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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Mercantil Servicios Financieros (Mercantil). Financial Report Fourth Quarter 2017 Caracas Stock Exchange (MVZ.A & MVZ.B); Level 1 ADR: MSFZY & MSFJY
Caracas, January 30, 2017. Mercantil reports its earnings for the quarter ended December 31, 2017.
Net Interest Income increased as a result of the growth of financial assets and liabilities. The financial intermediation ratio (loans-to-deposits) was 31.7% at the close of 4Q 2017 (52.7% at December 31, 2016).
Commissions and other income totaled Bs 146,910 million, 913.0% up from 4Q 2016, mainly due to Bs 128,816 million increase in commissions from the use of credit and debit cards, and Bs 11,235 million in sales of investments in securities.
Personnel and Operating Expenses have been affected by the inflationary environment of the Venezuelan economy. It is estimated that the inflation for the quarter was 2,000%.
Corporate Tax Expenses reached Bs 65,969 million, 1,567.6% up from Bs 3,956 million in 4Q 2016.
Assets: In 4Q 2017, total assets registered Bs 8,775,325 million (179.3%) quarter-over-quarter growth, due to loan portfolio, cash and due from banks and revaluation to assets rise. Net Loan Portfolio: In 4Q 2017, the net loan portfolio registered Bs 1,323,980 million (62.0%) quarter-over-quarter increase, as a result of efforts to increase the intermediation ratio. Deposits: During 4Q 2017, deposits registered Bs 7,190,453 million (176.8%) quarter-over-quarter growth, and 778.4% year-on-year growth. Shareholders’ Equity: totaled Bs 864,594 million representing 228.1% increase the previous quarter. This quarterly variation is mainly due to Bs 67,755 million in net income and to Bs 546,697 million in surplus from assets revaluation, among others.
Summary of Financial Statements and Ratios
(In millions of Bolivars, except percentages)
December
2017 September
2017 December
2016 ∆ Dec. 17
vs. Sep. 17 ∆ Dec. 17
vs. Dec. 16
QUARTERLY RESULTS % %
Net Interest Income 250,792 136,035 30,537 84.4 721.3 Net Income Quarters 67,755 34,346 8,463 97.3 700.6
KEY INDICATORS
Income per share – Quarter Bs / share 664 336 83 97.3 700.7
Market price A share 700,000 185,000 12,600 278.38 5,455.6
Market price B share 700,000 185,000 12,600 278.4 5,455.6
Net Income (quarter) / Average Assets (ROA) 6.4% 4.9% 3.7% 30.6 73.0
Net Income (quarter) / Average Equity (ROE) 121.4% 88.1% 54.7% 37.8 121.9
Summary of Financial Statements (In millions of Bolivars, except percentages)
Summary of Financial Statements December
2017 September
2017 December
2016 ∆ Dec. 17
vs. Sep. 17 ∆ Dec. 17
vs. Dec. 16
% %
Cash and due from banks 8,236,648 2,013,008 575,390 309.2 1,331.5
Investment Portfolio 411,287 332,384 180,210 23.7 128.2
Loan Portfolio, Net 3,460,062 2,136,082 655,362 62.0 428.0
TOTAL ASSETS 13,670,022 4,894,697 1,484,732 179.3 820.7
Deposits 11,257,784 4,067,331 1,281,647 176.8 778.4
Financial Liabilities 43,543 47,949 14,240 (9.2) 205.8
Shareholders’ Equity 864,594 263,547 75,404 228.1 1,046.6
TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 13,670,022 4,894,697 1,484,732 179.3 820.7
ASSETS UNDER MANAGEMENT 7,228,345 2,136,597 226,508 238.3 3,091.2
Mercantil Servicios Financieros, C.A.
Financial Report Fourth Quarter 2017
2
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Table of contents Page
Contribution of subsidiaries 3
Credit Ratings 3
Analysis of Consolidated Financial Statements 4
Operating Income
Net Interest Income 4
Allowance for losses on loan portfolio and commissions receivable 5
Total Commissions and Other Income 5
Total Insurance Premiums, Net of Claims 5
Total Operating Expenses 6
Efficiency Ratios 6
Balance Sheet 7
Liquidity 7
Investment Portfolio
Financial Intermediation Activity 8
Loan Portfolio 10
Deposits 10
Total Assets 11
Financial Obligations 11
Shareholders’ Equity 12
Capital Ratios 12
Wealth Management 13
Performance of Subsidiaries in accordance to its Local Accounting Standards 16
Corporate Events 16
New measures announced for the Venezuelan Financial Environment 16
Awards and Acknowledgements 17
Annex I: Summary of the accounting principles used to prepare the financial statements 18
Annex II: Financial statements of Mercantil Servicios Financieros 20
Annex III: Stock Performance Summary and Financial Indicators of Mercantil Servicios Financieros 22
Annex IV: Financial statements of Mercantil Banco Universal 23
Annex V: Financial statements of Mercantil Seguros
3
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Fitch Ratings Clave (*)
Long-term A(Ven)
Short-term F1(Ven)A3 A2
A2 A1
Long-term A(Ven)Short-term F1(Ven)
Long-term (Foreign and local currency) CC
Short-term (Foreign and local currency) C
Viability CC
Rating for Unsecured Bonds ( Long-term in local currency)
Rating for Commercial Paper (Short-term in local currency)
Mercantil Banco Universal
National Ratings
International Ratings
National Ratings
Mercantil Servicios Financieros
VenezuelaMercantil Banco Universal
Equity Bs 367,735 millions
Mercantil Seguros
Equity Bs 457 millions
Mercantil Merinvest Casa de Bolsa
Equity Bs 11,219 millions
Mercantil Sociedad Administradora de Entidades de
Inversión Colectiva
Equity Bs 8,510 millions
Mercantil Capital Markets Panamá
Equity US$ 3.5 millions
Our people 32 employees
Our people 31 employees
Mercantil Servicios Financieros
in millions
Equity Bs 864,594 millions
International
Ou
r B
us
ine
se
s
Mercantil Bank Panamá
Equity US$ 42 millions
Mercantil Bank Curacao NV
Equity US$ 25 millions
Mercantil Bank (Schweiz) AG
Equity US$ 31 millions
Mercantil Bank & Trust Limited Cayman
Equity US$ 15 millions
Our people 5,299 employees
Mercantil Seguros Panamá
Equity US$ 38 millions
Our people 834 employees
Contribution of Subsidiaries
In December 2017, Mercantil decreed a dividend in kind of Bs 59 payable with shares of its subsidiary Mercantil Bank Holding Corporation (MBHC) at its book value. As a result of this operation, MBHC's assets, liabilities, result of operation and consolidated statement of cash flows are reported in the current period as discontinued operations in the consolidated balance sheet and consolidated statement of income, see Annex II.
See Summary of Subsidiaries’ performance according to their Regulatory Accounting Standards page 13.
Mercantil Banco Universal has the best National Rating given to a Venezuelan private financial institution and the highest International Rating based on the country’s sovereign rating ceiling of C
(*) A credit rating agency in Venezuela
Credit Ratings
4
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
(In Millions of Bs)
Evolution of Loan Portfolio
Analysis of Consolidated Financial Statements
Operating Income
Quarter 12 Months
Ended on ∆ Ended on ∆
(In millions of Bolivars, except percentages)
Dec. Dec. Dec. Dec.
2017 2016 Bolivars % 2017 2016 Bolivars %
Net Interest Income 250,792 30,537 220,254 721.3 487,233 87,549 399,684 456.5 Allowance for losses on loan portfolio and commissions receivable 42,533 4,480 38,053 849.5 82,686 12,469 70,217 563.2
Net Financial Margin 208,259 26,058 182,201 699.2 404,547 75,080 329,467 438.8
Commissions and Other Income 146,910 14,502 132,408 913.0 255,843 37,485 218,357 582.5
Insurance Premiums, Net of Claims 1,351 4,175 (2,824) (67.6) 22,155 12,028 10,127 84.2
Operating Income 356,519 44,735 311,784 697.0 682,544 124,593 557,951 447.8
Net Interest Income In 4Q 2017, net interest income reached Bs 250,792 million, 721.3% higher than the Bs 30,537 million of 4Q 2016, mainly due to the increase in financial assets and liabilities. Interest income was Bs 296,385 million, a 667.0% year-on-year increase reflected in the behavior of income from the loan portfolio, which grew 719.3%. Interest expenses totaled Bs 45,593 million, 462.6% up from 4Q 2016. In 2017, net interest income was Bs 487,233 million, 456.5% up from Bs 87,549 million in 2016. Mercantil’s net interest margin (net interest income-to-average financial assets) was 26.0% at December 31, 2017, compared to 14.5% the previous year.
