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ANNUAL REPORT 2015Mercantil Banco Universal a subsidiary of Mercantil Servicios Financieros

CONTENTS

Presentation 3

Financial Highligths 4

Board of Directors and Administration 5

Notice of Ordinary General Shareholder’s Meeting 6

Board of Directors’ Report 7

Financial Statements consolidated with Overseas Subsidiaries 22

Statutory Auditors’ Report 23

Financial Statements 24

Strategic Positioning 27

Management Discussion and Analysis 29

Corporate Governance 37

Awards and Acknowledgments 42

International OfficesCorporate Contacts 43

Banco Universal

ANNUAL REPORT 2015

MBU Annual Report 2015 at 29Jun2016b.qxp_Maquetación 1 29/6/16 5:38 p.m. Page 1

2 ANNUAL REPORT 2015


3

Mercantil Banco Universal, founded in 1925,

with 90 years of financial activity, is one of Venezuela's leading institutions in the financial

system with Bs 37,339 million in equity.

It is the main subsidiary of Mercantil Servicios Financieros in Venezuela and the country’s

foremost and most comprehensive financial services provider with presence in 9 countries

in the Americas and Europe. Mercantil Banco Universal offers its customer base a wide range

of quality financial products and services in different market segments, thereby reaffirming

its mission to “fulfill the needs of our customers 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”.

At December 31, 2015, Mercantil Banco Universal ranks as the leading bank in the private

financial system in terms of loans to the manufacturing sector, with market shares of 21 %.

It is also the first bank in Venezuela in terms of savings deposits with 22 % of the domestic

market.

Mercantil Banco Universal’s products are offered mainly in Venezuela, through a nationwide

network of channels which at December 31, 2015 consisted of 264 branches, 1,132 ATMs of

which 171 are multifunctional, and 63,408 points of sales, made up of physical, merchant and

e-commerce points of sale, in addition to round-the clock access to telephone and online

banking.

At the close of the year the Mercantil Aliado network serves the banking needs of the masses

through 181 correspondent service desks and trading points in communities across the length

and breadth of Venezuela.

To complement these services and assist its customers overseas, Mercantil Banco Universal

has one agency in the United States (Coral Gables, Florida), a branch in Curaçao, and five

representative offices located in Bogota, Lima, Mexico City, Sao Paulo and New York.

Since its inception, Mercantil Banco Universal has played an active role in the development

of the different markets where it operates by financing trade, agriculture and industry.

Throughout Fundación Mercantil, the Bank affirms its social commitment towards the country

by playing an important role in the ongoing development of different sectors of the

community.

Banco Universal



Financial Highlights

Balance SheetTotal AssetsLoan Portfolio (Net)DepositsShareholders’ Equity

Income StatementNet Interest IncomeMargin of Financial IntermediationPersonal and Operating ExpensesIncome Before Income TaxNet Income

Profitability Indicators (%)Net Interest Income / Average Financial Assets (NIM)Other Operating Income / Total IncomeNet Income / Average Equity (ROE)Net Income / Average Assets (ROA)

Capital Adequacy Indicators (%)Equity / Risk-Weighted Assets (regulatory minimum 12 %) (1)

Leverage Indicators (%)Equity / Assets (regulatory minimum 9 %) (1)

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 (%)Total Loan Portfolio / DepositsFinancial Assets / Total AssetsFinancial Assets / Deposits

Number of EmployeesEmployees in VenezuelaEmployees Abroad

Banking Distribution NetworkBranches in Venezuela (2)

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

Mercantil Aliado NetworkCorrespondent Service DesksCorrespondent Trading Points

Market Share (%) (4)Loan PortfolioDeposits + Other demand liabilities

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

Year Ended

December 31

2015bolivars

December 31

2014bolivars

December 31

2013bolivars

December 31

2012bolivars

December 31

2011bolivars

(1) In accordance with the standards of the Superintendency of Banking Sector Institutions (SUDEBAN - for its abbreviation in Spanish)(2) Excludes internal branch for employees at Edificio Mercantil (Caracas)(3) Physical Points of Sale (POS)(4) Over Venezuela Operation

551,055,436 307,411,936 497,091,668 37,339,030

39,528,323 42,266,404 22,039,775 18,542,205 12,161,578

13.217.042.03.1

12.7

10.0

0.21,466.9

3.1

4.136.2

31.044.9

63.870.077.6

7,221 8

264 1,303 53,022

109 72

12.5 11.7

287,892,974 162,619,332 258,083,275 24,255,805

19,133,827 20,692,510 10,549,964 9,431,474 9,430,660

10.919.950.14.0

16.5

9.7

0.31,352.9

3.5

3.332.2

29.046.3

65.373.882.4

7,247 9

264 1,350

50,902

125 122

14.1 11.7

183,030,629 89,809,279 162,756,924 16,557,049

11,645,946 13,641,790 6,660,194 6,529,414 6,525,812

10.826.252.94.5

19.0

10.9

0.4914.53.9

3.531.8

27.455.1

57.475.484.8

7,275 10

265 1,408 53,387

128 188

14.0 12.1

104,514,153 57,755,945 92,499,400 9,233,354

7,352,170 8,777,427 4,507,740 3,853,463 3,395,032

11.124.646.44.0

17.7

9.8

0.6611.53.9

4.135.8

29.148.4

65.074.283.9

7,195 10

268 1,367 48,671

106 186

14.6 11.5

67,351,251 41,974,923 59,558,134 6,127,715

4,881,317 5,918,691 3,179,210 2,389,662 2,142,731

10.929.642.73.8

16.0

10.1

0.7615.64.1

4.436.0

21.740.3

73.581.091.6

6,965 10

271 1,309 42,719

60 117

15.9 11.9


5

Board of Directors

Gustavo Vollmer A.Chairman

Nelson Pinto A.Executive President

Luis A. Marturet M.1

Alfredo Travieso P. 1 / 2

Eduardo Mier y Terán 1 /3

Víctor J. Sierra A. 2

Roberto Vainrub A. 1 / 3

Alejandro González Sosa 3

Gustavo Marturet Medina 2

Rafael Sánchez B. 3

Gustavo Galdo C. 3

René Brillembourg C. 1

Claudio Dolman C. 2

Miguel Angel Capriles C. 1

Guillermo Ponce Trujillo

Rafael Stern S.

Francisco De LeónManuel Martínez Abreu

Umberto ChiricoGladis Gudiño

Luis Alberto Fernandes

Paolo Rigio C.

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

AdministraciónGustavo Vollmer A. *Chairman

Nelson Pinto A. *Executive President

Alfonso Figueredo D. *Executive Vice President of Operations and Administration

Fernando Figueredo M. *Executive Vice President of Business

Luis Calvo Blesa *Human Resources and Corporate Communications Manager

Luis Alberto Fernandes * Chief Legal Counsel

Vincenza Garofalo S. *Chief Risk Officer

Rodolfo Gasparri G. *Operations and Technology Manager

Carlos Montoliú M. *Corporate Banking Manager

Jorge Pereira *Personal Banking Manager

Isabel Pérez S. *Chief Financial Officer

Carlos Tejada G. *Commercial Banking Manager

Guillermo Ponce TrujilloBoard of Directors Secretary

Rafael Stern S.Board of Directors Alternate Secretary

José Felipe Bello C. Audit Manager

Anahy EspigaCorporate Strategic Planning Manager

Luis M. Urosa Z.Corporate Compliance Manager

Juan Livinalli M.Compliance Officer - Prevention ofMoney Laundering and Terrorist Financing (**)

(*) Member of the Committe Executive(**) Since January 1st, 2016 this position will be

occupied by Mr. José Bastidas Rosales

Principal Directors

Alternate Directors

Secretary

Alternate Secretary

Statutory Auditors

Alternate Statutory Auditor

Legal Counsel

Alternate Legal Counsel

Note: The Audit, Compesation and Risk Committees werecreated pursuant to provision in the By-laws and in accordancewith a resolution by the Board of directors. These commiteesare made up of independent Directors and are attended by theChairman and the CEO (ex-officio).



Notice of OrdinaryGeneral Shareholders’ Meeting

The Board of Directors hereby convenes an Ordinary General Shareholders’ Meeting to be held at the Auditorium’s Edificio Mercantil,

located at Avenida Andrés Bello N° 1, San Bernardino, Caracas, on March 18, 2016 at 8:00 in the morning, in order to:

1. Consider the report presented by the Board of Directors and the Company’s Audited Financial Statements as of December 31,

2015, in light of the Statutory Auditors’ Report.

2. To appoint the Principal Members and their Alternates to the Board of Directors as established in the Bylaws and to set the

remuneration of all the members of said Board.

N.B. The shareholders are hereby informed that: a) the Board of Directors Report, the Statutory Auditors Report, the Financial

Statements audited by “Espiñeira, Pacheco y Asociados” y b) the “Letter to Management and/or Memorandum of Internal Control”,

will be available for review twenty-five days prior to the Shareholders’ Meeting, at the office of the Secretary of the Board of

Directors of the Company, Avenida Andrés Bello N° 1, Edificio Mercantil, piso 35, Caracas. In accordance with the company bylaws,

the Shareholders are hereby informed that each group of Common Class "A" shares that represents at least twenty per cent

(20 %) of the subscribed capital of said shares, has the right to propose and designate one Principal Director and its Alternate as

it may correspond.

Caracas, February 18, 2016

On behalf of Mercantil, C.A., Banco Universal

Guillermo Ponce Trujillo

Secretary of the Board of Directors

MERCANTIL, C.A., BANCO UNIVERSAL Subscribed and Paid-In Capital Bs 268,060,233Caracas - Venezuela


7

Caracas, February 18, 2016

Dear Shareholders:

We are pleased to submit the consolidated results and main activities of Mercantil, C.A. Banco

Universal for the second half of 2015 as well as for the whole year.

This report has been made in compliance with Article 20 of Resolution 063. 11 of the

Superintendency of Banking Sector Institutions (Sudeban), dated February 18, 2011, setting

forth the “Standards establishing the Guidelines and Requisites to be submitted by the

Meetings of Shareholders of Banking Institutions, Currency Exchanges, and Border Exchange

Operators”.

Financial and Economic Situation

The Bank’s 2015 financial statements included in this Report, which consolidate the activities

of its branch and agency abroad and its subsidiaries, were prepared in accordance with the

standards of the Superintendency of Banking Sector Institutions (SUDEBAN –

Superintendencia de Instituciones del Sector Bancario); the Board considers that they

reasonably present all the significant aspects of the financial situation of the Bank and its

subsidiaries, the income from its operations and the statements of changes in equity and cash

flows. The financial statements have been examined by the Bank’s external auditors Espiñeira,

Pacheco y Asociados, whose report is attached hereto, with the conclusion that the

statements are reasonable.

In 2015, the Bank posted Bs 12,162 million in net annual income, Bs 5,982 million corresponding

to the first half of 2015 and Bs 6,180 million to the second. The sustained improvement in

financial margin is shown in the results, which compare favorably with the Bs 9,431 million of

2014.

Of note is the amount of the various compulsory contributions to several official agencies,

which total Bs 7,630 million, Bs 3,270 million of which correspond to the first half of 2015 and

Bs 4,360 million to the second, representing 21.1 % of the Bank’s expenses which, together

with Bs 6,933 million of Income Tax (Bs 2,440 in the first half 2015 and Bs 4,493 in the second),

total Bs 14,563 million, equivalent to 40.3 % of such expenditures.

Total assets reached Bs 551,055 million, 91.4 % over the Bs 287,893 million of December 2014,

and 44 % up from Bs 382,779 million in June 2015. Shareholders’ equity totaled Bs 37,339

million, up 53.9 % from Bs 24,256 million in December 2014, and 32.5 % over the Bs 28,176

million of June 2015.

Board of Directors’ Report



Total deposits at the close of the year were Bs 497,092 million, 92.6 % more than the Bs 258,083

million of December 2014 and 45 % more than the Bs 342,902 million of June 2015.

