1,372,027 - - - 1,372,027 Land 2,550,166 - - - 2,550,166 Work in progress 42,476,511 - - - 42,476,511 Total 3,982,631,685 1,285,180,865 (447,884) - 5,267,364,666

Accumulated depreciation Buildings (39,610,377) (9,521,602) - - (49,131,979) Furniture and equipment (959,003,558) (353,436,161) - - (1,312,439,719) Equipment for Chip Project (14,157,100) - - - (14,157,100) Vehicles (1,198,141) (43,474) - - (1,241,615) Total (1,013,969,176) (363,001,237) - - (1,376,970,413) Net 2,968,662,509 922,179,628 (447,884) - 3,890,394,253

29 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

During the six-month period ended June 30, 2016, the Bank recorded depreciation expense of Bs 363,001,000 (Bs 257,307,000 during the six-month period ended December 31, 2015), included in the income statement under general and administrative expenses (Note 19).

Work in progress is mainly in respect of the construction or remodeling of Bank offices.

Below are the original useful lives and average remaining useful lives by type of asset at June 30, 2016:

Average Useful remaining life useful life (Years)

Buildings 40 26 Furniture and equipment 4-10 3

10. Other assets

Other assets comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Deferred expenses of office facilities, leasehold improvements and other, net of accumulated amortization of Bs 755,486,476 (Bs 396,821,073 at December 31, 2015) (Note 2) 6,073,878,250 3,023,783,376 Advances to technology vendors, construction contractors and other 2,600,336,367 4,609,571,950 Stationery and office supplies 2,502,439,049 1,074,794,870 Deferred income tax (Note 17) 1,464,543,183 553,978,070 Insurance and other prepaid expenses 1,427,840,952 780,435,684 Accounts receivable from other credit card companies 945,660,342 681,799,484 Prepaid taxes 880,097,689 189,113,415 Software, net of accumulated amortization of Bs 330,200,431 (Bs 219,311,000 at December 31, 2015) 645,331,471 348,809,242 Goodwill on acquisition of shareholding and contributions pending capitalization, net of accumulated amortization of Bs 148,613,882 (Bs 117,183,000 at December 31, 2015) (Notes 2 and 7) 264,107,681 295,538,161 Pending items and main office, branches and agencies 149,855,485 205,409,713 Advances and guarantee deposits 132,997,806 86,309,044 Other accounts receivable 108,867,500 45,555,538 Prepaid advertising 66,711,047 33,255,062 Other 31,794,744 24,808,155 Provision for other assets (16,174,322) (6,702,399) 17,278,287,244 11,946,459,365

The balance of pending items and main office, branches and agencies mainly comprises operations that, due to their nature, cannot be immediately imputed to a definitive account, as well as lending operations between Bank offices that are being identified and have not yet been definitively recorded at monthly cutoff. Most of these operations clear during the first few days of the following month. Debit transactions with these same characteristics are included under accruals and other liabilities (Note 16).

In addition, at June 30, 2016, pending items and main office, branches and agencies also comprise spot transactions not yet cleared for Bs 123,947,000 (Bs 1,443,000 at December 31, 2015).

Prepaid taxes mainly include payment of income tax, withholding tax and municipal taxes.

30 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Amortization of deferred expenses and goodwill during the six-month period ended June 30, 2016 amounted to Bs 553,673,000 (Bs 260,780,000 during the six-month period ended December 31, 2015) and is shown under general and administrative expenses (Note 19).

During the six-month period ended June 30, 2016, the Bank recorded expenses from the provision for other assets of Bs 11,657,000 (Bs 2,884,000 during the six-month period ended December 31, 2015), shown in the income statement under sundry operating expenses.

The movement in the provision for other assets is shown below:

June 30, December 31, 2016 2015 (In bolivars)

Balance at the beginning of the period 6,702,399 8,465,966 Provided in the period 11,657,361 2,883,623 Release of provision (397,543) (1,333,935) Write-offs of unrecoverable accounts (1,787,896) (3,313,255) Balance at the end of the period 16,174,321 6,702,399

11. Deposits

Deposits comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Demand deposits 467,642,655,768 349,469,735,940 Other demand deposits Cashier’s checks 4,848,104,455 3,003,289,406 Trust liabilities (Note 25) 1,240,066,828 1,023,172,251 Other demand deposits 145,057,506 139,215,977 Certified checks 16,552,751 12,464,766 Advance collections from credit card holders (Note 25) 24,889,338 20,792,989 Judicial deposits 6,029,361 3,400,975 Housing savings fund liabilities 13,693,053 13,219,387 Reimbursable collections 3,688 5,843 6,294,396,980 4,215,561,594 Savings deposits 156,370,247,653 142,548,765,626 Time deposits 529,265,057 530,236,411 Restricted deposits Dormant savings accounts 258,474,064 204,583,659 Dormant checking accounts 233,191,246 168,721,408 Guarantee time deposits 1,815,518 3,357,269 Other restricted deposits 30,060 31,169 Attached funds of checking account deposits 31,018 19,541 493,541,906 376,713,046 631,330,107,364 497,141,012,617

31 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Deposits bear interest at the rates shown below:

June 30, 2016 December 31, 2015 Deposits Deposits Deposits Deposits in bolivars in U.S. dollars in bolivars in U.S. dollars Minimum Maximum Minimum Maximum Minimum Maximum Minimum Maximum rate rate rate rate rate rate rate rate % % % % % % % %

Type of deposit Interest-bearing checking accounts 0.05 2.00 0.02 0.02 0.05 2.00 0.01 0.077 Savings deposits 12.5 16.00 0.01 0.03 12.5 16.00 0.01 0.03 Time deposits 14.5 14.50 0.1 0.15 14.5 14.50 0.1 0.15 Restricted deposits 0.05 16.00 0.1 0.77 0.05 16.00 0.1 0.77

Below is the classification of time deposits by maturity:

June 30, 2016 December 31, 2015 In bolivars % In bolivars %

Up to 30 days 77,929,178 15 103,077,120 19 31 to 60 days 70,601,340 13 58,941,572 11 61 to 90 days 56,720,756 11 71,309,659 13 91 to 180 days 132,516,112 25 131,135,630 25 181 to 360 days 191,322,734 36 164,068,498 32 Over 360 days 174,937 - 1,703,932 - 529,265,057 100 530,236,411 100

At June 30, 2016, deposits include Bs 10,150,359,000 from the Venezuelan government and other government agencies, equivalent to 1.61% of total deposits (Bs 6,437,814,000, equivalent to 1.29% at December 31, 2015).

12. Deposits and liabilities with Banco Nacional de Vivienda y Hábitat (BANAVIH)

Deposits and liabilities with BANAVIH comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Interest-free demand deposits with BANAVIH 795,758 1,311,596 Other liabilities with BANAVIH 91 32 795,849 1,311,628

Funds received from BANAVIH are used to finance loans. Other liabilities with BANAVIH are in respect of funds received to subsidize the initial installment of loans granted. Demand deposits are in respect of funds received to be assigned by BANAVIH (Note 25).

32 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

13. Borrowings

Borrowings comprise the following:

June 30, December 31, 2016 2015

(In bolivars) x Borrowings with Venezuelan financial institutions Demand deposits 157,464,529 43,800,051 157,464,529 43,800,051 Borrowings with foreign financial institutions Borrowings Banco Mercantil Curacao, N.V., maturing in August 2016, with a par value of US$4,000,000 and 1.25% yield (maturing in February 2016 at December 31, 2015) 39,900,000 25,136,800 Demand deposits 7,912,235 905,424

47,812,235 26,042,224

205,276,764 69,842,275

Maturities of borrowings, up to one year, are as follows:

June 30, December 31, 2016 2015 (In bolivars)

Up to 6 months 205,276,764 69,842,275

14. Other liabilities from financial intermediation

Other liabilities from financial intermediation comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Liabilities with credit card merchants 1,385,839 4,089,072 Other 47,439 47,440 1,433,278 4,136,512

33 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

15. Interests and commissions payable

Interest and commission payable comprise the following.

June 30, December 31, 2016 2015

(In bolivars)

Expenses payable on deposits Time deposits 33,281,677 32,355,870 Interest-bearing checking accounts 99,318,029 72,383,288 Other (Note 2) 108 3,800 132,599,814 104,742,958

Expenses payable on borrowings Expenses payable on borrowings 69,271 43,640 132,669,085 104,786,598

16. Accruals and other liabilities

Accruals and other liabilities comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Provision for contingencies and other (Note 32) 5,192,961,618 2,368,628,998 Suppliers and other accounts payable (Note 27) 4,709,355,864 3,080,336,256 Taxes (Note 17) 4,266,229,691 6,934,277,829 Employee profit sharing, vacation and bonuses (Note 2) 2,857,230,293 1,562,472,916 Interest collected in advance on the loan portfolio and commissions 1,593,527,341 1,156,732,624 Collected and withheld taxes 1,227,240,639 829,802,214 Labor contributions 122,493,812 102,417,040 Provision for the Antidrug Law (Note 33) 114,695,328 188,443,510 Deferred income from loan portfolio 84,158,163 88,076,715 Deferred gain on rights and sale of property and other (Note 7) 49,269,450 49,292,550 Pending items and main office, branches and agencies 26,731,603 52,710,942 Commissions payable 11,493,600 6,019,200 Accounts payable to Inversiones Platco, C.A. 5,884,526 22,992,512 Other accounts payable to clients 2,158,202 624,344 20,263,430,130 16,442,827,650

At June 30, 2016 and December 31, 2015, the provision for contingencies and other mainly includes accrued expenses from unbilled services received, other accruals for human resources and the provision for cashier’s checks written off due to aging.

34 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

17. Taxes

a) Tax expense The tax expense comprises the following:

June 30, December 31, 2016 2015 (In bolivars)

Taxes Current In Venezuela 4,048,748,550 4,493,068,479 Abroad 37,279 754,450 4,048,785,829 4,493,822,929 Deferred In Venezuela (910,565,114) (211,606,884) 3,138,220,715 4,282,216,045

Venezuelan Income Tax Law This Law establishes, among other things, regulations concerning a proportional tax on dividends, the annual inflation adjustment, worldwide income taxation, international fiscal transparency regulations and transfer pricing.