Loan Portfolio Provision and Commissions Receivable In 4Q 2017, expenses totaled Bs 42,533 million, Bs 38,053 million (849.5%) up from Bs 4,480 million in 4Q 2016. In 2017, expenses totaled Bs 82,686 million, Bs 70,217 million (563.2%) up from Bs 12,475 million in 2016. The accumulated allowance reached Bs 99,687 million at December 31, 2017, representing 2.8% of gross loans (2.7% at September 30, 2017). This provision covers 3,534.7% of past-due and nonperforming loans (1,273.5% at September 30, 2017).
13,267 20,955 41,658 87,549 487,233
8.6% 9.3%
12.0%
14.5%
26.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-
100,000
200,000
300,000
400,000
500,000
600,000
2013 2014 2015 2016 2017
(In
mill
ion
s o
f B
s)
Evolution of Net Interest Income
Net Interest Income
Net Interest Income / Average Financial Assets
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Gross Loans Past Due and Non-Performing Loans
3.0% 3.0% 3.0%2.8%
2.7%2.8%
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
2.4%
2.8%
3.2%
3.6%
Allowance for Losses on Loan Portfolio / Gross Loans
0.4% 0.4% 0.4%0.2% 0.2% 0.1%
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
2.4%
2.8%
3.2%
3.6%
Sep.2016 Dic. 2016 Mar. 2017 Jun. 2017 Sep. 2017 Dic. 2017
Past Due and Non-Performing Loans / Gross Loans
5
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Total Commissions and Other Income
In 4Q 2017, commissions and other income totaled Bs 147,235 million, Bs 132,733 million (915.3%) up from Bs 14,502 million in 4Q 2016, mainly due to:
Bs 128,816 million (870.1%) increase in earnings from commissions on the use of credit and debit cards, insurance policy financing, and other commissions on client transactions, among other, mainly due to the larger volume of transactions.
Bs 11,235 million (12,212.0%) in earnings from securities trading activities.
In 2017, commissions and other Income totaled Bs 255,460 million, Bs 218,153 million (584.8%) up from 2016, mainly due to Bs 213,053 million (592.5%) increase in commissions for the use of credit and debit cards, insurance policy financing, among other commissions from client transactions, and Bs 12,678 million (2,034.9%) in earnings from securities trading activities.
Insurance Premiums, net of Claims
In 4Q 2017, insurance premiums, net of commissions, reinsurance and claims totaled Bs 1,351 million, 67.6% less than Bs 4,175 million in 4Q 2016, mainly due to Individuals business. Collected premiums in 4Q 2017 amounted to Bs 171,506 million, reflecting Bs 142,643 million, 494.1% year-on-year growth. The main contributor to this growth was Automobile business.
Claims and administrative expenses in 4Q 2017 totaled Bs 117,896 million, Bs 100,864 million (592.2%) up from Bs 17,032 million in 4Q 2016; this growth is mainly due to the Automobile and Individuals businesses. The claims ratio was 74.5% in 4Q 2016, (60.3% in 4Q 2016). The technical result was a negative Bs 18 million, in contrast with Bs 725 million in 4Q 2016; the variation is mainly due to the increase in claims incurred and in taxes and contributions.
In 2017, Insurance Premiums, net of Claims, Commissions, Reinsurance and Claims reached Bs 22,155 million, a 84.2% year-on-year rise; collected premiums increased by 282.1%, from Bs 84,759 million in 2016 to Bs 323,867 million in 2017. Claims and administrative expenses totaled Bs 169,997 million, Bs 118,681 million (231.3%) higher than in 2016.
Composition of Total Income
Bs 137,062 millions December 2016
Bs 765,259 millions December 2017
64% 64%
29%31%
6%3%0% 2%
2016 2017
Net Interest Income
Commissions on Transactions, Insurance Premiums net and Other
Other Income
Income on Sales Investment Securities
6
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Total Operating Expenses
Quarter 12 months
Ended on ∆ Ended on ∆
(In millions of Bolivars, except percentages)
Dec. Dec. Dec. Dec.
2017 2016 Bolivars % 2017 2016 Bolivars %
Operating Income 356,845 44,735 312,110 697.7 682,161 124,414 557,747 448.3
Operating Expenses
Personal and Employee Benefits 46,058 7,004 39,054 557.6 106,155 23,453 82,702 352.6
Other Operating expenses 177,199 25,372 151,827 598.4 348,815 71,462 277,353 388.1
Taxes Current and Deferred 65,969 3,956 62,013 1,567.6 105,444 11,633 93,811 806.4
Minority Interests 53 (4) 57 1,494.7 88 (11) 99 927.0
Discontinued operation 83 64 19 29.7 411 179 232 129.4
Net Income 67,755 8,463 59,291 700.6 122,247 18,034 104,212 577.9
In 4Q 2017, personnel and operating expenses totaled Bs 223,257 million, 589.5% up from Bs 32,376 million in 4Q 2016. This increase is mainly due to:
Bs 39,054 million in personnel expenses, reflecting a year-on-year increase of 557.6%. This increase in expenses was due to the application of compensation and benefit policies according to market value.
Bs 10,270 million (311.5%) increase in expenses for contributions to regulatory agencies.
Bs 15,432 million (677.9%) increase in taxes, other than corporate tax expenses, and contributions.
Bs 126,125 million (637.0%) growth in operating expenses.
In 2017, personnel and operating expenses totaled Bs 454,970 million, 379.3% up from Bs 94,915 million in 2016, mainly due to a Bs 82,702 million increase in personnel expenses and Bs 277,353 million increase in other operating expenses, reflecting larger depreciation expenses due to the revaluation of fixed assets, expenses of fixed assets, amortization of intangibles and other expenses for Bs 37,050 million; higher expenses for contributions to regulatory agencies for Bs 25,204 million; increase of Bs 23,869 million for taxes and contributions, and Bs 191,230 million increase in other operating expenses, which have been affected mainly by the inflationary environment in Venezuela. Income tax expenses grew Bs 93,811 million compared to 2016.
Efficiency Ratios The efficiency ratio measured by calculating operating expenses to average assets was 7.5% in December 2017, vs. 9.4% in December 2016. The ratio of operating expenses to total income was 52.5% in December 2017 (61.2% in December 2016). The Company has made significant efforts to adapt its organizational and operative structure to the current environment in the countries where it operates. In the case of Venezuela, these efforts have notably reduced the significant effects of inflation
47.4% 49.1% 48.3%61.2%
52.6%
5.3%5.3%
6.4%
9.4%
7.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
2013 2014 2015 2016 2017
Operating Expenses / Total Income Operating Expenses / Average Assets
12,680 13,640 50,690 10,266 11,353
36,557 39,391 46,469
261,568
23,508 23,453
106,155
Dec 2015 Dec 2016 Dec 2017
Total Personnel and Operating Expenses Years(In millions of Bolivars)
Salaries and employee benefits
Other operating expenses
Fees paid to regulatory agencies
Depreciation, Property and equipment, Amortization of intangibles and others expenses
85,845
Δ + 430.0%
Δ +379.3%
94,915
454,970
7
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Dec 2016 Sep 2017 Dec 2017
Liquidity (In millions of Bolivars)
Cash and Due from Banks - Legal ReservesLegal ReservesInvestments in Time Deposits and Placements
Δ +1,283.9%
8.271.864
2.046.740
598.006 Δ +304.1%
Balance Sheet The main Balance Sheet variations are reviewed below and commented upon with respect to the previous quarter. The main year-on-year variations are also included for comparison purposes;
Summary of Balance Sheet and Assets under Management (In millions of Bolivars, except percentages)
∆ ∆ December September December Dec. 17 vs. Sep. 17 Dec. 17 vs. Dec. 16
2017 2017 2016 Bolivars % Bolivars %
Cash and due from banks 8,236,648 2,013,008 575,390 6,223,640 309.1 7,661,258 1,331.5 Investment Portfolio 411,287 332,384 180,210 78,903 23.7 231,077 128.2 Loan Portfolio, Net 3,460,062 2,136,082 655,362 1,323,980 62.0 2,804,700 428.0 Total Assets 13,670,022 4,894,697 1,484,732 8,775,325 179.3 12,185,290 820.7 Deposits 11,257,784 4,067,331 1,281,647 7,190,453 176.8 9,976,137 778.4 Shareholders´ Equity 864,594 263,547 75,404 601,048 228.1 789,190 1,046.6 Asset Management 7,228,345 2,136,597 226,508 5,091,748 238.3 7,001,837 3,091.2
Liquidity
At the close of 4Q 2017, cash and due from Banks (cash and legal reserve requirements in Venezuela) plus investments in time deposits and placements included in the investment portfolio increased 304.2%, to Bs 8,275,723 million, Bs 6,228,983 million up from Bs 2,046,740 million in September 2017. This growth is observed mainly in the accounts held at the Venezuelan Central Bank (BCV – Banco Central de Venezuela). Non-Interest Bearing demand deposits are related to the recent high liquidity levels of the financial system in Venezuela, and to the internal risk limits. Compared to December 31, 2016, cash and due from Banks plus investments in time deposits and placements grew Bs 7,673,584 million (1,274.4%), from Bs 602,139 million Bs 8,275,723 million. The liquidity ratio calculated as total cash and due from Banks to deposits was 73.2% and the ratio calculated by dividing total cash and investments to deposits was 76.9%, compared to 49.5% and 57.7%, respectively, in September 2017 and 44.9% and 59.0% respectively at the close of 4Q 2016.
