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2016SEMI-ANNUAL

REPORT

2 SEMI ANNUAL 2016 REPORT

1 Mercantil Servicios Financieros

CONTENTS

Presentation 3

Mercantil’s Stock Performance 4

Financial Highligths 5

Board of Directors and Administration 6

Notice of Ordinary General Shareholders’ meeting 7

Board of Directors’ Report 8

Statutory Auditors’ Report 18

Financial Statements 19

Economic Climate 23

Management Discussion and Analisys 27

Performance of Subsidiaries 37

Corporate Contacts and Subsidiaries 43

SEMI ANNUAL REPORT 2016

Mercantil Servicios Financieros is the first and most comprehensive financial services provider

in Venezuela. It operates in 10 countries in the Americas and Europe. It registered Bs 829,633

million in total assets and Bs 65,202 million in equity with over 8,000 employees. It shares

are listed on the Caracas Stock Exchange (MVZ.A and MVZ.B), it holds a level 1 American

Depositary Receipt program (ADR) in the over-the-counter market (OTC) in the United State

of America (MSFZY and MSFJY). Mercantil has played an active role in the development of

the various markets and geographical areas where it operates in the banking, insurance and

wealth management businesses.

The mission of Mercantil Servicios Financieros (Mercantil) is “to fulfill the needs of our

customer by providing excellent financial products and services, attain the aspirations of our

employees, support the development of the communities where Mercantil has presence and

add value for our shareholders through a long term outlook.”

Mercantil operates through the following subsidiaries: Mercantil Banco Universal in

Venezuela, founded in 1925. At June 30, 2016, it has a national network of 264 branches, one

agency in Coral Gables, Florida, one branch in Curaçao and representative offices in Bogotá,

Lima, México, Sao Paulo and New York; Mercantil Commercebank, N.A. in the United States

of America, with 16 branches in Florida, 7 branches in Houston and one in New York; Mercantil

Bank (Schweiz) AG in Switzerland; Mercantil Bank (Curaçao) N.V. in Curaçao; Mercantil Bank

(Panamá) with 4 branches in Panama; Mercanti Bank and Trust, Ltd. (Cayman) in the Cayman

Islands; Mercantil Merinvest C.A. in Venezuela; Mercantil Capital Markets (Panamá) y

Panama; Mercantil Seguros with 33 offices in Venezuela; Mercantil Seguros Panamá in

Panama and Mercantil Inversiones y Valores, holding of other support subsidiaries.

It also carries out important social commitment in various sectors of the community, in

Venezuela through Fundación Mercantil; in South Florida and Houston; through Mercantil

Commercebank, N.A.; and in Panama through Mercantil Bank (Panamá).



Mercantil’sStock Performance

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

Earnings per share (1)

Closing Price Class A shareClass B share

Market price/ Earnings per share (1)Class A shareClass B share

Book value per share (2)

Market price / book value (2)Class A shareClass B share

Number of outstanding sharesClass A shareClass B share

Daily Average Traded Volume (Shares)Class A shareClass B share

Paid DividendsIn stock (new shares for each share held)In cash (Bs per share)

Cash dividends for the year / Market price (%)Class A shareClass B share

"Caracas Stock Exchange: MVZ A & MVZ B

Level 1 ADR: MSFZY y MSFJY"

Semester ended

67.31

4,785.004,700.00

71.169.8

622.38

7.77.6

60,880,92943,880,032

5,2304,297

-15.75

0.30.3

June 30

2016bolivars

71.56

5,000.005,000.00

69.969.9

435.69

11.511.5

59,401,34342,813,618

3,2381,824

-0.00

0.00.0

December 31

2015bolivars

70.18

4,760.004,800.00

67.868.4

370.11

12.913.0

59,401,34342,813,618

1,6514,889

-14.50

0.30.3

June 30

2015bolivars

59.32

1,400.001,400.00

23.623.6

318.49

4.44.4

59,401,34342,813,618

44,72328,005

-1.50

0.10.1

December 31

2014bolivars

40.08

650.00650.00

16.216.2

262.22

2.52.5

59,401,34342,813,618

18,7671,348

-9.50

1.51.5

June 30

2014bolivars

(1) Calculated based on weighted average shares issued minus repurchased shares adjusted by stock dividens.(2) Calculated based on outstanding shares issued minus repurchased shares adjusted by stock dividens.

0

dec-

99

jun-

00

dec-

00

jun-

01

dec-

01

jun-

02

dec-

02

jun-

03

dec-

03

jun-

04

dec-

04

jun-

05

dec-

05

jun-

06

dec-

06

jun-

07

dec-

07

jun-

08

dec-

08

jun-

09

dec-

09

jun-

10

dec-

10

jun-

11

dec-

11

jun-

12

dec-

12

jun-

13

dec-

13

jun-

14

dec-

14

jun-

15

dec-

15

jun-

16

1,000

2,000

3,000

4,000

5,000

6,000

7,000

(1)

(1) No Stock Exchange activities at this time

MVZ.AMVZ.BAdjusted CSEI


Financial Highligths

Balance SheetTotal AssetsLoan Portfolio (Net)DepositsShareholders’ Equity

Income StatementNet Interest IncomeCommissions and Other IncomeOperating ExpensesNet Income

Profitability Indicators (%)Net Interest Income / Average Financial Assets (NIM)Commissions and Other Income / Total IncomeNet Earnings for the Period / Average Equity (ROE)Net Earnings for the Period / Average Assets (ROA)

Capital Adequacy Indicators (%)Equity / Risk-Weighted Assets (regulatory minimum 8 %) (1)

Equity / Assets

Loan Portfolio Quality Indicators (%)Past-Due and Non-Performing Loans / Gross Loan PortfolioAllowances for Loan Losses / Past-Due + Non-Performing LoansAllowances for Loan Losses / Gross Loan Portfolio

Efficiency Indicators (%)Operating Expenses / Average Total AssetsOperating Expenses / Total Income

Liquidity Indicators (%)Cash and Due from Banks / DepositsCash and Due from Banks and Investment Portfolio / Deposits

Other Indicators (%)Gross Loans / DepositsFinancial Assets / Total Assets Financial Assets / Deposits

Number of EmployeesEmployees in VenezuelaEmployees Abroad

Banking Distribution NetworkBranches in Venezuela (2)

Branches AbroadRepresentative OfficesMercantil Aliado Network

Correspondent DeskCorrespondent Trading Points

Automatic Teller Machines (ATM)Point of Sale Terminals (POS) (3)

Consolidated Earnings(In thousands of Bs except percentages and Other Indicators)

Semester ended

829,833,387447,418,252686,186,86165,201,497

30,145,64814,888,097

(37,676,888)6,761,894

13.4 %35.7 %24.6 %

1.9 %

12.7 %7.9 %

0.3 %940.3 %

3.0 %

9.0 %61.9 %

29.2 %47.6 %

67.2 %70.6 %85.4 %

7,9521,133

29734

5

8568

1,24552,268

June 30

2016bolivars

634,324,610344,140,584534,903,16644,533,603

21,458,2419,474,206

(22,020,643)7,129,971

12.0 %32.3 %37.1 %3.0 %

11.4 %7.0 %

0.2 %1,273.3 %

3.0 %

6.4 %48.3 %

29.1 %47.1 %

66.3 %70.9 %84.1 %

8,6961,161

29834

5

10972

1,33353,023

December 31

2015bolivars

459,082,436251,400,477

379,040,09537,830,808

15,274,9745,949,807

(13,529,785)6,961,792

11.3 %31.1 %

39.8 %3.5 %

13.4 %8.2 %

0.2 %1,378.7 %

3.0 %

5.6 %45.1 %

27.4 %49.0 %

68.4 %74.1 %89.7 %

8,9021,107

29832

5

12089

1,33150,293

June 30

2015bolivars

355,520,544197,382,285

294,674,67032,553,965

10,414,6874,944,737

(10,977,682)5,880,449

9.3 %33.2 %36.3 %

3.4 %

15.2 %9.2 %

0.3 %1,186.9 %

3.1 %

5.3 %49.1 %

26.1 %49.5 %

69.2 %76.5 %92.3 %

8,8501,003

29930

5

125122

1,37950,903

December 31

2014bolivars

287,517,063156,840,303236,080,97526,802,902

7,666,4413,317,555

(7,762,908)3,973,940

8.5 %33.0 %31.1 %3.0 %

15.9 %9.3 %

0.4 %784.8 %

3.0 %

4.8 %49.2 %

22.0 %51.5 %

68.5 %80.2 %97.7 %

8,917957

29929

5

127185

1,38551,750

June 30

2014bolivars

(1) In accordance with the standards of the National Securities Superintendency(2) Excludes internal branch for employees, at Edificio Mercantil (Caracas)(3) Physical Points of Sale (POS)


Board of Directors

Note: The Audit, Compesation and Risk Committees were created pursuant toprovision in the By-laws and in accordance with a resolution by the Board ofdirectors. These commitees are made up of independent Directors and are attendedby the Chairman and the CEO (ex-officio).

