CITIBANK, N.A. JAMAICA BRANCH FINANCIAL … · 3 CITIBANK, N.A. [Incorporated in the U.S.A. with...

CITIBANK, N.A. JAMAICA BRANCH

FINANCIAL STATEMENTS

DECEMBER 31, 2014

KPMG P.O. Box 76 Chartered Accountants Kingston The Victoria Mutual Building Jamaica, W.I. 6 Duke Street Telephone +1 (876) 922-6640 Kingston Fax +1 (876) 922-7198 Jamaica, W.I. +1)876) 922-4500

e-Mail [email protected]

INDEPENDENT AUDITORS' REPORT

To the Directors of CITIBANK, N.A. [Incorporated in the U.S.A. with limited liability]

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

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 December 31, 2014, 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

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CITIBANK, N.A. [Incorporated in the U.S.A. with limited liability]

JAMAICA BRANCH

Statement of Financial Position December 31, 2014

2014 2013 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 8 200,490 219,461 Income tax recoverable 240,264 268,557 Other assets 9 312,153 272,882 Customers' liabilities under acceptances,

guarantees and letters of credit, as per contra 217,121 218,884 Employee benefit asset 10 506,054 745.017

15,965,412 18,256,093

LIABILITIES Deposits:

Customers 10,842,739 10,282,568 Other branches and affiliates 16,808 1,919,629 Head office 12,279 616 Fellow subsidiaries 102.787 557,327

11 10,974,613 12,760,140

Acceptances, guarantees and letters of credit, as per contra 217,121 218,884

Note payable 12 400,000 Securities sold under repurchase agreements 5(b) 620,000 Other liabilities 13 337,727 436,646 Employee benefit obligation 10 144,080 119,103 Deferred tax liability 14 170.881 242,218

12,244,422 14,396,991 HEAD OFFICE'S EQUITY

Assigned capital 15(a) 207,609 207,609 Reserve fund 15(b) 207,609 207,609 Retained earnings reserve 15(c) 1,528,592 1,528,592 Fair value reserve 15(d) 4,666 136 Loan loss reserve 15(e) 30,392 83,746 Other reserve 15(f) 215,072 410,215 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.

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JAMAICA BRANCH

Statement of Profit or Loss and Other Comprehensive Income

Year ended December 31, 2014


Notes 2014 2013

$’000 $’000

Interest income:

Interest on loans 270,957 304,394 Interest on deposits with banks 147,678 200,813

Interest on investment securities 72,354 117,604

490,989 622,811 Interest expense ( 194,792) ( 181,057)

Net interest income 16 296,197 441,754

Fees and commissions 17 194,973 145,636 Other operating revenue:

Foreign exchange gains 681,482 720,696

Gains from securities trading 1,173 - Other 113,761 102,605

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 92,989 112,049

Income tax 20(a) ( 40,488) 97,809

Profit for the year 52,501 209,858

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

5

CITIBANK, N.A.

[Incorporated in the U.S.A. with limited liability]

JAMAICA BRANCH

Statement of Changes in Head Office’s Equity

Year ended December 31, 2014


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, 2012 207,609 207,609 1,528,592 (14,750) 106,439 272,833 1,188,644 3,496,976

Comprehensive income

Profit for the year - - - - - - 209,858 209,858

Other comprehensive income

Re-measurement of employee

benefit asset/obligation, net of

taxation - - - - - 137,382 - 137,382

Appreciation in fair value of

investments, net of taxation - - - 14,886 - - - 14,886

Total other comprehensive income for

the year - - - 14,886 - 137,382 - 152,268

Total comprehensive income for the year - - - 14,886 - 137,382 209,858 362,126

Transfer between reserves - - - - (22,693) - 22,693 -

Balances at December 31, 2013 207,609 207,609 1,528,592 136 83,746 410,215 1,421,195 3,859,102

Comprehensive income

Profit for the year - - - - - - 52,501 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 - - - 4,530 - - - 4,530

Total other comprehensive income for

the year - - - 4,530 - (195,143) - ( 190,613)

Total comprehensive income for the year - - - 4,530 - (195,143) 52,501 ( 138,112)

Transfer between reserves - - - - ( 53,354) - 53,354 -

Balance as at December 31, 2014 207,609 207,609 1,528,592 4,666 30,392 215,072 1,527,050 3,720,990

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CITIBANK, N.A.


JAMAICA BRANCH

Statement of Cash Flows Year ended December 31, 2014


Notes 2014 2013

$’000 $’000

Cash flows from operating activities:

Profit for the year 52,501 209,858 Adjustments for:

Depreciation 8 53,673 48,559

Interest income 16 ( 490,989) ( 622,811) Interest expense 16 194,792 181,057

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 478,250 674,265

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 356 -

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

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CITIBANK, N.A.


JAMAICA BRANCH

Notes to the Financial Statements

December 31, 2014

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:

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CITIBANK, N.A.


JAMAICA BRANCH

Notes to the Financial Statements (Continued)

December 31, 2014

2. Statement of compliance and basis of preparation (cont’d)

(a) Statement of compliance (cont’d):


(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, 2016.

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.

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JAMAICA BRANCH


December 31, 2014




(cont’d):

Improvements to IFRS 2010-2012 and 2011-2013 cycles contain amendments to

certain standards and interpretations and are effective for accounting periods

beginning on or after July 1, 2014. 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.

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JAMAICA BRANCH


December 31, 2014




(cont’d):

Improvements to IFRS, 2012-2014 cycle, contain amendments to certain standards

and interpretations and are effective for accounting periods beginning on or after

January 1, 2016. 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.

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JAMAICA BRANCH


December 31, 2014


(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.

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JAMAICA BRANCH


December 31, 2014


(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.

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JAMAICA BRANCH


December 31, 2014


(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.

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December 31, 2014

3. 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:

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.

(iv) 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.

(v) 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.

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(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.