Another important point was the acquisition, at the request of the executive branch of the

Venezuelan government, of securities known as Valores Bolivarianos para la Vivienda

(Bolivarian Housing Securities) for Bs 15,162 million and of Certificates of Participation for

Bs 7,329 million. Together with Agriculture Bonds and other Shares acquired at the request

of the National Executive, these purchases totaled Bs 47,243 million on December 31, 2015,

representing 68.2 % of the Bank’s total investment. By December 31, 2014, those investments

had totaled Bs 26,167 million, representing 58.8 % of the Bank’s total investments.

Cash dividends for Bs 2,010,451,747.50 were paid in 2015, at the rate of Bs 7.50 per share.

In its latest annual evaluation of December 2015, Fitch Ratings ratified Mercantil Banco’s long-

term national ratings of “F1+(ven)” and “AA-(ven)” for the long term, the best national

qualifications for a private financial institution in Venezuela.

It also ratified the “CCC” long-term, “C” short-term and “ccc” viability international

qualifications of the Bank, which are largely dependent on the country risk.

Statement of Credit Risk Reports

The credit risk reports on the proportionality of guarantees on the loan and contingent

portfolios indicate that 66 % of them are backed by some type of collateral (the inclusion of

liens on vehicle titles would bring this percentage to 68.8 %).

More than 98 % of loans to the SME and Middle Market segments are guaranteed by some

type of collateral, while 83 % of loans to the Affluent segment are covered. Some type of

collateral also exists for 52 % of loans of the Corporate segment, in view of the size and level

of solvency of those companies.

The revision of credit risks leads to the conclusion that the proportionality of guarantees

received on the loan and contingent portfolios are both adequate and sufficient, within the

guidelines established in the Bank’s credit risk policies.

The guarantees also coincide with the maturities of the loans.


9

Approval of Asset and Liability Operations

With the new Decree with Rank, Value and Force of Law of Institutions in the Banking Sector,

published in Official Gazette Nº 6,154 Extraordinary of November 19, 2014, the approval of

individual loan operations was limited to those exceeding 5 % of its equity. Therefore, during

2H2015, the Board of Directors considered, approved and/or ratified loan requests from its

clients that exceeded 5 % of equity, including economic groups and individual borrowers, this

time comprising 6 clients, for a total of Bs 8,035 million, representing 2.5 % of the gross loan

portfolio on December 31, 2015.

The current regulation excluded the requirement of approving liabilities.

Comparative Financial Statemens for the last two semesters, andDistribution of Earnings

Included as an integral part of this report are the comparative financial statements of the

Bank for the last two semesters, reflecting the distribution of profits and the changes or

variations in its financial position.

Loan Portfolio – Participation in the Country’s Productive Sectors

through the Percentage of the Loan Portfolio

At the close of 2015, the Bank’s gross loan portfolio increased by 88.4 % in comparison with

the close of 2014, and 43 % up from the balance on June 30, 2015, to reach Bs 317,323 million.

The ratio of past-due and non-performing loans over the gross portfolio remained at 0.2 %,

with 0.3 % being the ratio for the Venezuelan financial system. The coverage ratio of loan loss

provisions over past-due and non-performing loans stayed at a high 1,466.9 %, having

fluctuated to 1,569.3 % in June 2015 from a 1,352.7 % in December 2014.

Loan portfolio growth was mainly due to commercial, credit card and agricultural loans, with

117.4 %, 84.8 % and 77.4 % increases, respectively, in comparison with the balances at the close

of December 2014.

This solid gross loan portfolio increase maintains the Bank at the third position in the financial

system in this segment, with a 12.5 % market share. In the private banking sector, the Bank

occupies the second position at 18.3 % market share.

The gross loan portfolio comprises mainly a 40.6 % of commercial loans (initially to finance

working capital), 16.4 % for credit card products, and 15.4 % in agriculture loans.



Loans to productive sectors in Venezuela on December 31, 2015 are broken down as follows:

By law, banks are required to allocate a proportion of the loan portfolio to the microfinance,

tourism, agriculture, manufacturing and mortgage sectors. Loans to these sectors are

approximately 30.1 % of the Bank’s gross loan portfolio on December 31, 2015, registering

Bs 34,625 million year-on-year increase (57.3 %).

On December 31, 2015, the Bank exceeded the required compulsory loan portfolio

measurements, calculated on the portfolio balances at the dates established according to the

standards, except for the mortgage sector, due to restrictions that will be explained later.

Compliance by sector is summarized in the following Table:

The microenterprise sector continued to consolidate its various portfolio sub-segments,

reaching a 57.54 % increase in comparison with June 2015 and a 109 % increase in comparison

with the previous year closing. At the close of 2015, compliance was 4.9 %, exceeding the

regulatory 3 %, which translates into Bs 10,858 million with an excedent of Bs 4,199 million

over the regulatory requirements.

Agriculture, fishery and forestryMining and petroleumManufacturing industryElectricity, gas and waterConstructionWholesale and retail, restaurants and hotelsTransportation, storage and communicationsFinancial establishments Insurance, real estate and business servicesCommunity, social and personal servicesOther activitiesTOTAL PORTFOLIO

ACTIVITY 48,963 1,525 19,206 311 12,797 112,795 3,062 86,241 11,657 20,766 317,323

In Millions of Bolivars 15.4

0.5 6.1 0.1 4.0

35.5

1.0

27.2

3.7 6.5 100

Percentage (%)

MicroenterpriseTourismAgricultureManufacturingMortgage

SECTOR

3 4.25 25 10 20

Required (%)

4.9 5.5 * 38.4 ** 11.4 17.1 ***

Achieved (%)

* Includes Bs 207 million Class "B" shares of Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo, S.A.,in accordance with the regulations on compliance with the compulsory tourism loan portfolio.

** Includes Bs 1,257 million in Agricultural Bonds issued by government entities, in accordance with the regulations on compliance withthe compulsory agricultural portfolio.

*** Includes Bs 20,114 million in Bolivarian Mortgage Securities, in accordance with the regulations on compliance with the compulsorymortgage portfolio of 2015, Bs 4,952 will be pay out in 2016.


11

The tourism portfolio increased by 90.7 % in comparison with December 2014, and 49.1 % in

comparison with June 2015. The portfolio is broken down as follows: 89.5 % hotels; 9.0 %

tourism transport; 0.8 % gastronomic installations and services; 0.2 % theme parks, and 0.4 %

travel and tourism agencies. Percentage of compliance was 5.5 %, over the regulatory 4.25 %.

By December 2015, this portfolio placed the Bank second in rank in the private financial

system, and third at the national level.

The agricultural loan requirement established 25 % as minimum percentage of the loan

portfolio to be complied with at the close of 2015, the Bank reaching 37.5 % not including

investments in Agriculture Bonds reflecting a year-on-year growth of 77.4 %. Together with

investment of Bs 1,257 million in agriculture bonds following requirements from the National

Executive, this percentage increases to 38.4 %. Some additional considerations for measuring

this portfolio have already been established, with several modifications over time, but the Bank

has fulfilled and complied with all the minimum and maximum distriutions, as follows: finance

of strategic items (required 75 % / achieved 89.5 %); non-strategic items (maximum 5 % / achieved

0.6 %); agro-industrial investments (maximum 15 % / achieved 9.6 %); business and trade

(maximum 5 % / achieved 0.4 %); proportion of medium and long-Term portfolio (minimum

20 % / achieved 42.4 %). 452 new borrowers were attended vs. a required of 276.

The manufacturing portfolio totaled Bs 19,206 million, representing 11.4 % of the total loan

portfolio vs. a required 10 %, also complying with the corresponding sub-segments as follows:

strategic sectors (required 60 % / achieved 80.4 %); SME, joint ventures, community and State

enterprises (required 40 % / achieved 47.4 %). These results place the Bank at the fourth

position with a 9.7 % market share of the total financial system, and first among private banks

with a 21 % market share, for an 8.8 % year-on-year growth.

The Bank managed to cover 17.14 % of the required 20 % of the compulsory mortgage portfolio

in 2015. To be noted is that, during 2015, demand for short-term loans for construction of main

homes as authorized by the Ministry of Habitat and Housing, which affected the percentage

of compliance for this sub-segment of the construction sector. However, in January 2016, the

Simón Bolívar Reconstruction Fund, Ltd., issued an extraordinary series of Bolivarian Housing

Securities to be acquired by Banks in order to cover the required minimum for this sub-

segment; the Bank subscribed Bs 4,952 million, to be paid in three equal portions in the first

three months of 2016.

In 2015, the Bank also acquired the total regulation Bolivarian Housing Securities, which

translated into a complete fulfillment of the compulsory portion of this sub-segment.



On the other hand, the low demand of loans for housing projects has also brought unfavorable

consequences in the fulfillment of the required loan percentage for the acquisition of main

homes, given that, with less projects being built, the inventory of new housing available for

acquisition declines which, together with the significant inflation increase of prices since

2014, and particularly during 2015, has even more negatively affected acquisition loans, in

spite of offering the maximum amount of loans according to purchasers’ income: the

significant increase of housing prices means that the loan amount may only cover a small

percentage of the price of housing. However, the Bank achieved 4.84 % of the required 7.6 %

of regulation for this segment.

Scarcity of materials and inflation of prices continued to deteriorate the segment of loans for

improvements, additions and self-construction of housing, resulting in a decline in demand

for this type of loans, in spite of which the Bank reached 0.3 % compliance vs. the required

0.4 %.

Report on Complaints and their Solutions

On a monthly average, 113.9 million transactions were carried out through the Bank’s different

channels. Monthly average complaints, on the other hand, were 8,994 cases (0.007 % of total

transactions), 98 % of which were financial and 0.4 % corresponded to complaints filed by

customers with SUDEBAN. Average monthly volume of complaints in 2015 was 7 % less (704

cases) in comparison with 2014. Non-financial claims, and particularly those related with

credit cards delivered to customers, declined by 69 % in comparison with 2014.

62 % of total monthly processed complaints were declared as having merit, with resolution

times of complaints submitted by clients regarding debit and credit cards and deposit

accounts declining by 1 day in comparison with the previous year, to 4 days on average.

Regarding fraud prevention in the form known as “El Cambiazo” (The Switch), consisting in a

deceitful substitution of debit and credit cards to customers when making ATM transactions

or in the point-of-sale network, the number of claims during the second half of 2015 did not

increase in comparison with the first, mainly due to the implementation of additional

prevention measures in the alert monitoring areas, such as preventive SMS messages being

sent to customers under certain parameters, providing customers the opportunity to reject

unrecognized consumptions before they take effect. On the other hand, the information

initiative has continued through Mercantil Online, with positive results reported.

The “Monitoring Plus” tool added new modules and apps to follow transactions in the network

of offices and implemented new alerts for debit cards and deposit accounts.


13

Also, regarding fraud through forging checks being presented to the electronic clearing house,

a series of security mechanisms were set in place to increase safety of transactions, thereby

significantly reducing fraud levels, which exposed Bs 95 million in fraudulent checks. One of

the most important tools was the review of cashier checks, to prevent cashing of duplicate

checks.

The Customer and User Ombudsman handled 4,167 cases during the second half 2015, for

Bs 72,164,529.65, 314 cases being declared with merit at a total of Bs 7,282,154.34 and 3,853

cases being dismissed for Bs 64,882,375.52, 45 of which, for Bs 2,138,716.27 were recognized

as without merit by customers themselves.

The Bank keeps detailed records of all complaints and claims, as well as of their processing

and resolution.

Distribution of Electronic Channels and Banking Centers

At the close of the second half 2015, the Bank had 265 branch offices, 1,132 ATMs, 181 active

customer service points operating through correspondent trading desks and trading points

of Mercantil Aliado, 171 multi-function facilities installed in 38 “Vía Rápida Mercantil” self-

service areas, and 63,408 point-of-sale stations, including exclusive point-of-sale for the TAE

Electronic Meal Voucher of Accor Services in 41,431 establishments. The point-of-sale network

service is provided to customers through the Inversiones Platco, C.A. affiliate.

