CITIBANK, N.A. JAMAICA BRANCH FINANCIAL STATEMENTS

Transcription

1 CITIBANK, N.A. FINANCIAL STATEMENTS DECEMBER 31, 2014

2 INDEPENDENT AUDITORS' REPORT To the Directors of CITIBANK, N.A. KPMG P.O. Box 76 Chartered Accountants Kingston The Victoria Mutual Building Jamaica, W.I. 6 Duke Street Telephone +1 (876) Kingston Fax +1 (876) Jamaica, W.I. +1)876) firmmail@kpmg.com.jm Report on the Financial Statements We have audited the financial statements of Citibank, N.A., Jamaica Branch ("the branch"), set out on pages 3 to 57, which comprise the statement of financial position as at December 31, 2014, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether or not the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence relating to the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including our assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness 'of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG, a Jamaican partnership and a R. Tarun Handa Norman 0. Rainforcl member firm of the KPMG network of Patricia 0. Dailey-Smith Nigel R. Chambers independent member firms affiliated with Linroy J. Marshall W. Gihan C. de Mel KPMG International Cooperative ("KPMG Cynthia L. Lawrence Nyssa A. Johnson International% a Swiss entity. Rajan Trehan Wilbert A. Spence

3 2 To the Directors of CITIBANK, N.A. [Incorporated in the USA. with limited liability] Report on the Financial Statements (cont'd) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the branch as at, and of its financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards and the Jamaican Companies Act. Report on additional matters as required by the Jamaican Companies Act We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been maintained, so far as appears from our examination of those records, and the financial statements, which are in agreement therewith, give the information required by the Jamaican Companies Act in the manner required. Chartered Accountants Kingston, Jamaica March 30, 2015

4 CITIBANK, N.A. Statement of Financial Position Notes $'000 $'000 ASSETS Cash and cash equivalents 4 8,446,880 8,337,634 Securities purchased under resale agreements 5(a) 2,453,665 3,298,000 Loans, less allowance for impairment 6 2,510,402 3,717,428 Investment securities 7 1,078,383 1,178,230 Property, plant and equipment 8 200, ,461 Income tax recoverable 240, ,557 Other assets 9 312, ,882 Customers' liabilities under acceptances, guarantees and letters of credit, as per contra 217, ,884 Employee benefit asset , ,965,412 18,256,093 LIABILITIES Deposits: Customers 10,842,739 10,282,568 Other branches and affiliates 16,808 1,919,629 Head office 12, Fellow subsidiaries , ,974,613 12,760,140 Acceptances, guarantees and letters of credit, as per contra 217, ,884 Note payable ,000 Securities sold under repurchase agreements 5(b) 620,000 Other liabilities , ,646 Employee benefit obligation , ,103 Deferred tax liability ,218 12,244,422 14,396,991 HEAD OFFICE'S EQUITY Assigned capital 15(a) 207, ,609 Reserve fund 15(b) 207, ,609 Retained earnings reserve 15(c) 1,528,592 1,528,592 Fair value reserve 15(d) 4, Loan loss reserve 15(e) 30,392 83,746 Other reserve 15(f) 215, ,215 Unremitted profits 1,527,050 1,421,195 3,720,990 3,859,102 15,965,412 18,256,093 The financial statements on pages 3 to 57 were approved for issue by the Asset and Liability Committee on March 30, 2015 pd signed on its behalf by: Citi Country Officer Citi Financial Officer The accompanying notes form an integral part of the financial statements.

5 4 CITIBANK, N.A. Statement of Profit or Loss and Other Comprehensive Income Year ended Notes $ 000 $ 000 Interest income: Interest on loans 270, ,394 Interest on deposits with banks 147, ,813 Interest on investment securities 72, , , ,811 Interest expense ( 194,792) ( 181,057) Net interest income , ,754 Fees and commissions , ,636 Other operating revenue: Foreign exchange gains 681, ,696 Gains from securities trading 1,173 - Other 113, ,605 1,287,586 1,410,691 Operating expenses: Staff costs 18 ( 456,476) ( 494,191) Depreciation 8 ( 53,673) ( 48,559) Losses from securities trading - ( 82,092) Other ( 684,448) ( 673,800) (1,194,597) (1,298,642) Profit before income tax 19 92, ,049 Income tax 20(a) ( 40,488) 97,809 Profit for the year 52, ,858 Other comprehensive income: Items that will never be reclassified to profit or loss: Re-measurement of employee benefit asset and obligation, net of taxation 20(c) ( 195,143) 137,382 Items that may be reclassified to profit or loss: Change in fair value of available-for-sale investments, net of taxation 20(c) 4,530 14,886 Total other comprehensive (loss)/income ( 190,613) 152,268 Total comprehensive (loss)/income for the year ( 138,112) 362,126 The accompanying notes form an integral part of the financial statements.