The Bank’s tax year ends on December 31. For the six-month period ended June 30, 2016, the main differences between income/loss recognized for accounting and tax purposes arise from shareholdings, provisions and accruals that are normally tax deductible in subsequent periods, nontaxable income and tax-exempt income from National Public Debt Bonds and other securities issued by the Bolivarian Republic of Venezuela.

For the six-month period ended June 30, 2016, the Bank estimated an income tax expense of Bs 4,048,749,000,

At June 30, 2016, the Bank has extraterritorial tax losses of up to 25% of annual income amounting to Bs 160,265,000, of which Bs 60,075,000 may be carried forward until December 31, 2016, Bs 75,982,000 until December 31, 2017 and Bs 24,208,000 until December 31, 2018.

The following is a reconciliation between book expense and tax expense for the year ended December 31, 2015:

Statutory tax rate 40% (Thousands of bolivars)

Book income before tax 19,096,183

Notional tax expense based on book income in Venezuela computed at the effective tax rate 6,304,350 Differences between notional tax expense and actual tax expense Net effect of shareholdings 18,304 Net effect of exemption of securities issued or guaranteed by the Venezuelan government (1,419,886) Nondeductible provisions Loan portfolio, net 464,916 Other provisions 214,014 Other effects, net (83,580) 5,498,118

35 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Transfer pricing Venezuelan Income Tax Law establishes transfer-pricing regulations. According to these regulations, taxpayers that conduct transactions with related parties abroad are required to calculate income, costs and deductions applying the methodologies set out in the Law, report results obtained through a special return, and keep supporting documentation and information related to transfer-pricing calculation for these transactions. Accordingly, the Bank filed transfer-pricing returns for information purposes.

b) Deferred tax asset The deferred income tax comprises the following:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Other provisions 811,928,529 490,021,992 Loan portfolio 478,422,018 45,540,575 Income collected in advance 16,307,368 18,355,953 Exchange gain 157,832,364 - Labor-related provisions 52,904 59,550 Deferred tax asset (Note 10) 1,464,543,183 553,978,070

The Bank assesses the recoverability of deferred tax assets using a model which considers the historic financial performance, taxable income projections and the future realization of existing temporary differences, among others. This assessment is based on approved business plans, among others, and includes management’s judgment on assumptions used, which may vary from one year to the next. The Bank, based on its assessment, believes that the net deferred tax asset at June 30, 2016 is realizable.

18. Employee benefits and employee benefit plans

a) Length-of-service benefits In accordance with the Labor Law (LOTTT), the Bank calculates length-of-service benefits based on the last salary earned by the employee upon employment termination using actuarial methods.

At June 30, 2016, the Bank’s obligation in connection with the retrospective length-of-service benefits amounts to Bs 345,602,000 (Bs 204,479,000 at December 31, 2015).

At December 31, 2015, date of the last actuarial study, the actual assumptions used to determine the length-of-service benefit obligations are as follows:

x Financial Discount rate (%) 7 Salary increase rate (%) - Long-term projected inflation rate (%) 58

Demographic Mortality table for active employees GAM (1971) Disability table PDT (1985)

The estimated net cost of the retrospective length-of-service benefits for the second six-month period of 2016 is Bs 141,123,000.

36 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

b) Supplementary Savings Plan Since 2006, the Bank maintains a plan for its employees and those of its Venezuelan subsidiaries entitled “Plan de Ahorro Previsional Complementario Mercantil” (Supplementary Savings Plan), which replaced the defined benefit plan entitled “Plan Complementario de Pensiones de Jubilación” (Supplementary Defined Benefit Plan). Only active employees have the option of subscribing to the new plan or remaining in the Supplementary Defined Benefit Plan.

For the six-month period ended June 30, 2016, expenses in connection with this plan amount to Bs 113,779,000 (Bs 73,985,000 for the six-month period ended December 31, 2015).

c) Supplementary Defined Benefit Plan and post-retirement benefits The Supplementary Defined Benefit Plan and post-retirement benefits for eligible employees are based on a minimum 10-year length-of-service period and a minimum retirement age. The retirement pension is based on the employee’s average annual salary over the last three years of employment preceding retirement and is payable at a maximum of 60% of this average salary.

For the six-month period ended June 30, 2016, expenses in connection with the Supplementary Defined Benefit Plan and post-retirement benefits amounted to Bs 67,500,000 (Bs 22,800,000 for the six-month period ended December 31, 2015).

At December 31, 2015, date of the last actuarial study, the assets, obligations and results of the Supplementary Defined Benefit Plan and post-retirement benefits for both plans are as follows:

Supplementary Post- Defined retirement Benefit Plan benefits (Thousands of bolivars)

Annual variation in projected benefit obligation (1) Benefit obligation 90,222 131,653 Service cost 65 8,574 Interest cost 27,087 42,069 Remeasurement 355,209 374,160 Benefits paid (32,007) (21,335) Projected benefit obligation 440,576 535,121

Annual variation in restricted plan assets (2) Opening fair value of assets 132,906 69,095 Remeasurement and yield on assets (124,908) 156,374 Bank contribution 832 - Transfer between plans 105,680 (105,680) Benefits paid (32,006) (21,335) Closing fair value of assets 82,504 98,454

Components of net benefit cost for the year Service cost 65 8,574 Interest cost 27,087 42,069 Yield from plan assets (110,967) (20,728) Net benefit cost (83,815) 29,915

Components in equity for the year Remeasurement of actuarial loss 355,209 374,160 (1) The obligation is recorded under other liabilities (Note 14). (2) The breakdown of plan assets is shown according to the accounting bases described in Note 2.

37 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Financial position balances at December 31 are shown below:

Supplementary Defined Benefit Plan 2015 2014 2013 2012 2011 (Thousands of bolivars)

Financial position at year end Present value of obligations (DBO) (440,576) (90,222) (67,248) (137,616) (95,649) Assets of external fund supporting the plan 82,504 132,906 141,805 137,616 95,649 (Projected obligation) (1)/excess of assets (358,072) 42,684 74,557 - -

Post-retirement benefits 2015 2014 2013 2012 2011 (Thousands of bolivars)

Financial position at year end Present value of obligations (DBO) (535,121) (131,653) (119,540) (75,717) (55,063) Assets of external fund supporting the plan 98,454 69,095 71,604 40,900 34,298 (Projected obligation) (1)/excess of assets (436,667) (62,558) (47,936) (34,817) (20,765)

(1) The obligation is recorded under other liabilities (Note 14).

At December 31, 2015, date of the last actuarial study, the actual assumptions used to determine benefit obligations are as follows:

Supplementary Post- Defined Benefit Plan retirement benefits % %

Discount rate (%) 7 7 Salary increase (%) - - Increase in medical expenses (1) (%) - 10

(1) This assumption only applies to the post-retirement benefit plan.

At December 31, 2015, date of the last actuarial study, a hypothetical increase or decrease of 1% in the main actuarial assumptions would impact the value of the projected obligations of the plans as follows:

Supplementary Post- Defined Benefit Plan retirement benefits Increase Decrease Increase Decrease (Thousands of bolivars)

Discount rate 28,923 52,418 123,023 172,283 Increase in medical expenses - - 158,884 117,560

Below is a breakdown of the assets supporting the plans of MERCANTIL and its subsidiaries at December 31, 2015, shown in conformity with the accounting bases described in Note 2:

(Thousands of bolivars)

Cash and due from banks 43,752 Investments in available-for-sale securities (1) 138,682 Interest receivable 2,378 Other assets 452 Total assets 185,264

(1) Securities quoted in an active market.

38 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

At June 30, 2016, the fair value of these assets, in conformity with accounting standards applicable to Fundación BMA (VEN NIF), is Bs 4,325,888,000 (Bs 1,408,751,000 at December 31, 2015).

The Bank through its employee benefit plans is exposed to a variety of risks (market, credit and operational risks), which are minimized by applying risk management policies and procedures (Note 30).

The Bank’s policy to determine investment assets includes regular consultation with its internal advisors. The expected long-term rate of return on plan assets is updated periodically, taking into consideration asset allocations, historic returns and current economic conditions. The fair value of plan assets is affected by general market conditions. If actual returns on plan assets differ from expected returns, actual results may differ from initial estimates.

The average length of the Supplementary Defined Benefit Plan and post-retirement benefits is 9.6 and 28.9 years, respectively.

The projection of future undiscounted payments of the post-retirement benefit plans are as follows:

1 2 to 5 Over 5 year years years Total (Thousands of bolivars)

Supplementary Defined Benefit Plan 45,608 178,779 541,125 765,512 Post-retirement benefits 298,530 1,855,624 248,790,387 250,944,541 Total 344,138 2,034,403 249,331,512 251,710,053

d) Long-term stock option plan MERCANTIL and certain subsidiaries in Venezuela and abroad offer a long-term stock option plan to eligible officers approved by the Board of Directors’ Compensation Committee. These shares are allotted over three-year periods and awarded annually. Fundación BMA manages the plan and sets up trust funds with the shares on behalf of members once these shares have been assigned and subsequently awarded to eligible officers based on individual allotments approved in accordance with plan regulations. During each administrative phase and until the shares are actually acquired by officers, cash dividends declared in respect of these shares are received by Fundación BMA and stock dividends by the participants.

According to the long-term nature of the plan, officers must be active employees of the Bank in order for shares to be awarded to them. At June 30, 2016 and December 31, 2015, the plan has no current phases. Plan restructuring is currently being analyzed for continuity purposes.

In March 2015, the Board of Directors’ Compensation Committee approved the Special Plan of Extraordinary Stock Recognition for MERCANTIL Employees to grant employees in Venezuela up to a maximum of 90 MERCANTIL shares. Fundación BMA will manage the plan. Sale of shares transferred to employees will be partially restricted for four years and employees may annually dispose of 25%. The transfer of shares ended in November 2015. Total shares of Fundación BMA to be allocated to this Plan is estimated at 318,677 Class “A” common shares and 237,013 Class “B” common shares.