Capital Adequacy Ratio Position

The equity to risk weighted asset ratio was 12.7 % vs. a regulatory minimum of 12 %.

Report of the External Auditors

As stated above, the financial statements for 2015, included in this Report, have been

examined by the institution’s external auditors, “Espiñeira, Pacheco y Asociados”, who found

them reasonable and whose report is attached hereto.



Liquidity, Solvency, Efficiency and Profitability Indicators

The liquidity ratio, calculated as the proportion of total cash and due from banks divided by

total deposits was 31 %; calculated by dividin total cash and due from banks plus investments

by total deposits was 44.9 %; these ratios were 29 % and 46.3 %, respectively, in December

2014, and 29.8 % and 45.6 %, respectively, in June 2015. The Capital Adequacy Ratio, resulting

from dividing equity by total assets minus investments held in government securities was

10.0 %, with the regulatory minimum at 9 %. The consolidated efficiency ratio calculated by

dividing operating expenses by average assets was 4.1 %, 3.3 % in 2014 and 3.7 % in the first

half 2015; at the same time, the efficiency ratio, calculated by dividing operating expenses

by total net income was 36.2 % for 2015, 32.2 % in 2014 and 32.7 % in the first half 2015. The

ROE indicator was 42.0 %, 50.1 % in 2014 and 46.2 % in the first half 2015; and the ROA

indicator was 2.9 %, 4 % in December 2015 and 3.6 % in June 2015.

Internal Audit Report including Audit Report on Compliance with ML/FT Standards

The internal auditor issued its 2015 report, with his opinion on the result of his examination,

which the Board took into consideration for its work in that area.

The work of the Audit unit indicates that the reviews carried out of Bank units and processes

indicates careful attention to risks, adequate corporate governance and opportune

supervision, with strategic objectives being based on their operation, according to the policies

and guidelines of the Bank, as well as giving due attention to recommendations and

instructions from SUDEBAN.

Particular mention should be made of the verification of compliance of Resolution 119-10 of

SUDEBAN, regarding Regulations on the Administration and Control of Risks related to

Money Laundering and Terrorism Financing. Of note are the revisions of 225 of the total 265

offices, the central processes and technologic tools, which resulted in an Excellent average

rating, at 1.21 points, an improvement on 2014’s 1.26 points, also rated Excellent. Based on

this work, plans and programs designed and implemented to prevent and detect transactions

that might be presumed or related to Money Laundering and/or Financing of Terrorism are

working correctly.


15

SUDEBAN Communications regarding Provisions, Observations,

Recommendations or Initiatives on the Bank’s Operation

During the second half 2015, the Bank continued to implement all necessary actions to bring

its activities in line with dispositions and timelines established in regulations issued during

that period. The Board of Directors is responsible for examining those provisions and resolving

matters related thereto. A set of Decrees with Value, Rank and Force of Law were issued by

the National Executive at the end of December 2015, with particular note being taken, due to

their repercussions on banking activity, of the Decrees on Income Tax, Large Financial

Transactions Tax, Foreign Exchange Regime and Related Crimes, Law of the Central Bank of

Venezuela, Financial Administration of the Public Sector, National Tax and Customs

Administration Service (SENIAT – Servicio Nacional Integrado de Administración Aduanera y

Tributaria), and Labor Immobility.

Similarly, during the second half 2015, SUDEBAN issued a series of regulations, among which

are: the adequate Global Administration of Bank Liquidiry Risks; the AT37 “Electronic

Transfers” Technical Specifications Manual; the suspension of products or services,

agreements or contracts with legal persons or personal brands, which allows cash withdrawals

using debit or credit cards, with the exception of ATMs and non-banking correspondents; the

Regulations on the Risk characteristics and classification of the Microfinance System and of

SME; the regulatory exception granted to private banks regarding the exclusion from total

assets of 100 % of the monthly balance at the “BCV Minimum Reserves Account” from the

Banks Accounting Manual; the notification to SUDEBAN of deficiencies, incidents or events

causing interruptions of customer services; the delay in fulfillment of auditing guidelines, as

well as of regulations for preparing and presenting reports according to the Regulations on

Functions and Responsibilities of External Auditors; the ratification of fulfillment of Banking

Security Regulations, and the Regulations for the Protection of Users of Financial Services.

Other official agencies issued regulations affecting the financial sector, such as: the

accounting adjustment of Contributors carrying out Banking, Financing, Insurance and

Reinsurance Activities being excluded from the Inflation Adjustment System; the information

requirement on Securities Positions kept outside the Venezuelan Central Bank (BCV – Banco

Central de Venezuela); the establishment of the Minimum Required Percentage of Compliance

of the Manufacturing Loan Portfolio; the obligation of verifying customer solvencies if they

are beneficiaties of the National Housing and Habitat System in order to declare the release

of mortgage, and the procedure for granting extensions, terms and payment fractioning to

fulfill the contributions established in the Decree of Organic Law of Science, Technology and

Innovation.



Through its internal control system, the Bank constantly monitors these provisions to ensure

compliance and to safeguard its reputation for operating with integrity and professionalism.

The Corporate Compliance business unit reports directly to the Chairman of the Board, and

helps the Business and Support units to identify standards related to their own particular

activities.

In the second half of 2015, the Bank received visits from SUDEBAN to inspect the Quality of

Banking and Trust Services provided at branches and Customer Service Points and those

carried out to verify the observation of administration and fiscal regulation of risks associated

with Money Laundering and Terrorism Financing activities, regarding the application of the

“Know Your Customer” policy. The Bank’s Board of Directors is responsible, according to

Paragraph 5 of Article 30 and Article 32 of the Decree with Rank, Value and Force of Law of

Institutions of the Banking Sector, for examining the contents and resolving on compliance

of reports and communications from SUDEBAN regarding these inspections.

Other agencies of the Public Administration also visited the Bank for inspections in their

areas of jurisdiction, among which are the National Electric Corporation (Corpoelec -

Corporación Eléctrica Nacional), the National Housing and Habitat Bank (Banavih - Banco

Nacional de Vivienda y Hábitat) and the National Health and Labor Security and Prevention

Institute (INSAPSEL – Instituto de Prevención, Salud y Seguridad Laborales).

Retirements and Appointments

Mr. Nerio Rosales R. retired from the Bank on September 30, 2015, following a fruitful 38-

years long career, culminating as Executive Director of Venezuelan Business, responsible for

banking activities in Venezuela. The performance of Mr. Rosales was marked by his dedication,

ability and commitment, providing significant contributions to the development and

positioning of the Bank, also showing constant care for Mercantil’s people, which resulted in

the continuining policy of initiatives for their development and wellbeing. The Board of

Directors wishes him every success in the new stage and for his personal and family wellbeing.

On November 30, 2015, Mr. Philip Henríquez S. also left the Bank following eleven years of

service, as Corporate Banking Manager. Mr. Henriquez showed professionalism and excellent

knowledge of his area within financial activities. The Board expresses its thanks for his

contributions to the Bank and hopes for success and personal and family happiness.

During the second half of the year, Ms. Vincenza Garofalo, Ms. Isabel Pérez S., Mr. Jorge

Pereira D., and Mr. Carlos Montoliú M. were appointed as Managers for Integral Risk, Finances,

Personal Banking and Corporate Banking, respectively. All of them are officials with a solid

preparation and years of service with the Bank, who have shown their competence and

commitment to the principles and values of the “Mercantil Culture”. They were also

incorporated as members of the Executive Committee


17

Organizational Structure Adjustments

In order to make the organization structure of the Bank more effective and operative, the

decision was made to begin a first-level structure adjustment, according to best market

practices, with the creation of two Executive Vice Presidents, as follows:

a) Mr. Fernando Figueredo M. will head the Executive Vice President of Business, having

under him the Corporate Banking Manager, Commercial Banking Manager and

Personal Banking Manager, headed by Mr. Carlos Montoliú M., Mr. Carlos Tejada G.

and Mr. Jorge Pereira D., respectively.

b) Mr. Alfonso Figueredo D. will head the Executive Vice President of Operations and

Administration, having under him the Finance Manager, Operations and Technology

Manager, Human Resources and Corporate Communications Manager and Chief Legal

Counsel, headed by Ms. Isabel Pérez S., Mr. Rodolfo Gasparri G., Mr. Luis Calvo B. and

Mr. Luis A. Fernandes, respectively.

Both Executive Vice Presidents report directly to the Chairman of the Board.

Products and Services

During 2015, the Bank continued to offer products and services to suit their needs to over

4,789,000 customers, 172,000 more than in 2014.

The Credit Cards product has a Bs 52,231 million portfolio, and Bs 19,234 million in parallel

credit lines, which brings the Bank to the third position in the financial system, with a 16.7 %

participation, resulting from its marketing activities and the updating of credit limits to foster

customer loyalty and preference. With cross-product initiatives, more than 162,000 customers

fulfilling the established evaluation and risk parameters received their first or second credit

card, a Bs 6,696 million exposure during the year, to activate over 71,000 cards for those

customers, with an exposure of Bs 3,854 million and generating a Bs 2,135 million portfolio.

The New Professional Credit Cards strategy activated 1,903 new cards issued to university

students.

The consolidation process of the Majorities Banking segment continued to expand the

bankarization and support of communities through the Mercantil Aliado Network, operating

in 14 states and in the Capital District, and offering the Cash Card and Loan Card for

Microenterprises. At the close of December 2015, 52 % more Cash Cards have been issued, to

a total of over 265,000 Cash Cards. The Microenterprises Loan portfolio totaled Bs 10,858

million, corresponding to 14,705 active customers, for a year-on-year growth of 109 %.



At the close of 2015, more than 7.4 million transactions had been processed using the Vía

Rápida Mercantil (Mercantil Fast-Track) self-service areas, a 52.3 % derivation of total

transactions in offices with the multifunction facilities.

Mercantil Online continued to gain support in the customers’ preference, with over 1,360,000

active users in Mercantil Personal Online Banking and over 85,000 active users in Mercantil

Business Online Banking; both Online services processed over 740 million transactions in

2015, 57 % of total transactions through all channels.

The distribution of transactions by channels is as follows:

During 2015, Mercantil Personal Online Banking incorporated the functions of digital

consultating and downloading of Cash Card account statements, and of requesting bank

references for the Special Foreign Currency Account.

Mercantil Business Online Banking incorporated changes in order to improve customers’

satisfaction. The new design is more practical and simple, with the access menu facilitating a

more comfortable and user-friendly navigation, at the same time making transactions as

secure as always.

The Corporate segment launched the new app Mercantil Corporate Mobile, especially

developed for the convenience of our legal clients. The main added value and differentiating

characteristic of the app is that customers may apply for “Pronto Crédito Empresarial”

(Corporate Fast Loans) to obtain funds in a secure and prompt way, using a mobile device

(smartphones or tablets). The Bank thus becomes the first bank to grant loans to customers

using a mobile app. Since the inception of the app on November 1st, through the close of

December 2015, 4,750 devices have been registered for 3,375 groups affiliated to Mercantil

Corporate Online Banking using Mercantil Corporate Mobile for over 148,000 transactions,

133,000 of which were consultations of bank statements and 15,000 were financial

transactions.

At the close of 2015, @MercantilBanco, the official Twitter account of the Bank, had over

222,000 followers. The account’s aim is providing information and orientation on services,

products and various other activities of the institution. With more than 33,400 requests

attended in three years, the Klout influence indicator ranks it as the second account in the

Venezuelan financial sector.

Mercantil Business and PersonalOnline BankingPOSATMs NetworkMercantil MóvilBranchesCall Center

CHANNELS

740 238 134 116 51 17

TRANSACTIONS(in millions of Bolivars )

57 18 10 9 4 1

PARTICIPATION(%)


19

Awards and Recognitions

The Bank earned the “2015 Bank of the Year” in Venezuela, from the renowned financial

magazine The Banker. According to the magazine, this recognition was awarded following an

analysis of the Bank’s results, which show a solid financial profitability, a sustained growth of

deposits, an adequate diversification of clients and mainly, the constant innovations in order

to provide the best customer service, whitin an adequate risk management policy.

