20/20 Vision.

We are continuing with our “20/20 Perfect Vision” strategy, and have now completed twelve out of the twenty quarters planned for in 2015, whose purpose is to transform Banorte by the year 2020 on the basis of three pillars: our investors, for whom we intend to generate more value and profitability, our clients, whom we intend to serve with increasing proximity, and our employees, to whom we want to offer the best conditions for their development. Within our strategic plan, we continue to work to be “the best Financial Group for our clients” and we are on track to meet the target metrics we established for ourselves: a cross sale index of 2.2 products per client, and an RoE of 20% at the Financial Group level.

At the close of 2018 we had achieved resounding improvements in every metric we set: cross sales, net income, efficiency and profitability. We never doubted that we could achieve these goals, and we are well on our way to doing it; currently the Financial Group is positioned as the second largest in the Mexican financial system, reflecting the success of various strategies, like a focus on customer satisfaction and constant innovation in digital systems.

The following table sums up our achievements in the main indicators at the close of fiscal year 2018, and we remain firmly committed to continuing to improve them in 2019.

Aligned with the highest standards of Corporate Governance and information disclosure

Committed to creating value for our stakeholders.

Net interest income

During the year, interest income advanced by 16% (excluding insurance and Annuities), which totaled Ps. 66.16 billion, which was primarily the result of a strong portfolio growth, combined with the positive impact of benchmark rate hikes during the year (100bp), bringing the NIM of the overall loan portfolio to 8.3%, because of the mathematical impact of integrating the portfolio of Grupo Financiero Interacciones into the NIM calculation formula.

The NII of the Insurance and annuities business totaled Ps. 8.66 billion, 33% more than the year before, due to a growth in the insurance business, primarily in life, casualty and auto insurance. As for the Annuity business, growth was fueled by the incorporation of the portfolios acquired during the year.

Net interest income for GFNorte rose 18% in 2018, totaling Ps. 74.82 billion due to significant growth in revenues both from Insurance and Annuities and from Repo trading, as well as natural portfolio growth. The net interest margin closed the year at 5.6%, a 16bp improvement over the year before.

Non-interest income

In 2018, non-interest income totaled Ps. 21.53 billion, 24% higher than in 2017, due to the growth in net service fees and a substantial growth in trading revenues due to the placement of derivative financial instruments with clients.

• SRS 201-1

Non-interest expense

In 2018, non-interest expense totaled Ps. 37.62 billion, an 11% annual increase, including Ps. 450 million pesos in one-time consulting fees as well as Ps. 250 million in personnel expenses relating to severance pay and Ps. 765 million relating to management of the recently acquired business.

Cost to income ratio

The cost to income ratio was 39%, reflecting the operating efficiency associated with lower administration and operating expenses, and funding costs under control and aligned with market conditions.

Net income

Net income was Ps. 31.96 billion for the year, 34% higher than in 2017. This growth was due to strong performance during the year, particularly in the operation of insurance, investment funds and trading activity.

Profitability

Return on equity (RoE) rose from 17% to 20.3%, while return on assets (RoA) was 2.2%. Return on tangible equity (RoTE) for 2018 was 32%.

Performing loan portfolio

The total loan portfolio expanded by 26% in 2018, led by a 46% growth in the government loan portfolio (25% of the total portfolio) resulting from the incorporation of GFI’s portfolio, along with a substantial 34% increase in the corporate portfolio and 27% in the commercial portfolio.

The consumer credit portfolio grew 12%, outpacing the banking system at large as well as our chief competitors. The growth was fueled by a 26% increase in auto loans, a 15% growth in mortgage loans an 8% expansion of the credit card portfolio, which keeps us in third position with a 14.9% market share —an improvement of 56pb over the previous year.

Figures in millions of pesos

Past Due Loans

NPL ratio was 1.7%, and past-due loans totaled Ps. 13.26 billion. The evolution of this indicator over the course of the year showed an improvement in all products: credit cards and payroll loans saw a significant gain in portfolio quality thanks to close tracking of origination of these loans through Analytics and risk management tools.

Deposits

Client deposits totaled Ps. 759.23 billion pesos, rising 8% over 2017. Time deposits-retail grew strongly, as did interest-bearing demand deposits, as the result of a solid strategy focused on increasing balances and closer client engagement.

Figures in millions of pesos

Tax policy

The tax rate applicable to corporations in Mexico is 30%. GFNorte has a tax policy of keeping correct records of transactions in order to obtain all the tax benefits available to it by law, while promptly complying with its tax obligations. At GFNorte, we ensure that the interpretation and internal application of these laws do not represent high risks or future tax contingencies for the Financial Group or its subsidiaries. In 2018, the effect tax rate paid by GFNorte was as follows:

Our shareholders

As one of Mexico’s most widely recognized publicly-traded companies, we are committed to applying the highest standards of corporate governance, information disclosure and communication with the investment community and our stakeholders.

