The accompanying notes form an integral part of the financial statements.

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5 5 Statement of Profit or Loss and Other Comprehensive Income Year ended Notes $ 000 $ 000 Interest income: Interest on loans 185, ,179 Interest on deposits with banks 186,987 84,929 Interest on investment securities 245, , , ,991 Interest expense ( 112,102) ( 84,622) Net interest income , ,369 Fees and commissions 18(a) 114, ,317 Other operating revenue: Foreign exchange gains 87, ,987 Gains from securities trading Inter-company revenue earned in relation to geographic revenue attribution project 18(b) 1,102, ,619 Other 162, ,969 1,972,604 1,594,110 Operating expenses: Staff costs 19(a) ( 490,550) ( 524,529) Depreciation 8 ( 28,957) ( 47,041) Foreign exchange lossess ( 691) - Other 19(b) ( 986,576) ( 684,968) (1,506,774) (1,256,538) Profit before income tax , ,572 Income tax expense 21(a) ( 162,359) ( 134,733) Profit for the year 303, ,839 Other comprehensive income: Items that will never be reclassified to profit or loss: Remeasurement of employee benefits asset and obligation, net of taxation 21(c) 333,832 ( 165,933) Items that may be reclassified to profit or loss: Change in fair value of available-for-sale investments, net of taxation 21(c) 26,647 28,699 Total other comprehensive income/(loss) 360,479 ( 137,234) Total comprehensive income for the year 663,950 65,605 The accompanying notes form an integral part of the financial statements.

6 6 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 $ 000 [Note 16(a)] [Note 16(b)] [Note 16(c)] [Note 16(d)] [Note 16(e)] [Note 16(f)] Balances at December 31, , ,609 1,528,592 (30,302) 31, ,455 1,490,785 3,879,137 Comprehensive income Profit for the year , ,839 Other comprehensive income Remeasurement of employee benefits asset/obligation, net of taxation (165,933) - ( 165,933) Appreciation in fair value of investments, net of taxation , ,699 Other comprehensive income for the year ,699 - (165,933) - ( 137,234) Total comprehensive income for the year ,699 - (165,933) 202,839 65,605 Transfers ( 4,250) - 4,250 - Balances at December 31, , ,609 1,528,592 ( 1,603) 27, ,522 1,697,874 3,944,742 Comprehensive income Profit for the year , ,471 Other comprehensive income Remeasurement of employee benefit assets/obligation, net of taxation , ,832 Appreciation in fair value of investments, net of taxation , ,647 Other comprehensive income for year , , ,479 Total comprehensive income for the year , , , ,950 Transactions with head office and transfers Transfers ,273 - ( 6,273) - Profit remitted [note 16(g)] ( 255,900) ( 255,900) ,273 - ( 262,173) ( 255,900) Balance as at 207, ,609 1,528,592 25,044 33, ,354 1,739,172 4,352,792 The accompanying notes form an integral part of the financial statements.

7 7 Statement of Cash Flows Year ended Notes $ 000 $ 000 Cash flows from operating activities Profit for the year 303, ,839 Adjustments for: Depreciation 8 28,957 47,041 Interest income 17 ( 618,113) ( 433,991) Interest expense ,102 84,622 Income tax expense 21(a) 162, ,733 Unrealised foreign exchange gains ( 46,808) ( 30,481) Employee benefits asset/obligation ( 6,636) ( 18,981) Loss on disposal of property, plant and equipment 2,851 - ( 61,817) ( 14,218) Changes in: Loans ( 272,103) 276,727 Employee benefits asset/obligation ( 3,711) ( 2,502) Other assets 121,724 59,574 Deposits 2,051,728 ( 775,476) Other liabilities ( 222,626) ( 44,782) 1,613,195 ( 500,677) Interest received 601, ,611 Interest paid ( 103,020) ( 86,848) Income tax refunded 242,975 61,529 Net cash provided/(used) by operating activities 2,354,482 ( 92,385) Cash flows from investing activities Investment securities ( 270,623) ( 428,331) Resale agreements ( 524,300) 240,060 Purchase of property, plant and equipment 8 ( 20,494) ( 4,097) Proceeds of sale property, plant and equipment 1,096 - Net cash used by investing activities ( 814,321) ( 192,368) Cash flows from financing activities Securities sold under resale agreements 350,000 - Notes payable ( 15,000) 95,000 Profits remitted ( 255,900) - Net cash provided by financing activities 79,100 95,000 Net increase/(decrease) in cash and cash equivalents 1,619,261 ( 189,753) Effect of exchange rate fluctuations on cash and cash equivalents 95,283 36,443 Cash and cash equivalents at beginning of year 9,463,281 9,616,591 Cash and cash equivalents at end of year 4 11,177,825 9,463,281 The accompanying notes form an integral part of the financial statements.