(1) Member of the Audit Committe(2) Member of the Compensation Committe(3) Member of the Risk Committe

Gustavo Vollmer A.Chairman & CEO

Alfredo Travieso P. 2

Luis A. Romero M. 2

Gustavo Galdo C. 3

Miguel A. Capriles L.2

Víctor J. Sierra A. 2

Federico Vollmer A.3

Roberto Vainrub A. 3

Millar WilsonGustavo Marturet Medina 1

Eduardo Mier y Terán 1

Luis A. Marturet M.2

Francisco Monaldi M.3

Claudio Dolman C.2

Carlos Zuloaga T. 3

Alejandro González Sosa 2

Miguel A. Capriles C. 1

Luis Pedro España N. 1

Alberto Sosa S. 3

Alexandra Mendoza Valdés 1

Rafael Sánchez B. 3

Nelson Pinto A.René Brillembourg C.1

Nerio Rosales R. 2

Fernando Eseverri I. 1

Oscar A. Machado K. 2

Francisco Torres P. 1

Gustavo A. Vollmer S. 3

Gustavo Machado C. 3

Carlos Acosta 1

Guillermo Ponce Trujillo

Rafael Stern S.

Francisco De LeónManuel Martínez Abreu

Umberto ChiricoGladis Gudiño

Luis Alberto Fernandes

Paolo Rigio C.

Principal Directors

Alternate Directors

Secretary

Alternate Secretary

Statutory Auditors

Alternate Statutory Auditor

Legal Counsel

Alternate Legal Counsel

Luis Calvo Blesa *Global Human Resources and Corporate Communications Manager

Luis Alberto Fernandes *Global Chief Legal Counsel

Vincenza Garofalo S. *Global Chief Risk Officer

Rodolfo Gasparri G. *Global Operations and TechnologyManager

Jorge Pereira *Global Personal Banking Manager

Isabel Pérez S. *Global Chief Financial Officer

Carlos Tejada G. *Global Commercial Banking Manager

Guillermo Ponce TrujilloBoard of Directors Secretary

Rafael Stern S.Alternate Secretary

Anahy Espiga Corporate Strategic Planning Manager

Luis M. Urosa Z.Corporate Compliance

Maigualida Pereira C.Compliance Officer - Prevention ofMoney Laundering and TerroristFinancing

Gustavo Vollmer A. *Chairman & CEO

Millar Wilson *Executive Director of International Business

Alfonso Figueredo D. *Global Executive Vice Presidentof Operations and Administration

Fernando Figueredo M. *Global Executive Vice Presidentof Business

Nelson Pinto A. *Executive PresidentMercantil Banco Universal

María Silvia Rodríguez F. *Executive PresidentMercantil Seguros

Administration

(*) Member of the Committe Executive


Notice of OrdinaryGeneral Shareholder’s meeting

The Board of Directors hereby convenes the General Shareholders Meeting, to be held at the Auditorium of Edificio Mercantil, Av. Andrés

Bello, Nº 1, San Bernardino, Caracas, on September 16, 2016 at 9:30 am, with the following:

1. Consideration of the Board of Directors’ Report and the Company’s Audited Financial Statements as of June 30, 2016, in light of the

Statutory Auditors’ Report.

2. Consideration of the “Proposal for the 34th Phase of the Company’s Share Repurchase Program,” presented by the Board of Mercantil

Servicios Financieros, C.A.

3. Consideration of the “Proposal for Authorizing the Board to Issue and Allocate Debt and/or Securities, presented by the Board of

Mercantil Servicios Financieros, C.A. to the consideration of the Ordinary General Shareholders Assembly of September 16, 2016.”

4. Consideration of an adjustment in the remuneration of the members of the Board.

N.B.: The shareholders are hereby notified that the Balance Sheet, Income Statement, Statement of Shareholders’ Equity, and Statement

of Cash Flows for the period ending June 30, 2016, duly audited by the External Auditors “Espiñeira, Pacheco y Asociados”; the

Statutory Auditors’ Report; the Board of Directors’ Report, and the aforementioned proposals, that the Board of Directors of Mercantil

Servicios Financieros, C.A., submits to the consideration of the Ordnary General Shareholders Meeting to be held September 16,

2016 will be available to them 15 days in advance of the Meeting, at the Company’s headquarters: Av. Francisco de Miranda entre

Segunda y Tercera Transversal de la Urbanización Los Palos Grandes, Centro Comercial El Parque, Segunda y Tercera Etapas, P03,

Locales C-3-10 y C-3-11, Municipio Chacao, Estado Miranda.

Caracas, August 18, 2016

On behalf of Mercantil Servicios Financieros, C.A.

Guillermo Ponce Trujillo

Secretary of the Board of Directors

MERCANTIL SERVICIOS FINANCIEROS, C.A. Authorized Capital Bs 1,361,892,493.00Subscribed and Paid-In Capital Bs 680,946,246.50 Caracas - Venezuela


Caracas, August 18, 2016

Dear Shareholders:

We are please to present the consolidated results and main activities of Mercantil Servicios

Financieros for the first semester of 2016.

The Financial Statements of Mercantil Servicios Financieros, included in this report, consolidate

the activities of its subsidiaries and were prepared in accordance with the standards of the

National Securities Superintendency.

Financial Results

Mercantil reported semi-annual net income of Bs 6,762 million, compared with Bs 7,130 million

achieved in the second half of 2015. The main contributions to this income were Mercantil, C.A.,

Banco Universal with Bs 8,743 million; Mercantil Seguros, C.A. with Bs 891 million; Mercantil

Commercebank Florida Bancorp with Bs 29 million and Mercantil Merinvest, C.A. with 27 million.

It should be noted that in accordance with various regulatory provisions both in Venezuela and

abroad, several Mercantil’s subsidiaries have made contributions to various government

agencies in Venezuela and abroad, totalling Bs 8,830 million and accounting for 20.9 % of

Mercantil’s expenses. These, combined with Corporate Income Tax, amount to Bs 13,416 million

and represent 31.8 % of its expenses. Bs 8,768 million of the Bs 8,830 million correspond to the

amount paid in Venezuela and Bs 62 million to the amount paid abroad.

Mercantil Servicios Financieros’ total assets grew 30.8 % to Bs 829,833 million compared to

December 2015 and shareholders’ equity closed at Bs 65,202 million, 46.4 % more than in

December 2015.

The net loan portfolio grew 30.0 % to Bs 447,419 million compared with Bs 344,141 million at

the close of 2015. Loan portfolio quality remained at acceptable levels. The ratio of past-due and

nonperforming loans to total loans was 0.3 %, considering the overall loan portfolio of Mercantil

Servicios Financieros, which consolidates the portfolios of Mercantil, C.A., Banco Universal,

Mercantil Commercebank Florida Bancorp, Mercantil Bank (Schweiz) AG, Mercantil Bank

(Curaçao) N.V. and Mercantil Bank (Panamá) S.A.

The ratio of allowances for loan losses over past-due and nonperforming loans was 940.3 %,

compared to 1,273.3 % at the close of 2015.

Board of Directors’ Report


For this six-month period, the efficiency ratio measured by calculating operating expenses as a

percentage of average assets, was 9.0 %, compared to 6.4 % at the close of 2015; while the

efficiency ratio, measured by calculating operating expenses as a percentage of total net income

was 61.9 %, compared to 48.3 % in 2015.

The equity/risk-weighted assets ratio was 12.7 % (regulatory minimum 8 %). This ratio was

11.4 % at the close of 2015 and is determined according to the guidelines of the National

Securities Superintendency, which are based on the standards of the Basel Committee on

Banking Supervision of the Bank for International Settlements.

The Ordinary General Shareholders' Meeting held on March 18, 2016, approved an ordinary cash

dividend to be paid out of the profits at December 31, 2015, for each common Class A and B

outstanding shares, payable in two portions (one for Bs 2.25 and another for Bs 3.00 per share),

the first on April 10, 2016 and the second on October 10, 2016. It also announced an

extraordinary cash dividend for each common Class A and B outstanding share paid at the rate

of Bs 13.50 per common share payable on May 27, 2016. The amount paid for the first portion of

the ordinary cash dividend was Bs 229,983,662.25, while the sum paid out in extraordinary

dividends was Bs 1,414,272,973.50, for a total of Bs 1,644,256,635.75.

During 1H 2016, Mercantil had placed the entire series 1 and 2 of Issue 2015-I of Unsecured

Bonds amounting to Bs 100 million. In addition, series 8 of Issue 2015-I of Commercial Papers

was placed, for Bs 40 million, and series 1 to 5 of Issue 2015-II of Commercial Papers for Bs 440

million.

Similarly, Mercantil has the following outstanding Unsecured Bonds for series 1 and 2 of Issue

2013-I for Bs 60 million, series 1 and 2 of Issue 2014-I for Bs 40 million and series 1 and 2 of Issue

2014-II for Bs 100 million. In addition series 3, 4, 6 and 7 of Issue 2015-I for Bs 220 million of

Commercial Papers are outstanding.

The Stock Repurchase Program initiated in May 2000 is currently in its Thirty-Third Phase, as

approved at the Shareholders' Meeting held on March 18, 2016. Given the stock market situation,

no new shares were repurchased between January 1 and June 30, 2016. At the close of the first

half of 2016 Mercantil did not hold any shares in Treasury.


Credit Ratings

Mercantil Servicios Financieros obtained “A1” and “A2” risk ratings from Fitch Ratings and

Clave Sociedad Calificadora de Riesgo, for its commercial paper and unsecured bond issues,

respectively. These are among the highest possible ratings for a debt instrument, in Venezuela.