6 5 CITIBANK, N.A. Statement of Changes in Head Office s Equity Year ended Retained Fair Assigned Reserve earnings value Loan loss Other Unremitted capital fund reserve reserve reserve reserve profits Total $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 [Note 15(a)] [Note 15(b)][Note 15(c)] [Note 15(d)][Note 15(e)] [Note 15(f)] Balances at December 31, , ,609 1,528,592 (14,750) 106, ,833 1,188,644 3,496,976 Comprehensive income Profit for the year , ,858 Other comprehensive income Re-measurement of employee benefit asset/obligation, net of taxation , ,382 Appreciation in fair value of investments, net of taxation , ,886 Total other comprehensive income for the year , , ,268 Total comprehensive income for the year , , , ,126 Transfer between reserves (22,693) - 22,693 - Balances at December 31, , ,609 1,528, , ,215 1,421,195 3,859,102 Comprehensive income Profit for the year ,501 52,501 Other comprehensive income Re-measurement of employee benefit asset/obligation, net of taxation (195,143) - ( 195,143) Appreciation in fair value of investments, net of taxation , ,530 Total other comprehensive income for the year ,530 - (195,143) - ( 190,613) Total comprehensive income for the year ,530 - (195,143) 52,501 ( 138,112) Transfer between reserves ( 53,354) - 53,354 - Balance as at 207, ,609 1,528,592 4,666 30, ,072 1,527,050 3,720,990 The accompanying notes form an integral part of the financial statements.

7 6 CITIBANK, N.A. Statement of Cash Flows Year ended Notes $ 000 $ 000 Cash flows from operating activities: Profit for the year 52, ,858 Adjustments for: Depreciation 8 53,673 48,559 Interest income 16 ( 490,989) ( 622,811) Interest expense , ,057 Income tax expense/(credit) 20 40,488 ( 97,809) Unrealised foreign exchange gain ( 70,849) ( 23,952) Employee benefit asset/obiligation ( 27,195) ( 12,191) (Gain)/loss on disposal of property, plant and equipment ( 280) 97 ( 247,859) ( 317,192) Change in: Loans 1,215,765 (1,114,409) Employee benefit asset/obligation ( 1,564) ( 1,576) Other assets ( 7,022) ( 35,488) Deposits (1,842,183) 268,816 Other liabilities ( 90,818) ( 8,663) ( 973,681) (1,208,512) Interest received 478, ,265 Interest paid ( 205,298) ( 208,303) Income tax refunded/(paid) 11,759 ( 21,797) Net cash used by operating activities ( 688,970) ( 764,347) Cash flows from investing activities: Investment securities 109,930 1,238,149 Resale agreements 869,003 1,851,080 Purchase of property, plant and equipment 8 ( 34,778) ( 8,967) Proceeds from the sale of property, plant and equipment Net cash provided by investing activities 944,511 3,080,262 Cash flows from financing activities: Repurchase agreements ( 620,000) 30,000 Notes payable 400,000 ( 700,000) Net cash used by financing activities ( 220,000) ( 670,000) Net increase in cash and cash equivalents 35,541 1,645,915 Effect of exchange rate fluctuations on cash and cash equivalents 73,705 25,658 Cash and cash equivalents at beginning of year 8,337,634 6,666,061 Cash and cash equivalents at end of year 4 8,446,880 8,337,634 The accompanying notes form an integral part of the financial statements.