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(vii) Other assets:

Other assets are stated at amortised cost less impairment losses.

(viii) Other liabilities:

Other liabilities are stated at amortised cost.

(b) 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.

(c) 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.

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3. 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.

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(f) Property, plant and equipment (cont’d):

(i) Basis of measurement (cont’d):

Costs subsequent to acquisition of construction

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.

(ii) Depreciation:

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.

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(g) 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.

(h) 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.

(i) 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)].

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(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 post-

employment pensions (see note 10).

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(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.

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(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) has control or joint control over the branch;

(ii) 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.

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(l) Related parties (cont’d) :

(2) An entity is related to the branch if any of the following conditions applies:

(i) The entity and the branch are members of the same group (which means that

each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or

joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate

of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of

either the branch or an entity related to the branch.

(vi) The entity is controlled or jointly controlled by a person identified in (1).

(vii) A person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the

entity).

A related party transaction is a transfer of resources, services or obligations between the

branch and a related party, regardless of whether a price is charged.

(m) Income tax expense:

Income tax on the profit or loss for the year comprises current and deferred income tax.

Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other

comprehensive income.

(i) 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.

(ii) Deferred income tax:

Deferred income 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 income tax is measured at the tax rates

that are expected to be applied to temporary differences when they reverse, based on

laws that have been enacted by the reporting date.

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(m) Income tax expense (cont’d):

(ii) Deferred income tax (cont’d):

A deferred income tax asset is recognised only to the extent that it is probable that

future taxable profits will be available against which the asset can be realised. Deferred income 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.

A deferred income tax asset is recognised for unused tax losses, tax credits and

deductible temporary differences, only to the extent that it is probable that future

taxable profits will be available against which the asset can be utilised.

(n) 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 recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

Impairment losses are recognised in profit or loss.

(i) Calculation of recoverable amount:

The recoverable amount of loans receivable is determined as indicated in accounting

policy 3(c). 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 amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively

to an event occurring after the impairment loss was recognised.

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(n) Impairment (cont’d):

(ii) Reversals of impairment (cont’d):

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 recognised in profit or loss, the impairment loss is reversed, with the amount

of the reversal recognised 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 amortisation, if no impairment loss had been recognised.

(o) 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 recognised immediately in profit or loss.

4. Cash and cash equivalents

2014 2013

$’000 $’000 Accounts with other branches 112,829 67,821

Accounts with other financial institutions - 2,226,000

Notes and coins, money at call, and deposits and cash reserves at Bank of Jamaica 1,369,947 1,843,954

Due from fellow subsidiary 2,899 5,449

Accounts with head office 6,937,996 4,090,189

Cheques and other items in transit 23,209 104,221

8,446,880 8,337,634

Of the total deposits held with the Bank of Jamaica, $1,152,570,684 (2013: $1,340,362,322) is

held in compliance with section 14(1) of the Banking Act, which requires that every licensee

maintains a cash reserve, in the form of a deposit with Bank of Jamaica, of a specified percentage of its deposit liabilities. No portion of the cash reserves is available for investment or other use

by the branch. The specified percentage in force at the end of the year was 12% (2013: 12%) for

Jamaican currency and 9% (2013: 9%)for foreign currency.

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5. Resale and repurchase agreements

(a) At the reporting date, the fair value of the underlying securities held for resale agreements was $2,523,558,816 (2013: $3,549,816,603).

(b) At the reporting date, securities pledged by the branch as collateral for repurchase agreements had a carrying value of Nil (2013: $781,094,000).

6. Loans, less allowance for impairment

(a) Loans, net of allowance for impairment, are due, from the reporting date as follows:

2014 2013 $’000 $’000

Within 3 months 1,104,220 391,644

3 months -12 months 823,016 376,511

1-5 years 562,828 2,483,356

5 years and over 20,338 465,917

2,510,402 3,717,428

The branch’s four most significant customers are in the distribution and other services

sectors (2013: manufacturing and financial sectors) and account for $1.74 billion (2013: $2.17 billion) representing 69.28% (2013: 58.63%) of total loans.

(b) Impairment losses

The aging of loans, net of allowance for impairment losses, is as follows:

2014 2013 $’000 $’000

Allowance Allowance

for for Gross impairment Gross impairment

Neither past due nor impaired 2,507,335 - 3,672,686 - Past due but not impaired 3,067 - - -

Past due and impaired - - 129,144 84,402

2,510,402 - 3,801,830 84,402

2014 2013

$’000 $’000

Allowance in accordance with IAS 39:

At the beginning of the year 84,402 44,761

(Reversed)/provided during the year (84,402) 39,641

At end of year - 84,402

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6. Loans, less allowance for impairment (cont’d)

(b) Impairment losses (cont’d)

The portion of the provision for credit losses in excess of that required by IAS 39 is

determined under Bank of Jamaica regulatory requirements and reflected as a non-distributable loan loss reserve in equity [note 15(e)], as follows:

2014 2013 $’000 $’000

At beginning of year 83,746 106,439

Reversed during the year (53,354) ( 22,693)

At end of year 30,392 83,746

(c) The maximum exposure to credit risk for loans is the amount in the statement of financial

position. Loans are concentrated by industry sector as follows:

Number of loans

2014 2013 2014 2013 $’000 $’000

Financial institutions 4 5 297,301 316,839

Professional and other services 5 7 98,452 2,089,884 Distribution 14 11 2,048,303 1,197,768

Individuals 91 107 66,346 68,195

Manufacturing - 3 - 44,742

114 133 2,510,402 3,717,428

(d) At the reporting date, loans receivable on which interest is no longer being accrued

amounted to $3.06 million (2013: $129.14 million).