In its recent evaluation issued in April 2016, Fitch Ratings also ratified Mercantil Servicios

Financieros' long-term national rating of "A+” and its short-term national rating of “F1+.”

In January 2016, Fitch Ratings also affirmed Mercantil Banco's national risk ratings of “AA-(ven)”

long term, and “F1+(ven)” short term, the best national qualifications granted to a private

financial institution in Venezuela. In addition, Fitch Ratings ratified Mercantil Banco

Universal's international risk ratings of “CCC” for the long-term, “C” for short-term, and “ccc”

for Viability. These ratings are in line with Venezuela's sovereign rating, considering that the

Bank's international ratings are largely dependent on the country risk.

Fitch Ratings also affirmed in June 2016 the international ratings of Mercantil Commercebank

Holding Corp., Mercantil Commercebank Florida Bancorp and Mercantil Commercebank N.A.

subsidiaries at “BB” long term with a "Stable" outlook, “B” short term and “bb” Viability.

Venezuela’s sovereign rating also influences these ratings.

Products and Services

The Mercantil Banco subsidiary continued to offer products and services to suit the needs of

more than 4,899,000 customers, around 110,000 of which were incorporated during the six-

month period.

In the credit card product the bank has a market share of 13.46 %, for a total portfolio of Bs 83,307

million (including parallel lines of credit). During the first half of the year, the bank

implemented a strategy focused on selectively increasing credit limits to the best clients in

its portfolio, to promote loyalty and preference, which resulted in an additional exposure of

almost Bs 7,700 million.

In addition, the credit limits of the parallel lines Préstame and CrediPlan/CrediFácil instant

loans products were increased to Bs 600,000, throughout various promotional strategies for

these modalities.

The bank continued to implement its consolidation process to include the unbanked sector

of the population and support the Majorities Banking segment through the Mercantil Aliado

network, operating in 14 states and the Capital District, and through the offer of

Microenterprise Credits product. At the close of June 30, 2016 the Microenterprises Credits

reached Bs 14,216 million, with 12,182 active borrowers, reflecting a 31 % increase from

December 2015 and 106 % from June 2015. More than 291,429 Tarjetas Efectivo (Cash Cards)

are in operation, representing 10 % more than at the close of 2015.


There are over 7,200 active users in Mercantil Business Mobile and over 600,000 users in

Mercantil Personal Mobile, which together carried out over 65 million transactions.

It should be note the growth of the Online Fast Business Credit (Pronto Crédito Empresarial)

functionality, which generated 91 % of a total 5,979 requests for credit, representing 89 % of

total amount of loans settled (Bs 20,070 million).

The boost and development of the Mercantil Business Mobile new app, has been of particular

significance, which allows clients to carry out banking transactions using their mobile device

(smartphone or tablet), available 24 hours daily. Mercantil Banco has been the first bank to

grant loans through a mobile application maintaining the security standards usually applied

by the Bank, thereby increasing clients loyalty.

During the first half of 2016, 9,012 mobile devices have been registered, being associated with

7,291 companies affiliated to Mercantil Business Online Banking, which generated over

700,000 transactions through this new mobile application corresponding to 609,000

consultations, and more than 91,000 financial transactions, of which 323 were requests for

Online Fast Business Credit (Pronto Crédito Empresarial) and 91,296 for money transfers.

Mercantil Online Banking continues to garner preference among clients, reaching at the end

of June 2016 more than 1,390,000 users of Mercantil Personal Online Banking and more than

86,000 active users in Mercantil Business Online Banking. Together Mercantil Online Banking

processed over 382 million transactions, representing 58 % of the transactions carried out

through all channels.

At the close of June 2016, the Mercantil Vía Rápida fast-track self service areas processed more

than 3 million transactions, 50.84 % of the total transactions managed through branch offices

were processed by Mercantil Vía Rápida.

The distribution of transactions by channel for the period was as follows:

Mercantil Business and Personal Online Banking

Point-of-sale

Automatic Teller Machine Network

Mobile Devices (Personal and Business)

Office Network

Mercantil Customer Call Center

Mercantil Aliado Network

PRODUCT

382

115

64

65

22

8

1

TRANSACTIONS(In MillIons )

58

18

9

10

3

1.6

0.4

WEIGHT (%)


At the close of the semester, the official Twitter account of the Bank, @MercantilBanco had

more than 234,000 followers. This account is primarily intended to provide information and

advice on bank’s services products and activities. With more than 38,700 approaches in three

and a half years, this account is ranked fourth in the Venezuelan financial sector, according to

the “Klout” indicator, which measures the account followers influence interactions.

The Mercantil Commercebank subsidiary, maintaining the focus on providing client-friendly

services, updated its Mercantil Mobile platform. The new system has better navigation and a

fingerprint recognition sensor. This app is available to AppleWatch® users, also allowing the

user to select the language of their choice, English or Spanish. The new platform continues the

goal of improving the quality of new technologies.

Also during this last semester, in order to reduce the risk of check fraud, it made available to

clients the Positive Pay service, which allows the clients to provide the Bank with a list of the

issued checks daily to be compared electronically when presented for payment; in the case of

discrepancies, it generates a client alert through Online Banking. Also available is the ACH

Collections service, which allows clients to manage and collect transactions, both incoming

and outgoing, in an efficient and cost-effective manner.

During the semester, the Mercantil Seguros subsidiary continued to consolidate the sales

channel Business Referral for Individuals and Companies, increasing the ratio of new client

and reaching high levels of contact and effectiveness; focusing on the high profitability

products such as Línea Vital (Personal Accidents Life, Funeral and Income Protection insurance)

and Industry and Commerce (SME), with new options for contracting the Renta Vital and

Tranquilidad Vital policies.

On the other hand, the range of options offered in policies covered in foreign currency has

been expanded, which allow better protection and safeguarding of the insured persons or

goods, minimizing the effects of inflation, also providing services abroad for International

Health Products.

Mercantil Seguros has started a process of client acquisition and loyalty through alliances with

providers and service centers, actively participating in events; organized by them which allow

an approach to potential new clients to whom the benefits of the available products and

services are shown, expanding channels sales. At the same time, the direct marketing strategy

was strengthened, with campaings for the renewal and sale of e-mail marketing, considered

as a reference in the insurance market, allowing clients and advisors to select the best contract

options in a fast and easy way.

As part of the optimization process implemented in order to offer greater advantages at the

time of claim payments, Mercantil Seguros implemented electronic transfers to the insured’s

account, as a payment method, for claims declared as total loss in the vehicle segment,

reducing response times, improving quality of service and attention to clients.


Always at the forefront of technological advances, differentiating new features were added to

the digital platforms in order to facilitate attention processes via the Advisor Portal, expanding

the web service for individual vehicles policies: allowing to select the amount, deductibles and

coverages options to hire in a quickly and easy manner in addition to other self-management

possibilities already offered in this Portal.

In terms of internal and external communications, the Coffee sessions with the Expert

continued, as an institutional voice mechanism to reinforce the communication channels and

boost new businesses, focusing on Property Insurance products, Línea Vital and Single

Payment of certain illnesses, with the active participation of insurance advisors and staff.

In Venezuela the Mercantil Fixed Income Portfolio, Fondo Mutual de Inversión de Capital

Abierto, C.A. mantained its leading position in the investment services business reaching Bs

3,036 million in assets for a total of 195,113 clients, with an increase of 15 % in the period. Within

the Mercantil Fixed Income Fund, the Plan Crecer Mercantil product, which is a systematic

form of investment affordable to anyone, continued its expansion to Bs 2,169 million in assets.

The Mercantil Fixed Income Portfolio celebrates, this year, 20 years of presence in the

Venezuela securities market, acknowledging the loyalty of its clientes during all these years.

On the other hand, the Mercantil, C.A., Banco Universal Trust recorded a managed volume of

Bs 33,850 million, 20 % up from the close of 2015, mainly due to Occupational Contingency

Trust and Escrow Trust. During this period, the activities focused on the optimization of the

quality of service, improving the information provided to clients.

In the United States, Mercantil Commercebank Investment Services, Inc. (MCIS), a subsidiary

of Mercantil Commercebank, N.A., offers Brokerage and Investment Advisory services. The

first half of 2016 closed with 3,232 clients. The volume of assets under management grew by

0.3 % compared to 2015, mainly due to the stock markets performance. In 2016, the effort on

continuous improvement to generate operational efficiencies and increase the customer base.

In terms of trust, Mercantil Commercebank Trust Company, N.A. registered 3.0 % increase in

consolidated assets under management over the same period in 2015, for the same reasons

cited for Mercantil Commercebank Investment Services, Inc. (MCIS). It should be noted that

efforts continued aimed at optimizing customer service levels, focusing on the needs of estate

planning and inheritance, as well as identifying opportunities to increase efficiency.


Prevention and Control of Money Laundering and Terrorism Financing

Prevention and control of money laundering and terrorism financing is a priority for Mercantil

and an integral part of our organizational culture. The company has maintained internal control

and monitoring of its subsidiaries' activities to ensure early detection of suspicious

transactions, and has stepped up staff training in this area.

To ensure compliance with anti-money laundering legislation, Mercantil has in place a

wellstructured “Comprehensive Money Laundering and Terrorism Financing Prevention and

Control System” at its Venezuelan and overseas subsidiaries, in addition to Operational and

Follow-Up Plans, and Monitoring and Oversight programs. The company's “Know your

Customer” policy is the main guideline in this area.