8 8 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 and is licenced under the Banking Services Act The branch is regulated by Bank of Jamaica and its 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 and amended standards that became effect during the year Certain new and amended standards came into effect during the current financial year. The branch has adopted those which are relevant to its operations, but their adoption did not result in any changes to the amounts recognised or disclosed in these financial statements. New and amended standards and interpretations issued but not yet effective At the date of authorisation of these financial statements, certain new and amended standards and interpretations have been issued which were not effective at the reporting date and which the branch has not early-adopted. The branch has assessed them with respect to its operations and has determined that the following are relevant to its financial statements: (i) The branch is required to adopt IFRS 9 Financial Instruments from January 1, The standard replaces IAS 39 Financial Instruments: Recognition and Measurement and sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. It contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. However, the branch is still in the process of its assessment and the final impact has not yet been determined. IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI.

9 9 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New and amended standards and interpretations issued but not yet effective (continued) (i) (Continued) Under IFRS 9, loss allowances will be measured on either of the following bases: 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for short-term receivables without a significant financing component. Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied retrospectively, except as follows: The branch will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement as well as impairment changes. Differences in the carrying amounts of financial instruments resulting from the adoption of IFRS 9 will generally be recognised in retained earnings and reserves as at January 1, The branch will determine the business model within which a financial asset is held based on the facts and circumstances that exist at the date of initial application. Based on the branch s preliminary assessment of the impact of the new impairment model, it expects to record a impairment loss of US$149,000 for the twelve (12) months expected credit loss and US$272,000 for lifetime expected credit loss.

10 10 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New and amended standards and interpretations issued but not yet effective (continued) (ii) The branch is required to adopt IFRS 15 Revenue from Contracts with Customers from January 1, The standard establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The branch will apply a five-step model to determine when to recognise revenue, and at what amount. The model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised at a point in time, when control of goods or services is transferred to the customer; or over time, in a manner that best reflects the entity s performance. Management has assessed that the main impact of this standard is in respect of fees and commission income. Based on preliminary review, IFRS 15 is not expected to have a material impact on the timing and recognition of fee income. However, management has not yet completed its assessment and the financial impact has not yet being determined. (iii) IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessees will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest; the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short-term leases and for low-value items with value of US$5,000 or less. Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is also adopted. The branch is assessing the impact that the standard will have on its 2019 financial statements.