7. Investment securities

2014 2013 $’000 $’000

Available for sale securities:

Securities issued or guaranteed by Government of Jamaica:

Debentures 433,403 527,300 Bonds (denominated in United States dollars) 327,037 403,293

Investment bond 13,008 13,004

Treasury bills - 30,436 Certificates of deposit – Bank of Jamaica 299,915 199,177

1,073,363 1,173,210

Unquoted equities:

Interest in Automated Payments Limited [see below] 5,020 5,020

1,078,383 1,178,230

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7. Investment securities (cont’d)

The interest in Automated Payments Limited represents a 14.29% (2013: 14.29%) holding by the branch. That company is established and co-owned by commercial banks operating in Jamaica to

provide automated clearing facilities to the commercial banking system.

8. Property, plant and equipment Computers and

Motor Leasehold furniture &

vehicles improvements equipment Total $’000 $’000 $’000 $’000

Cost:

December 31, 2012 6,130 203,222 198,617 407,969

Additions - 6,292 2,675 8,967

Disposals - - ( 136) ( 136)

December 31, 2013 6,130 209,514 201,156 416,800

Additions 13,930 - 20,848 34,778

Disposals ( 6,130) - ( 119) ( 6,249)

December 31, 2014 13,930 209,514 221,885 445,329

Depreciation:

December 31, 2012 6,130 30,086 112,603 148,819

Eliminated on disposals - - ( 39) ( 39)

Charge for year - 20,694 27,865 48,559

December 31, 2013 6,130 50,780 140,429 197,339

Charge for the year 2,786 20,479 30,408 53,673

Eliminated on disposals ( 6,130) - ( 43) ( 6,173)

December 31, 2014 2,786 71,259 170,794 244,839

Net book values:

December 31, 2014 11,144 138,255 51,091 200,490

December 31, 2013 - 158,734 60,727 219,461

December 31, 2012 - 173,136 86,014 259,150

9. Other assets

2014 2013

$’000 $’000

Interest receivable 64,694 51,955

Prepayments and items in course of clearing 55,855 80,437

Foreign currency forward contracts 155,078 131,096

Other 36,526 9,394

312,153 272,882

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10. Employee benefits

The branch operates a defined benefit pension plan [see note 3(k)] which is open to all permanent employees and is managed by Scotia Investments Jamaica Limited. The pension plan is funded

by employee contributions at rates varying from 5% to 10% of pensionable salary, and employer

contributions at rates recommended by independent actuaries from time to time. Pension benefits are based on average salary for the final three years of pensionable service. The branch also

operates an insured health plan covering employees and pensioners. The employer contributes

80% of the premium for both pensioners and employees.

The plans expose the branch to actuarial risks such as longevity, currency risk, interest rate risk

and market (investment) risk.

(a) Employee benefit asset/(obligation):

Pension asset Health care obligation

2014 2013 2014 2013

$’000 $’000 $’000 $’000

Present value of obligations ( 811,035) ( 767,754) (144,080) (119,103)

Fair value of plan assets 1,632,927 1,512,771 - -

Effect on asset ceiling ( 315,838) - - -

Net asset/(obligation) at end of year 506,054 745,017 (144,080) (119,103)

(b) Movements in the net asset/(obligation) recognised in the statement of financial position:


2014 2013 2014 2013

$’000 $’000 $’000 $’000

Net asset/(obligation) at January 1 745,017 497,899 (119,103) ( 91,793)

Contributions 72 80 1,492 1,496

Credit/(expense) recognised in

profit or loss 46,815 26,790 ( 19,620) ( 14,599)

Re-measurement (loss)/gain recognised on other

comprehensive income (285,850) 220,248 ( 6,849) ( 14,207)

Net asset/(obligation) at December 31 506,054 745,017 (144,080) (119,103)

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10. Employee benefits (cont’d)

(c) (i) Movements in the present value of obligations:


2014 2013 2014 2013 $'000 $'000 $'000 $'000

Balance at January 1 767,754 655,846 (119,103) ( 91,793)

Benefits paid ( 18,811) ( 22,327) 1,492 1,496

Interest cost 73,110 67,648 ( 12,726) ( 9,508)

Current service cost 20,556 17,966 ( 6,894) ( 5,091)

Employees’ contribution 16,160 15,038 - -

Actuarial loss/(gain) arising from:

Experience adjustment 16,638 ( 68,419) ( 5,735) 5,619

Financial assumptions ( 64,372) 102,002 ( 1,114) ( 19,826)

Balance at December 31 811,035 767,754 (144,080) (119,103)

(ii) Movements in fair value of pension plan assets:

2014 2013

$'000 $'000

Balance at January 1 1,512,771 1,451,548

Employees’ contributions 16,160 15,038

Benefits paid ( 18,811) ( 22,327) Employer’s contribution 72 80

Interest income 145,230 149,764

Service costs ( 4,749) ( 8,409)

Re-measurement gain on plan assets included in other comprehensive income ( 40,182) ( 71,148)

Effect of change in allocation between

related companies 22,436 ( 1,775)

Balance on December 31 1,632,927 1,512,771

(iii) Plan assets consist of the following:

Equities 203,441 432,478

Other securities 1,222,856 881,850 Cash and cash equivalents 59,303 45,684

US notes and bonds 147,327 152,759

1,632,927 1,512,771

(d) (Credit)/expense recognised in profit or loss:

Pension asset Health care obligation 2014 2013 2014 2013

$’000 $’000 $’000 $’000

Current service costs 20,556 17,966 6,894 5,091

Administrative expenses 4,749 6,242 - -

Interest on obligation 73,110 67,648 12,726 9,508 Interest income on plan asset (145,230) (149,764) - -

Interest on effect of asset ceiling - 31,118 - -

( 46,815) ( 26,790) 19,620 14,599

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(e) Actuarial (gains)/losses recognised in other comprehensive income:

Pension plan Health care obligation

2014 2013 2014 2013

$’000 $’000 $’000 $’000

Re-measurement (gain)/loss on obligation (59,122) 36,106 6,849 14,207

Re-measurement loss on asset 40,182 71,148 - -

Change in effect of asset ceiling 304,790 (327,502) - -

285,850 (220,248) 6,849 14,207

(f) Principal actuarial assumptions at the reporting date (expressed as weighted averages):

Pension plan Health care obligation

2014 2013 2014 2013 % % % %

Discount rate 9.5 9.5 9.5 9.5 Future salary increases 6.5 7.50 - -

Future pension increases 2.75 3.25 - -

Future health cost increases - - 8.00 8.00

(g) The estimated pension contribution expected to be paid into the plan for the next financial year is $72,000 (2013: $76,800).