Investment Portfolio
At the close of 4Q 2017, the investment portfolio totaled Bs 411,287 million, reflecting Bs 78,903 million (23.7%) quarter-over-quarter growth from Bs 332,384 million. Compared to December 31, 2016, the investment portfolio grew Bs 231,077 million (128.2%) from Bs 180,210 million to Bs 411,287 million.
180,210
332,384
411,287
Dec.2016 Sep. 2017 Dec. 2017
Investments Portfolio(In millions of Bolivars)
Δ +128.2%
Δ+23.7%
8
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Investments by maturity and yield at the close of 3Q 2017 are broken down as follows:
Investments by Maturity and Yield
(In millions of Bolivars, except percentages)
Trading Available for Sale
Held to Maturity Shares
Time Deposits and Placements
Trust Fund and Restricted
Investments
Years Bs. 1 Bs. 1 %3 Bs. 2 %3 Bs. 1 Bs. 1 % Bs. 1 %3 TOTAL
Less than 1 3 32,495 4.1 1,432 5,9 0 21,940 7.4 1,553 2.0
57,423
From 1 to 5 42 11,537 11.6 247,896 9,6 0 26 1.3 25 16.8 259,526
Over 5 190 18,747 12.0 50,648 6,9 7,530 17,109 9.0 116 15.3 94,340
235 62,779 299,975 7,530 39,075 1,693 411,287
At the close of 4Q 2017, 19.9% of the Mercantil Bank Holding Corporation's investment is presented in the portfolio for the sale of shares and 80.1% as restricted investment.
Government bonds issued by the Venezuelan State account for 0.05 times Mercantil’s equity, and 0.3% of its assets (0.14 and 0.8% in September 2017, respectively). At Mercantil Banco Universal, these securities account for 0.08 times its equity and 0.23% of its assets (0.12 and 0.93% in September 2017, respectively).
At December 31, 2017, the Mercantil, C.A. Banco Universal subsidiary, in line with regulations issued by the executive branch, had purchased Bs 319,004 million in Mortgage Bonds, CDs., Agriculture Bonds, and Stocks, representing 86.2% of the investment portfolio and 0.87 times its equity (Bs 234,278 million, representing 83.1% of its investment portfolio and 1.13 times its equity at September 30, 2017).
Financial Intermediation Activity
Loan Portfolio
At the close of 4Q 2017, the net loan portfolio totaled Bs 3,460,062 million, reflecting a quarter-over-quarter increase of 62.0% from Bs 2,136,082 million.
Compared to December 31, 2016, the loan portfolio increased Bs 2,804,700 million (428.0%), from Bs 655,362 million to Bs 3,460,062 million.
The ratio of Past-Due and Non-performing Loans to gross loans was 0.1%, compared to 0.2% at the close of September 2017.
Mercantil Banco Universal ratio is 0.1%, the same as the ratio for the Venezuelan financial system.
(In millions of Bolivars, except percentages)
Loan Portfolio by Economic Activity December
2017 % September
2017 % December
2016 %
Commercial 2,112,319 59.3 1,158,875 52.7 292,387 43.0
Credit Cards 515,079 14.5 458,553 20.9 143,714 21.3
Agricultural 484,829 13.6 303,823 13.8 101,483 15.0
Industrial 64,049 1.8 61,283 2.8 32,212 4.8
Services 297,650 8.4 123,076 5.6 39,313 5.8
Residential mortgage 23,565 0.7 20,109 0.9 13,634 2.0
Foreign trade 79 0.0 2,429 0.1 2,294 0.3
Construction 4,389 0.1 9,350 0.4 7,605 1.1
Car loans 19,775 0.6 18,655 0.8 14,097 2.1
Other 40,585 1.1 38,535 2.0 29,147 4.5
3,562,319 100.0 2,194,687 100.0 675,886 100.0
1 Market Value 2 Amortized cost 3 The yield of securities is based on amortized cost at the end of the period. Yield is calculated by dividing income investments (including premium amortization or discounts) by the amortized cost or market value.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Venezuelan Central Bank US Government & US Gov.Guaranteed Agencies
Private Venezuelan Governmentand Public Entities
Breakdown of Investments by IssuerDecember 2016
September 2017
December 2017
9
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
45% 42%43%
46%
49%
15% 16%17%
15%
18%
40% 42%
40%
39%
33%
0
600,000
1,200,000
1,800,000
2,400,000
3,000,000
3,600,000
4,200,000
Dec. 2016 Mar. 2017 Jun. 2017 Sep 2017 Dec 2017
Loan Portfolioby Business Segment(In millions of bolivars)
Individuals
Large Corporation
SME's
At December 31, 2017, 99.9% of Mercantil’s loan portfolio is outstanding. The allowance for losses on the loan portfolio covers 3,534.7% of past-due and non-performing loans (1,273.5% at September 30, 2017). This ratio is 4,036.7% at Mercantil Banco Universal (1,375.2% at September 30, 2017).
The loan portfolio by sector of the economy and interest rates are as follow:
a) In September 2017, Mercantil C.A. Banco Universal, acquires Bandes 2018 Participation Certificate; which can be attributed to the mandatory agricultural portfolio as established in Circular No.
SIB-II-GGR-GNP-21551 dated October 13, 2017; the amount of the agricultural portfolio adding up this investment amounts to Bs 515,849 million as of December 31, 2017. b) As of December 31, 2017, the mortgage portfolio reached 3.57% of compliance, which includes the new loans settled and the balance maintained at that date of loans for acquisition, self-
construction, improvements and expansion. c) As of December 31, 2017, the Bank complied with the minimum required percentage of the loan portfolio for the tourism sector (includes shares of SOGATUR for Bs 207 million). The total amount
of the tourist portfolio adding these investments amounts to Bs 26,819 million. d) In November 2016, the Ministry for Industries and the Ministry for Finance ratified the strategic development sectors to which at least 60% of the resources of the manufacturing loan portfolio must
be allocated, as well as a minimum percentage 40% for the financing of small and medium-sized industries, joint ventures, as well as state-owned companies whose main activity is framed in the Classifier of Venezuelan Economic Activities (CAEV).
e) Annual compliance.