At June 30, 2016, all program shares are available and deposited in the trust fund with Mercantil Seguros, C.A. that Fundación BMA set up for such purpose. A breakdown of these shares is shown below:

Number of shares Class “A” Class “B” Total

Trust fund 1,408,000 1,055,249 2,463,249

39 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

19. General and administrative expenses

General and administrative expenses comprise the following:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Maintenance of property and equipment 2,410,611,503 1,906,095,992 Services and supplies 1,368,006,020 588,018,398 Transportation and surveillance 1,337,924,662 797,177,559 Taxes, fines and contributions (Note 17) 1,293,060,676 690,707,057 Sundry general expenses 1,246,629,372 492,223,718 Software licenses and maintenance 768,887,574 924,898,390 Outsourcing, fees and other 680,022,833 524,630,296 Amortization of deferred expenses (Note 10) 522,243,294 238,733,018 Transportation and communications 443,828,463 242,532,387 Depreciation of property and equipment (Note 9) 363,001,237 257,307,476 Leases 236,107,975 135,784,738 Advertising 149,479,714 221,631,965 Insurance for property and equipment 57,527,055 19,547,877 Amortization of goodwill (Note 10) 31,430,480 22,047,174 Legal 9,403,165 5,102,487 Other 11,974,256 6,643,936 10,930,138,279 7,073,082,468

20. Other operating income

Other operating income comprises the following:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Service commissions (Note 26) 8,589,914,664 6,742,397,738 Gain on sale of investment securities (Notes 4) 1,179,546,708 678,848,571 Trust fund commissions 137,955,003 118,381,536 Exchange gain (Note 24) 10,065,301 21,055,961 Income from equity in subsidiaries and affiliates (Note 7) - 3,212,300 Discount amortization obtained from investment securities - 658,739 9,917,481,676 7,564,554,845

21. Other operating expenses

Other operating expenses comprise the following:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Service commissions 3,747,140,015 2,740,349,926 Loss on sale of investment securities (Notes 4) 667,232,981 344,856,220 Loss from equity in subsidiaries and affiliates (Note 7) 57,013,388 65,593,186 Amortization of premium on investment securities (Note 4) 17,178,849 17,875,984 Exchange loss (Note 24) 7,953,902 5,682,583 4,496,519,135 3,174,357,899

40 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

22. Extraordinary expenses

Extraordinary expenses comprise the following:

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Donations made by the Bank (Note 28) 76,234,780 40,000,000 Loss from claims 32,456,368 14,269,538 Loss from theft and fraud 8,391,585 4,557,178 Other 3,414,276 2,872,466 120,497,009 61,699,182

23. Equity

a) Capital stock At June 30, 2016 and December 31, 2015, the Bank’s paid-in capital amounts to Bs 268,060,233 and is represented by 146,198,516 Class “A” common shares and 121,861,717 Class “B” common shares with limited voting rights, all with a par value of Bs 1. At June 30, 2016 and December 31, 2015, Mercantil Servicios Financieros, C.A. has 146,093,038 Class “A” common shares and 121,802,877 Class “B” common shares, representing 99.94% of the Bank’s capital stock.

At June 30, 2016 and December 31, 2015, the Bank complies with minimum paid-in capital requirements for universal banks of Bs 170,000,000.

At December 31, 2015, the Bank resolved to increase its capital stock by Bs 2,890,184,709, of which Bs 24,354,805 is for the payment of the par value of the new Class “A” and Class “B” common shares, and Bs 2,865,829,904 is for the premium of the aforementioned shares. This balance is recorded under contributions pending capitalization until approval from the regulatory entity has been obtained.

Subsequent events During July 2016, SUDEBAN authorized the Bank to increase capital stock by Bs 24,354,805, through the issue of 24,354,805 new common shares, with a par value of Bs 1.00 each, divided into 13,281,513 new Class “A” common shares and 11,073,292 new Class “B” common shares, to increase its capital stock from Bs 268,060,233 to Bs 292,415,038. At June 30, 2016, the capital increase amount was shown within contributions pending capitalization.

b) Retained earnings and dividends on shares SUDEBAN establishes a requirement to set aside an equity reserve of 50% of income for each period to restricted surplus, exclusively for capital increase purposes. In February 2015, the concepts for which SUDEBAN could authorize the use of this reserve were expanded to include covering deficit or equity losses, creating provisions, offsetting deferred expenses, as well as costs and goodwill generated by mergers. During the six-month period ended June 30, 2016, the Bank reclassified to restricted surplus Bs 4,138,000,000 (Bs 3,057,816,000 during the six-month period ended December 31, 2015), equivalent to 50% of net income at that date.

At June 30, 2016, restricted surplus of Bs 23,023,338,000 (Bs 19,066,818,000 at December 31, 2015) includes Bs 52,500,000, in respect of income from subsidiaries and affiliates (Bs 234,275,000 at December 31, 2015), which will only be available when these subsidiaries and affiliates declare and distribute the related dividends or the investment is sold. During the six-month period ended June 30, 2016, the Bank recorded losses of Bs 57,013,000 in this connection (losses of Bs 62,381,000 at December 31, 2015).

41 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

c) Capital reserve Appropriation to legal reserve In accordance with its bylaws and the Law on Banking Sector Institutions, the Bank records biannually an appropriation to the legal reserve equivalent to 20% of net income for the six-month period until the reserve reaches 50% of its capital stock. When the legal reserve has reached this amount, the Bank’s appropriation to the legal reserve will be 10% of net income for each six-month period until the reserve reaches 100% of its capital stock.

Appropriation to other mandatory reserves SUDEBAN establishes a requirement for banks to set aside 0.5% of their capital stock biannually to the Social Contingency Fund, with a charge to unappropriated surplus, until the reserve reaches 10% of such capital (Note 4 and 35).

d) Risk-based capital ratio Ratios required and maintained by the Bank, calculated based on its published financial statements in accordance with SUDEBAN rules are shown below:

June 30, December 31, 2016 2015 Maintained Maintained Required % % %

Equity to risk-weighted assets and contingent operations 14.23 12.69 12.00 Equity to total assets 11.89 9.96 9.00

In September 2013, SUDEBAN established that banking institutions should adapt the capital to risk asset ratio of 10% at December 31, 2014. In October 2014, SUDEBAN deferred compliance with this percentage, keeping it at 9%. During the year ended December 31, 2015, SUDEBAN granted an exception in the calculation of this ratio, allowing the exclusion from assets of the entire balance maintained at each month closing as legal reserve with the BCV. In April 2016, SUDEBAN granted a new exception in the calculation of the aforementioned ratio, which consists in excluding from total assets deposits and cash and due from banks of the Bank maintained with the BCV, as well as bonds and debt securities issued by the BCV and Petróleos de Venezuela, S.A. and including in equity the amounts for general allowance and countercyclical allowance for loan portfolio and microcredits. Likewise, SUDEBAN allowed to include these allowances in primary equity (Level I) for calculation of the capital to risk-weighted asset and contingent operation ratio.

24. Financial assets and liabilities in foreign currency

a) Exchange control regime Since February 2003, the Venezuelan government established an exchange control regime managed by the Commission for the Administration of Foreign Currency (CADIVI), currently National Foreign Trade Center (CENCOEX).

In March 2013, the Venezuelan government established the Supplementary Foreign Currency Administration System (SICAD), a foreign currency auction system through which individuals and companies may offer and purchase foreign currency when convened by the BCV, taking into consideration the nation’s objectives and economic needs.

42 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

In March 2014, the Venezuelan government created the Alternative Currency Exchange System (SICAD II), a system in which individuals and private companies may trade foreign currency in cash, as well as securities denominated in foreign currency issued by the Bolivarian Republic of Venezuela, its decentralized agencies or any other issuer, whether public or private, foreign or local, quoted on the international markets.

SICAD II was eliminated in February 2015. A new exchange system, called the Marginal Foreign Exchange System (SIMADI), was established in which universal banks and exchange offices may trade foreign currency in cash. In addition, universal banks and exchange offices, through the Bicentennial Public Stock Exchange, may negotiate in local currency securities denominated in foreign currency issued by the Bolivarian Republic of Venezuela, its decentralized agencies or any other issuer, whether public or private, foreign or local, quoted on the international markets. Purchase and sale exchange rates of foreign currency on this market will be freely agreed upon by the parties.

As from March 2015, only public banks are authorized to process before CENCOEX foreign currency requests for travelling abroad and e-commerce purchases.

In March 2016, it was resolved that SIMADI would continue to operate until it is substituted by a new system to process transactions at the DICOM exchange rate.

b) Applicable exchange rates The prevailing exchange rate since February 2013 until March 2016 was Bs 6.2842/US$1 (purchase) and Bs 6.30/US$1 (sale) for all transactions, except for purchases of currency for travelling abroad, remittances to relatives residing abroad and insurance sector operations, among others, that were calculated at the exchange rate resulting from the most recent SICAD auction.

At December 31, 2015, the exchange rate resulting from the last SICAD auction was Bs 13.50/US$1.

A new protected exchange rate (DIPRO) for the food, health, sports, culture and academic sectors, among others, and a supplementary floating exchange rate (DICOM) for other areas of the economy, were established in March 2016.

In April 2016, the BCV established that as from the March 2016 closing, the financial statements and the recording of foreign currency assets and liabilities of entities belonging to the banking, insurance and securities sectors will be measured at the DIPRO exchange rate of Bs 9.9750/US$1 (purchase) and Bs 10/US$1 (sale).

At June 30, 2016, the daily variable average exchange rate based on supply and demand in SIMADI was Bs 626.7725/US$1 (Bs 198.2018/US$1 at December 31, 2015).

c) Exchange differences During the six-month period ended June 30, 2016, as a result of applying the exchange rates of Bs 6.2842/US$1, Bs 9.9750/US$1 and Bs 10.000/US$1 to Interest Covered Bonds, the Bank recorded income of Bs 811,167,606, which was recorded under equity adjustments as per SUDEBAN instructions. In August 2016, SUDEBAN authorized recording of said income in the results for the period.