Corporate Social Commitment

During the first half of 2016, Mercantil executed a social investment through its Mercantil

Banco Universal, Mercantil Seguros, Mercantil Merinvest and Mercantil Commercebank

subsidiaries, as well as Fundación Mercantil, which targeted various programs, projects and

initiatives undertaken by renowned educational and social development organizations in

Venezuela and the United States.

Mercantil earmarked 17 % of the contributions to Elementary and Higher Educational

Institutions, particularly entrepreneurship and college scholarships programs; and 83 % for

Social Development Organizations that foster health prevention programs, social programs

for children and young people.

Mercantil’s strategy and focus has been the joint development, with various social institutions

in the geographical areas where the companies operate, of several initiatives with a direct

impact on the communities and its citizens, whose added value tends to strengthen the

organization of these institutions and, at the same time, create opportunities for better

educational and entrepreneurial formation of the young and the promotion of values, as well

as other social assistance actions.


During the first half of 2016, highlights the continued programs of Fe y Alegría, and the support

to the educational sector through the Asociación Venezolana de Escuelas de Educación

Católica (AVEC - Venezuelan Association of Catholic Schools), that benefits approximately

500,000 students; as well as the contributions and support to programs and initiatives of

several social, health and cultural institutions, such as: Fundación para el Desarrollo de la

Educación, Asociación Venezolana de Buena Voluntad, Fundación Alzheimer, Un Techo para

mi País Venezuela A.C., Fundación Patronato del Hospital J.M. de los Ríos, Fundación Jacinto

Convit and the Caracas Archidiocese, all welknown social institution that carry out community

support programs.

As part of Mercantil’s Social Commitment a new program was promoted by Fundación

Mercantil, together with Alianza Social VenAmCham and Red Venezolana de Organizaciones

para el Desarrollo Social, named “Institutional Strengthening of Social Development

Organizations”. The purpose of which is to provide tools and methodologies to those

institutions; in order to serve as a formation program to support the management of their

activities in a more efficient way promoting their sustaintability in the long term. More than

100 representatives of 22 organizations in the country were part of this program.

Mercantil continued to develop the Online Donation Program in Venezuela “Un Aporte por

Venezuela”, as well as the culture support program that develops Espacio Mercantil, a place

of diffusion and promotion of the historiography of the national art. During this semester the

“Revisiones” exhibition was presented (two decades of Venezuelan artists’ paintings).

In the United States, as part of its Corporate Social Commiment, several programs developed

by educational, social and health organizations in South Florida and Houston were supported,

among which stand out: Florida National University, FIU Foundation, Miami-Dade College

Foundation, Accion USA, American Cancer Society, Habitat for Humanity, Saludarte

Foundation, Museum of Fine Arts, Houston and Miami Symphony Orchestra.

Special mention and recognition deserves Mercantil’s volunteers in Venezuela, for their

participation in various nationwide activities and programs, such as: support to Fe y Alegría

and the Hospital Ortopédico Infantil. Also highligthts, the participation in environmental

activities of the Ponle Cariño a tu Escuela and Árboles Para Vivir programs carried out jointly

with the Sociedad de Ciencias Naturales La Salle. In the United States, volunteers from

Mercantil worked together with the League Against Cancer, Habitat for Humanity and the

March of Dimes.


Awards and Acknowledgements

The Banker magazine once again included Mercantil Servicios Financieros among the World’s

Top 500 Banking Brands. Mercantil ranks 273rd, raising 61 steps from 2015, and the first among

the Venezuelan institutions included in the ranking.

Mercantil Servicios Financieros leads venezuelan companies included among the World’s

Biggest 2,000 public companies according to Forbes magazine. It is the first of four

venezuelan companies included in this year’s list. The Global 2,000 is a ranking based on total

income, profit, assets and market value.

The Global Finance magazine, in its February 2016 edition has selected Mercantil Banco, for the

11th consecutive year, as the “Venezuela’s Best Trade Finance Provider in 2016”. The magazine

selection process took into consideration the volume of transactions, geographical coverage,

customer services, price competitiveness, new business development and technological

innovations.

Aon Hewitt international consulting firm granted the Mercantil Banco and Mercantil

Commercebank the “2016 Best Employer” award. Among other criteria, the consulting firm

takes into account workers opinion of the banks’commitment, leadership, performance culture,

and brand, compiled in the Organizational Climate and Commitment research for 2015.

The Banker magazine included Mercantil Bank (Panamá) among the Top 10 Central America

Banks, for the fourth consecutive year, to rank 76 and 34 among Panamá’s banks.

Development and Working Environment

During the first half of 2016, Mercantil in Venezuela continued to apply compensation policies

to benefit and support workers, in order to improve their economic situation and quality of life,

a distinctive mark of Mercantil’s competitiveness in this matter among other financial

institutions. Mercantil increased ordinary salaries by 20 %, effective from January 1, 2016, which

served as the basis for the calculation of the annual wage increase policy for performance applied

from March 1, 2016, which reached 35 % on average. Therefore, the average salary increase

between January and June 2016 was 62 %. Similarly, a new social benefit denominated

“Educational Scholarship Aid” for workers or their children was implemented for an amount of

Bs 6,000 per month. Monthly payments related to the Food Tickets have been maintained, which

have been increased according to the current legislation. It should be noted that Mercantil will

continue implementing actions in this area.


Mercantil and its Venezuelan subsidiaries have also implemented a Special Program which

aims to identify and develop retention benefits for Key Managerial, Professional and Technical

staff.

All these benefits are complemented with various activities to promote community and

recreational spaces for workers and their families nationwide.

Relations between bank officials and employees have continued to evolve within the traditional

spirit of harmony and cooperation, and the Board of Directors wishes to acknowledge them for

their efficiency and dedication to their work.

Pursuant to the National Superintendency Securities (formerly National Securities Commission)

resolution, please note that form CNV-FG-010 reflects Bs 21,296.543.96 in remunerations paid

to Company Directors and Executives in the second half of 2016.

During the first half of 2016, a number of Alternate Directors attended Board meetings, either

standing in as Principal Directors in their absence, or as invitees. On the occasion of the Chairman

of the Board's temporary absences, some of his CEO functions were delegated to members of

the Executive Committee.

Sincerely,

Gustavo J. Vollmer A.

Alfredo Travieso P.

Luis A. Romero M.

Gustavo Galdo C.

Víctor J. Sierra A.

Miguel Ángel Capriles L.

Roberto Vainrub A.

Federico Vollmer A.

Gustavo Marturet M.

Millar Wilson


Statutory Auditors’ Report

Financial Statements(In accordance with the standards of the National Securities Superintendency)

Balance SheetUnconsolidated(in thousands of Bs)

Semester ended

AssetsCash and Due from BanksInvestment PortfolioOther AssetsTotal Assets

Liabilities and Shareholders’ EquityUnsecured Bonds and Commercial PaperOther LiabilitiesTotal Liabilities

Shareholders’ Equity

Total Liabilities and Shareholder’s Equity

181,04768,661,036

(36,841)68,805,242

960,0002,643,7453,603,745

65,201,497

68,805,242

June 30

2016bolivars

491,26549,424,889

(20,944)49,895,210

995,0004,366,6075,361,607

44,533,603

49,895,210

December 31

2015bolivars

531,14239,163,600

181,10139,875,843

470,0001,575,035

2,045,035

37,830,808

39,875,843

June 30

2015bolivars

Income StatementUnconsolidated(in thousands of Bs)

Semester ended

IncomeFinancial IncomeEquity Investments in subsidiariesand affiliates and othersTotal Income

ExpensesOperatingFinancialDeferred Corporate Income TaxTotal Expenses

Net Income

121,465

8,163,6228,285,087

(765,732)(95,461)

(662,000)(1,523,193)

6,761,894

June 30

2016bolivars

14,549

7,346,2297,360,778

(202,349)(28,458)

0(230,807)

7,129,971

December 31

2015bolivars

20,871

7,109,4227,130,293

(132,270)(36,231)

0(168,501)

6,961,792

June 30

2015bolivars


Gustavo Vollmer A.Chairman and CEO

Alfonso Figueredo DavisGlobal Executive Vice President of

Operations and Administration

Aury OliverosAdministration Manager

Isabel Pérez SanchisGlobal Chief Financial Officer


Consolidated Balance Sheet(In thousand of Bs)

Semester ended

Assets

Cash and Due from BanksCash and Due from BanksCentral Bank of VenezuelaVenezuelan Banks and other Financial InstitutionsForeing Banks and Other Financial InstitutionsPending Cash Items

Invesments Portfolio Invesments in Trading SecuritiesInvesments in Securities Available-for-SaleInvesments in Securities Held-to-MaturityShare Trading PortfolioInvesments in Time Deposits and PlacementsRestricted Investments and Repos

Loan PortfolioCurrentRestructuredPast-DueIn Litigation

(Allowance for losses on Loan Portfolio)

Interest and Commissions ReceivableLong-Term InvestmentsAssets Available for SaleProperty and EquipmentOther Assets