655,362
2,136,082
3,460,062
Dec 2016 Sep 2017 Dec 2017
Loan Portfolio(In millions of Bolivars)
Δ + 428.4%
Δ+62.0%
Balance Annual Interest
maintained Rates
(in million Achieved Required Maximum
Sector of bolivars) % % % Calculation Base
Agriculture(a) 484,829 40.31 20.00 13% Gross loan portfolio as of 06/30/2017
Microenterprise 98,142 7.67 3.00 24% Gross loan portfolio as of 06/30/2017
Mortgage (b,e) 21,933 3.57 20.00 Betw een 4.66% and 10.66% Gross loan portfolio as of 12/31/2017
Tourism(c) 26,612 5.75 5.25 8.84% or 5.84% Average gross loans at 12/31/2016 and 12/31/2015
Manufacturing(d,e) 64,048 10.42 10.00 18% or 16.20% Gross loan portfolio as of 12/31/2017
695,564 67.72 58.25
December 31, 2017
10
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
31% 32% 33% 34%
34%
21% 23% 22%22%
22%
48% 45% 45%
44%
44%
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Dec. 2016 Mar. 2017 Jun. 2017 Sep 2017 Dec 2017
Breakdown Depositsby Business Segment(In millions of bolivars)
Individuals
Large Corporation
SME's
Deposits
At the close of 4Q 2017, deposits totaled Bs 11,257,784 million, representing a quarter-over-quarter increase of Bs 7,190,453 million (176.8%) from Bs 4,067,331 million.
Compared to December 31, 2016, deposits grew Bs 9,976,137 million (778.4%) from Bs 1,281,647 million to Bs 11,257,784 million.
Demand deposits were the main component of total deposits, reaching Bs 9,199,427 million, up 180.5% from the previous quarter, and representing 81.7% of total deposits. Saving deposits increased Bs 1,291,716 million (169.3%) and term deposits declined Bs 20,773 million (84.4%), over the same period.
Total Assets
At the close of 4Q 2017 total assets registered 179.3% growth to Bs 13,670,022 million, up Bs 8,775,326 million from Bs 4.894.697 million the previous quarter. This is the result of the combined behavior of total cash and due from banks and the loan portfolio, which grew Bs 6,223,640 million and Bs 1,323,980 million, respectively. The ratio of performing assets to total assets was 37.4%, up Bs 2,345,413 million (85.0%) from the previous quarter.
Compared to December 31, 2016, assets grew Bs 12,185,290 million (820.7%), from Bs 1,484,732 million to Bs 13,670,022 million.
1,281,647
4,067,331
11,257,784
Dec. 2016 Sep. 2017 Dec. 2017
Deposits(In millions of Bolivars)
Δ + 778.4%
Δ +176.8%
1,484,732
4,894,697
13,670,022
Dec. 2016 Sep. 2017 Dec. 2017
Consolidated Total Assets(In millions of Bolivars)
Δ +820.7%
Δ+179.3%
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Total cash and due from banks was the main component (60.3%) of total with the loan portfolio accounting for 25.3%; while the investment portfolio accounted for 3.0% at the close of the quarter.
Financial Obligations At the close of 4Q 2017, financial obligations reached Bs 88,336 million, 42.6% from Bs 61,928 million in the previous quarter; compared to December 31, 2016, financial obligations grew 476.9%.
December
2017 September
2017 December
2016 (In millions, except percentages) Bs Bs Bs
Publicly Traded Debt Securities Issued by Mercantil 44,791 12,873 700 Subordinated debt 2 1,106 1,127
44,793 13,979 1,828 Other Financial Liabilities 43,543 47,949 13,485
88,336 61,928 15,312
Shareholders’ Equity At the close of 4Q 2017, shareholders’ equity reached Bs 864,594 million, Bs 601,048 million (228.1%) quarter-over-quarter increase from Bs 263,547 million; compared to 4Q 2016 shareholders’ equity rose 1,046.6%, from Bs 75,404 million. In December 2017, Mercantil decreed a dividend of Bs. 25 per share payable in cash and Bs. 59 per share payable in kind with shares of the MBHC subsidiary. The variation in 4Q 2017 is mainly due to Bs 546,697 million increase in surplus from revaluation of assets, and Bs 67.775 million in net income of the period, among others.
75,404
263,546
864,594
Dec. 2016 Sep. 2017 Dec. 2017
Evolution of Shareholders´Equity(In millions of Bolivars)
Δ + 1,046.9%
Δ+228.1%
Assets Distribution Total Bs 13,670,022 millions
December 2017
Cash and Due from Banks 60.3%
Loan Portfolio, Net 25.2%
Venezuelan Central Bank 0.2%
Venezuelan Govermment 2.6%
US Govermment. 0.0%
Private Sector 0.2%
US Govermment Guaranteed Agencies 0.0%
Other Assets 11.4%
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Capital Ratios Mercantil’s equity-to-assets ratio at December 31, 2017 is 6.3% and its equity to risk-weighted assets is 18.0%, based on the standards of SUNAVAL (5.1% and 10.1% at December 31, 2016). Mercantil Banco Universal, in accordance with the requirements of SUDEBAN, has an equity-to-assets ratio of 11.1% at December 31, 2017, and its equity to risk-weighted assets is 12.3% (11.2% and 13.1% at December 31, 2016). The equity ratios of Mercantil and its subsidiaries exceed the regulatory minimum.
Wealth Management The Wealth Management business comprises: trust fund, securities brokerage, mutual funds and portfolio management services. Assets under management recorded off the balance sheet at December 31, 2017 reached Bs 7,228,345 million, representing a 238,3% quarter-over-quarter increase and 3,091.2% year-on-year growth, respectively. They are broken down as follows:
Mercantil offers its clients investment products and services (brokerage, investment advisory and custody) in global financial markets. At the close of December 2017, total client assets reached Bs 7,049,465 million, up 247.0% compared to the previous quarter (4,047.3% increase compared to the close of December 2016).
At the close of 4Q 2017, the Trust Fund managed Bs 107,933 million in assets, which reflects 73.4% quarter-over-quarter growth and 223.5% year-on-year rise, respectively. At December 31, 2017, Mercantil’s trust fund ranked second in the private banking and fifth in the fiduciary market in Venezuela. At the close of December 2017, Mercantil maintains its leading position in Venezuela’s mutual fund industry. Mutual Fund assets under management grew 28.0% and 114.7% compared to September 2017 and December 2016, respectively, reaching Bs 7,948 million.
Capital StructureDecember 2017
Capital stock 1.5%Capital reserve 0.1%Share premium 0.0%Traslation adjustments of net assets of subsidiaries abroad 0.7%Retained earnings 19.6%Unrealized gain fron adjustments of investments to market value 0.3%Surplus on revaluation of fixed Assets 78.7%Remedición por plan de pensiones -0.8%
TOTAL ASSETS UNDER MANAGEMENT (In millions, except percentages)
December
2017 September
2017 December
2016
∆ Dec. 17 vs Sep.17
%
Dec. 17 vs Dec. 16
%
Trust Funds 170,933 98,577 52,831 73.4 223.5
Mutual Fund 7,948 6,208 3,701 28.0 114.7
Brokerage 7,029,574 2,005,952 144,403 250.4 4,768.0
Financial Advisory 1,568 5,538 5,218 (71.7) (70.0)
Custody of Securities Trading 18,322 20,321 20,354 (9.8) (10.0)
Total Assets under Management Bs 7,228,345 2,136,597 226,508 238.3 3,091.2
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
11,646 19,134 39,528 85,194 492,550
10.8% 10.9%12.0%
16.1%
21.3%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
0
100,000
200,000
300,000
400,000
500,000
2013 2014 2015 2016 2016
Net Interest Income Net Interest Margin
3.5% 3.3%
4.4%
6.5% 6.8%
Evolution of Net Interest Income
Operating Expenses / Average Total Assets
Summary of Subsidiaries’ performance according to their local Accounting Standards Mercantil Banco Universal Mercantil Banco Universal total assets grew Bs 7,900,703 million (174.5%) compared to September 2017. During 4Q 2017 net loan portfolio grew Bs 1,379,327 million (66.4%) and total deposits increased by Bs 7,398,148 million (182.4%) to Bs 3,456,164 million and Bs 11,455,246 million, respectively. Loan portfolio quality remains very favorable, with 0.1% ratio of past-due and non-performing loans to gross loans, the same as for the Venezuelan financial system as a whole. Loan portfolio provision covers 4,036.7% of past-due and non-performing loans (1,375.2% at September 30, 2017).