It also received Visa’s 2014 Service Quality Performance Award in the Chargeback Efficiency

category, in recognition of the above average performance in data security policies and

regulations, as well as for the continued improvement in quality service of the Bank as credit

card issuer and operator.

The AméricaEconomía magazine ranked the Bank as Nº 169 among 250 Latin American banks.

The ranking includes state banks, and classifies banks by size of assets at the close of June

2015.

These recognitions are in addition to those cited in the 2015 Semi-Annual Report, as “2015

Best Provider of Foreign Trade in Venezuela” from the Global Finance magazine, and “2015

Best Venezuelan Bank” from EuroMoney.

Prevention and Control of

Money Laundering and Terrorism Financing

Prevention of money laundering and control of terrorism financing remains a priority for the

Bank. Therefore, the Program to Prevent Money Laundering and Terrorism Financing remains

in place at all levels, with internal control and supervision mechanisms, reinforcing the “Know

Your Customer” policy, as the best and most effective means of preventing money laundering

and corruptions in general, with special staff training programs.

In order to comply with money laundering regulations, the Bank has in place a well-structured

“Comprehensive System of Risk Administration for the Prevention of Money Laundering and

the Control of Terrorism Financing”, as well as Operational and Follow-Up Plans, and

Monitoring and Oversight Procedures.



Social Commitment

The Bank’s social investment in 2015, carried out both directly and through Fundación

Mercantil, which it sponsors, totaled Bs 91.3 million, addressed mainly at educational programs

and projects of social development undertaken by well-known social development and

educational organizations in Venezuela.

The Bank dedicated 61 % of its contributions to elementary and higher education institutions,

especially for entrepreneurship and infrastructure maintenance programs of schools, and

scholarships providing young people with the opportunity to go forward in their high school,

college and university studies; the remaining 39 % went to Social Development Organizations

fostering community health prevention programs, children and teenagers care programs and

institutions disseminating arts and culture.

Of note is the consolidation of the Alliance between Fundación Mercantil and the Asociación

Fe y Alegría, with new lines of action added to the physical infrastructure rehabilitation and

maintenance programs, in order to promote entrepreneurship, inclusion and leadership

amongst young people. Similar actions are also promoted which support both

professionalization of teachers and the promotion of nutritional and environmental education

activities. All these activities are carried out jointly with several organizations: Movimiento

Huellas (Footsteps Movement), Asociación Venezolana de Servicios de Salud de Orientación

Cristiana (AVESSOC - Venezuelan Health Services Christian Association), Sociedad de Ciencias

Naturales La Salle (La Salle Natural Sciences Society) and Centro Médico Docente La Trinidad

(La Trinidad Medical Teaching Center). During the period, 12 schools were attended

throughout the nation, to the benefit of more than 6,000 students.

Also of note are the contributions and support of programs and initiatives of various educational

institutions, such as Universities Católica Andrés Bello, Zulia, Simón Bolívar, Central of

Venezuela, and Carabobo, Sociedad de Ciencias Naturales La Salle, Fundación Ideas, UNICEF,

Alianza Social VenAmCham (Venezuelan-American Chamber of Commerce and Industry Social

Alliance), Un Techo para mi País Venezuela (A Roof for my Country Venezuela), Dividendo

Voluntario para la Comunidad (Voluntary Dividend for the Community), Museo de Arte

Contemporáneo del Zulia, and Sociedad Anticancerosa de Venezuela.

The Bank continued to strengthen the Online Donation Program “Un Aporte por Venezuela”

(A Contribution for Venezuela), as well as the culture support program carried out through

exhibitions in the Espacio Mercantil, for the promotion of national art historiography. Art

exhibitions took place during the year in Caracas, Valencia and Maracaibo. Special mention

should be made of the record production of Coral Mercantil’s Antología y Trovadores de lo

Cotidiano (Anthology of Everyday Minstrels), which compiled the history of over 35 years of

choral singing.

It is also important to mention the growing participation of Mercantil’s Volunteers and their

families in various nationwide activities and programs within the framework of the 90th

anniversary of Mercantil, in support of Fe y Alegría, Sociedad Anticancerosa de Venezuela,

Hospital Ortopédico Infantil, the Simón Bolívar University, Fundación Techo Venezuela, and the

Comedores Madre Teresa de Calcuta (Comatec) (Mother Theresa of Calcutta Soup Kitchens).


21

Development and Working Environment

Compensation policies continue to be applied for the benefit and support of workers to

preserve and improve their economic conditions. These policies have brought the Bank to a

leading position in the financial sector; various measures were developed during the year,

such as salary increases and increases in the monthly Food Program payments, a special bonus

for the year and the creation of the Financing of Educational Expenses of Workers’ Children

Program.

These policies go hand-in-hand with the development of permanent retention, education and

training of staff, to improve the professional preparation of personnel and to maintain a

continuous process of knowledge updating. These activities are supplemented with other

activities to promote friendliness areas for the recreation of workers and their families

throughout the country.

The Bank and Mercantil Bank’s Unions affiliated to the National Workers Federation reached

an agreement regarding benefits to be included in the new collective labor agreements for

the 2016-2018 period. At present, the Bank and workers are waiting for the formal procedures

with the Labor Inspectors and with the Ministry of Work and Social Security. This new

Collective Labor Agreement will benefit over 6,000 workers, and its provisions are the result

of the care of the company for the wellbeing of its employees and for the friendly interactions

and the traditional cooperation with labor union representatives.

Relationships with officers and employees have remained harmonious as always, and the

Board of Directors wishes to acknowledge the efficiency and dedication to their job.

During the second half of the year, a number of Alternate Directors attended Board meetings,

either standing in for Principal Directors in their absence, or as invited. On the occasion of

the Chairman’s and the Executive President’s temporary absences, some of their functions

were delegated to members of the Executive Committee.

Yours, sincerely,

Gustavo Vollmer A.

Nelson Pinto A.

Alfredo Travieso P.

Luis A. Marturet

Eduardo Mier y Terán

Víctor Sierra A.

Roberto Vainrub A.



Financial Statements Consolidated with Foreign Subsidiaries (*)

(In accordance with the Superintendency of Banking Sector Institutions -SUDEBAN)

Consolidated Balance Sheet(In Bs)

AssetsCash and Due from BanksInvestments in SecuritiesLoan PortfolioInterest and Commissions ReceivableInvestments in Subsidiaries, Affiliates and BranchesAssets Available for SaleProperty and EquipmentOther Assets TOTAL ASSETS

LiabilitiesDepositsDeposits and Liabilities with BANAVIHOther BorrowingsOther Liabilities from Financial IntermediationInterest and Commissions PayableAccruals and Other Liabilities TOTAL LIABILITIES

Shareholders’ EquityTOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

Interest IncomeInterest Expense

Net Interest IncomeIncome from Financial Assets RecoveredExpenses from Uncollectibles and Devaluation of Financial Assets

Net Interest MarginOther Operating IncomeOther Operating Expenses

Financial Intermediation MarginOperating Expenses

Cross Operating MarginIncome from realizable goodsMiscellaneous Operating IncomeExpenses from realizable goodsMiscellaneous operating expenses

Net Operating MarginExtraordinary IncomeExtraordinary Expenses

Gross Income before TaxIncome TaxNET INCOME

Application of Net IncomeRetained EarningsLOSEP Fund

December 31

2015154,144,272,77569,247,832,747307,411,935,3883,989,981,7601,393,205,898

597,4652,968,662,50911,946,459,365

551,102,947,907

497,141,012,6171,311,628

69,842,2754,136,512

104,786,59816,442,827,650

513,763,917,280

37,339,030,627551,102,947,907

33,843,858,13910,216,509,28023,627,348,859

319,159,8963,215,967,477

20,730,541,2787,564,554,8453,174,357,899

25,120,738,22413,776,506,182

11,344,232,042226,147,985157,435,753

89,3581,204,458,872

10,523,267,5500

61,699,18310,461,568,3674,282,216,0456,179,352,322

6,179,352,322106,288,011

Consolidated Statement of Income(In Bs) PERIOD ENDED

(*) Comparative Financial Statements for the last two quarters and Appropriation of Net Income, pursuant to Article 20[D] of the Standards establishing the Guidelines and Requisites to be submitted by theMeetings of Shareholders of Banking Institutions, Currency Exchanges, and Border Exchange Operators.

December 31

2015

June 30

2015102,229,478,38053,950,518,855

214,848,790,6702,617,470,693295,315,621

211,1981,841,155,7987,057,923,956

382,840,865,171

342,964,955,2331,597,112

75,509,6831,589,64687,608,456

11,533,593,213

354,664,853,343

28,176,011,828382,840,865,171

22,294,100,8336,409,052,20815,885,048,625

199,684,5731,620,241,133

14,464,492,0654,652,421,0371,975,095,08017,141,818,0228,259,081,453

8,882,736,5696,798,018

121,918,905171,483

877,368,4498,133,913,560

053,276,793

8,080,636,7672,098,410,721

5,982,226,046

5,982,226,04682,155,499

June 30

2015


23

Statutory Auditors’ Report



Financial Statements(In accordance with the standars of the

Superintendency of Banking Sectors Institutions)

Balance Sheet(in Bolivars)

Assets

Cash and Due from banksCashCentral Bank of VenezuelaVenezuelan Banks and other Financial InstitutionsForeign Banks and other Financial InstitutionsHead Office and BranchesPending Cash Items(Allowance for Cash and Due from banks)

Investments SecuritiesCentral Bank of Venezuela and OvernightInvestments in Trading SecuritiesInvestments in Securities Available for SaleInvestments in Securities held-to-maturityRestricted InvestmentsInvestments in Other Securities(Allowance for Investments Securities)

Loan PortfolioCurrentRescheduledPast DueIn Litigation(Allowance for Losses on Loan Portfolio)

Interest and Commissions ReceivableInterest Receivable on cash and Due froms BanksInterest Receivable on Investments SecuritiesInterest Receivable on Loan PortfolioCommissions ReceivableInterest Receivable on Other Accounts Receivable(Allowance for Interest Receivable on Loan Portfolio and Other)

Investments in Subsidiaries, Affiliates and BranchesInvesments in Subsidiaries and AffiliatesInvesments in Branches(Allowance for Invesments in Subsidiaries, Affiliates and Branches)

Assets Available for SaleProperty and EquipmentOther Assets

Total Assets

Contingent Debtor AccountsAssets Received in TrustSpecial Trust ServicesDebtor Accounts from Other Special Trust Services(Régimen Prestacional de Vivienda y Hábitat)Other Debtor Accounts (Housing Mutual Fund)Other Debtor Memorandum AccountsOther Debtor Control Accounts

154,090,193,1068,491,607,452

137,641,396,706339,950

452,759,3020

7,504,089,6960

68,516,515,2752,100,000,000

018,232,290,34012,291,413,348638,833,820

35,253,977,7670

307,376,724,101316,134,656,025

510,652,762627,456,72650,639,821

(9,946,681,233)

3,978,434,3810

1,000,991,1592,894,520,370121,604,244

2,529(38,683,921)

2,184,000,6451,393,223,020790,794,747

(17,122)

597,4652,968,662,50911,946,380,009

551,061,507,491

2,573,471,84528,110,445,227

7,706,986

00

759,231,146,9177,704,280

For Operationsin Venezuela

December 31

2015154,144,272,7758,491,607,452

137,641,396,706339,950

506,838,9710

7,504,089,6960

69,247,832,7472,100,000,000

018,943,344,37812,291,413,348659,097,254

35,253,977,7670

307,411,935,388316,170,494,485

510,652,762627,456,72650,639,821

(9,947,308,406)

3,989,981,760374

1,012,443,5412,894,614,993121,604,244

2,529(38,683,921)

1,393,205,8981,393,223,020

0(17,122)