Total Assets

8,522,979174,296,037

344,4973,271,021

13,998,482

200,433,016

285,56852,259,66449,487,491

487,21820,162,053

3,291,082

125,973,076

459,334,731430,966

1,436,56232,857

461,235,116(13,816,864)447,418,252

6,352,7374,105,502

871,9796,900,60337,778,222

829,833,387

June 30

2016bolivars

8,541,437137,641,397

287,8611,663,8557,525,966

155,660,516

6,55438,773,837

47,804,801386,732

7,396,8301,651,470

96,020,224

353,346,672510,653777,49550,640

354,685,460(10,544,876)344,140,584

5,053,0511,613,928

377,8275,348,577

26,109,903

634,324,610

December 31

2015bolivars

4,641,78386,758,924

724,7891,549,800

10,350,988

104,026,284

5,57640,338,22431,963,415

314,7688,338,497

664,138

81,624,618

258,024,429524,493559,003

19

259,107,944(7,707,467)

251,400,477

2,980,586235,83140,054

4,311,71414,462,872

459,082,436

June 30

2015bolivars

4,363,47366,235,157

921,2861,641,0223,740,214

76,901,152

11,51936,684,481

26,404,305307,313

4,813,424646,892

68,867,934

202,742,735500,986530,681

8,618

203,783,020(6,400,735)197,382,285

2,481,114338,801

28,1162,044,6817,476,461

355,520,544

December 31

2014bolivars

2,776,14443,118,285

517,4851,562,5804,019,839

51,994,333

66,78437,899,12521,164,297

301,8509,333,638900,545

69,666,239

160,524,257540,771

588,80228,105

161,681,935(4,841,632)

156,840,303

2,078,490168,80742,503

1,291,6805,434,708

287,517,063

June 30

2014bolivars







Consolidated Balance Sheet(In thousand of Bs)

Semester ended

Liabilities and Shareholders’ Equity

LiabilitiesDepositsNon-Interest Bearing Checking AccountsInterest Bearing Cheking AccountsSaving DepositsTime Deposits

Debt Authorized by theNational Securities SuperintendencyPublicly OfferedDebt Securities

Financial LiabilitiesObligations with Banks and Savings and Loan Institutions

In Venezuela up to one yearAbroad up to one yearAbroad for more than one year

Liabilities Under Repurchase AgreementsOther Liabilities up to one year

Interest and Commissions PayableOther LiabilitiesSubordinated Debt

Total Liabilities

Minority Interest in Consolidated Subsidiaries

Shareholders’ EquityCapital Maintenance of Paid-In CapitalPremium for Issuing StockCapital ReservesAdjustment for Conversion of Net Assets by Subsidiaries AbroadRetained EarningsShares Repurchased and Held by SubsidiariesPension plan remeasurementUnrealized Gain from Adjustment at Market Value ofInvestments

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

262,320,388227,866,630

175,742,17520,257,668

686,186,861

878,045

878,045

2,870,8184,241,8694,349,100

698,2508,116

12,168,153

216,61364,025,984

1,127,215

764,602,871

29,019

680,946191,709

12,713,451166,715

6,396,55944,756,752(600,633)(504,556)

1,400,554

65,201,497

829,833,387

June 30

2016bolivars

190,706,706177,429,396155,482,82111,284,243

534,903,166

887,621

887,621

3,357,5002,490,114

2,048,649439,89442,042

8,378,199

154,26844,737,862

706,169

589,767,285

23,722

664,397191,709

0166,715

2,983,24439,914,413(234,638)(504,556)

1,352,319

44,533,603

634,324,610

December 31

2015bolivars

127,259,236134,338,576107,662,570

9,779,713

379,040,095

387,995

387,995

2,000,0043,801,9411,805,136439,894

14,9468,061,921

126,42432,920,611

696,414

421,233,460

18,168

664,397191,709

0166,715

2,998,77732,366,773

(144,753)(93,223)

1,680,413

37,830,808

459,082,436

June 30

2015bolivars

94,244,958101,175,77391,069,3378,184,602

294,674,670

619,507

619,507

300,1272,620,5111,805,136439,894127,739

5,293,407

93,50421,573,322

696,338

322,950,748

15,831

664,397191,709

0166,715

2,982,24127,054,686

(91,626)(93,223)

1,679,066

32,553,965

355,520,544

December 31

2014bolivars

73,747,40184,327,52370,921,3417,084,710

236,080,975

166,240

166,240

695,1272,859,3111,522,347628,420

112,8375,818,042

63,63217,877,043

696,058

260,701,990

12,171

664,397191,709

0166,715

3,005,61921,145,563

(15,149)(69,185)

1,761,841

26,802,902

287,517,063

June 30

2014bolivars







Interest IncomeIncome from Cash and Due from BanksIncome from Investment PortfolioIncome from Loan Portfolio

Total Interest Income

Interest ExpensesInterest on Demand and Savings DepositsInterest on Time DepositsInterest on Securities issued by the institutionInterest on Financial Liabilities

Total Interest Expenses

Net Interest Income

Provision for Losses on Loan Portfolio

Net Financial Margin

Commissions and Other IncomeTrust Fund OperationsForeing Currency TransactionsCommissions for account TransactionsCommissions on Letters of Credit and Guarantees GrantedEquity in Long-Term InvestmentExchange GainsIncome on Sale of Investments SecuritiesOther income

Total Commissions and Other Income

Insurance Premiums. Net of ClaimsPremiumsClaims

Total Insurance Premiums. Net of Claims

Operating Income

Operating ExpensesSalaries and Employee BenefitsDepreciation, Property and Equipment Expenses, Amortization of Intangibles and OtherFees Paid to Regulatory AgenciesOther Operating Expenses

Total Operating Expenses

Net before Income taxes, Extraordinary itemsand Minority Interest

TaxesCurrentDeferred

Total Taxes

Minority Interest

Net Income for the Year

674,2443,635,361

42,981,699

47,291,304

(12,529,533)(118,446)(63,290)(633,575)

(13,344,844)

33,946,460

(3,800,812)

30,145,648

198,27514,097

3,095,78213,40261,527

859,959673,4099,971,646

14,888,097

25,142,841(21,174,294)

3,968,547

49,002,292

(10,106,429)

(4,767,470)(4,992,482)(17,810,507)

(37,676,888)

11,325,404

(4,585,986)27,664

(4,558,322)

(5,188)

6,761,894

June 30

2016bolivars

347,7692,944,59332,071,802

35,364,164

(10,112,307)(71,190)(28,458)

(429,096)

(10,641,051)

24,723,113

(3,264,872)

21,458,241

150,25133,134

2,240,25111,744

216,692(1,480)585,872

6,237,742

9,474,206

16,864,906(14,053,190)

2,811,716

33,744,163

(5,551,487)

(3,281,473)(3,385,344)(9,802,339)

(22,020,643)

11,723,520

(4,764,354)174,543

(4,589,811)

(3,738)

7,129,971

December 31

2015bolivars

115,9432,473,136

20,890,929

23,480,008

(6,341,427)(74,334)(26,481)(103,152)

(6,545,394)

16,934,614

(1,659,640)

15,274,974

100,785(2,540)1,107,20112,565112,348272,379331,014

4,016,055

5,949,807

10,991,945(9,315,390)

1,676,555

22,901,336

(4,501,073)

(1,433,701)(2,457,415)(5,137,596)

(13,529,785)

9,371,551

(2,672,860)266,978

(2,405,882)

(3,877)

6,961,792

June 30

2015bolivars

189,5982,163,70015,375,964

17,729,262

(5,224,271)(50,224)(22,817)(78,632)

(5,375,944)

12,353,318

(1,938,631)

10,414,687

106,95032,063855,36018,950169,393(32,250)190,797

3,603,474

4,944,737

7,734,901(6,500,123)

1,234,778

16,594,202

(3,492,659)

(1,029,856)(1,885,215)(4,569,952)

(10,977,682)

5,616,520

(66,366)334,393

268,027

(4,098)

5,880,449

December 31

2014bolivars

26,0662,513,2519,871,519

12,410,836

(3,634,021)(60,899)(7,696)

(106,829)

(3,809,445)

8,601,391

(934,950)

7,666,441

60,4583,988

563,73811,26669,232122,339269,5332,217,001

3,317,555

5,642,528(4,716,228)

926,300

11,910,296

(2,781,564)

(683,612)(1,448,810)(2,848,922)

(7,762,908)

4,147,388

(151,335)(20,244)

(171,579)

(1,869)

3,973,940

June 30

2014bolivars


Alfonso Figueredo DavisGlobal Executive Vice President of Operations and Administration



(In thousand of Bs) Semester ended

Consolidated Income Statement


World EconomyDuring the first half of the year, world

economy continues to recover, although with lower pre-crisis growth rates, in both developed

and emerging economies and with high diversity in the current and expected growth rates

between countries. Factors that currently cause the weak growth rate are centered on the

inestability of financial markets, the evolution of prices of the main crude oil markets, the

U.S. monetary policy, the change in the Chinese economic growth model, and the expansive

monetary policy implemented by the European Central Bank (ECB) a little over a year ago.

In the first quarter of 2016 there was some turbulence in the financial markets, with declining

stock ratios or indexes, increasing interest rate spreads, and the general toughening of

financing conditions as a result of market response to the significant decline of oil prices, the

deceleration of the Chinese economy and its side effects on the world economy and the

doubts regarding the capacity of central banks to continue boosting the economy with

unconventional liquidity injections.