8 CITIBANK, N.A. 7 Notes to the Financial Statements 1. Identification Citibank, N.A., Jamaica Branch ( the branch ) is domiciled in Jamaica and is a branch of Citibank, N.A. ( Head office ). Its ultimate holding company is Citigroup Inc.. Both Citibank, N.A. and its ultimate holding company are incorporated in the United States of America. The branch operates in Jamaica under a licence granted under the Banking Act and is regulated by Bank of Jamaica. The principal place of business is located at 19 Hillcrest Avenue, Kingston 6. The principal activities of the branch are banking and related financial services. 2. Statement of compliance and basis of preparation (a) Statement of compliance: The financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board, and comply with the relevant provisions of the Jamaican Companies Act ( the Act ). New, revised and amended standards and interpretations that became effective during the year Certain new, revised and amended standards and interpretations came into effect during the financial year under review. The branch has adopted the following new standards and amendments to the standards, including consequent amendments to other standards, applicable to its operations. The nature and effects of the changes are as follows: (i) IFRIC 21, Levies, which is effective for accounting periods beginning on or after January 1, 2014 provides guidance on accounting for levies in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation. It requires an entity to recognise a liability for a levy when and only when the triggering event specified in the legislation occurs. The amendment has not resulted in any changes to the amounts recognised in the financial statements. New, revised and amended standards and interpretations that are not yet effective At the date of approval of the financial statements, certain new, revised and amended standards and interpretations were in issue but were not yet effective and had not been early-adopted. The branch has assessed them with respect to its operations and has concluded that the following may be relevant:

9 8 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New, revised and amended standards and interpretations that are not yet effective (cont d) IFRS 9, Financial Instruments, which is effective for annual reporting periods beginning on or after January 1, 2018, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the permissible measurement bases for financial assets amortised cost, fair value through other comprehensive income (FVOCI) and fair value though profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different. IFRS 9 also replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognized. IFRS 15, Revenue from Contracts with Customers, effective for accounting periods beginning on or after January 1, 2017, replaces IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets from Customers and SIC 31, Revenue Barter Transactions Involving Advertising Services. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two companies in the same line of business exchange non-monetary assets to facilitate sales to other parties. Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation, are effective for accounting periods beginning on or after January 1, The amendment to IAS 16, Property, Plant and Equipment explicitly states that revenue-based methods of depreciation cannot be used. This is because such methods reflect factors other than the consumption of economic benefits embodied in the assets. The amendment to IAS 38, Intangible Assets introduces a rebuttable presumption that the use of revenue-based amortisation methods is inappropriate for intangible assets.

10 9 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New, revised and amended standards and interpretations that are not yet effective (cont d): Improvements to IFRS and cycles contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after July 1, The main amendments applicable to the branch are as follows: IFRS 2, Share-based Payments is amended to clarify the definition of vesting condition by separately defining performance condition and service condition. The amendment also clarifies how to distinguish between a market and a non-market performance condition and the basis on which a performance condition can be differentiated from a non-vesting condition. IFRS 13, Fair Value Measurement is amended to clarify that issuing of the standard and consequential amendments to IAS 39 and IFRS 9 did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial. IAS 24, Related Party Disclosures has been amended to extend the definition of related party to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognized as an expense for those services that are provided by a management entity; however, it is not required to look through the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services. Amendments to IAS 19, Defined Benefits Plans: Employee Contributions, effective for annual periods beginning on or after July 1, 2014, clarified the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service.

11 10 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New, revised and amended standards and interpretations that are not yet effective (cont d): Improvements to IFRS, cycle, contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after January 1, The main amendments applicable to the branch are as follows: IFRS 7, Financial Instruments: Disclosures, has been amended to clarify when servicing arrangements are in the scope of its disclosure requirements on continuing involvement in transferred assets in cases when they are derecognized in their entirety. A servicer is deemed to have continuing involvement if it has an interest in the future performance of the transferred asset -e.g. if the servicing fee is dependent on the amount or timing of the cash flows collected from the transferred financial asset; however, the collection and remittance of cash flows from the transferred asset to the transferee is not, in itself, sufficient to be considered continuing involvement. IAS 19, Employee Benefits, has been amended to clarify that high-quality corporate bonds or government bonds used in determining the discount rate should be issued in the same currency in which the benefits are to be paid. Consequently, the depth of the market for high-quality corporate bonds should be assessed at the currency level and not the country level. IAS 1 Presentation of Financial Statements, effective for accounting periods beginning on or after January 1, 2016, has been amended to clarify or state the following: - specific single disclosures that are not material do not have to be presented even if they are minimum requirements of a standard - the order of notes to the financial statements is not prescribed - line items on the statement of financial position and the statement of profit or loss and other comprehensive income (OCI) should be disaggregated if this provides helpful information to users. Line items can be aggregated if they are not material. - specific criteria are provided for presenting subtotals on the statement of financial position and in the statement of profit or loss and OCI, with additional reconciliation requirements for the statement of profit or loss and OCI. - the presentation in the statement of OCI of items of OCI arising from joint ventures and associates accounted for using the equity method follows the IAS 1 approach of splitting items that may, or that will never, be reclassified to profit or loss. The branch is assessing the impact, if any, that these new, revised and amended standards and interpretations will, when they become effective, have on its future financial statements.