(h) Sensitivity analysis on projected benefit obligation:

The calculation of the projected benefit obligation is sensitive to the assumptions used. The

table below summarizes how the projected benefit obligation measured at the reporting date

would have increased/(decreased) as a result of a change in the respective assumptions by one percentage point. In preparing the analyses for each assumption, all others were held

constant. The economic assumptions are somewhat linked as they are all related to

inflation. Hence, for example, a 1% reduction in the long-term discount rate, would cause

some reduction in the medical trend rate. Pension asset Health care obligation 2014 2013 2014 2013 1 % 1 % 1 % 1 % 1 % 1 % 1 % 1 % increase decrease increase decrease increase decrease increase decrease $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Discount rate (100,620) 127,117 (102,400) 131,172 (23,877) 31,338 (19,903) 26,219 Future salary increases 36,951 ( 31,904) 43,267 36,959 136 ( 169) 159 ( 187)

Future pension increases 77,478 ( 65,773) 77,968 ( 65,630) 30,817 (23,782) 25,648 (19,709)

(i) As mortality continues to improve, estimates of life expectancy are expected to increase. The effect on the projected benefit and obligation of an increase of one year in the life

expectancy is approximately $23.6 million (2013: $33 million).

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(j) Liability duration:


2014 2013 2014 2013

Active members 16.1 16.7 25.0 24.1 Deferred pensioners 21.3 22.4 - -

Retirees 8.3 8.5 10.6 10.3

All participants 15.2 15.7 20.7 20.1

11. Deposits

2014 2013 $’000 $’000

Commercial and business enterprises 7,367,862 7,980,740

Financial institutions 2,196,380 4,426,818

Public authorities 1,378,697 317,532

Others 31,674 35,050

10,974,613 12,760,140

12. Note payable

This comprise unsecured promissory note, repayable on February 26, 2015 and bearing interest at

10.25% per annum.

13. Other liabilities

2014 2013

$’000 $’000

Managers’ cheques 163,874 196,749

Interest payable 13,279 23,785 Accruals 87,648 95,008

Other 72,926 121,104

337,727 436,646

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14. Deferred taxation

Deferred taxation is attributable to the following:

Assets Liabilities Net 2014 2013 2014 2013 2014 2013

$’000 $’000 $’000 $’000 $’000 $’000

Investments - - ( 2,333) ( 68) ( 2,333) ( 68)

Property, plant and equipment 25,742 16,593 - - 25,742 16,593

Employee benefit asset - - (168,660) (248,314) (168,660) (248,314)

Employee benefit obligation 48,022 39,697 - - 48,022 39,697 Unrealised foreign exchange (loss) - - ( 75,304) ( 51,678) ( 75,304) ( 51,678)

Others 1,652 1,552 - - 1,652 1,552

Net assets/(liabilities) 75,416 57,842 (246,297) (300,060) (170,881) (242,218)

Movements in temporary differences during the year were as follows:

2014 Recognised

in other Balance at Recognised in comprehensive Balance at

January 1 profit for year income December 31

$’000 $’000 $’000 $’000

(note 20)

Investments ( 68) - ( 2,265) ( 2,333)

Property, plant and equipment 16,593 9,149 - 25,742

Employee benefit asset (248,314) (15,620) 95,274 (168,660) Employee benefit obligation 39,697 6,043 2,282 48,022

Unrealised foreign exchange gain ( 51,678) (23,626) - ( 75,304)

Others 1,552 100 - 1,652

(242,218) (23,954) 95,291 (170,881)

2013 Recognised

in other

Balance at Recognised in comprehensive Balance at

January 1 profit for year income December 31

$’000 $’000 $’000 $’000

(note 20)

Investments 7,375 - ( 7,443) ( 68)

Property, plant and equipment 6,932 9,661 - 16,593 Employee benefit asset (302,383) 127,464 (73,395) (248,314)

Employee benefit obligation 30,592 4,369 4,736 39,697

Unrealised foreign exchange gain ( 54,222) 2,544 - ( 51,678)

Others 1,319 233 - 1,552

(310,387) 144,271 (76,102) (242,218)

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15. Assigned capital and reserves

(a) Assigned capital:

This represents the portion of the capital of Citibank, N.A., consisting of unencumbered

assets, specifically assigned to the financing of its Jamaican operations.

(b) Reserve fund:

Under the Banking Act, the branch is required to transfer at least 15% of its profit after

income tax to the reserve fund until the amount of the reserve fund is equal to 50% of the

assigned capital; thereafter, it is required to transfer 10% of profit after tax until the amount

of the reserve fund is equal to the assigned capital. No transfer was made to this fund during the year as it is equal to the assigned capital.

(c) Retained earnings reserve:

Under Section 8 of the Banking Act, the branch may transfer a portion of its net profit to a

retained earnings reserve. This reserve constitutes a part of the capital base for the purpose of determining the maximum level of deposit liabilities and lending to customers.

Transfers to retained earnings reserve are made at the discretion of the senior management

of the branch; however, for it to be effective, the decision must be communicated to the

Supervisor. There were no transfers to this reserve during the current and prior years.

(d) Fair value reserve:

This represents unrealised gains/(losses), net of taxation, on the revaluation of available-

for-sale investments.