These financial imbalances threatened to enunciate growth deceleration, or even induce a

recession. However, during the second quarter of 2016 this outlook improved, partly due to

economic policy measures: a somewhat expansive Chinese fiscal policy, the delay in increasing

interest rates by the Federal Reserve, and the reinforced expansive monetary measures by

the ECB.

Following the first increase of the official interest rates since 2006, the Federal Reserve has

announced that this upward trend will continue, however will act prudently and in line with

the evolution of the economic data.

On the other hand, the new orientation of the Chinese economic model towards domestic

consumption, from exports and investments, had resulted more complex than expected. The

economy has slowed below 7 % and this year’s growth is expected to decelerate to 6.5 %, and

to 6 % in 2017. An even larger slowdown than expected would reinforce the downward

pressure on commodities and oil prices, as well as increase financial markets volatility and

aversion to risk.

In the Euro Zone, the ECB increased the purchases of assets from €60 billion to €80 billion

per month, and reduced interest rates on bank deposits to 0.4 %.

Finally, the results of the June 23 Referendum in Great Britain to decide whether or not the

UK would remain in the European Union (Brexit) surprised world financial markets and, for

some time, provoked some fear of additional declining of the world economic growth. In

response to that event the International Monetary Fund (IMF) updated its World Economic

Outlook (WEO) in July showing 0.1 % decline in its world economy growth forecast to 3.1 %

in 2016 and to 3.4 % in 2017, compared to its April report.

Economic Climate


The United StatesEconomic growth during the first quarter of 2016 was limited by the strength of the US Dollar

and the weak world demand still affecting US exports. Production also suffered from

corporations’ attempts of reducing stock surplus, together with lower oil prices, which have

caused deep cuts in capital spending. During the same period, according to the Bureau of

Economic Analysis (BEA), the US economy grew at an annual 1.1 % rate, twice the initial estimate.

For the second quarter of 2016, an annualized expansion between 2.5 % and 3 % is expected.

Advance activity indicators, such as retail sales and a healthy real estate market, seem to confirm

the previous statement. Retail sales in June rose by 0.6 % month-on-month to reach US$ 457

billion. This represents a 2.7 % year-on-year increase. On the other hand, when evaluating the

average of the second quarter of 2016, retail sales increased by 8.4 % compared to the same

period of 2015, while in the first quarter of 2016 retail sales showed a slightly 2.8 % growth.

The real estate market has benefited from the low interest rates for mortgages and from an

increased demand of new buyers (the so-called millennials). The sale of homes in the secondary

market registered a 1.1 % year-on-year increase in June, to reach 5.57 million units sold, the highest

growth since February 2007, while in the primary market (10 % of the total market), the sale of

homes registered a 3.5 % month-on-month increased to 592 thousand units sold, the largest

variation since February 2008.

There are also better results in the labor market in terms of generation of jobs and slight increases

in salaries. According to the Bureau of Labor Statistics (BLS), 287,000 new jobs were added by

the close of June, which represents a significant trend change, also showing that employers

continue to hiring at a solid pace.

During the first half of 2016, the US monetary policy continued its expansive trend, with the aim

of generating additional improvements to the already strong labor market and reaching the 2 %

inflation target. Therefore, the Federal Open Market Committee (FOMC) has kept the target rate

for the federal funds between 0.25 % and 0.5 % since December 2015.

According to the BLS, inflation measured using the Consumer Price Index increased in June, as

in May, by 0.2 %, rising prices in the real estate, energy and health sectors, which further reduces

the fears of deflation. Price registered 1 % year-on-year growth, below the 1.7 % annual average

of the last 10 years.

Latin AmericaDuring the first half of 2016, as in 2015, the region continued to show, on one hand, a significant

weakness in its growth, due to the decline of external demand for its products and to the lower

domestic consumption and investments. On the other hand, there are progressively more sub-

regional differences in macroeconomic performance, with Mexico and Central America gaining

advantage with lower energy prices, improved exports and larger remittances, while the

Sourthern economies have been affected by the deterioration terms of trade, the lower Asian

external demand and the reduction of areas for policies to promote internal spending.

(1) Highlights that the first estimates of April showed a growthof 0,5 % adjusted in May forecast to 0,8 % growth.

(2) This date was the first adjustments of the federal fundsrates, in the target range, since June 2006.


For this year, Latin American GDP is forecasted to fall by 0.8 % (-0.05 % in 2015), with a

consequent reduction of per capita income (2 %) and unemployment increase to 8.1 % (7.4 %

the previous year). The recent worst inflation results in some countries in the region are

forcing the rate to rise from 16.5 % to 33 %.

The diminished demand of the main commercial associates of South America, in contrast with

other economies in the region, and the stability of commodity prices in a low range, make it

improbable that exports volumes and trade terms improve, on average, from their 11 % decline

in 2015 (the lowest since the 2009 financial crisis). In spite of the contraction of imports that the

lack of income in the region is causing, a new deficit is expected in the current account of 2.5

points of the GDP (-3.6 % in 2015); this could be only partially offset this year, as in 2015, by direct

and portfolio investments, when the 2015 global balance closed with a deficit of US$ 30.296

billion, which lowered the aggregate international reserves to US$ 812 billion, the lowest level

since 2011. In most countries, the negative external context has forced a devaluation of their

currencies against the US dollar both in 2015 and in the first months of this year.

Domestic demand continues to decline (-1.6 % in 2015), both in consumption (0.2 %) and in

investments (6.5 %); not even the announcement of the fiscal deficit (-3 %) could slow down or

reverse this trend. In fact, fiscal accounts continue to worsen as a result of lower tax collections,

increased spending and the financial burden of public debt, causing the adjustment variable to

centered in capital expenditures, which will tend to reduce the expectations of growth in the

mid- and long-term for the region.

VenezuelaDuring the first half of 2016, the Venezuelan economy continued to suffer the effects of the

prolonged low phase of oil prices cycle under circumstances in which, a contrast of the

negative oil shock of 2009, there is a much lower stock of foreign assets to prevent the

curtailing the imports required to maintain the level of economic activity and control the

upward trend of prices.

In spite of the recovery of the nominal value of the oil basket following the minimum values

in the first two months of the year, the average price for the first half of the year was just

US$/b 32, almost 36 % less than the US$/b 49.7 average price in the same period of 2015; this

has pushed back the price of Venezuelan basic export product to the levels of 2014. This price

contraction, even with the same levels of oil production and exportation at those seen in the

same period of 2015, shows that the value of the oil exports bill might reach US$ 12.5 billion,

US$ 7.327 billion less than in the first half of 2015 (-37 %). To this negative effect of prices,

must be add the result of 251,000 barrels per day (bd) contraction in production of crude oil

this semester, in comparison with the first half of 2015. This result together with the significant

capital and interest payments of public debt and in spite of the efforts to reduce imports,

has caused international reserves to continue contracting to close at US$ 12.077 billion, a

26 % reduction from the US$ 16.367 million at the close of 2015, a level not seen since

December 2002.

Public spending, as during the past two years, has been the strongest component of domestic

demand, to compensate the lower performance of private spending; this was reflected in the

Central Government’s total spending, which exclude the service of the debt, accumulated in

June Bs 1,300 billion (Bs 652 billion in the first half of 2015), virtually double the nominal

comparative levels in the same semester of the previous year. A significant increase can also

be observed in income from taxes collected by SENIAT, partly as a result of the nominal

adjustment of all transactions caused by the current inflationary process. During the first

four months of the year, collections went from Bs 279 billion to Bs 765 billion, a 175 %

expansion.

Monetary liquidity during this period rose 30.9 % in nominal terms (32.6 % in the first half of

2015), as result of the 28.6 % increase of the monetary base (compared to 36.2 % in the first

semester of last year), and of the secondary creation of money through bank loans, which grew

by 42 % (40.4 % in the same semester of 2015). In contrast with the first half of 2015 when

the monetary policy of the Venezuelan Central Bank in its Open Market Operation, generated

a net absorption of the means of payment in the hands of the public of Bs 15,500 million, in

the first half of 2016, the Open Market Operations effect on monetary policy was moderately

expansive, with a net injection of Bs 2,700 billion.

Interest rates, in this monetary environment, moved slightly upward, within the regulatory

maximum and minimum rates. Lending rates were adjusted from 19.2 % on average in the first

half of 2015 to 20.9 % this year, representing 177 basis points (bp) increase. Borrowing rates

for 90-day term deposits increased by 56 bp, going from a 14.6 % average to 15.1 %, in contrast

with savings rates, which declined by 76 bp, going from 13.5 % to 12.7 % in the same period.


Source: Central Bank of Venezuela and in-house calculations

Summary of Economic Performance 1st Half 2015 1st Half 2016

Variation of Gross Domestic Product %Total -3.1 nd Oil Sector -0.4 nd Non Oil Sector -3.3 nd

Exchange Rate Bs/US$End of Period 12.7 56.9 Average 12.2 34.1

Exchange Rate Variation %End of Period -24.2 % 349.5 %Average -14.4 % 180.4 %

Inflation (Caracas) %Cumulative Variation 47.3 nd Annualized Variation 187.3 nd

Interest Rate - End of PeriodAverage Leading Rates (6 main Banks) 19.2 20.8 90 day Time Deposits (6 main Banks) 14.6 14.7

Balance Sheet

A summary balance sheet is shown below and the main variations comparing June 2016 with

December 2015 are commented on:

The audited financial statements and their notes are attached to this report. The accounting

standards used are summarized at the end of this chapter.