12 11 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (b) Basis of measurement: The financial statements are prepared on the historical cost basis, modified for the inclusion of available-for-sale investments at fair value. In addition: - the employee benefit asset is recognised as the fair value of plan assets, less the present value of the defined benefit obligation, adjusted for the effect of limiting the net defined benefit asset to the asset ceiling, as explained in note 3(k); and - the employee benefit obiligation is the present value of the funded obligation. (c) Functional and presentation currency: The financial statements are presented in Jamaica dollars, which is the functional currency of the branch, rounded to the nearest thousand. (d) Accounting estimates and judgements: The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect accounting policies and the reported amounts of, and disclosures relating to, assets, liabilities, contingent assets and contingent liabilities at the reporting date and the income and expenses for the year then ended. Actual amounts could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The significant assumptions about the future and key areas of estimation uncertainty and the critical judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements, and have a significant risk of material adjustment in the next financial year, are as follows: (i) Key sources of estimation uncertainty Pension and other post-employment benefits: The amounts recognised in the statement of financial position and the statement of profit or loss and other comprehensive income for pension and other post-employment benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised in the financial statements include the discount rate used to determine the present value of estimated future cash flows required to settle the pension and other post-employment obligations and the expected rate of increase in medical costs for post-retirement medical benefits.

13 12 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (d) Accounting estimates and judgements (cont d): (i) Key sources of estimation uncertainty (cont d) Pension and other post-employment benefits (cont d): The discount rate is determined based on the estimated yield on long-term government securities that have maturity dates approximating the terms of the branch s obligation; in the absence of such instruments in Jamaica, it has been necessary to estimate the rate by extrapolating from the longest-tenor security on the market. The estimate of expected rate of increase in medical costs is based on inflationary factors. Any changes in these assumptions will impact the amounts recorded in the financial statements for these obligations. Allowance for loan losses: The allowance for loan losses represents management s estimate of losses inherent in the portfolio. In determining amounts recorded for the estimate of losses in the portfolio, management makes judgements regarding indicators of impairment, that is, whether there are indicators that there may be a measurable decrease in the estimated future cash flows from loans, for example, due to repayment default or adverse economic conditions. Management also makes estimates of the likely estimated future cash flows from impaired loans as well as the timing of such cash flows. Historical loss experience is applied where indicators of impairment are not observable on individually significant loans and loan portfolios with similar characteristics, such as credit risks. Useful life and residual value of property, plant and equipment: The residual value and useful life of property, plant and equipment are reviewed at the reporting date, and, if expectations differ from previous estimates, the change is accounted for as a change in accounting estimates. The useful life of an asset is defined in terms of the assets expected utility to the branch. Fair value of financial instruments: In the absence of quoted market prices, the fair value of a significant portion of the branch s financial instruments was determined by surveying market participants to obtain indicative prices.