(e) Loan loss reserve:

This is a non-distributable reserve representing allowance for impairment of credits [note

6(b)] as follows:

2014 2013 $’000 $’000

Loans [note 6(b)] 28,221 81,557

Customers’ liabilities under acceptances, guarantees

and letters of credit, per contra 2,171 2,189

30,392 83,746

(f) Other reserves:

Other reserves represents accumulated actuarial gains and losses arising from the remeasurement of the employee defined benefit plan and the effect of the asset ceiling, net

of deferred taxes.

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December 31, 2014

16. Net interest income

2014 2013

$’000 $’000 Interest revenue:

Loans and receivables 418,635 505,207

Available-for-sale securities 72,354 117,604

Total interest income 490,989 622,811

Interest expense:

Deposits 126,449 118,569 Repurchase agreements 7,437 17,500

Short-term debt and other liabilities 60,906 44,988

Total interest expense 194,792 181,057

Net interest income 296,197 441,754

17. Fees and commissions

Fees and commissions include charges to customers, processing fees and annual fees; advisory,

equity and debt underwriting services; lending and deposit-related transactions, such as loan

commitments, standby letters of credit, and other deposit and loan servicing activities; investment management-related fees, including brokerage services, and custody and trust services; insurance

fees; and commissions.

2014 2013 $’000 $’000

Trade related 732 2,104

Cheque related 19,146 22,452 Corporate finance 68,806 25,178

Loan servicing 15,314 2,558

Cash management 90,975 93,344

Total fees and commissions 194,973 145,636

18. Staff costs

2014 2013

$’000 $’000

Salaries and wages 309,600 336,211

Statutory payroll contributions 39,368 41,938

Contributions for pension and other plans 20,384 16,144

Employee benefit credit [note 10(d)] ( 46,815) ( 26,790) Employee benefit obligation expense 19,620 14,599

Other staff costs 114,319 112,089

456,476 494,191

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19. Profit before income tax

Profit before income tax is stated after charging:

2014 2013

$’000 $’000

Directors emoluments Nil Nil

Impairment loss on loans Nil 39,641

Auditors’ remuneration 7,947 7,648

20. Income tax

(a) The income tax charge is computed at 33⅓% of the results for the year as adjusted for

taxation purposes and comprises:

2014 2013

$’000 $’000

(i) Current income tax:

Provision based on current year’s profit 16,534 46,462

(ii) Deferred income tax:

Origination and reversal of temporary differences

(note 14) 23,954 (144,271)

40,488 ( 97,809)

(b) Reconciliation of effective tax charge:

The effective tax rate for 2014 was 43.54% [2013: (87.29%)] of pre-tax profits compared to a statutory tax rate of 33⅓% (2014: 33⅓%). The actual expense differed from the

“expected” tax expense as follows:

2014 2013

% $’000 % $’000

Profit before income tax 92,989 112,049

Computed “expected” tax charge at 33⅓% 33.33 30,996 33.33 37,350

Effect on tax of treating the following items

differently for tax purposes than for financial

statement purposes:

Employee benefit asset/obligation ( 0.01) ( 9) (121.75) (136,422) Depreciation and capital allowances 0.75 695 0.00 ( 3)

Others 9.47 8,806 3.07 3,443

43.54 40,488 ( 85.35) ( 95,632)

Tax losses utilised - - ( 1.94) ( 2,177)

Actual tax charge 43.54 40,488 ( 87.29) ( 97,809)

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20. Income tax

(c) Income tax recognised in other comprehensive income (note 14):

2014 2013

Gross Tax Net Gross Tax Net

Available-for-sale

investment securities 6,795 ( 2,265) 4,530 22,329 ( 7,443) 14,886

Actuarial gains (292,699) 97,556 (195,143) 206,041 (68,659) 137,382

21. Related party transactions

(a) Identity of related parties:

The branch has related party relationships with its head office, parent, ultimate parent,

fellow subsidiaries and other branches. Related parties include the directors and senior

management of its head office, parent, ultimate parent, and fellow subsidiaries, and the executive members of the Country Coordinating Committee of the branch who are

collectively referred to as “key management personnel”.

(b) The statement of financial position includes balances arising from transactions with related

parties as follows:

2014 2013

$’000 $’000

Cash and cash equivalents:

Other branches 7,053,724 4,163,455

Resale agreements: 2,453,666 2,768,000

Deposits:

Head Office 12,279 616

Other branches 16,808 1,919,629

Fellow subsidiaries 102,788 557,327

131,875 2,477,572

(c) The statement of profit or loss and other comprehensive income includes income earned

from, and expenses incurred in, transactions with related parties, as follows:

2014 2013

$’000 $’000

Interest revenue:

Head office 39 - Other branches 5,640 8,532

Fellow subsidiary 97,387 37,523

103,066 46,055

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21. Related party transactions (cont’d)

(c) The statement of profit or loss and other comprehensive income includes income earned from, and expenses incurred in, transactions with related parties, as follows (cont’d):

2014 2013

$’000 $’000

Interest expense:

Head office 1,563 13,785

Other branches 20 - Fellow subsidiaries 5,261 14,166

6,844 27,951

Other operating revenue: Head office 57,835 46,825

Fellow subsidiaries 55,926 55,780

113,761 102,605

Other operating expenses: Head office - administration expenses 4,538 4,201

Branches - service level agreement 4,754 6,978

Fellow subsidiary 258,804 213,017

268,096 224,196

Key management personnel: Short-term employee benefits 178,992 154,813

Post-employment benefits 444,459 397,737

Other long-term benefits 28,683 17,724

652,134 570,274

22. Fair value of financial instruments

The fair value of available-for-sale securities is set out in note 7. The fair value of other financial

assets and financial liabilities shown in the statement of financial position approximate their

carrying amounts and is therefore not included in the table.

No fair value disclosure is provided for unquoted equity investment of $5,020,000 (2013:

5,020,000) that is measured at cost, as fair value cannot be reliably measured. The investee

provides automated clearing facilities to the commercial banking sector on a pricing basis intended to recover operating costs. There is no market for this investee. The branch does not

intend to dispose of these investments.