Grupo Financiero Banorte has a globally diversified shareholder base made up of individual and institutional investors. Throughout the Group’s process of institutionalization, we have developed various strategies to expand our shareholder base and remain an option for those seeking long- or short-term investment, or simply following our dividend policy.

We are a Financial Group that listens to and is concerned about its shareholders. One example of this is the modification of our corporate bylaws and changes to the Nominations Committee, which were done in keeping with the recommendations and concerns expressed by our minority shareholders.

We are particularly interested in constantly working for a closer relationship with the community, investors, analysts and rating agencies and expanding channels of communication. In 2018, we did this primarily through ongoing Innovation in our digital platform and greater detail in our disclosures, at a pace with the evolution of the Financial Group. We have also maintained our traditional channels: quarterly and annual reports, quarterly conference calls, roadshows, non-deal roadshows and participation in conferences by various international and Mexican brokerage firms.

In 2018, the Executive Department of Investor Relations, Sustainability and Financial Intelligence was active in a number of forums, as described below:

• Active participation in 19 national and international conferences, 4 non-deal roadshows (NDRs) and 69 investor visits to our corporate offices.
• Meetings with more than 65% of the total shareholder base of GFNorte, in which senior management was present for more than 50%.

On numerous occasions during the year, GFNorte was the most heavily traded issuer in the Mexican Stock Exchange Price and Quotations Index, as well as the highest-weighted issuer in that index in October, with a 12.9% share.

In terms of Sustainability, GFNorte has incorporated sustainability into its operations as a guiding principle to maximize profitability and growth, while protecting its financial, social and environmental capital at all times. We have developed a sustainability model based on three pillars:

• Responsible Business.
• Our People.
• Our Planet.

Through this model, we support initiatives aimed at achieving sustainable development, promoting social responsibility in pursuit of return on investment, transmitting an awareness of sustainable development and environmental protection in our daily operations.

With regard to our corporate governance, in 2018 we held two ordinary shareholders’ meetings, attended by an average of 80% of our shareholder base. All the initiatives proposed were approved by shareholders during these meetings.

Banorte makes it a priority to continuously strengthen relations with our investors, improving the amount and availability of information we provide and optimizing corporate governance practices, because we are sure that constant, efficient communication and greater transparency are the right path to follow.

Risks

The risks and uncertainties outlined below are not the only ones GFNorte faces, nor is the relevance we assign to them at present necessarily the same as what they may take on in the future. For more information, see section c) Risk Factors in the 2018 Annual Report - CNBV Unified Bulletin” available at: https://investors.banorte.com

Risks relating to Mexico

Over the past ten years, the world economy has gone through periods of unprecedented crisis and volatility, with a widespread shortage of liquidity, loss of confidence in the financial sector, disruptions in credit markets, changes in the global geo-political climate and a slowdown in business transactions. These global crises have had a negative impact on the Mexican economy and we currently can offer no certainty as to when these conditions will improve.

Most of our operations and assets are located in Mexico, so our business, financial position and the results of our operations may be affected by general conditions in the Mexican economy, changes in GDP, per capita disposable income, unemployment, growth in formal employment, devaluation of the peso against the dollar, inflation, fluctuations in oil prices, interest rates, new regulations, social instability and other political, social and economic events that affect the country and over which we have no control.

The Mexican government exercises a significant influence over the Mexican economy. Its actions regarding the economy and regulation of certain industries, including the banking sector, may have a decisive impact on private enterprise in Mexico in general, and our subsidiaries in particular, as well as on conditions in the Mexican financial markets such as the price and yield on Mexican securities, including our own.

Because the Mexican government may make significant changes in the laws, public policy and/or regulations, the Mexican political and economic climate is subject to change, and this in turn could affect our business.

Risks relating to the business

One of the main risks that Banorte faces, as a lending institution, is credit risk. For this reason, the bank seeks to remain at the forefront of the industry by having the right tools and models for evaluating the impact of adverse scenarios on our portfolio. Banorte has made an effort to improve and strengthen its credit guidelines and policies to deal with possible risks associated with specific industries or clients.

Additionally, a significant portion of our revenues and EBITDA comes from the interest rates we charge our clients, so restrictions on these amounts or additional requirements for information could substantially affect the results of our operations and financial position. In Mexico, the Federal Law on the Protection and Defense of Financial Service Users currently places no limit on interest rates or fees that banks may charge, with certain exceptions.