597,4652,968,662,50911,946,459,365

551,102,947,907

2,573,471,84528,110,445,227

7,706,986

00

759,338,795,2647,704,280

Consolidated with Overseas branches

December 31

2015102,193,137,6124,592,870,59786,758,923,792

289,950549,417,697

010,291,635,576

0

53,270,759,4174,209,961,000

017,201,808,1675,451,063,485192,884,728

26,215,042,0370

214,795,577,704220,973,202,145

524,492,697456,117,863

18,863(7,158,253,864)

2,608,958,0900

606,078,8241,951,764,72479,950,473

755(28,836,686)

1,055,619,146295,332,743760,303,525

(17,122)

211,1981,841,155,7987,057,251,882

382,822,670,847

2,538,913,26623,481,792,771

8,265,539

00

575,495,436,4339,038,856


June 30

2015102,229,478,3804,592,870,59786,758,923,792

289,950585,758,465

010,291,635,576

0

53,950,518,8554,209,961,000

017,864,603,7365,451,063,485209,848,597

26,215,042,0370

214,848,790,670221,027,362,925524,492,697456,117,863

18,863(7,159,201,678)

2,617,470,693304

614,466,0531,951,889,79479,950,473

755(28,836,686)

295,315,621295,332,743

0(17,122)

211,1981,841,155,7987,057,923,956

382,840,865,171

2,538,913,26623,481,792,771

8,265,539

00

575,585,673,5339,038,856


June 30

2015


Alfonso Figueredo DavisExecutive Vice President

of Operations and Administration

Juan C. Cortés T.Corporate Comptroller


Isabel Pérez SanchisChief Financial Officer


25

Financial Statements(In accordance with the standars of the

Superintendency of Banking Sectors Institutions)

Balance Sheet(in Bolivars)

Liabilities

Total DepositsDemand Deposits

Non-Interest Bearing Cheking AccountsInterest Bearing Cheking AccountsChecking accounts in accordance with Exchange Agreement Nº 20Demand deposits and certificates

Other Demand DepositsObligations for Money Desk OperationsSaving DepositsTime DepositsSecurities Issued by the BankRestricted Customer DepositsRigths and participation investment securitiesObligations to Central Bank of VenezuelaDeposits and Liabilities with BANAVIHBorrowingsBorrowings from Venezuelan Financial Institutions, Up to 1 YearBorrowings from Venezuelan Financial Institutions, More Than 1 YearBorrowings from Overseas Financial Institutions, Up to 1 YearBorrowings from Overseas Financial Institutions, More Than 1 YearOther Borrowings, Up to 1 YearOther Borrowings, More Than 1 YearOther Liabilities for Financial IntermediationInterest and Commissions PayablerExpenses Payable on Customer DepositsExpenses Payable on Obligations to the BCVExpenses Payable on Deposits and Liabilities with BANAVIHExpenses Payable for Other Financing ObtainedExpenses Payable for Other BorrowingsExpenses Payable for Other ObligationsExpenses Payable for Subordinated Debt

Other LiabilitiesSubordinated DebtObligations Convertible to Capital

Total Liabilities

Shareholders’ Equity

Nominal Capital Stock par valueConvertible BondsPaid-in SurplusCapital ReservesEquity Adjustments Retained EarningsUnrealized Gain on Investments Available for Sale

Total Shareholders’ Equity

Total Liabilies and Shareholders’ Equity

497,125,908,649349,466,099,460181,419,795,859126,057,606,370

66,362,32941,922,334,9024,213,611,038

0142,543,472,184

529,389,7320

373,336,23500

1,311,62844,705,47543,800,051

0905,424

000

4,136,512104,738,426104,738,426

000000

16,441,676,17400

513,722,476,864

268,060,2330

2,890,220,542281,463,245(1,425,900)

33,017,542,783

883,169,724

37,339,030,627

551,061,507,491


December 31

2015

497,141,012,617349,469,735,940181,423,432,339126,057,606,370

66,362,32941,922,334,9024,215,561,594

0142,548,765,626

530,236,4110

376,713,04600

1,311,62869,842,27543,800,051

026,042,224

000

4,136,512104,786,598104,742,958

00

43,640000

16,442,827,65000

513,763,917,280

268,060,2330

2,890,220,542281,463,245(1,425,900)

33,017,542,783

883,169,724

37,339,030,627

551,102,947,907


December 31

2015

342,947,563,699242,389,184,457118,265,226,29189,883,431,25168,624,184

34,171,902,7314,879,512,518

094,871,043,259

555,181,5210

252,641,94400

1,597,11275,509,68374,823,876

0685,807

000

1,589,64687,601,21687,601,190

0026000

11,532,797,66300

354,646,659,019

268,060,2330

35,833280,122,943(1,083,142)

26,839,530,762

789,345,199

28,176,011,828

382,822,670,847


June 30

2015

342,964,955,233242,394,104,587118,270,146,42189,883,431,25168,624,184

34,171,902,7314,881,728,543

094,876,588,325556,027,425

0256,506,353

00

1,597,11275,509,68374,823,876

0685,807

000

1,589,64687,608,45687,608,430

0026000

11,533,593,21300

354,664,853,343

268,060,2330

35,833280,122,943(1,083,142)

26,839,530,762

789,345,199

28,176,011,828

382,840,865,171


June 30

2015









Financial StatementsIncome Statement(in Bolivars)

Interest IncomeIncome From Cash and Due From BanksIncome From Investment SecuritiesIncome From Loan PortfolioIncome From Other Account ReceivableIncome From Investment in Subsidiaries, Affiliates, and BranchesIncome From Head Office and BranchesOther Interest IncomeInterest ExpensesExpenses From Customer DepositsExpenses From Obligations to Central Bank of VenezuelaExpenses From Deposits and Liabilities with BANAVIHExpenses From Other BorrowingsExpenses From Other Liabilities From Financial IntermediationExpenses From Subordinated DebtExpenses From Other ObligationsExpenses From Head Office and BranchesOther Interest ExpensesNet Interest ExpensesIncome From Financial Assets RecoveredExpenses From Uncollectible and Devaluation of Financial AssetsProvision for Loan Portfolio and Other Accounts Receivable, LossesProvision for Cash and Due from BanksNet Financial MarginOther Operating IncomeOther Operating ExpensesFinancial Intermediation MarginPersonnel and Operating ExpensesSalaries and Employee BenefictsOperating ExpensesFees Paid to The Deposit Guaranted and Banking Protection Fund (Fogade)Fees paid to The Superintendency of Banks and Other Financial InstitutionGross Operating MarginIncome From Realizable GoodsIncome From Special ProgramsMiscellaneous Operating IncomeExpenses From Realizably GoodsExpenses From Depreciation, Amortization, and Devaluation of Miscellaneous GoodsMiscellaneous Operating ExpensesNet Operating MarginExtraordinary IncomeExtraordinary ExpensesGross Income Before TaxIncome TaxesNet Income

Application of Net IncomeLegal Reserve Profit SharingBoard of DirectorsOfficers and Employees

Other Capital Reserves Retained EarningsLOSEP Fund

33,802,709,553288,544

2,253,841,54531,501,706,612

22,621,53400

24,251,31810,216,457,43410,128,120,949

000

87,326,715000

1,009,77023,586,252,119293,787,3793,215,967,4773,215,967,477

020,664,072,0217,569,751,2493,118,142,64325,115,680,62713,773,012,0383,979,326,2207,069,588,3242,456,177,679267,919,815

11,342,668,589226,147,985

0157,435,753

89,3580

1,203,649,86910,522,513,100

061,699,183

10,460,813,9174,281,461,5956,179,352,322

00000

6,179,352,322106,288,011


December 31

201533,843,858,139

290,7952,293,970,83731,502,723,655

22,621,53400

24,251,31810,216,509,28010,128,129,155

00

43,64087,326,715

000

1,009,77023,627,348,859319,159,8963,215,967,4773,215,967,477

020,730,541,2787,564,554,8453,174,357,899

25,120,738,22413,776,506,1823,979,326,2207,073,082,4682,456,177,679267,919,815

11,344,232,042226,147,985

0157,435,753

89,3580

1,204,458,87210,523,267,550

061,699,183

10,461,568,3674,282,216,0456,179,352,322

00000

6,179,352,322106,288,011


December 31

201522,252,234,090

307,4261,805,731,893

20,368,611,80320,230,406

00

57,352,5626,408,939,5716,354,679,149

00

887,97849,007,952

000

4,364,49215,843,294,519199,622,1671,620,241,1331,620,241,133

014,422,675,5534,685,983,5221,972,632,07217,136,027,0038,254,762,6813,205,080,6662,969,817,5771,875,357,707204,506,7318,881,264,322

6,798,0180

121,917,805171,483

0876,414,2438,133,394,419

053,276,793

8,080,117,6262,097,891,5805,982,226,046

00000

5,982,226,04682,155,499


June 30

201522,294,100,833

310,0181,846,398,22220,369,809,625

20,230,40600

57,352,5626,409,052,2086,354,688,010

00

991,75449,007,952

000

4,364,49215,885,048,625199,684,5731,620,241,1331,620,241,133

014,464,492,0654,652,421,0371,975,095,08017,141,818,0228,259,081,4533,205,080,6662,974,136,3491,875,357,707204,506,7318,882,736,569

6,798,0180

121,918,905171,483

0877,368,4498,133,913,560

053,276,793

8,080,636,7672,098,410,7215,982,226,046

00000

5,982,226,04682,155,499


June 30

2015

(In accordance with the standars of the Superintendency of Banking Sectors Institutions)

Year ended








27

Strategic Positioning

Our CultureSoundness: “Strength and Soundness above all else”.

Long-term thinking and vision: “The strategy is based on a long-term outlook, with tactical

decisions and permanently striving to achieve the desired results”.

Respect and Care for Employees: “The well-being, motivation, recognition and individual

development of our employees are permanent goals for the organization”.

Mercantil brand is the focal point: “The brand image is the organization. The public presence

is of the organization as a whole and not of its individual members. The corporate profile is

guided by the strategy”.

Compliance: “Strict and timely adherence to all applicable laws, regulations, rules and

policies”.

Ethical Behavior: “Zero tolerance for unethical behavior and transparency in all

communications and information”.

Multinational: “We are an international organization with Venezuelan roots”.

Resilience: “We continuously adapt to changing environments and circumstances with dignity

and integrity”.

Good citizenship: “Our behavior reflects the solidarity and commitment to the community”.

Corporate Governance: “Respect for the organization’s corporate governance structure”.

Our Commitment• To be the best financial services provider as measured by the degree to which customers’

needs and expectations are met, through products and services considered by them as the

best in the market.

• To be a leading and innovative institution that anticipates the needs of the customers and

competitors actions.

• To be recognized for its quality and excellence.

• To have the best and most capable human resources that are committed to working as a

team.

• To maintain a prudent risk management combined with an excellent asset and liability

management.

• To maintain a continuous focus on increasing operational efficiency across the organization,

leveraging on technology as a competitive advantage.

During 2015, Mercantil conducted a series of meetings with employees, within the process

of communication of its strategic positioning, in order to promote and reinforce the elements

of Mercantil Culture and Commitment, which mark the performance of the corporation in

the development and implementation of its activities and business ways.

Mission

To fulfill the needs of our customers 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.

Vision

To be a financial services organization

of reference* in the area of banking, in

the markets we serve.

(*) Reference: to be recognized and respectedfor our strength, ethical behavior, dynamism,innovation, quality of service and for being thebest place to work.



Mercantil continues to focus on the development of comprehensive and differentiated value

proposals for each customers segment.

Efforts continue to increase financing productive sectors and the SME segments with

financing programs for working capital in competitive conditions, in line with the risk

parameters established throughout the institution. For individual customers, the growth of

the credit card product was based on marketing activities to promote customer loyalty and

preference, and on updating the credit limits of clients fulfilling the evaluation and risk

parameters. Comprehensive products and services to fit the needs of customers, as well as

the expansion of electronic products and channels and of self-service areas continued to

represent the effort to improve customer quality service, with the support of installed Self-

Service Halls and the increase of functions of Mercantil Mobile, which have been reflected in

the increasing number of transactions using those two channels. The Majorities segment,

with the support of the Mercantil Aliado network, continued to promote the development of

low-income communities and the bankarization of new clients.