(a) Fair value hierarchy

Financial instruments that are measured at fair value are grouped into levels based on the

degree to which the fair value is observable as follows:

Level 1: includes quoted prices (unadjusted) in active markets for identical assets or

liabilities

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22. Fair value of financial instruments (cont’d)

(a) Fair value hierarchy (cont’d)

Financial instruments that are measured at fair value are grouped into levels based on the degree to which the fair value is observable as follows (cont’d):

Level 2: includes inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: includes inputs for the asset or liability that are not based on observable

market data (unobservable inputs).

(b) Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and

financial liabilities, including their levels in the fair value hierarchy.

It does not include fair value information for financial assets and financial liabilities not

measured at fair value if the carrying amount is a reasonable approximation of fair value.


JAMAICA BRANCH


December 31, 2014

40


(b) Accounting classification and fair values (cont’d)

2014

Carrying amounts Fair values Fair value

through Other

Loan and Available profit or financial

Notes receivables for-sale loss liabilities Total Level 1 Level 2 Level 3 Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets measured at

fair value:

Investment securities 7 - 1,073,363 - - 1,073,363 - 1,073,363 - 1,073,363

Foreign currency forward contracts 9 - - 155,078 - 155,078 - 155,078 - 155,078

- 1,073,363 155,078 - 1,228,441 - 1,228,441 - 1,228,441

Financial assets not measured at

fair value:

Cash and cash equivalents 4 8,446,880 - - - 8,446,880

Resale agreements 5 2,453,665 - - - 2,453,665

Loan receivable 6 2,510,402 - - - 2,510,402

Investment securities 7 - 5,020 - - 5,020

Other assets 9 157,075 - - - 157,075

Acceptances, guarantees and letters

of credit 217,121 - - - 217,121

13,785,143 5,020 - - 13,790,163

Financial liabilities not measured at

fair value:

Deposits 11 - - - 10,974,613 10,974,613

Note payable 12 - - - 400,000 400,000

Other liabilities 13 - - - 337,727 337,727


of credit - - - 217,121 217,121

- - - 11,929,461 11,929,461

CITIBANK, N.A.


JAMAICA BRANCH


December 31, 2014

41


(b) Accounting classification and fair values (cont’d)

2013

Carrying amounts Fair values

Fair value

through Other

Loan and Available profit or financial

Notes receivables for-sale loss liabilities Total Level 1 Level 2 Level 3 Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets measured at

fair value:

Investment securities 7 - 1,173,210 - - 1,173,210 - 1,173,210 - 1,173,210

Foreign currency forward contracts 9 - - 131,096 - 131,096 - 131,096 - 131,096

- 1,173,210 131,096 - 1,304,306 - 1,304,306 - 1,304,306

Financial assets not measured at

fair value:

Cash and cash equivalents 4 8,337,634 - - - 8,337,634

Resale agreements 5 3,298,000 - - - 3,298,000

Loan receivable 6 3,717,428 - - - 3,717,428

Investment securities 7 - 5,020 - - 5,020

Other assets 9 141,786 - - - 141,786


of credit 218,884 - - - 218,884

15,713,732 5,020 - - 15,718,752

Financial liabilities not measured at

fair value:

Deposits 11 - - - 12,760,140 12,760,140

Other liabilities 13 - - - 436,646 436,646


of credit - - - 218,884 218,884

Securities purchased under resale

agreements - - - 620,000 620,000

- - - 14,035,670 14,035,670

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December 31, 2014


(c) Valuation technique and significant unobserverable input

The following table shows the valuation technique used in measuring fair value. There

were no significant unobservable inputs used.

Financial assets Method

Government of Jamaica J$ securities and Bank of Jamaica securities

Obtain bid yield from yield curve

provided by a recognized pricing source (which uses market-

supplied indicative bids)

Using this yield, determine price

using accepted formula

Apply price to estimate fair value.

Government of Jamaica US$ Global

bonds and foreign government

securities

Prices of bonds at reporting date as

quoted by broker/dealer.

Forward exchange contracts and

interest rate swaps

Market comparison technique: The

fair values are based on broker quotes.

Similar contracts are traded in an active market and the quotes reflect

the actual transactions in similar

instruments. 23. Financial risk management

(a) Introduction and overview:

The branch has exposure to the following risks from its use of financial instruments:

Credit risk

Liquidity risk

Market risk

Operational risk

These risks are managed through an established risk management framework for the

branch. The branch has a risk management framework which seeks to balance strong

corporate oversight with well-defined independent risk management functions within the business. An effective risk management culture is embedded in the organization, supported

by this framework as well as by appropriate documented strategies, policies and processes,

and by authority delegated throughout the organization.

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23. Financial risk management (cont’d)

(a) Introduction and overview (cont’d):

The Country Coordinating Committee (CCC) has overall responsibility for the

establishment and oversight of the branch’s risk management framework. The CCC has

established the Asset and Liability Committee (ALCO), Credit Committee and the Business

Risk Compliance and Control Committee (BRCC), which are responsible for developing and monitoring branch risk management policies in specified areas, as follows:

The ALCO has the responsibility for managing market and liquidity risks on an

ongoing basis. It also has responsibility for capital management and to ensure prudential and regulatory compliance.

The Credit Committee establishes and monitors credit limits, approves credit facilities

and manages and reviews major risk exposures and concentrations across the organisation in accordance with best practices and regulatory requirements.

The BRCC has primary responsibility for managing operational risk. This committee

also has the broader mandate of monitoring compliance with the risk management

policies and procedures, and for reviewing the adequacy of the risk management

framework in relation to the risks faced by the branch.

The risk management policies and procedures are established to identify, evaluate and analyse the risks faced by the branch, to set appropriate controls, and to monitor adherence

to standards set. Risk management policies and systems are reviewed regularly to reflect

changes in market conditions, products and services offered. The branch, through its

training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and

obligations.