Assets per employee in Venezuela went from Bs 215.4 million in 2016 to Bs 2,404.5 million in 2017. At December 31, 2017, the Mercantil Banco Universal subsidiary ranks fourth in the Venezuelan financial system in terms of total assets, with 8.6% of the market. The leading institution has 23.6% and the four main banks of the country account for 64.8% of the market. Mercantil ranks third in the Venezuelan private banking system in terms of loans for tourism, agriculture, mortgages and microcredits, with 6.0%, 9.5%, 7.7% and 6.0% market shares, respectively. Mercantil ranks eighth in manufacturing loans with a market of 1.8%, and is the leading Venezuelan bank in terms of savings, with 17.1% of the market.
Shareholders’ Equity grew Bs 159,603 million (76.7%) compared to the previous quarter, to Bs 367,735 million. This increase includes, mainly, Bs 91,475 million in net quarterly income, Bs 41,526 million increase in asset revaluation, and Bs 26.567 million in non-capitalized equity contributions, among others. At December 31, 2017, the equity-over-assets ratio is 11.1% (9% is the minimum requirement), and the equity over risk-weighted assets was 12.3% (minimum requirement of 12%), according to SUDEBAN standards in Venezuela. In 4Q 2017, net earnings totaled Bs 91,475 million representing Bs 84,432 million (1,198.7%) year-on-year growth, mainly due to the Bs 224,432 million increase in net interest income resulting from the growth of financial assets and liabilities, Bs 123,714 million increase in net income from commissions on the use of credit and debit cards as well as from other commissions on client transactions, Bs 38,024 million increase in expenses from loan portfolio provision, Bs 168,762 million rise in personnel and operating expenses, Bs 6,664 million in contributions to regulatory agencies, and Bs 56,929 million increase in corporate tax expenses. In annual terms, net earnings totaled Bs 150,444 million and represented an increase of Bs 131,842 million (708.7%) compared to the previous year. This increase is mainly due to Bs 407,357 million increase in net interest income, Bs 201,663 rise in net income from commissions on the use of credit and debit cards as well as from other commissions on client transactions, Bs 70,173 million in expenses from loan portfolio provision, Bs 297,331 million rise in personnel and operating expenses, and Bs 19,140 million growth in contributions to regulatory bodies. The corporate tax expense increased Bs 90,535. Mercantil has made significant efforts to adapt its organizational and operative structure to the current environment, in order to reduce the significant effects of inflation.
Mercantil C.A., Banco Universal Consolidated (In millions of Bolivars)
Dec. 2017
Sep. 2017
Dec. 2016
Total Assets 12,429,209 4,528,505 1,334,579 Investments Portfolio 370,247 281,930 131,796 Loan Portfolio 3,456,164 2,076,837 595,302 Deposits 11,455,246 4,057,099 1,226,267 Shareholders´ Equity 367,735 208,133 61,349 Net Income Quarter 91,475 14,644 7,043 Net Income 12 Months 150,444 18,602 Historic figures in accordance with the standards of SUDEBAN.
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
10,379 17,504 39,017 84,759 323,868
2013 2014 2015 2016 2016
Evolution of Collected Premiums and Combined Ratio1
Premiums Received
95.7% 95.6%97.4% 97.5%
109.0%
80%
85%
90%
95%
100%
105%
110%
Combined Ratio
Mercantil Seguros Net collected premiums in 4Q 2017 totaled Bs 171,506 million, reflected a 494.2% year-on-year growth from Bs 28,863 million. At the close of November 30, 2017, Mercantil Seguros ranked fourth in the Venezuelan insurance companies in terms of collected premiums, with 8.3% of the market. Net collected premiums per employee in Venezuela rose from Bs. 28.1 million in 2016 to Bs. 207.9 million in 2017. Total assets reached Bs 716,984 million at year end, reflecting 222.2% quarter-over-quarter growth. The company registered Bs 457,169 million in shareholders’ equity, which complies with the statutory solvency requirements. The figures presented include all mandatory and voluntary reserves required to guarantee the company’s operations, including outstanding claims reserves, and end-of-year payments.
At the close of December 31, 2017, the company’s investment portfolio was Bs 644,365 million, up 254.3% from the previous quarter. Total investments representing technical reserves reached Bs 415,002 million (409.7% up from the previous quarter and 542.7% up from the close of December 2016), while liquidity levels amply meet all statutory requirements on commitments towards policyholders, insurance brokers and reinsurers. In 4Q 2017, the technical result closed at a negative Bs 18,363 million, with a combined operating ratio1 of 122.7%. Net income for 4Q 2017 totaled a negative Bs 14.263 million (1,198.2% less than at the close of 4Q 2016). The claims ratio was 74.5% (60.3% in 2016). In annual terms, the technical result closed at a negative Bs 17,738 million, with a combined operating ratio of 109.0%. Net earnings for 2017 was Bs 15.184 million (176.3%) up from the 2016 figure. The claims ratio was 67.5% for 2017 (62.0% at December 31, 2016).
1 Índice Combinado = (Siniestros + Comisiones + Gastos de Administración + Aportes y Contribuciones) / Primas Devengadas
Mercantil Seguros C.A. (In millions of Bolivars)
Dec. 2017
Sep. 2017
Dec. 2016
Total Assets 716,984 222,546 104,825 Investments suitable for representing 415,002 81,416 64,576 Investments not-suitable for representing Technical Reserves 229,363 100,471 25,300 Shareholders´ Equity 457,169 94,572 51,770 Net Income Quarter (14,263) 16,813 1,299 Income net 9 Months 15,184 5,495 Premiums Received Quarter 171,506 67,852 28,863 Premiums Received 12 months 323,867 84,759
Historic figures in accordance with the standards of the Venezuelan Superintendency of Insurance Activity (Sudeseg)
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Other Subsidiaries of Mercantil Servicios Financieros The subsidiaries of Mercantil Servicios Financieros include a brokerage company, a mutual fund and investment portfolio management company, as well as other overseas banks, and other non-financial subsidiaries in Venezuela, as listed below:
Mercantil Bank (Schweiz) AG, reached US$ 173 million in total assets at December 31, and a net income for the period of negative US$ 0.8 million and US$ 0.5 million in 2017.
Mercantil Bank (Panamá) S.A. reported US$ 435 million in total assets at December 31, 2017, 1.3% up from the close of the previous quarter. The net loan portfolio totaled US$ 293 million, reflecting US$ 13 million (4.8%) quarter-over-quarter increase from US$ 280 million. Total deposits reached US$ 384 million, 2.5% up from US$ 375 million at the close of September 2017. Net income in 4Q 2017 totaled US$ 1.7 million, US$ 1.2 million up from US$ 0.5 million in the previous year.
Mercantil Seguros Panamá total assets reached US$ 54 million at December 31, 2017, 1.6% up from the close of September 2017. The investment portfolio totaled US$ 39 million, reflecting 1.8% quarter-over-quarter growth. Shareholder’s equity was US$ 38 million 8.3% up from US$ 35 million at the close of September 2017. Net income in 4Q 2017 totaled US$ 3.3 million, US$ 2.1 million up from the previous year.
Mercantil Merinvest Casa de Bolsa, C.A. reached Bs 12,719 million in total assets at December 31, 2017, representing a quarter over quarter growth of 210.8%. This variation is mainly due to the investment portfolio growth of 250.2% in the quarter, to Bs 11,469 million at December 31, 2017. Net income in 4Q 2017 totaled Bs 5,848 million, Bs 5,826 million up from the previous year. In annual terms, net income amounted to Bs 7,174 million in 2017.
Mercantil Inversiones y Valores comprises Mercantil Servicios Financieros’ non-financial companies, such as Servibien, Almacenadora Mercantil and others with various investments in securities. At December 31, 2017, Mercantil Inversiones y Valores C.A. registered Bs 11,841 million and Bs 8,918 million in consolidated assets and equity, respectively
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Corporate Events General Shareholders’ Meeting of Mercantil Servicios Financieros, C.A.
The General Shareholders’ Meeting of Mercantil held on December 15, 2017 approved a cash dividend, to be charged of profits as of December 31, 2016, of Bs 25 for each outstanding common Class “A” and “B” shares, respectively, in possession of Mercantil’s shareholders for the “Effective Record Date” for a total amount of Bs 2,619,024,025.00. This amount will be applied by Mercantil on December 15, 2017 to retained earnings in order to record the corresponding liability with the respective shareholders who will receive cash in accordance with the dividend decree proposal.