43 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

d) Net global position in foreign currency The Bank’s balance sheet includes the following balances of financial assets and liabilities in foreign currency, denominated mainly in U.S. dollars, stated at the exchange rates described in Note 2:

June 30, 2016 December 31, 2015 Branch Branch and Transaction Equivalent and Transaction Equivalent agency in in thousands agency in in thousands abroad Venezuela Total of bolivars abroad Venezuela Total of bolivars (Thousands of U.S. dollars)

Assets Cash and due from banks 9,002 31,678 40,680 405,783 8,606 74,520 83,126 522,380 Investment securities 7,384 21,994 29,378 293,046 7,312 5,275 12,587 79,099 Loan portfolio 5,328 20,894 26,222 261,564 5,603 1,512 7,115 44,712 Interest and commissions receivable 37 621 658 6,564 58 98 156 980 Investments in subsidiaries and 164 164 1,031 affiliates - 165 165 1,646 - - - - Other assets 92 15,247 15,339 153,007 13 15,121 15,134 95,105 Total assets 21,843 90,599 112,442 1,121,610 21,592 96,690 118,282 743,307

Liabilities Customer deposits 2,107 - 2,107 21,017 2,403 - 2,403 15,101 Borrowings 4,000 - 4,000 39,900 4,000 - 4,000 25,137 Interest and commissions payable 7 - 7 70 8 - 8 50 Accruals and other liabilities 247 6,338 6,585 65,684 183 6,473 6,656 41,828 Total liabilities 6,361 6,338 12,699 126,671 6,594 6,473 13,067 82,116

The estimated effect of every Bs 1/US$1 increase in the exchange rate of Bs 9.975/US$1 at June 30, 2016 would be an increase in assets and equity of Bs 112,442,000 and Bs 99,743,000, respectively (an increase in assets and equity of Bs 118,282,000 and Bs 105,215,000, respectively, at December 31, 2015).

Below is a reconciliation of the Bank’s net monetary position in foreign currency:

June 30, December 31, 2016 2015 (Thousands of U.S. dollars)

Assets less liabilities, transaction in Venezuela 84,261 90,217 Foreign currency trade commitments (176) (21) To exclude Sovereign Bonds as per BCV rules (9,735) - Computable portion of capital assigned to the branch and agency abroad, as per the BCV 66,126 63,554 Position determined, computable as per BCV rules 140,476 153,750 Maximum limit established by the BCV (30% of the previous month equity) 1,296,796 1,704,461 Margin in relation to authorized amount 1,156,320 1,550,711

The BCV excludes from the maximum limit that may be maintained by banks in foreign currency (30% of equity of the previous month) a portion of capital and income of the agency and branch abroad for US$62,284,000, Sovereign Bonds 2019 and 2024 for US$9,735,000, and securities issued by the Bolivarian Republic of Venezuela, with a reference value in foreign currency and payable in bolivars (TICC) for Bs 7,412,000 (Bs 4,641,000 at December 31, 2015).

During the six-month period ended June 30, 2016, the net exchange gain from revaluation of the foreign currency position amounted to Bs 2,111,000 (Bs 15,373,000 during the six-month period ended December 31, 2015) (Notes 20 and 21).

44 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

25. Memorandum accounts

Memorandum accounts comprise the following:

June 30, December 31, 2016 2015 (In bolivars)

Contingent debtor accounts Guarantees granted (Notes 26 and 30) 791,302,149 584,120,381 Tourism loan commitments (Note 30) 533,558,611 764,822,539 Letters of credit (Notes 26 and 30) 366,990,812 146,012,890 Investment securities under repurchase agreement (Notes 4 and 30) 264,409,000 - Other contingencies (Notes 26 and 30) 1,174,304,444 1,078,516,035 3,130,565,016 2,573,471,845

Assets received in trust 33,850,440,792 28,110,445,227

Other special trust services 7,351,903 7,706,986

Other debtor memorandum accounts Guarantees received 496,174,730,599 367,590,960,680 Unused lines of credit (Notes 26 and 30) 48,286,962,476 47,462,490,766 Valuables received in custody (1) 20,847,092,878 17,589,550,844 Collections 204,230,387 270,449,529 Other control accounts Guarantees pending release 163,441,068,078 166,010,394,913 Returned checks 217,146,077,587 141,436,880,923 Rights for spot purchases of securities 6,207,654,885 6,111,191,094 Uncollectible accounts written off 2,512,847,929 1,945,838,175 Unconfirmed letters of credit (Note 5) 1,608,491,858 1,004,865,617 Interest receivable 658,223,592 451,115,102 Foreign currency purchase commitments 4,008,771 3,735,998 Credit card loans granted (CENCOEX) 42,278,728 42,117,997 Real property written off (Note 9) 27,370,228 27,779,726 Foreign currency sale commitments (72,421,840) (2,733,512) Other 10,995,446,158 9,394,157,412 402,571,045,974 326,425,343,445 968,084,062,314 759,338,795,264

Other debtor control accounts 7,278,699 7,704,280

(1) Valuables received in custody of the following institutions: BCV, Caja Venezolana de Valores, Mercantil, C.A. Banco Universal, Clearstream Banking, S.A. and UBS International Bank.

45 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

a) Assets received in trust Trust fund accounts include the following balances according to the trust’s combined financial statements:

June 30, December 31, 2016 2015 (In bolivars)

Assets Cash and due from banks 1,408,120,109 1,129,043,663 Investments securities 15,808,001,812 13,056,208,709 Loan portfolio 16,389,681,556 13,679,767,315 Interest and commissions receivable 190,400,684 156,608,749 Assets received for administration 7,234,457 7,234,457 Other assets 47,002,174 81,582,334 Total assets 33,850,440,792 28,110,445,227

Liabilities and Equity Liabilities Fees and other accounts payable 117,001,169 121,769,668 Other liabilities 163,858 453,750 Total liabilities 117,165,027 122,223,418 Equity 33,733,275,765 27,988,221,809 Total liabilities and equity 33,850,440,792 28,110,445,227

Trust fund equity is classified as follows:

June 30, December 31, 2016 2015 (In bolivars)

Trust fund Length-of-service benefits 28,436,405,050 23,127,068,867 Administration 1,864,572,987 1,597,318,511 Investment 1,772,156,780 1,337,226,290 Guarantee and custody 995,468,925 951,193,335 Savings fund 664,672,023 975,414,806 33,733,275,765 27,988,221,809

Trust fund Private sector 23,202,980,570 21,261,846,573 Public sector 10,530,295,195 6,726,375,236 33,733,275,765 27,988,221,809

Investments in debt securities in bolivars and foreign currency are recorded at cost, which should be consistent with market value at the time of purchase. Discounts or premiums are amortized over the term of the securities as a credit or debit to interest income, resulting in a lower or greater effective yield on investments. Debt securities in foreign currency are adjusted to the prevailing official exchange rate. Investments in equity securities, in bolivars and foreign currency, are recorded at cost. In accordance with certain trust agreements, investments in debt or equity securities included in these trusts are maintained at amortized cost and adjusted at the prevailing official exchange rate.

At June 30, 2016 and December 31, 2015, trust funds do not exceed five times the Bank’s equity, in accordance with SUDEBAN Resolution No. 083-12 dated May 31, 2012.

At June 30, 2016, trust funds contributed by government entities represent 31%, and those by the private sector 69% (24% and 76% at December 31, 2015).

46 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Investment securities included in trust fund accounts comprise the following:

June 30, 2016 December 31, 2015 Book Fair Book Fair value value value value (In bolivars)