(b) Credit risk:

Credit risk is the risk of financial loss to the branch if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It arises principally from the

branch’s loans and advances to customers and other banks and investment securities. For

risk management reporting purposes, the branch considers and consolidates all elements of

credit risk exposure (such as individual obligor default risk, country and sector risk).

Corporate credit risk

For corporate clients and investment banking activities across the organisation, the credit

process is grounded in a series of fundamental policies, including:

joint business and independent risk management responsibility for managing credit

risks;

single center of control for each credit relationship that coordinates credit activities

with that client;

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(b) Credit risk (cont’d):

Corporate credit risk (cont’d)

portfolio limits to ensure diversification and maintain risk/capital alignment;

a minimum of two authorised credit officer signatures are required on extensions of

credit (one from a sponsoring credit officer in the business and one from a credit

officer in independent credit risk management);

risk rating standards, applicable to every obligor and facility; and

consistent standards for credit origination, documentation and remedial management.

(i) Credits to customers

Credits to customers include loans, letters of credit and guarantees. The management of credit risk in respect of credits to customers is executed by the management of the

branch. The Credit Risk Unit has the responsibility for the oversight of the branch

credit risk and the development of credit policies. There is a documented credit policy in place, which guides the branch’s credit process.

Collateral

The branch holds collateral against credits to customers in the form of mortgage

interests over property, liens over motor vehicles, other registered securities over

assets and over savings held in the branch, and guarantees. Estimates of fair values are based on value of collateral assessed at the time of borrowing and are generally

not updated, except when credits to customers are individually assessed as impaired.

Impaired credits to customers

Impaired credits to customers are credits for which the branch determines that it is

probable that it will be unable to collect all principal and interest due according to the contractual terms of the credit. As at year end the branch had no impaired credits to

customers (2013: one).

Past due but unimpaired credits to customers

These are credits where contractual interest or principal payments are past due but

they are not considered impaired based on the quality and value of security available

or the stage of collection of amounts owed to the branch. The branch had no such credits to customers.

Credits to customers with renegotiated terms

Credits to customers with renegotiated terms are credits that have been restructured

due to deterioration in the borrower’s financial position and where the branch has made concessions that it would not otherwise consider. Once the credit is

restructured, it would be classified and monitored.

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(b) Credit risk (cont’d)

Allowances for impairment

The branch maintains an allowance for impairment losses that represents its estimate

of incurred losses in its portfolio of credits to customers. The main components of

this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established on a portfolio basis, based

on requirements of the Banking Act.

Write-off policy

The branch writes off credits to customers (and any related allowances for

impairment losses) when it determines that the credits are uncollectible. This determination is usually made after considering information such as changes in the

borrower’s financial position, or that proceeds from collateral will not be sufficient to

pay back the entire exposure, or the credit is more than twelve (12) months in arrears. Proposals to write off credits to customers must be submitted to the Credit

Committee for approval.

(ii) Investment securities and resale agreements

The branch limits its exposure to credit risk on investment securities and resale

agreements by investing only with counterparties that have high credit ratings and in

Government of Jamaica and Bank of Jamaica securities. Therefore, management does not expect any counterparty to fail to meet its principal obligations.

The branch has documented investment policies in place, which guide it in managing

credit risk on investment securities and resale agreements. The branch’s exposure

and the credit ratings of its counterparties are continually monitored and the aggregate value of investment transactions is spread amongst approved

counterparties.

(iii) Cash and cash equivalents

Management manages this risk by placing amounts or contracting with financial

institutions determined to be financially strong. Except for amounts which are held

with other Citigroup entities, there is no significant concentration of cash and cash equivalents.

(iv) Exposure to credit risk

Credit risk exposure is the amount of loss that the branch would suffer if all counterparties to which the branch was exposed were to default at once; all of the

branch’s financial assets are carried on the statement of financial position, therefore,

this exposure, without taking account of the value of any collateral held is represented substantially by the carrying amount of financial assets shown thereon.

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(iv) Exposure to credit risk (cont’d)

The branch’s significant concentrations of credit exposure by industry areas are as

follows:

2014 Cash and Guarantee

cash Resale Investment and letters equivalents agreements Loans securities of credit Total $'000 $'000 $'000 $'000 $'000 $'000

Financial institutions 7,076,911 2,453,665 297,301 - 17,201 9,845,078 Manufacturing and distribution - - 2,048,303 - 11,968 2,060,271 Public sector/

government 1,233,858 - - 1,073,363 - 2,307,221 Other 136,111 - 164,798 5,020 187,952 493,881

Total 8,446,880 2,453,665 2,510,402 1,078,383 217,121 14,706,451

2013 Cash and Guarantees cash Resale Investment and letters equivalents agreements Loans securites of credit Total

$'000 $'000 $'000 $'000 $'000 $'000

Financial institutions 6,493,680 3,298,000 316,839 - 43,362 10,151,881 Manufacturing and distribution - - 1,242,510 - 13,785 1,256,295 Public sector/ government 1,739,319 - - 1,173,210 - 2,912,529 Other 104,635 - 2,158,079 5,020 161,737 2,429,471

Total 8,337,634 3,298,000 3,717,428 1,178,230 218,884 16,750,176

47

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(iv) Exposure to credit risk (cont’d)

All the branch’s financial assets are held in Jamaica, except for cash and cash

equivalents. The significant concentrations of credit exposure on cash and cash

equivalent by geographical areas (based on the issuer’s/borrower’s region of ownership) for cash and cash equivalents are as follows:

2014 2013 $’000 $’000

North America 6,942,360 4,101,476

Canada 4,207 3,820 Europe 108,622 63,997

Asia Pacific 2,751 5,079

Caribbean 148 370 Jamaica 1,388,792 4,162,892

8,446,880 8,337,634

There has been no significant change during the year in the nature of the branch’s exposure to credit risk or the manner in which it measures and manages the risk.