It also approved a dividend in kind, to be charged to earnings at December 31, 2016, for each outstanding common Class “A” and Class “B” shares, to be paid in shares of the Mercantil Bank Holding Corporation subsidiary, on the basis of one Class “A” share and one Class “B” share of the said subsidiary for each outstanding Class “A” and Class “B” shares of MSF, respectively, held by MSF shareholders at the “Effective Record Date”.
The amount in Bolivars of the dividend for each share is Bs. 59, resulting from calculating and estimating the book value of the shares of the aforementioned subsidiary to be distributed in dividend by the date of the General Shareholders’ Meeting held on December 15, 2017, at the applicable exchange rate according to legal regulations in force by the date of the decree of the said dividend, for a total amount calculated and estimated as a dividend in kind to be distributed of Bs 6,180,896,699.00. This amount will be applied by Mercantil on December 15, 2017 to retained earnings in order to record the corresponding liability with the respective shareholders receiving shares according to the dividend decree proposal.
This proposal of a dividend in kind takes into account the convenience of boosting up the development and expansion of the businesses of said subsidiary and its affiliates in the locations where they operate, and is considered in order to proceed with the registration of the mentioned subsidiary in the capital market of that jurisdiction to facilitate access to it and favor, in the future, the possibility of raising capital which contribute to strengthen its equity growth and later expansion of said businesses in that jurisdiction.
Additionally, the Meeting approved to grant in the Mercantil Board of Directors the designation of the “Effective Record Date” and the “Last Date Shares Trade (Cum-Dividend)”, corresponding to the aforementioned dividends.
New Measures announced in the Venezuelan Financial Environment The Superintendency of Banking Sector Institutions (SUDEBAN) communicated the guidelines to calculate the equity to assets and contingent operations ratio, applying risk-weighted criteria Sudeban communicated new parameters to determine the equity to assets and contingent operations ratio, considering: type and quality of the loan portfolio, changes in the weighing of some items of the cash and due from banks account. In addition, Sudeban added the realized and unrealized gains as part of the primary Tier Level I. The National Executive and the Venezuelan Central Bank released Exchange Agreement N° 39: Regulations for operations in foreign currency in the national financial system.
This agreement repeals Exchange Agreement N° 35, which established the DIPRO exchange rate (Bs. 10/US$ 1), instructs changes on the DICOM operation and allows broker houses to trade securities in bolivars and in dollars. The National Constituent Assembly issued a Constitutional Law for the creation of the Penalty Tax Unit (UTS – Unidad Tributaria Sancionatoria)
A special tax unit named UTS (Penalty Tax Unit), which will be used exclusively to determine the amount of fines and pecuniary sanctions, whose calculations are based on tax units, in the respective normative instruments that foresee them, was created. The regulation establishes, among other aspects: i) The National Executive will determine the value of the UTS and may readjust it within the first days of the month of February of each year, at the same time the ordinary Tax Unit (UT – Unidad Tributaria) is adjusted; ii) the UTS value will be established based on the variation of the Consumer Price Index (CPI) of the Caracas Metropolitan Area in the immediately preceding year; iii) fines and pecuniary sanctions provided in the legal system whose amounts are based on UT will be recalculated using the UTS included in this Law.
Awards and Acknowledgments Mercantil Banco Universal was recognized as the “Bank of the Year 2017” in Venezuela by The Banker
The Banker, a well-known financing magazine, acknowledged Mercantil Banco as the “Bank of the Year 2017” in Venezuela. The bank earned this distinction following an analysis not only of its financial performance, but also of its overall strategy, success in multi-channel banking, financial inclusion, as well as new initiatives in new technologies and customer satisfaction. Mercantil Servicios Financieros among the Top 200 financial institutions in Latin America
Mercantil Servicios Financieros ranked 10 in The Banker’s “Top 200 financial institutions in Latin America”. It also ranked 4th among Venezuelan institutions. Banks were ranked according to their Tier 1 at the close of 2016.
17
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
Mercantil Servicios Financieros among VenAmCham’s Top 100 Companies
The Venezuelan American Chamber of Industry and Commerce (VenAmCham) presented its “Top 100 Companies” ranking and included both Mercantil Servicios Financieros and Mercantil Seguros in positions 10 and 14, respectively. It also ranks Mercantil Banco as 3rd in the financial system, and Mercantil Seguros as 2nd among insurance companies. In addition, Mercantil Servicios Financieros was included in the Social Investments ranking, considering as social investment the non-compulsory expenses to finance projects aim to improve the quality of life of employees and their families, as well as local communities and society in general. The list includes the most successful companies in the country, with national or foreign capital, ranked by their total income at the close of 2016.
ANNEX I
Resumen de los Principios Contables Utilizados para la Preparación de los Estados Financieros
Financial statements are presented in accordance with the accounting standards of the SUNAVAL, in bolivars. A summary of some of the main accounting principles applied is given below:
Investment Portfolio Securities Held for Trading - Unrealized gains or losses resulting from differences in market value due to market fluctuations are included in the results for the period. Available-for-Sale Securities – Recorded at their market value. Unrealized gains or losses resulting from differences in market value and exchange rate fluctuations are included in shareholders’ equity. Held-to-Maturity Securities – Recorded at their acquisition cost, adjusted for amortization of premiums or discounts. For all portfolio investments, permanent losses in market value are recorded as a charge to income in the period in which they occur. Permanent investments – are investments that represent 20% to 50% stock ownership. Those greater than 50% are recorded as an equity interest and consolidated, except when control is likely to be temporary.
Loan Portfolio Loans are classified as overdue 30 days after their maturity. Allowances for loan portfolio losses are determined through a collectability assessment that quantifies the amount that must be set aside for each loan. These assessments take into account such aspects as economic conditions, credit risk by customer, credit history and the collateral received. When assessing loans for small amounts of the same nature, these are grouped together to determine the provisions required.
Recognition of income and expenditure Income, costs and expenses are recorded as they are earned or incurred. Interest earned on past-due loan portfolios is recorded as income when collected. Fluctuations in the market value of derivatives are recognized as income in the period in which they occur. Insurance premiums are recorded as income when earned.
Consolidation and discontinued operation The consolidated financial statements include the accounts of Mercantil and its more than 50%-owned subsidiaries and other institutions in which Mercantil has control. See the main subsidiaries on page 3. The net assets of Mercantil Bank Holding Corporation are presented as discontinued operations, given that their shares were given in dividends in December 2017.
Inflation Adjustment According to SUNAVAL standards, Mercantil’s financial statements, as of December 31, 1999 must be presented in historic figures. Since then Mercantil has ceased to adjust for inflation in its primary financial statements. As a result, fixed and other assets are shown at their inflation-adjusted value up to December 31, 1999. The market value determined by independent assessments is higher than the inflation cost adjusted for inflation indicated above. New additions are being recorded at their acquisition value.
Fixed assets The buildings and land of the main MERCANTIL headquarters are presented at market values determined by experts, the revaluation of assets is recorded in equity, net of deferred corporate tax income. The rest of the fixed assets are presented at their historical cost. Depreciation expense is recorded in the results of the period.
Assets and liability in foreign currency Transactions and balances in foreign currency are translated according to the best estimate of the expectations of the future flows of bolivars obtained, making use of mechanisms legally established, see Annex III.
Main differences between the accounting standards of SUNAVAL and the accounting standards of other subsidiaries
The main accounting differences for the reconciliation of items under SUNAVAL and SUDEBAN for Mercantil Servicios Financieros are:
Amortization of premiums or discounts of securities carried out on a straight-line basis under SUDEBAN standards and in accordance with the constant amortization rate under SUNAVAL standards.
Foreign exchange rate fluctuations are recorded in the results, with the exception of those that SUDEBAN indicates to be included in equity and are subsequently recorded in the results when SUDEBAN authorized.