14 13 CITIBANK, N.A. 2. Statement of compliance and basis of preparation (cont d) (d) Accounting estimates and judgements (cont d): (i) Key sources of estimation uncertainty (cont d) Fair value of financial instruments (cont d): Considerable judgement is required in interpreting market data to arrive at estimates of fair value or in selecting inputs for price estimation models, particularly since pricing inputs include data not observed in actual market transactions but indicative information. Consequently, the estimates arrived at may be significantly different from the actual price of the instrument in an arm s length transaction. Contingent liabilities: The branch is the defendant in various lawsuits. The attorneys handling the cases for the branch have given their opinion on the likely outcome of these cases, based on, inter alia, established case law. Management s estimates of any amount to be provided or disclosed is based on such legal opinions. Where the attorneys have indicated that the outcomes of cases are likely to be in the branch s favour, or where amounts to be awarded are uncertain, no provision has been included in the financial statements. (ii) Critical accounting judgements made in applying the branch s accounting policies: The branch s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances. In classifying financial assets as loans and receivables, the branch has determined that it has met the criteria for this designation as set out in accounting policy note 3(c). 3. Significant accounting policies (a) Financial assets and liabilities: A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. (i) Recognition: The branch initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities are initially recognised on the trade date, i.e., the date at which the branch becomes a party to the contractual provisions of the instrument.

15 CITIBANK, N.A Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (ii) Derecognition: The branch derecognises a financial instrument when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the branch is recognised as a separate asset or liability on the statement of financial position. The branch enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. The branch derecognises a financial liability when its contractual obligations expire or are discharged or cancelled. (iii) Offsetting: (iv) (v) Financial assets and liabilities are offset and the net amount presented in the statement of financial position only when the branch has a legally enforceable right to set off the recognised amounts and it intends to settle on a net basis or to realise the assets and settle the liability simultaneously. Amortised cost: Amortised cost is calculated using the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. Fair value measurement principles: Fair value is the price that would be receieved to sell an asset or paid to transfer a liability in an orderly transaction between markets participants at the measurement date. Determination of fair value: A financial asset or liability is measured initially at fair value. The best evidence of fair value at initial recognition is the transaction price, unless the fair value of that instrument is evidenced by comparison with other observable current market transaction in the same instrument or based on a valuation technique whose variables include only data from observable markets. When a transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss, or other comprehensive income for changes in the fair value of available-for-sale assets.

16 CITIBANK, N.A Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (v) Fair value measurement principles (cont d): Determination of fair value (cont d): The fair values of cash and cash equivalents, resale agreements, cheques and other items in transit, other assets, customers liabilities under acceptances, due to other banks and financial institutions, repurchase agreements and other liabilities are considered to approximate their carrying values. The fair values of available-for-sale securities are the amounts at which these securities are carried (see note 7) in accordance with policy note 3(e). These values are based on quoted prices in an active market, where available, or determined by a suitable alternative method. A market is regarded as active if quoted prices are readily and regularly available from an exchange dealer, broker or other agency and represent actual and regularly occurring market transactions on an arm s length basis. In the absence of an active market, other valuation techniques are used. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the branch and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured, is stated at cost, including transaction costs, less impairment losses. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate at the reporting date for an instrument with similar terms and conditions. The estimated fair value of loans is assumed to be the principal receivable less any provision for losses, as these financial assets are generally repriced when market interest rates change. The fair values of deposits and notes payable are considered to approximate their carrying values, as they bear rates which approximate market rates prevailing at the reporting date. (vi) Cash and cash equivalents: Cash and cash equivalents comprise cash on hand, cash deposited with the central bank and other short-term deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. These are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

17 CITIBANK, N.A Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (vii) Other assets: Other assets are stated at amortised cost less impairment losses. (viii) Other liabilities: Other liabilities are stated at amortised cost. (b) (c) Resale and repurchase agreements: Transactions involving purchases of securities under resale agreements ( resale agreements or reverse repos ) or sales of securities under repurchase agreements ( repurchase agreements or repos ) are accounted for as short-term collateralised lending and borrowing, respectively. Accordingly, securities sold under repurchase agreements remain on the statement of financial position and are measured in accordance with their original measurement principles. The proceeds of sale are reported as liabilities and are carried at amortised cost. Securities purchased under resale agreements are reported not as purchases of the securities, but as receivables and are carried in the statement of financial position at amortised cost. It is the policy of the branch to obtain possession of collateral with a market value in excess of the principal amount loaned under resale agreements. The difference between the amount borrowed or invested and the amount repaid or collected is recognised as interest expense or interest income, respectively, in profit or loss over the life of each agreement using the effective interest method. Loans and advances: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those which the branch classifies as held-for-trading, and those that the branch designates as at fair value through profit or loss or those that, on initial recognition, are designated as available-for-sale. Loans are identified as impaired and placed on a cash (non-accrual) basis when it is determined that the payment of interest and/or repayment of principal is doubtful, or when interest or principal is 90 days past due, except when the loan is adequately collateralised and in the process of collection. Any interest accrued on impaired corporate loans is reversed after 90 days and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is a doubt regarding the ultimate collectability of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans, where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment, are written down to the lower of cost or the present value of the collateral. Cash-basis loans are returned to accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance (at least one year) in accordance with the contractual terms.