1) Securities issued or guaranteed by the Venezuelan government National Public Debt Bonds, with annual yield at between 9.84% and 18.00%, maturing between November 2016 and June 2032, and a par value of Bs 9,023,193,768 (yield at between 9.88% and 18%, maturing between June 2016 and February 2030, and a par value of Bs 7,842,407,591 at December 31, 2015) 10,002,653,284 11,130,681,322 (1) (a) 8,699,198,341 9,909,047,005 (1) (a) Principal and Interest Covered Bonds (TICC), with annual interest at between 5.25% and 6.25%, maturing between April 2017 and March 2019, and a par value of US$113,696,138, payable in bolivars at the official exchange rate 1,129,054,493 1,135,260,279 (1) (a) 706,144,483 713,420,265 (1) (a) Treasury Notes in foreign currency, with annual interest at between 7% and 7.65%, maturing between December 2018 and April 2025, and a par value of US$27,000 269,325 127,573 (1) (d) 169,673 73,738 (1) (d) 11,131,977,102 12,266,069,174 9,405,512,497 10,622,541,008 2) Debt securities issued by public and private-sector agencies Debt securities issued and guaranteed by government agencies of the United States of America, maturing in September 2016 and a par value of US$5,015,500 (maturing between March and October 2016 at December 31, 2015) 50,006,722 50,001,496 (2) (d) 30,514,834 30,496,263 (2) (d) Bonds issued by foreign public-sector agencies (governments of Mexico, Colombia and Panama), with annual interest at between 5.13% and 11.75%, maturing between January 2017 and February 2020, and a par value of US$1,584,000 (maturing between May 2016 and February 2020, and a par value of US$3,114,000 at December 31, 2015) 16,133,493 16,322,778 (2) (d) 20,639,793 20,579,118 (2) (d) Bonds issued by Petróleos Mexicanos (PEMEX), with 5.75% annual interest, maturing in March 2018 and a par value of US$1,050,000 11,017,305 10,978,899 (2) (d) - - 77,157,520 77,303,173 51,154,627 51,075,381 3) Debt securities issued by Venezuelan private-sector companies Envases Venezolanos, S.A., with annual yield at between 15.76% and 17%, maturing between December 2017 and February 2019, and a par value of Bs 100,000,000 (15.47% annual yield, maturing in December 2017 and a par value of Bs 20,000 at December 31, 2015) 100,000,000 110,474,881 (1) (e, f) 20,000,000 20,199,940 (1) (f) Toyota Services de Venezuela, C.A., with annual yield at between 13.75% and 14.50%, maturing between August 2016 and July 2020, and a par value of Bs 61,050,000 (annual yield at between 13.74% and 14.50% at December 31, 2015) 61,050,000 65,118,565 (1) (e) 61,050,000 60,680,920 (1) (e) 161,050,000 175,593,446 81,050,000 80,880,860 4) Investments issued by Venezuelan non-financial public-sector companies Inversiones La Previsora, C.A., 22,150 common shares, with a par value of Bs 0.40 each 8,922 8,882 (3) (l) 8,922 8,882 (3) (l) Siderúrgica Venezolana, S.A. (SIVENSA), 1,658 common shares, with a par value of Bs 2 each 3,316 431,080 (4) (l) 3,316 414,500 (4) (l) Compañía Anónima Nacional Teléfonos de Venezuela (CANTV), 7 common shares, with a par value of between Bs 7.78 and Bs 8.34 57 1,190 (4) (l) 57 1,050 (4) (l) 12,295 441,152 12,295 424,432 5) Investments issued by Venezuelan non-financial private-sector companies H.L. Boulton & Co., S.A., 637 common shares, with a par value of Bs 10 each 6,370 56,693 (4) (l) 6,370 56,693 (4) (l) 6) Investments in Venezuelan banks and other financial institutions Certificates of deposit Banesco, C.A. Banco Universal, with annual interest at between 10% and 11%, maturing in July 2016, and a par value of Bs 2,529,812,668 (annual interest at between 12.50% and 13%, maturing in January 2016 and a par value of Bs 1,255,562,034 at December 31, 2015) 2,529,812,668 2,529,812,668 (3) (c) 1,255,562,034 1,255,562,034 (3) (c) BBVA Banco Provincial, S.A. Banco Universal, with annual interest at between 9.50% and 10%, maturing in July 2016 and a par value of Bs 985,678,117 (with 12.50% annual interest, maturing in January 2016 and a par value of Bs 1,402,033,131 at December 31, 2015) 985,678,117 985,678,117 (3) (f) 1,402,033,131 1,402,033,131 (3) (f) Banco del Caribe, C.A. Banco Universal, with annual interest at between 10.5% and 11%, maturing in July 2016, and a par value of Bs 467,601,688 (13% annual interest, maturing in January 2016, and a par value of Bs 471,903,048 at December 31, 2015) 467,601,688 467,601,688 (3) (g) 471,903,048 471,903,048 (3) (g) Banco Exterior, C.A. Banco Universal, with 10.50% annual interest, maturing in July 2016, and a par value of Bs 285,599,482 (annual interest at between 9% and 10%, maturing in January 2016, and a par value of Bs 281,599,922 at December 31, 2015) 285,599,482 285,599,482 (3) (h) 281,599,922 281,599,922 (3) (h) 100% Banco, Banco Comercial, C.A., with 11% annual interest, maturing in July 2016, and a par value of Bs 52,004,893 52,004,893 52,004,893 (3) (i) - - Banco Plaza C.A., with 9.50% annual interest, maturing in July 2016, and a par value of Bs 51,614,885 51,614,885 51,614,885 (3) (j) - - Bancrecer, S.A. Banco Microfinanciero, with 11.25% annual interest, maturing in July 2016, and a par value of Bs 21,093,696 21,093,696 21,093,696 (3) (k) - - Shares in Venezuelan banks Banco Venezolano de Crédito, C.A. Banco Universal, 96 common shares, with a par value of between Bs 100 and Bs 2,365 54,900 316,800 (5) (l) 54,900 316,800 (5) (l) Banco de Venezuela, S.A., Banco Universal, 378 common shares, with a par value of Bs 0.1 each 38 37,800 (1) (e) 38 37,800 (4) (e) 4,393,460,367 4,393,760,029 3,411,153,073 3,411,452,735

47 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

June 30, 2016 December 31, 2015 Book Fair Book Fair value value value value (In bolivars)

7) Investments in foreign banks and other financial institutions Certificates of deposit Black Rock Merrill Lynch Investment Managers, maturing in June 2016, with a par value of US$4,444,928 (maturing in January 2016, with a par value of US$4,458,821 at December 31, 2015) 44,338,158 44,338,158 (3) (b) 28,020,123 28,020,123 (3) (b) 8) Other investments Commercial paper issued by Venezuelan non-financial private-sector companies Provencesa, S.A., maturing between January and March 2016, with a par value of Bs 80,000,000 - - 79,299,724 78,863,100 (3) (e, f) 15,808,001,812 16,957,561,825 13,056,208,709 14,273,314,332

(1) Based on the present value of estimated future cash flows. (2) Market value based on confirmation from custodian. (3) Shown at par value. (4) Market value based on prices listed on the Caracas Stock Exchange. (5) Delisted from the Caracas Stock Exchange; last quoted price used.

Custodians of investment securities (a) Central Bank of Venezuela (b) Merrill Lynch, Pierce, Fenner & Smith (c) Banesco, C.A. Banco Universal (d) Clearstream Banking S.A. (e) Caja Venezolana de Valores, S.A. (f) BBVA, Banco Provincial (g) Banco del Caribe, C.A. Banco Universal (h) Banco Exterior, C.A. Banco Universal (i) 100% Banco, Banco Comercial, C.A. (j) Banco Plaza, C.A. (k) Bancrecer, S.A. Banco Microfinanciero (l) Other custodians

At June 30, 2016, the market value of some securities issued by the Bolivarian Republic of Venezuela is lower than amortized cost by Bs 72,655,000 (Bs 32,309,590 at December 31, 2015). The trust fund considers that these losses are temporary since they relate to normal fluctuations of investments in the stock markets. Management expects that these securities will not be realized at a price lower than the book value. In addition, the trust fund has the ability to hold these securities for a sufficient period of time to recover unrealized losses.

Below is a classification of investment securities according to maturity:

June 30, 2016 December 31, 2015 Book Fair Book Fair value value value value (In bolivars)

Up to six months 4,539,214,929 4,540,985,403 3,560,467,356 3,561,770,576 Six months to one year 1,105,842,074 1,117,164,876 75,189,033 79,594,991 One to five years 3,161,550,304 3,727,975,325 3,031,686,781 3,500,173,957 Over five years 7,001,320,902 7,570,583,775 6,388,791,936 7,130,939,082 Without maturity 73,603 852,446 73,603 835,726 15,808,001,812 16,957,561,825 13,056,208,709 14,273,314,332

Investment securities are classified as follows:

June 30, December 31, 2016 2015 (In bolivars)

Non directed 15,608,301,374 12,922,206,154 Directed 199,700,438 134,002,555 15,808,001,812 13,056,208,709

48 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Trust fund resources are invested as follows:

June 30, 2016 December 31, 2015 Directed Non-directed Directed Non-directed (In bolivars)

Securities issued or guaranteed by the Venezuelan government 106,777,756 11,025,199,345 76,772,815 9,328,739,682 Debt securities issued by foreign public or private- sector companies 48,510,921 28,646,599 29,136,014 22,018,613 Debt securities issued by Venezuelan public-sector companies 12,333 - 12,333 - Investments in Venezuelan private-sector companies and other investments 6,370 161,050,000 6,370 160,349,724 Deposits with other Venezuelan financial institutions 54,900 4,393,405,430 54,900 3,411,098,135 Deposits with other banks 44,338,158 - 28,020,123 - 199,700,438 15,608,301,374 134,002,555 12,922,206,154

The trust fund’s control environment includes policies and procedures to determine investment risks by entity and economic sector. In accordance with trust agreements, risks associated with investment securities of directed trusts are determined by the trustor.

At June 30, 2016, investment securities issued or guaranteed by the Venezuelan government account for 70% of the trust’s investment securities portfolio (72% at December 31, 2015).

The trust fund’s loan portfolio includes the following:

June 30, December 31, 2016 2015 (In bolivars)

Loans to beneficiaries of Length-of-service benefit trust funds 15,855,832,502 13,185,536,243 Mortgage loans 532,833,471 493,215,473 Company loans 970,000 970,000 Loans to government agencies 45,583 45,599 16,389,681,556 13,679,767,315

Loans to beneficiaries of length-of-service benefit trust funds consist of loans granted to employees that are guaranteed by their length-of-service benefits, which are deposited in trust funds. These interest- free loans relate to trust fund plans of public and private-sector companies and have no fixed maturity.

At June 30, 2016, loans to beneficiaries of length-of-service benefit trust funds include Bs 3,362,428,000 and Bs 506,539,000 in respect of loans granted to the Bank and Mercantil Seguros, C.A. employees, respectively (Bs 2,770,512,000 and Bs 407,009,000, respectively, at December 31, 2015).

At June 30, 2016, mortgage loans include Bs 523,266,000 in respect of guaranteed loans granted under the administration trust fund using resources from public entities (Bs 483,361,000 at December 31, 2015). This account also includes Bs 9,568,000 in respect of mortgage loans granted to beneficiaries of the length-of-service trust fund (Bs 9,854,000 at December 31, 2015).

Trust fund resources used to grant loans to companies (loan portfolio) are directed trusts and are recorded and valued as specified by SUDEBAN.

49 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

b) Financial instruments with off-balance sheet risks Transactions with derivative instruments The Bank enters into futures hedges for the purchase and sale of securities at a fixed price based on interest rates. Gains and losses resulting from these contracts for the six-month period ended June 30, 2016 amounted to Bs 160,590,000 and Bs 12,771,000, respectively (Bs 24,071,000 and Bs 87,327,000, respectively, during the six-month period ended December 31, 2015), shown in the income statement under other interest income and other liabilities from financial intermediation, respectively.