Total Assets

Total assets were Bs 829,833 million, representing 30.8 % semi-annual growth, as a result

of the combined performance of cash and due from banks, and the investment and loan

portfolios, which grew 28.8 %, 31.2 % and 30.0 % respectively. The ratio of performing assets

to total assets is 71.9 %, up Bs 139,904 million (30.6 %) compared to the previous six months.

The variations for this item during the period, taken individually by subsidiary, are as

follows:


Management Discussion and Analysis

Summary of ConsolidatedBalance Sheet(In thousands of Bs except percentages)

Total Assets

Cash and Due from Banks

Investment Portfolio

Loan Portfolio, Net

Deposits


Trust Fund Assets

829,833,387

200,433,016

125,973,076

447,418,252

686,186,861

65,201,497

28,321,477

June 30

2016bolivars

634,324,610

155,660,516

96,020,224

344,140,584

534,903,166

44,533,603

24,874,057

December 31

2015bolivars

459,082,436

104,026,284

81,624,618

251,400,477

379,040,095

37,830,808

20,952,093

June 30

2015bolivars

195,508,777

44,772,500

29,952,852

103,277,668

151,283,695

20,667,894

3,447,420

30.8

28.8

31.2

30.0

28.3

46.4

13.9

80.8

92.7

54.3

78.0

81.0

72.4

35.2

Jun. 2016 Vs. Dec. 2015Increase /

(Decrease)bolivars %

Jun. 2016 Vs. Jun. 2015Increase /


370,750,951

96,406,732

44,348,458

196,017,775

307,146,766

27,370,689

7,369,384

Jun. 2016 Vs. Dec. 2015Increase /

(Decrease)(In thousands except percentages)

563,052,568

31,838,781

8,130,082

146,006,140

11,732,079

139,620

25.9 %

36.8 %

1.7 %

December 31

2015Mercantil Banco Universal Bs

Mercantil Seguros Bs

Mercantil Commercebank Us$

709,058,708

43,570,860

8,269,702

June 30

2016


Investment Portfolio

At June 30, 2016, investments totaled Bs 125,973 million, Bs 29,953 million (31.2 %) up from

Bs 96,020 million in December 2015. This increase was observed mainly in the investments issued

by the Bolivarian Republic of Venezuela, state-owned companies and decentralized entities.

The most significant variations for this item during the period, taken individually by

subsidiary, are as follows:

Government bonds issued by the Venezuelan State account for 0.45 times Mercantil's equity

and 3.6 % of its assets (0.57 times and 4.0 %, respectively in December 2015). At Mercantil

Banco Universal, these securities represent 0.40 times its equity and 3.2 % its assets (0.39

times and 3.5 %, respectively in December 2015).

At June 30, 2016, the Mercantil, C.A. Banco Universal subsidiary, in line with regulations issued

by the Venezuelan National Executive Branch, purchased Bs 47,888 million in Mortgage Bonds,

Participation Certificates, Agriculture Bonds and Stocks. These represent 59.3 % of the bank's

investment portfolio and 1.0 times its shareholders' equity (Bs 47,243 million representing

68.2 % of its investment portfolio and 1.3 times its shareholders' equity on December 31, 2015).

Investments in Securitiesby IssuerBs 125,973 million June 2016

Venezuelan Central Bank

Venezuelan State and Goverment Entities

Goverment and US Goverment-sponsored Bodies

Others

Jun-2016 Dec-2015 Jun-2015

Jun. 2016 Vs. Dec. 2015Increase/


81,541,577

11,694,491

2,198,375

11,139,275

6,739,149

251,219

13.7 %

57.6 %

11.4 %

December 31


Mercantil Seguros Bs


92,680,852

18,433,640

2,449,594

June 30

2016

7.5 %

61.5 %

15.0 %

16.0 %

2.2 %

75.4 %

10.6 %

11.8 %

4.8 %

70.2 %

12.3 %

12.7 %

Net Loan Portfolio

At June 30, 2016, net loans totaled Bs 447,418 million, up Bs 103,278 million (30.0 %) from

Bs 344,141 million in December 2015.

The most significant variations for this item during the period, taken individually by subsidiary,

are as follows:

The ratio of past-due and nonperforming loans to gross loans is 0.3 % (0.2 % at December

2015). The ratio by subsidiary is as follows:

• Mercantil Banco Universal 0,3 % the same as for the Venezuelan financial system.

• Mercantil Commercebank, N.A. 0,3 %, the same as at the close of December 2015. Non-

accrual loans amounted to 1.1 % of total loans (1.2 % at December 31, 2015).

99.6 % of Mercantil’s loan portfolio is outstanding at June 30, 2016. The allowance for losses

on loan portfolio covers 940 % of past-due and nonperforming loans (1,273 % at December

31, 2015); this indicator is 1.066 % at Mercantil Banco Universal (1,467 % at December 31, 2015)

and 515 % at Mercantil Commercebank (480 % at December 2015).


Investments by Maturity and Yield(Stated in millions of Bs, except percentages)

Years

Bs Less than 1From 1 to 5Over 5

Trading

Bs 1

10 155 121

286

Available for Sale

Held toMaturity Shares

Bs 1

487

487

TOTAL

31,46716,28478,222

125,973

Time Depositsand Placements

Trust Funds andRestricted Investments

Bs 1

6,237 9,00737,016

52,260

% 3

7.3 8.5 7.5

Bs 2

1,798 7,121

40,569

49,488

% 3

5.5 5.1 6.1

Bs 1

20,162

20,162

% 8.8

Bs 1

3,2611

29

3,291

% 3

5.6 14.4 2.0

(1) Market value(2) Amortized cost(3) Yield is based on the amortized cost at the end of the period. It is the result of dividing income from securities (including

amortized premiums or discounts) over the amortized cost or market value.

Investment by maturity and yield at June 30, 2016 are broken down as follows:



307,416,423

5,558,623

82,512,619

(118,094)

26.8 %

(2.1 %)

December 31



389,929,043

5,440,529

June 30

2016Net Loan Portfolio byBusiness SegmentBs 447,418 million June 2016

Large Corporations 15 %

Small and Medium Enterprise 48 %

Individuals 37 %


(1) Includes Bs 818 million in Agricultural Bonds issued by the Venezuelan State and Government Entities valid for the compulsory agriculturalportfolio; and Bs 207 million in Class "B" shares of the company guaranteeing the loans of tourism SMEs "Sociedad de Garantías Recíprocaspara la Pequeña y Mediana Empresa" applicable for compliance with the tourism portfolio.

(2) Includes Bolivarian Mortgage Securities 2015-II.

June 2016

SectorPercentagesof Compliance %

reached%

required

June 2016Interest rates in force

Agriculture

Mortgage

Microcredits

Tourism

Manufacturing

27.59 1

2.86 2

4.48

3.58 1

7.13

24.0

-

3.0

2.5

-

Calculated on the average gross loans at 12/31/2015and 12/31/2014. Monthly compliance. Maximumper customer 5 % of the current portfolio. It requiresa minimum number of new clients (10 % annually).Additionally, the portfolio must be quarterlyclassified among areas: strategic sectors (75 %),non-strategic sectors (5 %), agribusiness investment(15 %) and trading (5 %), according to the Ministeryof Agriculture and Lands. 20 % of the portfolio mustbe allocated to medium and long-term credits.

Calculated on the gross loan portfolio at12/31/2015, distributed as follows: 7.6 % for homepurchase, 0.4 % for self-construction, improvementsand expansion, and 12 % for self-construction ofmain dwellings, from the latter 9.0 % should beallocated for the purchase of bonds and 3.0 % forconstruction. Annual Compliance, only applies fornew credits.

3 % calculated on the gross loan portfolio at12/31/2015. Monthly Compliance.

Calculated on the average gross loans at 12/31/2015and 12/31/2014. The Tourism Ministry set in 5.25 %the percentage that full-service banks have toearmark to the tourism sector in 2016. Compliancemust be achieved at 12/31/2016.

10 % Calculated on the gross loan portfolio at12/31/2015. The percentage of compliance must beearmarked to strategic development sectors in60 % and to the financing of SME, joint ventures,community and state-owned companies in 40 %.Annual compliance.

Set by the Venezuelan Central Bank.At 06/30/2016 the maximum is 13 %.

Set by the Housing and Habitat Ministry.Set in accordance with family income ofdebtors, ranging between 4.66 % and10.66 %.

Within minimum and maximum ratesestablished by the Venezuelan CentralBank. At 06/30/2016 the rate cannot behigher than 24 %.

The Venezuelan Central Bank establishesa preferential rate for the sector on amonthly basis. As of 06/30/2016, themaximum rate is 12.07 % and, in somecases, could be decreased in 3bps(minimum 9.07 %) in accordance withthe Law for Tourism Loans.

Set by the Venezuelan Central Bank at18 %. For SME, state-owned industries,community industries and joint ventures,the applicable interest rate may notexceed 90 % of the rate set by theVenezuelan Central Bank. At 06/30/2016this is equivalent to 16.2 %.