18 CITIBANK, N.A Significant accounting policies (cont'd) (d) Financial guarantees: Financial guarantees are contracts that require the branch to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are recognised initially at their fair value, and the initial fair value is amortised over the life of the financial guarantee. Financial guarantees are included in other liabilities. Substantially all the risks and rewards of ownership of the collateral are transferred to the branch during the life of the financial guarantee. Under guarantee transactions the branch obtains collateral to cover the total of the liability. These are recognised at fair value, as financial assets, equal to the amount of the financial guarantee liability. Financial guarantees are derecognised when they expire and the terms of contract are fulfilled. (e) Investment securities: Securities acquired or loans granted or other receivables that have a fixed or determinable payment and which are not quoted in an active market are classified as loans and receivables. All other investments are classified as available-for-sale. Loans and receivables are initially measured at cost and subsequently at amortised cost less impairment losses. Available-for-sale investments are non-derivative assets that are measured initially at cost and subsequently at fair value with changes in fair value recognised in other comprehensive income, except for impairment losses and, in the case of debt securities, foreign exchange gains and losses. Where fair value cannot be reliably measured, the securities are stated at cost. Where the securities are disposed of or impaired, the related accumulated unrealised gains or losses are transferred from other comprehensive income and recognised in profit or loss. Investments are recognised/derecognised on the day they are transferred to/from the branch. (f) Property, plant and equipment: (i) Basis of measurement: Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Relevant costs Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of material and direct labour, and any other costs directly attributable to bringing the assets to a working condition for their intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

19 CITIBANK, N.A Significant accounting policies (cont'd) (f) Property, plant and equipment (cont d): (i) Basis of measurement (cont d): Costs subsequent to acquisition of construction (ii) Depreciation: The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part flow to the branch and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss. Depreciation is recognised in profit or loss on the straight-line basis at rates estimated to write-down the relevant assets, over their expected useful lives, to their residual values. Depreciation rates are as follows: Motor vehicles 20% Computers 33⅓% Installation, furniture & equipment 10 and 20% The depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. (g) Interest income and expense: Interest income and expense are recognised in profit or loss on the accrual basis using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the branch estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes all fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. Where collection of interest income is considered doubtful or payment is outstanding for 90 days or more, the cash basis is used. Accrued interest on loans which are in arrears for 90 days and over is excluded from income in accordance with the Banking Act.

20 CITIBANK, N.A Significant accounting policies (cont'd) (g) (h) (i) Interest income and expense (cont d): IFRS requires that when collection of loans becomes doubtful, such loans are to be written down to their recoverable amounts after which interest income is to be recognised based on the rate of interest that was used to discount the future cash flows in arriving at the recoverable amount. Future interest receipts are taken into account in estimating future cash flows from the instrument; if no contractual interest payments will be collected, then the only interest income recognised is the unwinding of the discount on those cash flows expected to be received. The branch has elected to comply with the Banking Act. The difference between the interest recognised under the Banking Act and that recognised under IFRS has been assessed as immaterial. Fees and commission: Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is expected to result in the drawn-down of a loan, loan commitment fees are recognised on the straight-line basis over the commitment period. Other fees and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received. Allowance for impairment: The allowance to cover specific losses on the credit portfolio is maintained at a level considered adequate to provide for such loan losses that are inherent in the portfolio, and is based on management's evaluation of individual loans in the credit portfolio. Amounts are written off from the provision whenever management has concluded that such amounts may not be recovered. The evaluation of individual loans takes all relevant matters into consideration, including prevailing and anticipated business and economic conditions, the collateral held, the debtor s ability to repay the loan and the requirements of section 17 of the Banking Act. The Banking Act requires that appropriate specific provision be made for all loans on which interest payments and principal repayments are ninety or more days in arrears. Bank of Jamaica has established regulations for computing the specific provisions. Bank of Jamaica has also established regulations requiring that general provisions be made on the credit portfolio at ½% on mortgage loans and 1% on other credits. IFRS permits only specific loan loss allowances and requires that the expected future cash flows of impaired loans be discounted and any subsequent increase in the present value be reported as interest income. The loan loss provision required under the Banking Act that is in excess of the requirements of IFRS is treated as an appropriation of unremitted profits and included in a non-distributable loan loss reserve [note 15(e)].