The risk to which the Bank is exposed relates to noncompliance by counterparties with the terms laid down in the contracts, as well as variations in the price of securities and interest rates. The Bank’s control environment includes policies and procedures for rating exchange and interest rate risks and monitoring derivative financial instruments, as well as assessing credit risks related to other parties.

c) Debtor accounts from other special trust services (Venezuelan Housing Law) The Venezuelan Housing Policy Law appointed Banco Nacional de la Vivienda y Hábitat (BANAVIH) as the sole administrator of public and private funds to finance housing. Therefore, the financial institutions regulated by the General Law of Banks and Other Financial Institutions shall only act as financial operators that is, they shall collect contributions made to the Mandatory Housing Savings Fund and pay them to the sole administrator, and grant loans after the required financial resources have been approved.

Assets, liabilities and results associated with resources from the Mandatory Housing Savings Fund are recorded under memorandum accounts.

During the six-month period ended June 30, 2016, the Bank recorded income from financial transactions of Bs 13,216,000. Shown under income from other accounts receivable (Bs 14,015,000 during the six-month period ended December 31, 2015).

d) Other control accounts Other control accounts are mainly in respect of returned checks and guarantees pending release. At June 30, 2016, these accounts also include US$4,970,001 equivalent to Bs 42,279,000 (US$5,401,000, equivalent to Bs 42,118,000, at December 31, 2015) in respect of the balance receivable from CADIVI for payments in foreign currency made by the Bank on behalf of the customers for credit card use abroad.

26. Credit-related commitments

The Bank has significant outstanding commitments related to letters of credit, guarantees granted, lines of credit and credit card limits to meet the needs of its customers and to manage its own risk resulting from interest rate variations. Since many of its credit limits may expire without being used, aggregate liabilities do not necessarily represent future cash requirements, Commitments to extend credit, letters of credit and guarantees granted by the Bank are recorded under memorandum accounts.

Guarantees granted After conducting a credit risk analysis, the Bank provides guarantees to certain customers within their line of credit. These guarantees are issued to a beneficiary and may be executed if the customer fails to comply with the terms of the agreement. These guarantees mature after more than one year and earn annual commissions between 0.50% and 5% of their value. Commissions are recorded monthly while the guarantees are in force.

Letters of credit Letters of credit usually mature within 90 days and are renewable. They are generally issued to finance a trade agreement for the shipment of goods from a seller to a buyer. The Bank charges a fee of 0.50% of the amount of the letter of credit and records the latter under assets once it is used by the customer. Unused letters of credit and other similar liabilities are included under memorandum accounts.

50 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The Bank has trademark license agreements for the use of Visa, MasterCard and Diners Club International credit cards. Visa and MasterCard agreements require the Bank to deposit collateral in foreign financial institutions. In addition, at June 30, 2016, stand-by letters of credit were pledged for MasterCard International and Visa International transactions amounting to US$7,300,000 and US$5,085,000, respectively (US$7,300,000 and US$5,075,000 at December, 31, 2015) recorded under other control accounts (Note 25).

Lines of credit granted The Bank grants lines of credit to customers subject to prior credit risk assessment and obtention of any guarantees required by the Bank. These agreements are for a specific period, provided that the clients do not fail to comply with the terms set forth therein. However, the Bank may exercise its option to cancel a credit commitment with a particular customer at any time.

Credit cards are issued for three years and are renewable. However, the Bank reserves the right to cancel a credit commitment with a particular customer at any time. The nominal credit card interest rate is variable and for the six-month periods ended June 30, 2016 and December 31, 2015 was 29% per annum (Note 1).

The Bank’s exposure to credit loss in the event of noncompliance by customers with terms for credit extension, letters of credit and guarantees is represented by the notional contractual amounts of these credit-related instruments. Credit policies applied by the Bank for credit commitment obligations are the same as for granting loans.

The Bank evaluates customer eligibility before granting credit. The amount of collateral provided, if required by the Bank, is based on customer credit assessment. The type of collateral varies, but may include accounts receivable, inventories, property and equipment, and investment securities.

At June 30, 2016 and December 31, 2015, in accordance with the Accounting Manual, the Bank has set aside general and specific provisions for contingent debtor accounts amounting to Bs 10,747,000 (Note 16).

27. Balances and transactions with related companies

In the ordinary course of business, the Bank conducts commercial transactions with its shareholder, subsidiaries, affiliates and related companies, the effects of which are included in the financial statements. Certain transactions may have taken place on terms other than those that would characterize transactions between unrelated companies.

51 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Below is a breakdown of the Bank’s balances and transactions with related companies:

a) Balance sheet

June 30, December 31, 2016 2015 (In bolivars)

Assets Cash and due from banks 170,952,114 373,477,798 Mercantil Commercebank, N.A. 170,359,540 373,105,304 Mercantil Bank (Panama), S.A. 398,733 251,200 Mercantil Bank (Schweiz), A.G. 193,841 121,294 Investment securities 125,538,806 33,149,664 Short-term deposits (Note 4) Mercantil Commercebank, N.A. 125,538,806 33,149,664

Investments in subsidiaries and affiliates (Note 7) 4,183,559,546 1,391,881,241 Inversiones Platco, C.A. 3,982,727,839 1,193,571,336 Inversiones y Valores Mercantil V, C.A. 199,888,229 195,394,762 Proyecto Conexus, C.A. 943,478 2,915,143 Other assets 117,608,024 130,526,294 Fideicomiso Mercantil, C.A. Banco Universal 116,520,524 121,323,822 Inversiones Platco, C.A. - 9,080,597 Mercantil Financiadora de Primas 1,087,500 121,875 Total assets 4,597,658,490 1,929,034,997

52 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

June 30, December 31, 2016 2015 (In bolivars)

Liabilities Deposits 13,211,032,784 4,466,490,562 Checking accounts 3,834,947,690 3,551,290,453 Non-interest-bearing checking accounts 2,594,880,862 2,528,118,202 Servicio Panamericano de Protección, C.A. 875,049,159 325,448,246 Inversiones Platco, C.A. 556,378,794 544,201,133 Mercantil Seguros, C.A. 373,782,080 316,273,063 Mercantil Financiadora de Primas, C.A. 325,566,485 101,187,018 Cestaticket Accor Services, C.A. 219,516,858 590,079,668 Mercantil Servicios Financieros, C.A. 136,948,991 446,831,256 Fundación BMA 33,866,561 61,989,943 Mercantil Merinvest Casa de Bolsa, C.A. 27,457,601 15,648,813 Fundación Mercantil 13,548,194 7,761 Mercantil Inversiones y Valores, C.A. 12,349,235 21,612,029 Mercantil Servicios de Inversión, C.A. 5,611,524 7,488,544 Inversiones y Valores Mercantil VI, C.A. 5,462,527 84,174,337 Mercantil Sociedad Administradora de Entidades de Inversión Colectiva, C.A. 3,545,376 422,735 Servibien, C.A. 1,661,561 353,859 Mercantil Arte y Cultura, C.A. 1,577,630 4,275,487 Mercantil Merinvest, C.A. 1,537,982 6,474,183 Inversiones y Valores Mercantil V, C.A. 593,706 1,223,494 Innovex, C.A. 426,598 426,633 Interest-bearing checking accounts 1,240,066,828 1,023,172,251 Fideicomiso Mercantil, C.A. Banco Universal 1,240,066,828 1,023,172,251 Savings accounts 91,797,859 35,066,817 Fundación Mercantil 90,538,397 12,973,918 Fundación BMA 1,205,387 1,135,474 Mercantil Merinvest Casa de Bolsa, C.A. 54,075 20,957,425 Time deposits 9,284,287,235 880,133,292 Mercantil Servicios Financieros, C.A. 6,407,000,000 - Cestaticket Accor Services, C.A. 2,320,000,000 620,000,000 Mercantil Seguros, C.A. 202,187,235 109,083,292 Mercantil Merinvest, C.A. 166,700,000 55,000,000 Mercantil Planes Administrados, C.A. 85,000,000 28,000,000 Inversiones y Valores Mercantil V, C.A. 58,400,000 48,050,000 Mercantil Inversiones y Valores, C.A. 22,000,000 - Inversiones y Valores Mercantil VI, C.A. 14,000,000 - Mercantil Servicios de Inversión, C.A. 9,000,000 - Fundación Mercantil - 20,000,000 Borrowings 39,900,000 25,136,800 Mercantil Bank Curacao, N.V. 39,900,000 25,136,800 Other liabilities 210,559,128 2,062,249 Inversiones Platco, C.A. (Notes 7 and 16) 208,514,538 - Fundación Mercantil 832,648 1,095,889 Mercantil Merinvest Casa de Bolsa, C.A. 514,583 538,194 Fundación BMA 256,350 51,245 Inversiones y Valores Mercantil V, C.A. 190,238 333,281 Mercantil Inversiones y Valores, C.A. 139,500 - Mercantil Bank Curacao, N.V. 69,271 43,640 Mercantil Seguros, C.A. 42,000 - Total liabilities 13,461,491,912 4,493,689,611

53 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

b) Income statement

Six-month periods ended June 30, December 31, 2016 2015 (In bolivars)