Emphasis remains on improving efficiency through the ongoing improvement of processes

and of products and services quality.

All of this has been carried out in strict compliance with the regulations applicable in the

countries where we operate, with strong adherence to the transparency and solid

performance elements, key of Mercantil’s strategic positioning, and characteristic of the

corporation and of its daily activities.

.


29

Balance SheetA summarized Balance Sheet at December

31, 2015, 2014 and 2013 is presented below and the main variations when comparing December

2015 with December 2014 are commented on.

The Audited Financial Statements and their notes, which include the summary of the

accounting standards used, are included in this report.

Total Assets

On December 31, 2015, Mercantil Banco Universal’s total consolidated assets were Bs 551,055

million, representing Bs 263,162 million increase (91.4 %), and Bs 368,025 million (201.1 %)

increase in comparison with December 2014 and 2013, respectively. The loan portfolio

remained the main component of total assets at 55.8 %; the investment portfolio contributed

12.6 %, and cash and due from banks at the end of the semester accounted for 28.0 %.

Mercantil Banco Universal ranks third in the Venezuelan private financial system on

December 31, 2015 in terms of total assets, with 11.5 % of the market. The largest market share

held by an institution in the Venezuelan financial system is 18.9 %, with the country’s four

largest banks accounting for 58.8 % of the market.

Management Discussionand Analysis

Summary of the ConsolidatedBalance SheetYear ended(n thousands of Bs and millons of US$ except percentages)

Total Assets

Cash and Due from Banks

Investment Portfolio

Loan Portfolio (net)

Deposits


551,055,436

154,144,732

69,286,892

307,411,936

497,091,668

37,339,030

2015bolivars

287,892,974

74,866,697

44,523,248

162,619,332

258,083,275

24,255,805

2014bolivars

183,030,629

44,543,920

45,067,501

89,809,279

162,756,924

16,557,049

2013bolivars

263,162,462

79,278,035

24,763,644

144,792,604

239,008,393

13,083,225

91.4

105.9

55.6

89.0

92.6

53.9

201.1

246.1

53.7

242.3

205.4

125.5

Dec. 2015 vs. Dec. 2014Increase /

( Decrease)

bolivars %


( Decrease)

bolivars %

368,024,807

109,600,812

24,219,391

217,602,657

334,334,744

20,781,981

December 31 December 31 December 31

Historic figures presented in accordance with the standars of the Superintendency of Banking Sector Institutions.



Cash and Due from Banks

On December 31, 2015, cash and due from banks totaled Bs 154,145 million, reflecting Bs 79,278

million (105.9 %) and Bs 109,601 million (246.1 %) more than in December 2014 and 2013,

respectively, mainly due to the increase in the balances in the BCV, driven by total deposit

growth. The liquidity ration, calculated by dividing total cash and due from banks by total

deposits was 31.0 %, and the ratio from dividing total cash and due from banks plus

investment by total deposits was 44.9 %, both ratios standing at 29.0 % and 46.3 %,

respectively in December 2014.

Investments in securities totaled Bs 69,287 million on December 31, 2015, Bs 24,764 million

(55.6 %) and Bs 24,219 million (53.7 %) more than in December 2014 and December 2013,

respectively. At the same time, on December 31, 2015, total investments in securities are

structured as follows: 96.0 % in securities issued or guaranteed by the Venezuelan state and

government agencies; 3.0 % in certificates of deposits issued by the BCV, maturing in less than

30 days; 1.0 % in Venezuelan and international private sector securities, among others.

DPN Bonds, issued by the Venezuelan state, account for 0.4 times the Bank’s equity and 3.8 %

of its assets.

In line with regulations from the National Executive, by December 31, 2015 the Bank had

purchased Mortgage Securities, Certificates of Participation, Agriculture Bonds and Stocks, for

Bs 47,243 million, representing 68.2 % of the investment portfolio and 1.3 times its equity

(Bs 26,167 million, representing 58.8 % of the investment portfolio and 1.1 times its equity on

December 31, 2014).

Investment Portfolio

Investments in Securitiesby IssuerYear ended(In thousands of Bs except percentages)

Venezuelan Central Bank (BCV)

Venezuelan State and Government Entities

U.S. Government and U.S. Government-backed Agencies

Others

Total Investments

2,100,000

66,502,105

25,689

659,097

69,286,892

2015bolivars

1,188,775

42,987,197

102,892

244,384

44,523,248

2014bolivars

9,753,685

35,037,610

143,634

132,572

45,067,501

2013bolivars

911,225

23,514,908

(77,203)

414,713

24,763,644

76.7

54.7

(75.0)

169.7

55.6

(78.5)

89.8

(82.1)

397.2

53.7


( Decrease)

bolivars %


( Decrease)

bolivars %

(7,653,685)

31,464,495

(117,944)

526,525

24,219,391



31

Loan Portfolio

Net loans totaled Bs 307,412 million on December 31, 2015, up Bs 144,793 million (89.0 %) and

Bs 217,603 million (242.3 %) in comparison with December 2014 and 2013, respectively. At the

close of December 2015, Mercantil Banco Universal is the leading bank in Venezuela’s private

financial system in terms of loans for the manufacturing sector, with a 21.0 % market share.

It ranks second in terms of loans for the tourism, agriculture and mortgage sectors, and in

total loan portfolio, with market shares of 19.4 %. 24.3 %, 16.0 % and 18.2 %., respectively.

Loan portfolio quality remains at very satisfactory levels with a ratio of past-due and non-

performing loans to gross loans of 0.2 %, compared to 0.3 % of the Venezuelan financial

system as a whole.

99.6 % of Mercantil Banco’s loan portfolio is outstanding on December 31, 2015. The allowance

for losses on loan portfolio covers 1,466.9 % of past-due and non-performing loans (1,352.9 %

and 914.5 % on December 31 of 2014 and 2013, respectively).

030,00060,00090,000

120,000150,000180,000210,000240,000270,000300,000330,000360,000

Dec. 2013

47 %15 %38 %

Dec. 2014

47 %

13 %

40 %

Dec. 2015

47 %

13 %

40 %

Individuals

Large Corporations

Small and Medium Enterprises (SMEs)

Loan PortfolioBy Business Segment

2014bolivars

2013bolivars

Gross Loans Classifiedby StatusYear ended(In thousands of Bs except percentages)

CurrentReestructuredPast DueIn Litigation

Total

316,170,494510,653627,45750,640

317,359,244

2015bolivars % % %

167,580,574500,986435,910

56

168,517,526

2014bolivars

92,479,759545,128389,5965,180

93,419,663

2013bolivars

99.00.60.40.0

100.0

99.40.30.30.0

100.0

99.60.20.20.0

100.0

Loan Portfolio Quality (1)

Year ended

Past Due + Non-Performing Loans /Gross Loans (%)

Allowance for Loan Losses /Past Due + Non-Performing Loans (%)

0.3

922.2

System

Average

0.2

1,466.9

2015bolivars

0.3

1,352.7

0.4

913.7

(1) Calculated on operations in Venezuela



Millions of b

olivars



Universal banks in Venezuela must earmark a minimum nominal percentage of 62.3 % for

loans to the agricultural, microenterprise, mortgage, tourism and manufacturing sectors by

December 31, 2015. Mercantil Banco Universal’s level of compliance is as follows:

Total Deposits

On December 31, 2015, total deposits were Bs 497,092 million, reflecting increases of Bs 239,008

million (92.6 %) and Bs 334,334 million (205.4 %) in comparison with December of 2014 and

2013, respectively.

Demand deposits were the main components of total deposits, reaching Bs 349,420 million,

100.0 % up from the previous year, and representing 70.3 % of total deposits. Savings deposits

rose Bs 64,429 million (82.5 %) and Bs 7 million (1.4 %), respectively, in the same period.

At year’s end, the Bank was the leading institution in the Venezuelan financial system with

22.0 % of market share in savings deposits, and ranked second in terms of total deposits

including demand liabilities, with 11.7 % of the market.

a) In May and June 2012, FONDEN issued bearer bonds, not convertible into shares, for the financing and strengthening of the Great Venezuela Agriculture Mision of the Ezequiel Zamora Fund. In April 2009,the National Executive approved the issue of Public Debt Bonds (DPN Bonds – Bonos de la Deuda Pública Nacional) to finance the 2009-2010 Comprehensive Agricultural Development Plan; these issues maybe included in the compulsory agriculture loan portfolio up to a maximum of 30 % of the total agriculture portfolio, as approved by the Ministry of Agriculture and Lands, in July 2012; the amount of theagriculture loan portfolio with the addition of these investments totals Bs 50,220 million on December 31, 2015. By that date, the Bank had directed 89.5 % to strategic items, 0.6 % to non-strategic items, and10.0 % to agroindustrial investments and trade. At the same time, on December 31, 2015 there are outstanding loans at mid- and long-terms representing 42.4 % of the total agriculture loan portfolio.

b) On December 31, 2015, the Bank has Bs 33,242 million invested in Bolivarian Housing Securities, issued by FONDEN, to finance the Great Venezuela Housing Mission, Bs 15,162 million of which can be accountedin the 2015 mortgage portfolio. In January 2016, the Fund published the Private Issue of Boliviarian Housing Securities 2015-II, assigning Bs 4,952 million to the Bank to fulfill the required construction segmentof loans on December 31, 2015, which brings the 14.6 % compliance at that date to a maximum of 17.1 %.

c) On December 31, 2015 the Bank has covered the minimum required percentage of the loan portfolio for tourism (including SOGATUR shares for Bs 207 million), for a total tourism portofolio of Bs 7,187 million.d) In June 2013, the Ministry for Industries and the Finance Ministry listed the activities subject of loans by the manufacturing portfolio of universal banks, which should concentrate 60 % of total resources instrategic sectors for development, with a minimum 40 % to finance SME, joint ventures, community and state enterprises.

At December 31, 2015

Activity

Balance(In Thousandsof Bolivars)

Achieved%

Required%

MaximumAnnual InterestRates %

Agriculture (a)

Microenterprise

Mortgage (b)

Tourism (c)

Manufacturing (d)

48,962,441

10,857,879

9,366,727

6,979,686

19,206,396

95,373,129

13

24

Between4.66 y 10.66

7.73 ó 10.73

16.20 ó 18

Calculation basis

Average gross loans at December 31, 2014 and 2013

Gross loans at June 30, 2015.

Gross loans at December 31, 2014.

Average gross loans at December 31, 2014 y 2013

Gross loans at December 31, 2014

38.4

4.9

17.1

5.5

11.4

77.4

25.0

3.0

20.0

4.3

10.0

62.3

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

Dec. 2013 Dec. 2014

26 %29 %

45 %

27 %

29 %

44 %

Dec. 2015

29 %

24 %

47 %

Individuals

Large Corporation

Small and Medium Enterprises (SMEs)

Deposits by Business Segment

Millions of b

olivars


33

(1) Obtained by dividing equity by total assets minus investments in securities issued or guaranteed by the Venezuelan government andpublic entities.


Shareholders’ Equity was Bs 37,339 million on December 31, 2015, reflecting increases of Bs 13,083

million (53.9 %) and Bs 20,782 million (125.5 %) compared with December 2014 and 2013,

respectively. The year-on-year increase includes mainly Bs 12,162 million in accumulated net

income, a Bs 2,890 million increase in uncapitalized equity adjustments, a decline of Bs 2,010

million corresponding to cash dividends paid, and Bs 42 million increase from adjusting

investments available for sale to their market value.

The equity over assets ratio of Mercantil Banco Universal on December 31, 2015 was 10.0 %1

(minimum requirement 9 %), and the equity over risk-weighted assets ratio is 12.7 %

(minimum required 12 %) according to the standards of SUDEBAN (9.7 % and 16.5 % on

December 31, 2014 and 10.9 % and 19.0 % on December 31, 2015, respectively).