11 11 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New and amended standards and interpretations issued but not yet effective (continued) (iv) IFRIC 22, Foreign Currency Transactions and Advance Consideration, effective for annual reporting periods beginning on or after January 1, 2018, addresses how to determine the transaction date when an entity recognises a non-monetary asset or liability (e.g. non-refundable advance consideration in a foreign currency) before recognising the related asset, expense or income. It is not applicable when an entity measures the related asset, expense or income or initial recognition at fair value or at the fair value of the consideration paid or received at the date of initial recognition of the non-monetary asset or liability. An entity is not required to apply this interpretation to income taxes or insurance contracts that it issues, or reinsurance contracts held. The interpretation clarifies that the transaction date is the date on which the entity initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The branch is assessing the impact that the interpretation will have on its 2018 financial statements. (v) IFRIC 23, Uncertainty Over Income Tax Treatments, is effective for annual reporting periods beginning on or after January 1, Earlier application is permitted. IFRIC 23 clarifies that the accounting for income tax treatments that have yet to be accepted by tax authorities is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. An entity has to consider whether it is probable that the relevant tax authority would accept the tax treatment, or group of tax treatments, that is adopted in its income tax filing. If the entity concludes that it is probable that the tax authority will accept a particular tax treatment in the tax return, the entity will determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings and record the same amount in the financial statements. The entity will disclose uncertainty. If the entity concludes that it is not probable that a particular tax treatment will be accepted, the entity has to use the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The decision should be based on which method provides better prediction of the resolution of the uncertainty.

12 12 2. Statement of compliance and basis of preparation (cont d) (a) Statement of compliance (cont d): New and amended standards and interpretations issued but not yet effective (continued) (v) IFRIC 23, Uncertainty Over Income Tax Treatments (continued) If facts and circumstances change, the entity is required to reassess the judgements and estimates applied. IFRIC 23 reinforces the need to comply with existing disclosure requirements regarding - judgements made in the process of applying accounting policy to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; - assumptions and other estimates used; and - potential impact of uncertainties that are not reflected in the financial statements. The branch is assessing the impact that the interpretation will have on its 2019 financial statements. (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 benefits asset is recognized 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(c); and - the employee benefits 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.

13 13 2. Statement of compliance and basis of preparation (cont d) (d) Accounting estimates and judgements (cont d): The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized 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 recognized 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 recognized in the statement of financial position and the statement of profit or loss and other comprehensive income for pension and other postemployment benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognized 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. 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.

14 14 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: 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. 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 was a defendant in a lawsuit that came to an end in the Court of Appeal on November 14, The outcome was in favour of the plaintiff. Subsequently, legal administrative proceedings commenced by both parties to come to agreement on the interpretation of the court orders. The attorneys handling the case for the Branch have given their opinion on the likely required amounts to be paid by the bank based on the court orders and inter alia, established case law. Management s estimates of any amount provided for or disclosed is based on such legal opinion and the relevant provisions have been made 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(a)(x)].

15 15 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 recognizes 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 recognized on the trade date, i.e., the date at which the branch becomes a party to the contractual provisions of the instrument. (ii) Derecognition: The branch derecognizes 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 recognized as a separate asset or liability on the statement of financial position. The branch enters into transactions for example, securities lending and repurchase transactions, whereby it transfers assets recognized 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 derecognized. The branch derecognizes a financial liability when its contractual obligations expire or are discharged or cancelled. (iii) Offsetting: 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 recognized amounts and it intends to settle on a net basis or to realise the assets and settle the liability simultaneously. (iv) (v) 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 received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

16 16 3. Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (v) Fair value measurement principles: (cont d) Determination of fair values: 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 transactions 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 recognized in profit or loss, or other comprehensive income for changes in the fair value of available-for-sale assets. 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). 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.

17 17 3. Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (v) Fair value measurement principles (cont d): Determination of fair values (cont d): The estimated fair value of loans is assumed to be the principal received less any allowance for impairment 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. (vii) Other assets: Other assets are measured at amortized cost less impairment losses. (viii) Other liabilities: Other liabilities are measured at amortized cost. (ix) 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 collateralized 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 amortized cost. Securities purchased under resale agreements are reported not as purchases of the securities, but as receivables and are carried at amortized cost. It is the policy of the branch to obtain possession of collateral with a fair 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 recognized as interest expense or interest income, respectively, in profit or loss over the life of each agreement using the effective interest method.