Compulsory Percentage of Mercantil Banco UniversalLoan Portfolio by economic sector and interest rates

Loan Portfolio, grossClassified by Status(In thousands of Bs except percentages)

353,346,672510,653777,49550,640

354,685,460

December 31

2015bolivars

258,024,429524,493559,003

19259,107,944

June 30

2015bolivars

99.60.20.20.0

100.0

%

99.70.10.20.0

100.0

%

CurrentRestructuredPast DueIn Litigation

459,334,731430,966

1,436,56232,857

461,235,116

June 30

2016bolivars

99.60.10.30.0

100.0

%


Deposits byBusiness SegmentBs 686,187 millionJune 2016

Large Corporations 24 %

Small and Medium Enterprise 29 %

Individuals 47 %

Deposits

At June 30, 2016 deposits totaled Bs 686,187 million, which represents 28.3 % more than the

Bs 534,903 million registered in December 2015. Demand deposits were the main component

of total deposits and reached Bs 490,187 million, up 33.2 % compared to December 2015,

representing 71.4 % of total deposits. Savings deposits increased Bs 20,259 million (13.0 %)

and time deposits Bs 8,973 million (13.0 %) over the same period.

The most significant variations for this item during the period, taken individually by subsidiary,

are as follows:


At June 30, 2016, shareholders' equity was Bs 65,201 million, 46.4 % up from Bs 44,534 million

in December 2015. This variation mainly includes Bs 6,762 million in net income for the first

half of 2015, Bs 12,730 million social capital increase approved in the General Shareholders’

Meeting held on September 2015, and Bs 1,920 million reduction corresponding to cash

dividends declared.

Capital Ratios

Mercantil’s Equity/Assets ratio at June 30, 2016 is 7.9 % and its Equity/Risk-Weighted Assets

ratio is 12.7 %, based on the standards of the National Securities Superintendency, (7.0 % and

11.4 % at December 31, 2015).

• Mercantil Banco Universal’s in accordance with the requirements of the Superintendency

of Banking Sector Institutions in Venezuela), the Equity/Assets ratio is 11.9 % at June 30,

2016 and its Equity/Risk-Weighted Assets ratio is 14.2 % (10.5 % and 12.7 % on December

31, 2015, respectively).

• Mercantil Commercebank, N.A., based on the standards of the U.S. Office of the

Comptroller of the Currency (OCC), the Equity/Assets ratio is 9.4 % at June 30, 2016 and

the Equity/Risk-Weighted Assets ratio is 12.5 % (9.4 % and 12.3 % at December 31, 2015,

respectively).

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


(Decrease)

492,825,991

6,507,626

132,177,710

(56,552)

26.8 %

(0.9 %)

December 31



625,003,701

6,451,074

June 30

2016(In thousands except percentages)

Income StatementThe main variations between the figures for June 30, 2016 and June 30, 2015 are summarized

below:

Net Interest IncomeNet Interest Income during the first half of 2016 was Bs 33,946 million, 100.5 % higher than

the Bs 16,935 million reached in the first half of 2015. This increase is mainly due to the growth

of financial assets and liabilities. Interest income was Bs 47,291 million, which reflects 101.4 %

year-on-year increase, resulting from 105.7 % growth in income from the loan portfolio.

Interest expenses reached Bs 13,345 million, 103.9 % more than in the first half of 2015. The

financial intermediation ratio (loans to deposits) was 67.2 % at the close of June 2016 and

68.4 % at June 2015.

• Mercantil Banco Universal reached Bs 32,333 million, up 101.6 % year-on-year from Bs 16,040

million, mainly due to the increase of financial assets and liabilities. The financial

intermediation ratio was 63.8 % in June 2016 and 64.7 % in June 2015.

• Mercantil Commercebank, N.A. achieved US$ 142 million1 (Bs 1,238 million), 69.4 % up from

US$ 84 million1 (Bs 525 million) in the first half of 2015. The Bank continues to hold a significant

portion of its assets, US$ 2,426 million (more than 29 %), in short-term investments and

securities issued by the U.S. government or U.S. government-sponsored agencies. This high

level of liquidity has continued to allow the Bank ample flexibility to increase its credit

operations.

Mercantil’s net interest income/average financial assets ratio at June 30, 2016 was 13.4 %,

compared to 11.3 % in the previous year.

Interest Income

Interest Expense

Net Interest IncomeProvision for losses on Loan Portfolio and-Commissions Receivable

Net Financial Margin

47,291,304

(13,344,844)

33,946,460

(3,800,812)

30,145,648

35,364,164

(10,641,051)

24,723,113

(3,264,872)

21,458,241

23,480,008

(6,545,394)

16,934,614

(1,659,640)

15,274,974

11,927,140

2,703,793

9,223,347

535,940

8,687,407

33.7

25.4

37.3

16.4

40.5

101.4

103.9

100.5

129.0

97.4

23,811,296

6,799,450

17,011,846

2,141,172

14,870,674


Financial MarginSemester ended(In thousands of Bs except percentages)

June 30

2016bolivars

December 31

2015bolivars

June 30

2015bolivars



Jun. 2016 Vs. Jun. 2015Increase/


5.5 %

6.5 %

7.5 %

8.5 %

9.5 %

10.5 %

11.5 %

12.5 %

13.5 %

8,601 12,353 16,935 24,723 33,946

1 H2014

2 H2014

1 H2015

2 H2015

1 H2016

5,000

10,000

15,000

20,000

25,000

30,000

35,000

8.5 %

9.3 %

11.3 %

12.0 %

13.4 %

Net Interest IncomeNet Interest Income / Average Financial Assets

Evolution of Net Interest Income

(1) Dollar figures are given for reference only. Balance sheet figures are converted at the period-end exchange rate of Bs 9.975/US$ 1 and Income Statement figures at the average exchange ofBs 8.747/US$ 1. Exchange control have been in place in Venezuela since February 2003.

(in m

illio

ns o

f Bs)


Loan Portfolio Provision

During the first half of 2016, loan loss provision were Bs 3,801 million, up 129.0 % from Bs 1,660

million in the first half of 2015, bringing the accumulated provision to Bs 13,817 million at the

close of June 2016. This represents 3.0 % of Mercantil’s gross loans (3.0 % on December 31, 2015)

and 940 % coverage of past-due and nonperforming loans (1,273 % on December 31, 2015).

• Mercantil Banco Universal registered Bs 3,674 million in loan loss provision in the first half

of 2016 (Bs 1,612 million in the first half of 2015) mainly aimed at provisions in the

construction, commercial, industrial and service sectors, resulting from loan portfolio

growth during the six month period. At June 30, 2016, the accumulated loan portfolio

provision was Bs 12,872 million, which represents 1,066 % of coverage of past-due and

nonperforming loans (1,569 % on June 30, 2015). The ratio of past-due and nonperforming

loans to gross loans reached 0.3 % in June 2016, which compares to 0.2 % in June 2015.

• Mercantil Commercebank, N.A. registered US$ 19 million1 (Bs 165 million) in loan loss

provision during the first half of 2016. At June 30, 2016, the accumulated provision for the

loan portfolio was US$ 72 million1 (Bs 776 million) and covers 515 % of past-due and

nonperforming loans (525 % at the close of June 2015).

0

1.6 %

2.0 %

0.0 %0.4 %

0.8 %

1.2 %

2.4 %

2.8 %

3.2 %

3.6 %

4.0 %

4.4 %

1 H2014

2 H2014

1 H2015

2 H2015

1 H2016

3.0 % 3.1 % 3.0 % 3.0 % 3.0 %

40,00080,000

120,000

160,000200,000240,000280,000

320,000360,000

400,000440,000

480,000

0.4 % 0.3 % 0.3 % 0.2 % 0.2 %

Loan Portfolio Evolution

(in m

illio

ns o

f Bs)

Loan Portfolio

Past due and nonperforming loans

Past-due and nonperforming Loan / Gross Loan Portfolio

Loan Portfolio Provision / Gross Loan Portfolio

(1) Dollar figures are given for reference only. Balance sheet figures are converted at the period-end exchange rate of Bs 9.975/US$ 1 and Income Statement figures at the average exchange ofBs 8.747/US$ 1. Exchange control have been in place in Venezuela since February 2003.

Commissions, Other Income and Insurance Premiums, Net of Claims

Commissions and Other Income in the first half of the year totaled Bs 14,888 million, reflecting

Bs 8,938 million (150.2 %) year-on-year increase from Bs 5,950 million. This increase is mainly

due to:

• Bs 8,059 million (154.0 %) growthin earnings from commissions on the use of debit and credit

cards, income from financing insurance policies, as well as other commissions on customer

operations, among others.

• Bs 342 million (103.4 %) increase in earnings from securities trading activities.

Insurance premiums, net of commissions, reinsurance and claims totaled Bs 3,969 million in the

first half of 2016, reflecting 136.7 % increase compared with Bs 1,677 million in the first half of

2015. Net collected premiums in the first half of 2016 totaled Bs 35,024 million, which represents

a year-on-year increase of Bs 20,770 million or 145.7 %. This growth was mainly in the automobile

(140.4 %) and health (145.6 %) businesses. Mercantil Seguros is the country’s second largest

insurance company in terms of net collected premiums, with a market share of 10.7 % at the

close of June 30, 2016. Claims and administrative expenses totaled Bs 21,174 million, refl

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