Interest income 1,510,096 2,181,235 Income from cash and due from banks 198,391 295,975 Mercantil Commercebank, N.A. 198,391 295,975 Other interest income 1,311,705 1,885,260 Mercantil Commercebank, N.A. 1,311,705 1,885,260 Interest expense 114,623,585 24,946,155 Mercantil Servicios Financieros, C.A. 101,732,129 10,489,793 Inversiones y Valores Mercantil V, C.A. 2,850,057 2,559,431 Mercantil Planes Administrados, C.A. 2,575,250 761,854 Mercantil Merinvest Casa de Bolsa, C.A. 2,562,623 2,769,704 Fundación Mercantil 2,330,967 5,028,316 Inversiones y Valores Mercantil VI, C.A. 1,674,271 2,659,463 Mercantil Inversiones y Valores, C.A. 526,913 101,842 Fundación BMA 287,838 150,575 Mercantil Arte y Cultura, C.A. 82,501 425,177 Servibien, C.A. 1,036 - Operating income 246,108,237 185,170,390 Fideicomiso Mercantil, C.A. Banco Universal 137,955,003 118,381,536 Mercantil Financiadora de Primas, C.A. 101,779,376 63,501,577 Mercantil Servicios Financieros, C.A. 6,327,930 2,833 Inversiones y Valores Mercantil V, C.A. 33,874 2,857,221 Mercantil Inversiones y Valores, C.A. 5,644 2,111 Fundación Mercantil 2,950 - Mercantil Merinvest Casa de Bolsa, C.A. 1,472 4,363 Mercantil Arte y Cultura, C.A. 998 249 Inversiones Platco, C.A. 575 - Mercantil Planes Administrados, C.A. 226 - Fundación BMA 100 1,627 Servibien, C.A. 89 - Proyecto Conexus, C.A. - 355,079 Mercantil Seguros, C.A. - 63,794 Operating expenses 967,859,096 692,409,416 Inversiones Platco, C.A. 940,137,815 684,944,138 Mercantil Inversiones y Valores, C.A. 19,412,675 846,470 Inversiones y Valores Mercantil V, C.A. 6,566,710 - Mercantil Commercebank, N.A. 834,087 1,851,929 Mercantil Bank Curacao, N.V. 771,284 1,259,256 Proyecto Conexus, C.A. 136,525 - Mercantil Merinvest, C.A. - 3,507,623 Extraordinary expenses 76,235,000 40,000,000 Fundación Mercantil (Note 28) 76,235,000 40,000,000

54 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

c) Trust fund

June 30, December 31, 2016 2015 (In bolivars)

Assets Cash and due from banks Mercantil, C.A. Banco Universal (Note 11) 1,240,066,828 1,023,172,251 Mercantil Commercebank, N.A. 50,945 34,338 Total assets 1,240,117,773 1,023,206,589

Liabilities Fees payable Mercantil, C.A. Banco Universal 116,520,524 121,323,822

d) Transactions The Bank’s significant transactions with related companies are described below:

Cash and due from banks, deposits and other liabilities from financial intermediation are mainly in respect of debit or credit balances of checking accounts at the Bank’s agencies or related banks abroad.

Other assets include interest receivable and other accounts receivable.

Expenses payable to Mercantil Commercebank, N.A. are mainly in respect of data processing, personnel administration and consulting services, and were incurred by the Bank’s offices abroad.

Mercantil Servicios de Inversión, C.A. (MSI), subsidiary of MERCANTIL, is authorized by the Venezuelan Securities Superintendency (SNV) to provide investment services and manage investment portfolios. The Bank has engaged MSI as a specialist to optimize yields on investments of trustors. For the provision of this service, the trust fund (principal), grants MSI (agent) special powers for portfolio management and disposal. Trustee responsibility is not delegated as part of the service for which MSI charges an annual commission on the portfolio collections. During the six-month period ended June 30, 2016, the Bank paid MSI Bs 11,188,000 in this connection (Bs 9,064,000 during the six-month period ended December 31, 2015).

At June 30, 2016 and December 31, 2015, fees payable include commissions payable to the Bank as set out in trust fund agreements signed by trustors and the trust fund. This commission is calculated on funds deposited in fiduciary funds and is deducted from each trustor’s individual investment; therefore, it is shown net of interest income. During the six-month period ended June 30, 2016, the Bank recorded income of Bs 137,955,000 and has Bs 116,521,000 receivable in respect of these commissions (Bs 118,382,000 and Bs 121,324,000, respectively, at December 31, 2015).

28. Fundación Mercantil

The Bank and other subsidiaries of MERCANTIL sponsor “Fundación Mercantil” founded in December 1988 to promote educational, cultural, artistic, social, religious and scientific programs, either directly or through donations and contributions to third parties. During the six-month period ended June 30, 2016, the Bank made contributions of Bs 76,235,000 (Bs 40,000,000 during the six-month period ended December 31, 2015), shown under extraordinary expenses (Note 22).

55 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

29. Maturity of financial assets and liabilities

At June 30, 2016 and December 31, 2015, financial assets and liabilities are classified according to maturity as follows:

June 30, 2016 December 31, June 30, December 31, June 30, December 31, June 30, December 31, Beyond 2016 2017 2017 2018 2018 2019 2019 2019 Total (In bolivars)

Assets Cash and due from banks 197,035,187,883 ------197,035,187,883 Investment securities 13,085,270,113 4,059,178,416 597,198,020 577,229,833 75,182,196 582,780,761 87,591,494 61,592,367,659 80,656,798,492 Loan portfolio 123,102,351,079 125,581,630,369 18,086,506,940 23,773,726,707 19,602,497,357 14,934,471,603 7,177,056,345 70,535,771,667 402,794,012,067 Interest and commissions receivable 4,926,206,135 ------4,926,206,135 Total financial assets 338,149,015,210 129,640,808,785 18,683,704,960 24,350,956,540 19,677,679,553 15,517,252,364 7,264,647,839 132,128,139,326 685,412,204,577

Liabilities Deposits 631,138,609,693 191,322,734 174,937 - - - - - 631,330,107,364 Liabilities with BANAVIH 795,849 ------795,849 Borrowings 205,276,764 ------205,276,764 Other liabilities from financial intermediation 1,433,278 ------1,433,278 Interest and commissions payable 132,669,085 ------132,669,085 Total financial liabilities 631,478,784,669 191,322,734 174,937 - - - - - 631,670,282,340

December 31, 2015 June 30, December 31, June 30, December 31, June 30, December 31, June 30, Beyond 2016 2016 2017 2017 2018 2018 2019 2019 Total (In bolivars)

Assets Cash and due from banks 154,144,272,775 ------154,144,272,775 Investment securities 9,547,433,526 1,199,228,067 2,459,882,598 493,205,099 474,263,193 - 352,178,316 54,721,641,947 69,247,832,746 Loan portfolio 99,579,922,839 96,049,655,121 14,365,300,906 16,056,638,127 13,108,972,880 23,971,119,562 3,723,944,675 50,503,689,684 317,359,243,794 Interest and commissions receivable 4,028,665,681 ------4,028,665,681 Total financial assets 267,300,294,821 97,248,883,188 16,825,183,504 16,549,843,226 13,583,236,073 23,971,119,562 4,076,122,991 105,225,331,631 544,780,014,996

Liabilities Deposits 496,975,240,187 164,068,498 1,703,932 - - - - - 497,141,012,617 Liabilities with BANAVIH 1,311,628 ------1,311,628 Borrowings 69,842,275 ------69,842,275 Other liabilities from financial intermediation 4,136,512 ------4,136,512 Interest and commissions payable 104,786,598 ------104,786,598 Total financial liabilities 497,155,317,200 164,068,498 1,703,932 - - - - - 497,321,089,630

30. Fair value of financial instruments

Below are the book and fair values of financial instruments maintained by the Bank:

June 30, 2016 December 31, 2015 Book Fair Book Fair value value value value (In bolivars)

Assets Cash and due from banks 197,035,187,883 197,035,187,883 154,144,272,775 154,144,272,775 Investment securities 80,656,798,492 80,840,884,166 69,247,832,747 69,418,458,865 Loan portfolio, net of provision 389,921,945,573 389,921,945,573 307,411,935,388 307,411,935,388 Interest and commissions receivable, net of provision 4,845,154,062 4,845,154,062 3,989,981,760 3,989,981,760 672,459,086,010 672,643,171,684 534,794,022,670 534,964,648,788

Liabilities Deposits 631,330,107,364 631,330,107,364 497,141,012,617 497,141,012,617 Deposits and liabilities with BANAVIH 795,849 795,849 1,311,628 1,311,628 Borrowings 205,276,764 205,276,764 69,842,275 69,842,275 Other liabilities from financial intermediation 1,433,278 1,433,278 4,136,512 4,136,512 Interest and commissions payable 132,669,085 132,669,085 104,786,598 104,786,598 631,670,282,340 631,670,282,340 497,321,089,630 497,321,089,630

Memorandum accounts Contingent debtor accounts 3,130,565,016 3,130,565,016 2,573,471,845 2,573,471,845

56 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

In the ordinary course of business, the Bank maintains financial instruments with off-balance sheet risks to meet the financial needs of its customers. The Bank’s main exposure is represented by the following commitments (Note 24):

June 30, December 31, 2016 2015 (In bolivars)

Unused lines of credit 48,286,962,476 47,462,490,766 Other contingencies 1,174,304,444 1,078,516,035 Tourism loan commitments 533,558,611 764,822,539 Guarantees granted 791,302,149 584,120,381 Letters of credit issued but not negotiated (Stand-by) 366,990,812 146,012,890 Investment securities acquired under repurchase agreements 264,409,000 - 51,417,527,492 50,035,962,611

The fair value of a financial instrument is defined as the amount for which the instrument could be exchanged between two knowledgeable, willing parties, other than in a forced transaction, involuntary liquidation or distress sale. Fair values for financial instruments with no available quoted market prices have been estimated using the present value of future cash flows of these financial instruments, based on the official exchange rate, or other valuation techniques and assumptions. These techniques are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows, and the expectation of payments in advance. In addition, fair values presented do not purport to estimate the value of other income-generating activities or future business activities; that is, they do not represent the Bank’s value as a going concern.

Below is a summary of the most significant methods and assumptions used in estimating the fair values of financial instruments:

Short-term financial instruments Financial instruments, including derivatives, are recorded in the balance sheet under assets or liabilities at their respective market value. Short-term financial instruments, both assets and liabilities, are shown in the balance sheet at book value, which does not significantly differ from fair value due to their short- term maturity. These instruments include cash and due from banks, deposits with no fixed maturity and short-term maturity, other liabilities from financial intermediation with short-term maturity, and commissions and interest receivable and payable.

Investment securities The fair value of investment securities was determined using the present value of future cash flows of investment securities, quoted market prices, reference prices determined from trading operations on the secondary market and quoted market prices of financial instruments with similar characteristics. The equivalent in bolivars of the fair value of securities denominated in foreign currency was determined using the official exchange rate of Bs 9.975/US$1.