Income Statement

Net IncomeYear ended(In thousands of Bs except percentages)

Interest Income

Income Expense

Net Interest Income

Income from Financial Assets Recovered

Provision for Loan Portfolio Losses and other Accounts Receivable Losses

Net Financial Margin

Other Income, net

Operating Expenses

Taxes

Net Income for the year

56,151,013

16,622,690

39,528,323

518,845

4,836,208

35,210,960

5,371,020

22,039,775

6,380,627

12,161,578

2015bolivars

28,191,405

9,057,578

19,133,827

297,461

2,796,003

16,635,285

3,346,152

10,549,964

814

9,430,660

2014bolivars

16,676,251

5,030,305

11,645,946

187,102

1,704,815

10,128,233

3,061,375

6,660,194

3,602

6,525,812

2013bolivars

27,959,608

7,565,112

20,394,496

221,384

2,040,205

18,575,675

2,024,868

11,489,811

6,379,813

2,730,918

99.2

83.5

106.6

74.4

73.0

111.7

60.5

108.9

783,760.8

29.0

236.7

230.5

239.4

177.3

183.7

247.7

75.4

230.9

177.020.5

86.4

Dec. 2015 Vs. Dec. 2014Increase /

( Decrease)

bolivars %

Dec. 2015 Vs. Dec. 2013Increase /

( Decrease)

bolivars %

39,474,762

11,592,385

27,882,377

331,743

3,131,393

25,082,727

2,309,645

15,379,581

6,377,025

5,635,766




Net Interest Income

In 2015, net interest income was Bs 39,528 million, representing increase of Bs 20,394 million

(106.6 %) and Bs 27,882 million (239.4 %) compared to the margins for the years ended

December 31, 2014 and and 2013, respectively. The increase, compared to December 31, 2014,

is mainly due to a higher volume of financial assets and liabilities. The Bank’s net interest

income over average financial assets ratio on December 31, 2014 was 13.2 % compared to the

previous year ratio of 10.9 %. Interest income totaled Bs 56,151 million registering a 99.2 %

compared to the year ending December 31, 2014. Financial expenses were Bs 16,623 million,

83.5 % up from the same period of the previous year.

The financial intermediation index (loan portfolio over deposits) was 63.8 % on December 31,

2015 (65.3 % and 57.4 % on December 31 of 2014 and 2013, respectively).

Loan Portfolio Provision

During 2015, loan portfolio losses were Bs 4,836 million, representing an increase of Bs 2,040

million (73 %) and of Bs 3,131 million (183.7 %) compared to the years ending December 31 of 2014

and 2013, respectively. The accumulated provision reached Bs 9,947 million on December 31, 2015,

covering 1,466.9 % of past-due and non-performing loans.

11,646 19,134 39,528

10.8 % 10.9 %

13.2 %

0.0 %

3.0 %

6.0 %

9.0 %

12.0 %

15.0 %

05,00010,00015,00020,00025,00030,00035,00040,00045,000

2013 2014 2015

3.5 % 3.3 %

4.1 %

Evolution of Net Interest Income

Operating Expenses/Total Average Assets

Net Interest Income

Net Interest Income/Average Financial Assets

Millions of b

olivars


35

Other Income, net

Other Income, net, in 2015 reached Bs 5,371 million, representing increases of Bs 2,025 million

(60.5 %) and Bs 2,310 million (75.4 %) compared to the years ending December 31, 2014 and

2013, respectively. The year-on-year increase is mainly due to:

• Bs 2,914 million (88,2 %) increase from commissions on credit and debit cards, net of expenses

for commissions for using the point-of-sale and ATM networks, due to the larger volume of

operations during the year.

• Bs 64 million (41.5 %) growth of income from commissions on trust funds.

• Bs 46 million (6.8 %) decline in earnings from the sale of investments in securities issued by

the Venezuelan state. This activity was worth Bs 721 million in net earnings in 2015.

• Bs 1,048 million (145.3 %) rise in expenses for assets available for sale, and provision for assets

and operating expenses, among others.

Operating Expenses

Operating and Personnel expenses in 2015 totaled Bs 22,040 million, representing increases

of Bs 11,490 million (108.9 %) and Bs 15,380 million (230.9 %) compared to the years ending

December 31 of 2014 and 2013, respectivel. The year-on-year increase is mainly due to:

• Bs 3,058 million (74.1 %) rise in personnel expenses. This increase in expenses is due to the

application of compensation and benefits according to market. Assets per employee grew

from Bs 39.7 million in 2014 to Bs 76.2 million in 2015.

• Bs 1,944 million (68.0 %) rise in expenses for contributions to regulatory agencies.

• Bs 6,488 million (182.1%) increase in general and administrative expenses. This rise is mainly

due to Bs 1,387 million (155.7%) in expenses for outsource services, such as securities

transportation, surveillance and others; Bs 3,269 million (267.2%) in expenses for depreciation

of property and equipment, amortization of intangibles, and others; Bs 585 million (106.5%) in

taxes and contributions; and Bs 1,247 million (138.7%) in general administrative expenses.

In 2015, the efficiency ratio measured by calculating operating expenses as a percentage of

average assets was 4.1 % compared to 3.3 % of 2014, while the efficiency ratio, measured as

operating expenses as a percentage of total income was 36.2 %, vs. 32.2 % in 2014. The number

of employees has remained stable for the last three years. Personnel and administrative

expenses are affected by the high levels of inflation in the country, which was 180.9 % in 2015.



Taxes and Contributions

For the year ending December 31, 2015, Mercantil Banco Universal and its subsidiaries

reported a significant volume of expenses for various types of taxes and contributions.

Operations in Venezuela generated: Bs 424 million in VAT, Bs 1,131 million in Municipal Taxes;

Bs 4,332 for contributions to the Fund for Social Protection of Banking Deposits (FOGADE –

Fondo de Protección Social de los Depósitos Bancarios); Bs 472 million for contributions to

SUDEBAN, and Bs 700 million for contributions to the National Community Council Fund.

Mercantil Banco, C.A. and its subsidiaries also complied with other contributions according

to applicable legislation.

Total contributions to the various official entities totaled Bs 7,630 million, representing 21.1 %

of the Bank’s expenses (Bs 4,318 million and 30.4 % on December 31, 2014, respectively).

Income Tax increased Bs 6,380 million, mainly due to the exclusion of financial activities from

the system of adjustment for inflation, as a result of regulation amendments in Venezuela.


37

Corporate Governance

Mercantil Banco Universal was incorporated as a bank in Venezuela in 1925. Its main shareholder

is Mercantil Servicios Financieros whose shares are listed on the Caracas Stock Exchange and

also are traded over-the-counter market in the United States through a Level 1 ADR program.

The Bank’s Corporate Governance structure is based on the company bylaws, the Law on Banking

Sector Institutions, the Code of Commerce and the standards issued by the Superintendency of

Banking Sector Institutions (Sudeban). The Board of Directors and the Bank's management keep

up with the changing regulations through analysis and study of this area so the Corporation is

able to adapt its Corporate Governance structure to current best practices in order to guarantee

its appropriate transparency and efficiency, based on the highest professional and ethical

principles that characterize its permanent and close relationship with its shareholders, customers,

creditors and employees.

Since 2009, the innovative initiative of the creation and development of the unit in charge of

Compliance was undertaken, which is responsible for independently detecting and managing

the risk of compliance with regulatory obligations through adequate policies, methodologies

and procedures, to strengthen the business model, eliminating or reducing exposure to

associated risks.

As planned, during 2014, implementation of this unit’s Strategic Agenda progressed with the

development of the phases planned for this period.

All the Bank’s activities are undertaken according to the “Mercantil Culture”, which encompasses

a series of values and principles marking the performance of Mercantil’s activities. One of its

cornerstones is its Ethical Behavior, expressed as “Zero tolerance of unethical actions,

transparency in communications and informations”. Part of the implementation of this principle

is the current Code of Ethics, which includes a set of principles and ethical values that guide

decision-making and the development of the Bank’s activities. This Code includes our

fundamental duties such as probity, loyalty, efficiency, fellowship (or co-fraternity), honesty,

sincerity, dignity and law abiding. It also establishes standards to regulate the management of

any conflicts of interest that might arise, complementing the provisions of the Bank’s bylaws in

the area. The bylaws stipulate how such situations should be handled, and ban Board Members

from taking part in discussion on any matters in which they, or their partners in civil or mercantile

companies may have a personal interest. Directors are required to remain outside the meeting

room until a final decision is made.

The Bank’s governance structure is composed of the Shareholders’ Meeting, followed by the

Board of Directors, with its Audit, Risk and Compensation Committees, the Executive Committee,

the Chairman and the Executive President, the Internal Auditor and the Compliance Officer.



Board of Directors

It is essential for the Board of Directors to be efficient so that it can act in the interests of the

company, which are ultimately those of the community at large and its shareholders, creditors,

client and employees in particular. The Board has responsibility for defining corporate

strategies, determining business policies and establishing and controlling the strategic

direction of the institution. It also supervises the management of the organization’s different

business and support areas. It also evaluates results by comparing them against previously

approved plans and strategies, performance in previous years, and the performance of the

banking system in general.

The majority of the Directors on the Board are independent from the Administration, in

keeping with best corporate governance practices. This further demonstrates the Bank’s

commitment to comply with international management standards. The Directors are highly

qualified and well-versed in business and finance, ensuring optimum performance of their

functions.

The Board of Directors is made up of seven directors and their corresponding alternates. The

Board appoints the Chairman and Executive President, who must be Directors, from among

its members, and these positions may be held by the same person. The Board meets once a

month and whenever else its Chairman deems necessary.

To ensure better transparency and control over management procedures, the company bylaws

have provided, since 1981, the creation of the Compensation and Audit Committees whose

functions are governed thereby. At an Ordinary Shareholders’ Meeting held in January 2006,

the shareholders approved a proposal submitted by the Board of Directors to amend the

company bylaws giving the Risk Committee legal status, which had already been agreed by

the Board at its May 31, 2001 meeting. These Committees are comprised mainly of Directors

who are independent from the Administration.

Additionally, in accordance with its traditional interest in adhering to best corporate

governance practices, the Audit Committee approved the bylaws governing its performance.

This document details the purpose of the Committee, as well as its functions and its

responsibilities. There members should undertake an annual compliance evaluation with them

It also states that its members must be independent from Management, adding that at least

of them must have considerable accountancy or financial management experience.


39

The Committee has responsibility for reviewing and discussing accounting and management policies, theopinions and reports of the Bank’s internal and external auditors, establishing reserves, reviewing theFinancial Statements and their Notes and formulating recommendations on matters incumbent upon itto the Board. It also approves the engagement and remuneration of the external auditors. In 2015 theAudit Committee met seven times. The main topics reviewed were: Consideration of the Bank's financialstatements, opinions of the external auditors on the financial statements and their corresponding notes;observations by the external auditors on internal control; analysis and establishment of loan portfolioprovisions and other provisions and allowances; contributions payable to the Deposit Guarantee Fund andBanking Protection Fund (FOGADE), Sudeban and the Community Councils; report on internal auditingactivities; report on antimoney laundering and terrorism financing activities; report on external auditingactivities planned for 2016; tax related considerations; evaluation of the Bank’s position in foreign currencyand the investment portfolio; financial statements under VEN-NIF standards; proposal on fees of externalauditors in 2016; additional fees of external auditors in 2015.