18
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
ANNEX II
MERCANTIL SERVICIOS FINANCIEROS, C.A. CONSOLIDATED BALANCE SHEET
UNAUDITED FIGURES
(In millions of Bolivars, except percentages)
∆ ∆
December September December Dec. 17 vs Sep. 17 Dec. 17 vs Dec. 16
2017 2017 2016 Bolivars % Bolivars %
Cash and due from banks 8,236,648 2,013,008 575,390 6,223,640 309.2 7,661,258 1,331.5 Investment Portfolio 411,287 332,384 180,210 78,903 23.7 231,077 128.2
Discontinued Operation 7,519 0 0 7,519 100.0 7,519 100.0
Direct Productive Assets 321 5,199 0 (4,878) (93.8) 321 100.0
Loan Portfolio, Net 3,460,062 2,136,082 655,362 1,323,980 62 2,804,700 428
Other assets 1,554,186 408,024 73,769 1,146,162 280.9 1,480,417 2,006.8
TOTAL ASSETS 13,670,022 4,894,697 1,484,732 8,775,325 179.3 12,185,290 820.7
Deposits 11,257,784 4,067,331 1,281,647 7,190,453 176.8 9,976,137 778.4 Publicly Traded Debt Securities Issued 44,791 12,873 701 31,918 247.9 44,090 6,289.5 Financial Liabilities 43,543 47,949 14,240 (4,406) (9.2) 29,303 205.8 Other Liabilities 1,459,098 502,849 112,704 956,249 190.2 1,346,394 1,194.6
Total Liabilities 12,805,216 4,631,002 1,409,292 8,174,214 176.5 11,395,924 808.6
Minority interest in consolidated subsidiaries 212 148 36 64 43.0 176 488.2 Shareholders´ Equity 864,594 263,547 75,404 601,048 228.1 789,190 1,046.6
TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 13,670,022 4,894,697 1,484,732 8,775,325 179.3 12,185,290 820.7
MERCANTIL SERVICIOS FINANCIEROS, C.A. CONSOLIDATED INCOME STATEMENT
UNAUDITED FIGURES (In millions of Bolivars and US$, except percentages)
Quarter ∆
12 months
∆ Ended on Ended on
Dec. Dec. Dec. Dec. 2017 2016 Bolivars % 2017 2016 Bolivars %
Interest Income 296,385 38,641 257,744 667.0 573,671 116,121 457,549 394.0
Interest Expense 45,593 8,104 37,489 462.6 86,439 28,571 57,868 202.5
Net Interest Income 250,792 30,537 220,255 721.3 487,232 87,550 399,682 456.5
Provision for losses on loan portfolio 42,533 4,480 38,053 849.4 82,686 12,469 70,217 563.1
Net Financial Margin 208,259 26,057 182,201 699.2 404,546 75,081 329,465 438.8
Commissions and Other Income 147,235 14,502 132,733 915.3 255,460 37,306 218,153 584.8
Insures Premiums, Net of Claims 1,351 4,175 (2,824) (67.6) 22,155 12,028 10,127 84.2
Operating Income 356,845 44,734 312,110 697.7 682,160 124,416 557,745 448.3
Total Operating Expenses 223,257 32,376 190,881 589.6 454,970 94,915 360,055 379.3
Income Before Taxes 133,588 12,358 121,229 980.9 227,190 29,501 197,689 670.1
Total Taxes 65,969 3,956 62,013 1,567.6 105,444 11,633 93,811 806.4
Minority Interests 53 (4) 57 (1,495.7) 88 (11) 99 (927.0)
Discontinued operations 83 64 19 29.7 411 179 232 129.0
Net Income 67,755 8,463 59,292 700.6 122,246 18,036 104,209 577.8
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Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
MERCANTIL SERVICIOS FINANCIEROS, C.A.
Statement of Shareholders’ Equity
UNAUDITED FIGURES
(In millions of Bolivars)
2016 2017
Fourth Quarter Third Quarter Fourth Quarter
Beginning balance 68,292 229,810 263,546
Net income 8,462 34,346 67,755
Pension Plans Remeasurement (1,373) 0 (4,701)
Share repurchased (15) (769) 756
Unrealized Gain (loss) from adjustments on investments Available for sale to market value 52 166 (920)
Dividends decreed net of dividends paid to subsidiaries 8 0 (8,538)
Amortization of the surplus of fixed assets revaluation 0 0 (1,686)
Fixed assets revaluation 0 0 546,697
Translation effect of net assets in subsidiaries abroad (22) (7) 1,685
Final balance 75,405 263,546 864,594
1 Includes: Cash and Cash Equivalents, Cash and Due from banks, Investments in time deposits and placements within 90 days maturity.
ANNEX II
MERCANTIL SERVICIOS FINANCIEROS, C.A. CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED FIGURES (In Millions of Bolivars)
Quarter
Ended on 12 months Ended on
December
2017 December
2016 December
2017 December
2016
CASH FLOWS FROM OPERATING ACTIVITIES Continued Operation 67.672 8.387 121.836 17.855 Discontinues Operation 83 76 411 179 Net income 67.755 8.463 122.247 18.034
Net cash provided by operating activities 816.503 10.181 1.187.996 68.164
Net cash flows from investing activities (1.826.013) (127.680) (3.580.735) (364.409)
Net cash flows from financing activities 7.239.366 157.440 20.094.194 296.389
CASH AND CASH EQUIVALENTS1
Net increase for the period 6.229.856 39.941 7.654.358 437.727 Effect of exchange rate changes on cash 0 0 0 1.214
At the beginning of the period 2.026.500 220.593 601.998 163.057
At the end of the period 8.256.356 260.533 8.256.356 601.998
20
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Market Quote Mercantil Class A and Class B Shares vs. Caracas Stock Exchange (CSE) Index
Price MVZ/A Adjusted CSE Price MVZ/B
ANNEX III
Stock Performance
Quarter
Ended on
12 Months Ended on
December 2017
December 2016
December 2017
December 2016
Net income in billions of Bolivars 67,755 8,463 122,245 18,036
Mercantil’s stock indicators
Class A share:
Number of outstanding shares (Issued shares minus repurchased shares) 60,880,929 60,880,929 60,880,929
Market Price Bs 700,000,00 12,600,00 12,600,00
Average daily volume (# of shares) 19,042 2,977 8,742 3,659
Market Price / Book value per share 84.8 17.5
Market Price / Period Net Earnings per share 1,054.8 152.0 584.7 70.8
Class B share:
Number of outstanding shares (Issued shares minus repurchased shares) 43,880,032
43,880,032
43,880,032 Market Price Bs 700,000,00 12,600,00 12,600,00
Average daily volume (# of shares) 4,036 4,330 4,628 3,657
Market Price / Book value per share 84.8 17.5
Market Price / Period Net Earnings per share 1,054,8 152.0 584.7 70.8
Book value per share in Bs (Equity / # of outstanding shares)1 8,253.02 719.78 719.78
Total weighted outstanding shares 102,102,095 102,108,217 102,104,377 101,285,190
Earnings per share (Net Result / weighted outstanding shares) 663.60 82.88 1,197.26 178.07
1 Issued shares minus repurchased shares
21
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
ANNEX III
Quarter Ended on
12 Months Ended on
December
2017 December
2016 December
2017 December
2016
Balance Structure indicators
Gross Loans/Deposits 31.7% 52.7%
Profitability Ratios (%):
Net Interest Income / Average Financial Assets (NIM) 53.5% 20.1% 26.0% 14.5%
Commissions and other income / Total income 37.2% 37.8% 34.4% 35.8%
Return on average assets (ROA) 6.4% 3.7% 2,9% 2.0%
Return on average equity (ROE) 121.4% 54.7% 54.8% 29.2%
Efficiency Ratios (%):
Operating expenses / Average total assets 19.8% 13.1% 9.9% 9.4%
Operating expenses / Total income 52.5% 59.3% 56.3% 61.3%
Liquidity Ratios (%):
Cash and due from banks / Deposits 73.2% 44.9%
Cash and due from banks and Investments Portfolio / Deposits 76.9% 59.0%
Asset Quality Ratios (%):
Non-performing loans/ Gross loans 0.1% 0.4%
Allowance for loan losses / Non-performing loans 3,534.7% 764.4%
Allowance for loan losses / Gross loans 2.8% 3.0%
Capital Adequacy Ratios (%):
Shareholders equity / Assets 6.3% 5.1%
SUNAVAL-Risk based capital (minimum required 8%) 18.3% 10.1%
Number of employees
Employees in Venezuela 6,047 7,281
Employees Abroad 149 1,089
Distribution network
Branches in Venezuela 264 268
Bank branches 240 239
Insurance branches 24 29
Branches Abroad 10 30
Representative Offices 3 4
Number of ATMs 1,012 1,150
Number of points of sale (POS) 54,091 52,454
Mercantil Aliado Network:
Correspondent Desk - 64
Correspondent Trading Points 217 237
Exchange and inflation rates
Exchange rate Bs/US$1 (Controlled since February 2003) 9.975 9.975
Average Exchange Rate for the quarter (Bs/US$1) 9.975 9.975 9.975 9.3599
Summary of Financial Ratios
22
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
ANNEX IV
MERCANTIL C.A. BANCO UNIVERSAL
According to rules issued by SUNAVAL 1 UNAUDITED CONSOLIDATED FIGURES
(In millions of Bolivars, except percentages)
∆ ∆
December September December Dec. 17 vs. Sep. 17 Dec. 17 vs. Dec. 16
2017 2017 2016 Bolivars % Bolivars %
SUMMARY OF BALANCE SHEET ASSETS Cash and Cash Equivalents 8,194,451 1,998,337 568,396 6,196,113 310.1 7,626,055 1,341.7 Investments Portfolio 370,247 281,930 131,796 88,317 31.3 238,452 180.9 Loan Portfolio 3,456,164 2,076,837 595,302 1,379,327 66.4 2,860,862 480.6 Properties and Equipment and Other Assets 408,347 171,401 39,085 236,946 138.2 369,261 944.8
TOTAL ASSETS 12,429,209 4,528,505 1,334,579 7,900,703 174.5 11,094,629 831.3
LIABILITIES AND SHAREHOLDERS'EQUITY Deposits 11,455,246 4,057,099 1,226,267 7,398,148 182.4 10,228,979 834.2 Financial Liabilities and Other Liabilities 606,227 263,274 46,962 342,953 130.3 559,264 1,190.9
TOTAL LIABILITIES 12,061,473 4,320,372 1,273,230 7,741,101 179.2 10,788,243 847.3
SHAREHOLDERS´ EQUITY 367,735 208,133 61,349 159,603 76.7 306,386 499.4
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,429,209 4,528,505 1,334,579 7,900,703 174.5 11,094,629 831.3
Quarter 12 Months
Ended on Ended on ∆
Dec. Dec. Dec. Dec.