Loan portfolio Most of the Bank’s loan portfolio earns interest at variable rates that are revised frequently, generally between 30 and 90 days for most of the short-term portfolio. Allowances are made for loans with some risk of recovery. Therefore, in management’s opinion, the net book value of this loan portfolio approximates its fair value.

Deposits and long-term liabilities Deposits and long-term liabilities earn interest at variable rates. Therefore, Bank management considers fair value to be equivalent to book value.

57 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

31. Risk management

The Bank is mainly exposed to credit, market and operational risks. Below is the risk policy used by the Bank for each risk type:

Credit risk Credit risk is the risk that a counterparty will default on its debts at maturity. The Bank monitors credit risk exposure by regularly analyzing the payment capabilities of its borrowers. The Bank structures the level of credit risk by establishing limits for individual or group borrowers. The Bank classifies risk exposure by risk category into direct, contingent and issuer risks.

Market risk Financial institutions encounter market risks when market conditions show adverse changes that affect the liquidity and value of financial instruments included in investment portfolios or contingent positions, including transactions with derivative instruments, and result in a loss for these financial institutions. Market risks mainly comprise two types of risk: price risk (including interest rate, foreign exchange and share price risks) and liquidity risk.

a) Price risk Price risk includes interest rate, foreign exchange and share price risks.

Interest rate risk is represented by changes in market interest rates with a potential impact on the Bank’s financial margin or equity.

To measure interest rate risk, the Bank monitors the variables affecting interest rate movements and financial assets and liabilities. The Bank regularly controls and mitigates existing exposure to risks.

Foreign exchange risk arises from fluctuations in the interest rates of international financial markets and variations in the exchange rates of other currencies with respect to the Venezuelan bolivar. The Bank sets limits on its individual currency and overall foreign exchange exposure, and on maximum and minimum positions.

b) Liquidity risk Liquidity risk is the risk that the Bank may not be able to meet its obligations with clients and financial market counterparties at any time or in any place or currency. To avoid this risk, the Bank conducts a daily review of its available resources.

To mitigate liquidity risk, the Bank sets limits as to the minimum funds that must be maintained in highly liquid instruments and interbank and financing facilities.

The Bank also conducts stress simulation tests to assess the behavior of assets and liabilities under different scenarios.

The Bank’s investment strategy is aimed at guaranteeing adequate liquidity levels. Excess cash is mainly invested in short-term instruments such as certificates of deposit with the BCV, debt securities issued by the Bolivarian Republic of Venezuela and other highly liquid financial obligations, within regulatory regulations.

Operational risk The Bank considers operational risk as the possibility of incurring direct or indirect losses as a result of inadequate or defective internal processes, deficient internal controls, human error, system failures or external events.

58 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

The operational risk management structure established by the Bank enables it to conduct internal processes for identification, assessment, quantification, monitoring and mitigation of operational risks across the organization. This structure also provides management with the information required to set priorities and aid the decision-making process.

Operational risk management at the Bank is a dynamic process conducted from a qualitative standpoint -by identifying risks and analyzing trigger factors- and from a quantitative standpoint-by identifying events, measuring their impact, monitoring the behavior of key risk indicators and analyzing scenarios. The information gathered from these processes serves as the basis to define and implement actions aimed at controlling and mitigating risks within the Bank.

32. Liabilities and contingencies

In the ordinary course of business, the Bank is defendant in various legal proceedings. The Bank is not aware of any other pending legal proceedings which could have a significant effect on its financial position or the results of its operations.

In tax matters, the Bank and its merged financial institutions have received additional income tax assessments from the Tax Authorities amounting to Bs 21,957,000, mainly due to disallowance of certain income considered nontaxable, expenses related to tax-exempt income, expenses for unpaid or late payment of withholdings, nondeductible expenses for uncollectible accounts, rejection of tax loss carryforwards and the calculation of inflation adjustment for tax purposes. The Bank also received additional tax assessments of Bs 3,341,000 in respect of withheld and late payments of value added tax (VAT). The Bank appealed alleging most of these assessments are not well grounded in law. The tax courts have not ruled on some of these assessments; those that went in favor of the Bank were appealed by the National Treasury and rulings are pending.

The Bank also received additional bank debit tax assessments amounting to Bs 23,508,000, which were appealed. In the opinion of Bank management and its legal advisors, these assessments are not well grounded in law.

In April 2008, the Bank was subject to a tax assessment of Bs 62,679,000 in respect of the proportional tax on dividends. In June 2008, the Bank filed a discharge claim with the Tax Authorities stating its legal arguments against this assessment. In December 2008, the National Integrated Customs and Tax Administration Service (SENIAT) confirmed this tax assessment and in January 2009 the Bank filed an appeal against the payment forms issued. In June 2011, SENIAT confirmed the tax assessment, which was appealed by the Bank in July 2011. In the opinion of Bank management and its legal advisors, there are legal grounds to uphold the inadmissibility of the assessment.

Bank management identified a maximum risk of Bs 49,292,000 in connection with the aforementioned assessments based on inadmissibility of monetary restatement and interest charges; hence a provision has been set aside to cover this amount (Note 16).

In June 2008, the Bank was notified by BANAVIH, ascribed to the People’s Power Ministry for Housing, of an assessment of Bs 25,364,000 in respect of alleged differences in the contributions made under the Housing Loan Law. The Bank appealed this assessment in July 2008. In August 2008, BANAVIH ruled partially in favor of the Bank and reduced the assessment to Bs 11,647,000. However, in September 2008, the Bank appealed this decision. Simultaneously, since BANAVIH arrived at the ruling following procedures established in the Law on Administrative Proceedings instead of applying the procedures set out in the Master Tax Code, as required by the Instance Courts and the Supreme Tribunal of Justice, the Bank filed for and was awarded constitutional protection in December 2008 and February 2009, respectively. BANAVIH was ordered to follow the Master Tax Code to rule on the appeal filed by the Bank in September 2008, according to which the effects of the tax assessment would be suspended. In

59 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

the opinion of Bank management and its legal advisors, there are legal grounds to uphold the inadmissibility of the assessment.

In October 2012, the Bank was notified of a ruling ordering it to return an asset valued at Bs 8,436,600. The Bank took the corresponding actions against this ruling, obtaining a favorable ruling from the Supreme Tribunal of Justice in December 2014. It is possible that an appeal would be filed for constitutional review against this decision. In the opinion of Bank management and its legal advisors, there are legal grounds to uphold the inapplicability of the ruling.

In December 2012, the Bank was notified of two proceedings as joint guarantor filed in October 2011. In March 2013, the Supreme Tribunal of Justice annulled one of the proceedings for Bs 13,919,000. The Bank has sufficient collateral over the second proceeding for Bs 3,338,000. In the opinion of Bank management and its legal advisors, the ruling on the latter proceeding should be favorable to the Bank.

Bank management and its legal advisors believe that there are favorable expectations about the future resolution of these contingencies, which they believe will not significantly change next semester.

33. Money laundering prevention

To comply with the Antidrug Law (formerly the Law on Narcotic and Psychotropic Substances), the Bank makes a contribution to the National Antidrug Fund (FONA) and develops programs or projects for employees and their families, approved by the National Antidrug Office (ONA), for the prevention of legal and illegal drug use (Note 16).

In addition, in compliance with SUDEBAN resolutions, the Bank has a Unit for the Prevention of Money Laundering and Terrorism Financing, and has appointed an Enforcement Officer for the Prevention and Control of Money Laundering and Terrorism Financing and a Committee for the Prevention and Control of Money Laundering and Terrorism Financing, designated by the Board of Directors in conformity with the Risk Management Integrated System (S.I.A.R.). This Unit is responsible for analyzing, monitoring and informing the Enforcement Officer of any possible money laundering and terrorism financing activities. Furthermore, the Bank has also appointed compliance officers for the different areas of the Bank exposed to risk, who are responsible for enforcing and supervising money laundering and terrorism financing prevention and monitoring regulations. Also, the Bank has an annual training program on money laundering and terrorism financing prevention for its employees.

34. Investments and loans granted in excess of legal limits

At June 30, 2016 and December 31, 2015, the Bank has no conducted transactions that exceed the limits set in the articles of the Law on Banking Sector Institutions.

35. Legal contributions

Social Bank Deposit Protection Fund (FOGADE) Venezuelan banks regulated by the Law on Banking Sector Institutions are required to pay fees to FOGADE. Among other things, FOGADE, guarantees customer deposits up to a given amount per depositor.

The Law on Banking Sector Institutions set the percentage of contributions to FOGADE at 0.75% of the bank’s total deposits at the previous semester closing.

These contributions will be paid through monthly premiums equivalent to one-sixth of this percentage. Contributions in this connection are shown under operating expenses.

60 Mercantil, C.A. Banco Universal Notes to the financial statements June 30, 2016 and December 31, 2015

Fee paid to the Superintendency of Banking Sector Institutions The Law on Banking Sector Institutions requires Venezuelan banks and financial institutions regulated by this Law to pay a special fee to support SUDEBAN operations.

At June 30, 2016, the biannual fee is 0.08% of the average of the last two months of the previous six- month period (0.08% of the average of the Bank’s assets for the six-month period, at December 31, 2015); it is payable monthly at one-sixth of the resulting amount for the six-month period. This fee is shown under operating expenses.

Social Contingency Fund The Law on Banking Sector Institutions requires banks to create a trust fund representing 10% of their capital stock through biannual contributions of 0.5% of their capital. The purpose of this trust fund is to guarantee the payment of employee benefits in the event of the bank’s administrative liquidation. At June 30, 2016, the Bank maintains an investment of Bs 20,290,000, which includes contributions and interest at that date (Bs 18,121,000 at December 31, 2015) (Notes 4-d and 23).

Social contribution The Law on Banking Sector Institutions requires banks to earmark 5% of their gross pre-tax income to finance projects developed by communal councils and other forms of social organization. For the six- month period ended June 30, 2016, contributions in this connection amount to Bs 561,719,000 (Bs 523,041,000 at December 31, 2015).

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