The Risk Committee approves the Bank’s risk profile, policies and limits. It optimizes the use of capital tosupport the approved risk profile. In 2015, the Risk Committee met 12 times, to deal with the following maintopics: Results of reviews of loan portfolios of the following units and customer segments: Agriculture,Construction, Multinational Corporate, Large Corporations, Long-Term Mortgages, Credit Cards; review ofthe 2015 plan; adjustments on general provisions contained in the Policy Manuals for Loan Risk, OperationalRisk, and those of the General Risk Management Unit; reports of Market Risk, Loan Risk, Operational Riskand Reputation Risk; budget for treasury unit activities and Market Risk limits; proposals on provisions;considerations on liquidity; opinions on the loan portfolio and issues of public debt; adjustment and follow-up of sovereign risk limits for Venezuela; adjustment and compliance with the Cross Border Risk limits;follow-up on the “Stress Test” of the investment portfolio; summarizing trading activities; considerations onthe proportionality of collateral received for the loan and contingent portfolios: review of limits for IndividualBorrowers and Economic Groups; Loan and Capital Commitment Committee, Board of Directors;methodology of Risk Adjusted Return on Capital for the investment portfolio; considerations on theVenezuelan and PDVSA’s sovereign debt risk; appointment of members for the Integral Risk Committee,Committee on Loan and Capital Commitments, Loan Committees; validation of methodologies used tocalculate LDG and EAD; Credit Card Portfolio Score model; review of Backtesting-Kupiec and Christoffersentests; methodologies to estimate profitability curves and liquidity targets.

This Committee is responsible for setting the Bank’s policy on pay and benefits, approving theremuneration of the Chairman and senior management, and reporting on it to the Board of Directors. In2015, the Compensation Committee met seven times, with the following topics as main points: Half-yearResults of the Bank; short-term management incentive programs; consideration of perdiems of Boardmembers; analysis of staff movement during the year; establishment of annual wages policy; results ofsurvey on organizational climate; consideration of compensations payable for Senior Management andthe Executive Committee; performance assessment schemes (strategic and financial goals); confirmationof the Bank’s policy on 2016 retention of Income Tax (ISLR – Impuesto Sobre la Renta); consideration ofactuarial assumptions for calculating retroactive social benefits and retirement pensions; considerationson the structure of variable compensation payments; considerations on key personal protection measures;special compensation actions to benefit personnel in general; results of negotiations on the New 2016-2018 Collective Labor Agreement.

Board of Directors Audit Committee

Board of Directors Risk Committee

Board of Directors Compensation Committee

The Committee is made up as follows:

Eduardo Mier y Terán

( Coordinator)

Roberto Vainrub

Alfredo Travieso P.

Luis A. Marturet M.

Miguel Ángel Capriles Capriles

René Brillembourg Capriles

Gustavo Vollmer A. (Ex officio)

Nelson Pinto A. (Ex officio)

The Committee is made up as follows:Gustavo Galdo C.

( Coordinator)

Roberto Vainrub

Eduardo Mier y Teran

Alejandro González S.

Rafael Sánchez B.



The Committee is made up as follows:Alfredo Travieso P.

( Coordinator)

Víctor Sierra

Claudio Dolman

Gustavo Marturet Medina





The bank has an Executive Committee with a Chairman and an Executive President plus ten

senior managers from the organization’s Business and Support areas, which guarantees the

timely implementation of the Bank’s decisions and strategies. The committee meets weekly

and holds extraordinary meetings as required. It is responsible for evaluating options and

making recommendations on policy, objectives, strategies and organization and submitting

to the Board of Directors for consideration, as well as guiding management in its effort to

implement the policies adopted. It is also responsible for evaluating the outcome of their

implementation.

Chairman of the Board of Directors The Chairman of the Board is the President of the Bank. Along with the Executive President

and the other Board members he is responsible for conducting the Bank's activities and

business and has general executive powers. He also chairs the Meetings of Shareholders, the

Board of Directors and the Executive Committee, providing guidance and advice on policies,

objectives, strategies to be followed and major decisions; as well as supervising and ensuring

that the decisions and policies of the Board of Directors and the Executive Committee are

carefully executed. Additionally, he is responsible for exercising the functions assigned to

him by the Board of Directors and for representing the Bank before political and

administrative authorities and other public and private entities.

The Chairman stands in for the Executive President during temporary his absences, exercising

the same powers and attributions.

At the end of 2015, in order to make the Bank’s organizational structure more efficient and

operational, a series of structure adjustments to its first level structure were implemented,

according to market best practices, with the creation of two Executive Vice Presidents as

follows: the Executive Business Vice President, with supervision over Corporate, Enterprises

and Personal Banking, and the Executive Operations and Administration Vice President, with

supervision over the Finances, Operations and Technology, Human Resources and Corporate

Communications, and Legal Matters and Legal Consultancy.

Both Executive Vice Presidents report diretly to the Chairman.

The Secretariat and the Audit business units which report directly to the Board of Directors,

come under the Chairman where administrative matters are concerned. The Corporate

Compliance business unit reports directly to the Chairman.

Executive PresidentThe Executive President is responsible for the executive management and coordination of

the Bank and for submitting policies, objectives, strategies and major decisions to the

consideration of the Chairman, the Board of Directors and the Executive Committee and

informing them of the financial situation of the Bank and the results of its operations.

Executive CommitteeThe Committee is made

up as follows:Gustavo Vollmer A. - Chairman

Nelson Pinto A. – Executive President

Alfonso Figueredo D.

Fernando Figueredo M.

Luis Calvo Blesa

Luis Alberto Fernandes

Vicenza Garofalo

Rodolfo J. Gasparri

Carlos Montoliú

Jorge Pereira

Isabel Pérez S.

Carlos Tejada G.


41

He is responsible for executing or delegating the execution of the decisions adopted by the

Board of Directors and the Executive Committee, and for designing, establishing and

developing the Bank's organizational structure, appointing general managers, consultants

and advisers to office and, if necessary, removing them from office. He represents the Bank

before political and administrative authorities and government entities, bodies corporate or

individuals.

The Executive President stands in for the Chairman during his temporary absences, exercising

the same powers and attributions.

Internal Audit ManagerIn accordance with the regulations in force, the Bank has an Internal Audit Manager who,

together with the Audit Committee, is responsible for reviewing the Bank's performance.

The Internal Audit Manager leads the Internal Audit business unit, which works with the Audit

Committee to design Mercantil’s internal audit plan. This plan is executed throughout the year.

The results of the internal audits are reviewed and discussed periodically by the Audit

Committee and the Board of Directors so that any corrective action may be taken.

Compliance Officer for the Prevention of MoneyLaundering and Terrorism FinancingIn accordance with the regulations on the matter, the Bank has a Compliance Officer in charge

of Prevention of Money Laundering and Terrorism Financing who chairs the Committee on

the Prevention and Control of Money Laundering and Terrorism Financing and is responsible

for designing the AML/FT Annual Operating Plan, coordinating and supervising the

Committee of the AML/FT unit, coordinating staff training activities, on matters related to

prevention and control of money laundering and terrorism financing, and maintaining

institutional relations with the regulatory agencies on this matter. The Compliance Officer

also advises the Audit Committee and Board of Directors on compliance with their anti-money

laundering and antiterrorism financing obligations under the legislation in force.

Disclosure of InformationThe Bank prepares and publishes its financial statements monthly as of the end of the

preceding month, in compliance with the standards of the regulatory bodies. On the occasion

of Shareholders’ Meetings, the Bank also makes available to shareholders a detailed report

of its activities, and the semi-annual and annual financial statements for the immediately

preceding periods; this information is prepared in accordance with Sudeban and disclosed to

the general public and the Superintendency of Banking Sector Institutions. The Bank’s

financial information is also available on its website: www.bancomercantil.com.



Awards and Acknowledgments

In 2015, Mercantil Banco Universal received various acknowledgments by prestigious

publications and institutions.

• In January, The Global Finance magazine has chosen Mercantil Banco Universal as the

“Venezuela's Best Trade Finance Provider in 2015” for the tenth consecutive year. The

Global Finance selection process took into consideration the volume of transactions,

geographical coverage, customer services, price competitiveness, development of new

businesses and technological innovations.

• In March, Mercantil Banco Universal was awarded, globally, in the group of best employers

according to studies conducted by the international consulting firm Aon Hewitt, taking

into account rates of engagement, brand strength, leadership and performance. This

recognition is based on the results obtained in the study of organizational climate and

engagement survey for the year 2014 in which 6,000 employees of the organization

participated (84 %).

• In May, Mercantil Banco Universal was awarded as a Visa 2014 Service Quality

Performance Award Winner in the Chargeback Effectiveness category. Mercantil Banco

was recognized by its above-average compliance of policies and data security standards,

as well as for the continuing improvement in quality services as issuer and operator of

credit cards.

• In July, the renowned financial publication Euromoney recognized Mercantil Banco

Universal as the “Best Bank in Venezuela” in 2015. Mercantil Banco granted with this

distinction after an analysis of its results, showing a strong loan portfolio and high level

of performance regarding assets and equity, within an adequate risk management policy.

• In Septiembre, Fondonorma, the Venezuelan Standardization and Quality Certification

Institute, concluded the annual follow-up audit with zero nonconformities for the ISO

9001:2008 nine certified lines.

• In December, The Banker financial magazine granted Mercantil Banco Universal the “2015

Bank of the Year” award for Venezuela. The institution gained the award after an analysis

of its results indicated solid financial profitability, sustained growth of deposits, an

adequate diversification of clients and constant innovation in order to satisfy clients within

an appropriate risk-management policy.

• In December, Mercantil Banco ranked 169 among the 250 Latin American Banks of the

AméricaEconomía magazine, the 4th Venezuelan bank on the list. The ranking includes

state-owned banks and is prepared according to assets size by the close of June 2015.


43

Representative Offices

BOGOTA

Av. 82, Nº 12-18, 8th floor, Ofc. 805Edificio Torre Andina.La Cabrera Bogota, ColombiaPhone: (57-1) 635 0035Fax: (57-1) 623 [email protected]

LIMAAv. Canaval y Moreyra No 452, 9th floorEdificio Banco de ComercioSan Isidro, Lima 27, PeruPhone: (511) 442 5100Fax. (511) 442 5100 Ext. [email protected]

MEXICO

Eugenio Sue N° 58,Colonia Polanco Chapultepec,Delegación Miguel HidalgoC.P.11560, Mexico, D.F.Phone: (52-55) 5282 2300/1224Fax: (52-55) 5280 [email protected]

NEW YORK11 East 51st. Street New York NY,10022-5903, U.S.A.Phone: (1-212) 891 7479Fax: (1-212) 891 [email protected]

SAO PAULOAv. Paulista, N° 1842, 3° andar, CJ. 37 Edf. Cetenco Plaza, Torre Norte-Cep 01310-200Sao Paulo, SP, BrazilPhone: (55-11) 3285.4647 - 3284.0206Fax: (55-11) [email protected]

International Offices

Agency and Branch

UNITED STATESCORAL GABLES AGENCY220 Alhambra Circle, Coral Gables,Fl. 33134, U.S.A.Phone: (1-305) 460.8500Fax: (1-305) 460.8595Telex: 681278 BMER [email protected]

CURAÇAO

CURAÇAO BRANCHMercantil Bank (Curaçao) N.V.Abraham Mendez Chumaceiro Boulevar 1 Willemstad, CuracaoPhone: (5999) 432 5000Fax: (5999) 461 1974 / 432 [email protected]

International Offices and Corporate Contacts

Corporate Contacts

MERCANTIL, C.A. BANCO UNIVERSALAvenida Avenida Andrés Bello, N° 1, EdificioMercantilCaracas 1050, VenezuelaPhone: (58-212) 503.1111Telex 27002/27003 BMERVC P.O. Box 789, Caracas 1010-A [email protected] www.mercantilbanco.comTwitter: @MercantilBancoCall Center (CAM): Phone: 0-500-600 2424/ 0-500-503 2424 (58-212) 600.2424-(58-212) 503 2424

CORPORATE COMMUNICATIONSAv. Andrés Bello, N° 1, Edificio Mercantil 14th Floor, Caracas 1050, Venezuela Apartado Postal 789, Caracas 1010-APhone: (58-212) 503.1670 [email protected]



General Production: Corporate Communications Management Graphic Design: Arte Impreso H.M., C.A.Caracas, Venezuela, February 2016.


Avenida Andrés Bello Nº 1 Edificio MercantilCaracas 1050, Venezuela. Phone: (58-212) 503.1111

www.mercantilbanco.com

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