18 18 3. Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (x) 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 availablefor-sale. Loans are identified as impaired and interest recognised 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 collateralized and in the process of collection. Any interest accrued on impaired 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 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. (xi) Investment securities: Securities acquired, loans granted and 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 amortized 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 recognized 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 measured at cost. Where the securities are disposed of or impaired, the related accumulated unrealized gains or losses are transferred from other comprehensive income and recognized in profit or loss. Investments are recognized/derecognized on the day they are transferred.

19 19 3. Significant accounting policies (cont d) (a) Financial assets and liabilities (cont d): (xii) 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 recognized initially at their fair value, and the initial fair value is amortized 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 recognized at fair value, as financial assets, equal to the amount of the financial guarantee liability. Financial guarantees are derecognized when they expire and the terms of contract are fulfilled. (xiii) Derivatives: Derivatives are financial instruments that derive their value from the price of the underlying items such as equities, bond interest rates, foreign exchange or other indices. Derivatives enable users to increase, reduce or alter exposure to credit or market risk. The branch makes use of derivatives to manage its own exposure to foreign exchange risk. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. If the derivative is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognized immediately in profit or loss. (xiv) 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 allowance whenever management has concluded that such amounts will 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 the Banking Services Act. The Banking Services 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.

20 20 3. Significant accounting policies (cont'd) (a) (b) Financial assets and liabilities (cont d): (xiv) Allowance for impairment (cont d): 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 impairment 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 Services 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 16(e)]. 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 capitalized as part of that equipment. Costs subsequent to acquisition of construction The cost of replacing part of an item of property, plant and equipment is recognized 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 recognized in profit or loss. (ii) Depreciation: Depreciation is recognized 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.

21 21 3. Significant accounting policies (cont'd) (c) Employee benefits: Employee benefits are all forms 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 recognized in the following manner: Short-term employee benefits are recognized 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 recognized 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. (ii) Defined benefit pension plan The branch has established a defined-benefit pension plan to provide postemployment pensions (see note 10). 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 recognized immediately in profit or loss. The branch recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

22 22 3. Significant accounting policies (cont'd) (c) Employee benefits (cont d): (ii) Defined benefit pension plan (cont d) Where the calculation results in a net benefit to the branch, the recognized asset is limited to the net present value of economic benefits available in the form of reductions in future contributions to the plan. Remeasurements of the net defined benefit asset, which comprise actuarial gains and losses, and the effect of the asset ceiling (if any, excluding interest), are recognized 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. (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. Remeasurements of the defined obligation and net interest expense and recognized in the same manner as described above for defined benefit 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.

23 23 3. Significant accounting policies (cont'd) (d) Interest income and expense: Interest income and expense are recognized in profit or loss 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 Services Act 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 recognized 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 recognized is the unwinding of the discount on those cash flows expected to be received. The branch has elected to comply with the Banking Services Act The difference between the interest recognized under the Banking Services Act and that recognized under IFRS has been assessed as immaterial. (e) 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 and intercompany geographic revenue attribution (GRA), are recognized 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 recognized 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.

24 24 3. Significant accounting policies (cont'd) (f) (g) 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 amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized 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 recognized in profit or loss. Non-monetary assets and liabilities are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Income tax expense: Income tax on the profit or loss for the year comprises current and deferred income tax. Income tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income, in which case it is also recognized in other comprehensive income. (i) (ii) Current income tax: Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax: Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amounts of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plan for the branch. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted at the reporting date.

25 25 3. Significant accounting policies (cont'd) (h) Impairment: The carrying amounts of the branch s assets are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such evidence exists, the asset s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in profit or loss. (i) Calculation of recoverable amount: The recoverable amount of loans receivable is determined as indicated in accounting policy [3(a)(xiv)]. The recoverable amount of the branch s investment securities and other assets is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. The recoverable amount of assets other than the financial assets referred to in the preceding paragraph is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (ii) Reversals of impairment: An impairment loss in respect of a loan or receivable carried at amortized cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss in respect of an equity instrument classified as available-for-sale is not reversed through profit or loss. If the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.