2017 2016 Bolivars % 2017 2016 Bolivars %
SUMMARY OF INCOME STATEMENT Interest Income 295,546 37,331 258,215 691.7 573,852 112,961 460,891 408.0 Interest Expense 41,532 7,749 33,782 435.9 81,302 27,767 53,535 192.8
Net Interest Income 254,014 29,582 224,432 758.7 492,550 85,194 407,357 478.2 Provision for Losses on Loan Portfolio 42,541 4,517 38,024 841.8 82,756 12,583 70,173 557.7
Net Financial Margin 211,474 25,065 186,409 743.7 409,794 72,610 337,184 464.4 Commissions and Other Income 137,416 13,702 123,714 902.9 236,323 34,660 201,663 581.8
Operating Income 348,890 38,767 310,123 800.0 646,117 107,270 538,847 502.3 Operating Expenses 197,116 28,353 168,762 595.2 395,814 79,343 316,470 398.9
Income before taxes 151,774 10,413 141,361 1,357.5 250,304 27,927 222,377 796.3 Taxes 60,299 3,370 56,929 1,689.2 99,860 9,325 90,535 970.9
NET INCOME 91,475 7,043 84,432 1,198.7 150,444 18,602 131,842 708.7
Mercantil Banco Universal
Indicators1 from Consolidated Financial Statements
System Dec. Dec.
Average2 2017 2016
Net Interest Income / Average assets 10.0% 12.6% 10.9%
Return on average assets (ROA) 2 4.6% 3.8% 2.4%
Return on average equity (ROE) 2 100.8% 89.4% 39.6%
Non-performing loans / Gross loans 0.1% 0.1% 0.3%
Allowance for loan losses / Past-Due and Non-performing loans 4,036.7% 1,487.0% 959.4%
Allowance for loan losses / Gross loans 2.1% 2.8% 3.2%
Operating expenses / average total assets 6.1% 6.8% 7.9%
Equity / Assets 3.2% 3.6% 4.6%
Equity / Assets minus Venezuelan Government Investments N.A. 11.1% 11.2%
Equity / Risk-weighted Assets N.A. 12.3% 13.1%
1 Consolidated. 2 Based on annualized figures. N.A: Not Available
23
Contact: Investor Relations. Phone: 58-212-503.1335. e-mail: [email protected]. website: www.msf.com.
ANNEX V
MERCANTIL SEGUROS
According to rules issued by SUDEASEG Unaudited Consolidated Figures
(In millions of Bolivars, except percentages)
∆ ∆
December September December Dec. 17 vs. Sep. 17 Dec. 17 vs. Dec. 16
2017 2017 2016 Bolivars % Bolivars %
SUMMARY OF BALANCE SHEET ASSETS Investments suitable for representing Technical Reserves 415,002 81,416 64,576 333.586 409.7 350,426 542.7 Investments no-suitable for representing Technical Reserves 229,363 100,471 25,300 128.891 128.3 204,063 806.6 Other assets 72,619 40,658 14,949 31.961 78.6 57,670 385.8
TOTAL ASSETS 716,984 222,546 104,825 494.438 222.2 612,159 584.0
LIABILITIES AND SHAREHOLDERS’ EQUITY Technical Reserves 163,814 77,338 37,487 86.475 111.8 126,327 337.0 Other provisions and other liabilities 96,001 50,636 15,568 45.365 89.6 80,433 516.6
TOTAL LIABILITIES 259,815 127,974 53,055 131.840 103.0 206,760 389.7
SHAREHOLDERS’ ÉQUITY 457,169 94,572 51,770 362.597 383.4 405,399 783.1
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 716,984 222,546 104,825 494.438 222.2 612,159 584.0
Quarter
12 Months
Ended on ∆ Ended on ∆
Dec. Dec. Dec. Dec.
2017 2016 Bolivars % 2017 2016 Bolivars %
SUMMARY OF INCOME STATEMENT Earned Premiums Received 80,933 20,918 60,015 286.9 196,861 62,805 134,056 213.4 Claims Incurred (60,302) (12,610) (47,692) 378.2 (132,913) (38,918) (93,995) 241.5 Commissions and Acquisition Expenses (14,656) (3,751) (10,905) 290.8 (32,348) (10,578) (21,771) 205.8 Management Expenses (13,804) (2,037) (11,768) 577.8 (28,873) (6,675) (22,198) 332.6 Taxes and Contributions (10,534) (1,796) (8,738) 486.4 (20,464) (5,042) (15,422) 305.9
Technical Result (18,363) 725 (19,087) (2,634.6) (17,738) 1,593 (19,331) (1,213.5) Income from Investments 2,458 1,929 529 27.4 23,401 3,270 20,131 615.7 Foreign exchange gains 5,506 (880) 6,386 (725.4) 17,795 3,907 13,888 355.5 Taxes (1,071) (299) (771) 257.7 (2,190) (2,760) 570 (20.7) Contracts of excess of lost (2,793) (175) (2,618) 1,500.5 (6,084) (514) (5,570) 1,083.5
NET INCOME (14,263) 1299 (15,562) (1.198.2) 15,184 5,495 9,689 176.3
1 Combined ratio = (incurred claims + commissions + operating expenses) / earned premiums 2 In numbers 3 Market Share at 11/30/2017
Mercantil Seguros Indicators
(In millions of Bolivars, except percentages and insured persons) Quarter 12 Months
Ended on Ended on
Dec. Dec. Dec. Dec.
2017 2016 2017 2016
Premiums Received Net 171,506 28,863 323,867 84,759
Market Share 3 8.3% 10.0%
Equity / Total Assets 63.8% 50.0%
Incurred Claims / Earned Premiums (%) 74.5% 60.3% 67.5% 62.0%
Commissions and Acq. Expenses / Earned Premiums (%) 18.1% 17.9% 16.4% 16.8%
Administrative Expenses / Earned Premiums (%) 17.1% 9.7% 14.7% 10.6%
Combined Ratio (%) 1 122.7% 96.5% 109.0% 97.5%
Insured Persons 2 1,951,777 1,990,364