21 CITIBANK, N.A Significant accounting policies (cont'd) (j) Foreign currency: Transactions in foreign currencies are translated into the branch s functional currency at the spot exchange rate at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the spot exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. (k) Employee benefits: Employee benefits are all forms of consideration given by the branch in exchange for service rendered by employees. These include current or short-term benefits such as salaries, bonuses, NIS contributions, annual vacation leave, and non-monetary benefits such as medical care; post-employment benefits such as pensions; and other long-term employee benefits such as termination benefits. (i) General benefits: Employee benefits that are earned as a result of past or current service are recognised in the following manner: Short-term employee benefits are recognised as a liability, net of payments made, and are expensed as the related service is provided. The expected cost of vacation leave that accumulates is recognised when the employee becomes entitled to the leave. Post employment benefits which comprise pensions and health care, are accounted for as described in paragraphs (ii) and (iii) below. Other long-term benefits, including termination benefits, which arise when either: (1) the employer decides to terminate an employee s service before the normal retirement date, or (2) an employee decides to accept voluntary redundancy in exchange for termination benefits, are accrued as they are earned during service and charged as an expense, unless not considered material, in which case they are charged when they fall due for payment. The branch has established a defined-benefit pension plan to provide postemployment pensions (see note 10).

22 CITIBANK, N.A Significant accounting policies (cont'd) (k) Employee benefits (cont d): (ii) Defined benefit pension plan In respect of defined-benefit arrangements, employee benefits and obligations included in the financial statements are determined annually by a qualified independent actuary, appointed by management. The appointed actuary s report outlines the scope of the valuation and the actuary s opinion. The actuarial valuations are conducted in accordance with IAS 19, and the financial statements reflect the branch s post-employment benefit asset and obligation as computed by the actuary. In carrying out their audit, the auditors rely on the work of the actuary and the actuary s report. The branch s net obligation under its defined-benefit pension plan is calculated by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods; that value is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is determined by reference to the yield at the reporting date on long-term government securities with maturities approximating the terms of the branch s obligation. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of the plan are changed or when the plan is contracted, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The branch recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. Where the calculation results in a net benefit to the branch, the recognised asset is limited to the net present value of economic benefits available in the form of reductions in future contributions to the plan. Re-measurements of the net defined benefit asset, which comprise actuarial gains and losses, asset and the effect of the asset ceiling (if any, excluding interest), are recognised in other comprehensive income. The branch determines the net interest income on the net defined benefit asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset, taking into account any changes in the net defined benefit asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

23 CITIBANK, N.A Significant accounting policies (cont'd) (k) Employee benefits (cont d): (iii) Health care The branch s obligation in respect of unfunded long-term employee health care benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The discount rate is determined in a similar manner to the defined benefit pension plan set out above. The calculation is performed using the projected unit credit method. Re-measurements of the defined obligation as well as net interest expense is recognised in the same manner as described above for defined benefits pension plan. (iv) Employee equity compensation plans The Head Office has certain equity compensation plans under which it administers stock options, stock awards and stock purchase programs and in which the branch participates. Under the stock award program, a specified portion of a participant s incentive compensation is made in the form of a restricted or deferred stock award. Vesting periods for restricted and deferred stock awards generally range from 3 to 5 years. The cost of providing stock awards is charged in profit or loss as the awards become vested. The amounts involved are not considered material. All stock options are granted on Citigroup s common stock with exercise prices equal to the fair market value at the time of the grant. Options have varying terms depending on the year they were granted. The cost of the employee s exercise of the options is borne by Citigroup. (l) Related parties: A related party is a person or entity that is related to the branch. (1) A person or a close member of that person s family is related to the branch if that person: (i) (ii) has control or joint control over the branch; has significant influence over the branch; or (iii) is a member of the key management personnel of the branch or of a parent of the branch.