(c) Liquidity risk:

Liquidity risk, also referred to as funding risk, is the risk that the branch will encounter

difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at, or close to, its

fair value. Prudent liquidity risk management implies maintaining sufficient cash and

marketable securities, and ensuring the availability of funding through an adequate amount

of committed facilities. Due to the nature of the business, the management of the branch aims at maintaining flexibility in funding by having adequate credit facilities and

marketable financial instruments. The branch also has in place the appropriate limits with

regard to liquid instruments and total assets and continues to apply the appropriate gapping strategy.

The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All

liquidity policies and procedures are subject to review and approval by ALCO. Daily

reports cover the liquidity position of the branch. A summary report, including any

exceptions and remedial action taken, is submitted regularly to ALCO.

There has been no significant change to the branch’s exposure to liquidity risk or the

manner in which it measures and manages the risk.

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(c) Liquidity risk (cont’d)

The tables below present the undiscounted cash flows (both interest and principal cash

flows) to settle financial liabilities, based on contractual repayment obligations.

2014 Total Carrying Within Three to 1 to 5 Over 5 contractual amount 3 months 12 months years years outflows $’000 $’000 $’000 $’000 $’000 $’000

Deposits 10,974,613 10,623,075 357,619 - - 10,980,694 Note payable 400,000 407,189 - - 407,189 Guarantees 217,121 87,482 24,677 7,375 97,587 217,121 Other liabilities 337,727 101,933 185,522 1,585 48,687 337,727

Total liabilities 11,929,461 11,219,679 567,818 8,960 146,274 11,942,731

2013 Total Carrying Within Three to 1 to 5 Over 5 contractual amount 3 months 12 months years years outflows

$’000 $’000 $’000 $’000 $’000 $’000

Deposits 12,760,140 12,609,059 157,984 - - 12,767,043

Guarantees 218,884 67,158 85,389 - 66,337 218,884 Repurchase agreements 620,000 620,552 - - - 620,552 Other liabilities 436,646 338,067 59,559 - 39,020 436,646

Total liabilities 14,035,670 13,634,836 302,932 - 105,357 14,043,125

(d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange and interest rates, will affect the branch’s income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures

within acceptable parameters while optimising returns. Market risk exposures are

measured using sensitivity analysis.

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(d) Market risk (cont’d)

There has been no significant change to the branch’s exposure to market risk or the manner

in which it manages and measures the risk.

(i) Foreign currency risk

Foreign currency risk is the risk that the fair value or the cash flows from financial

instruments will fluctuate because of changes in foreign exchange rates.

The branch is exposed to foreign currency risk on transactions that are denominated in currencies other than the Jamaica dollar. The main currencies giving rise to this

risk are the US Dollar, Euro and Pound Sterling. The branch ensures that the net

exposure is kept to an acceptable level by monitoring its value at risk exposure (daily) against approved limits.

The table below summarises exposure to foreign currency risk at their equivalent JMD values:

2014

JMD USD GBP CAD JPY EURO TOTAL

'000 '000 '000 '000 '000 '000 '000

Cash and equivalents 817,263 7,506,332 20,629 7,222 2,751 92,683 8,446,880

Resale agreements - 2,453,665 - - - - 2,453,665

Loans 1,641,122 869,280 - - - - 2,510,402

Investments 751,347 327,036 - - - - 1,078,383

Property, plant and

equipment 200,490 - - - - - 200,490

Income tax recoverable 239,188 1,076 - - - - 240,264

Other assets 201,439 110,714 - - - - 312,153

Guarantees 115,979 101,142 - - - - 217,121

Employee benefit asset 506,054 - - - - - 506,054

Total assets 4,472,882 11,369,245 20,629 7,222 2,751 92,683 15,965,412

Deposits 5,106,569 5,780,716 - - - 87,328 10,974,613

Note payable 400,000 - - - - - 400,000

Guarantees 115,979 101,142 - - - - 217,121

Other liabilities 308,930 28,794 - - - 3 337,727

Employee benefit

obligation 144,080 - - - - - 144,080

Deferred taxation 170,881 - - - - - 170,881

Head Office equity 3,707,682 13,308 - - - - 3,720,990

Total liabilities and

Head Office equity 9,954,121 5,923,960 - - - 87,331 15,965,412

Net (liabilities)/assets (5,481,239) 5,445,285 20,629 7,222 2,751 5,352 -

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December 31, 2014



(i) Foreign currency risk (cont’d)

2013

JMD USD GBP CAD JPY EURO TOTAL

'000 '000 '000 '000 '000 '000 '000

Cash and equivalents 1,178,872 7,078,081 19,861 7,278 5,079 48,463 8,337,634

Resale agreements 648,000 2,650,000 - - - - 3,298,000

Loans 1,566,846 2,150,582 - - - - 3,717,428

Investments 774,937 403,293 - - - - 1,178,230

Property, plant and

equipment 219,461 - - - - - 219,461

Income tax recoverable 268,394 163 - - - - 268,557

Other assets 198,444 74,438 - - - - 272,882

Guarantees 81,204 104,258 - - - 33,422 218,884

Employee benefit asset 745,017 - - - - - 745,017

Total assets 5,681,175 12,460,815 19,861 7,278 5,079 81,885 18,256,093

Deposits 5,134,778 7,589,215 - - - 36,147 12,760,140

Guarantees 81,204 104,258 - - - 33,422 218,884

Repurchase agreements 620,000 - - - - - 620,000

Other liabilities 299,954 136,691 - - - 1 436,646

Employee benefit

obligation 119,103 - - - - - 119,103

Deferred taxation 242,218 - - - - - 242,218

Head Office equity 3,845,794 13,308 - - - - 3,859,102

Total liabilities and

Head Office equity 10,343,051 7,843,472 - - - 69,570 18,256,093

Net (liabilities)/assets ( 4,661,876) 4,617,343 19,861 7,278 5,079 12,315 -

Spot rates for the Jamaica dollar at the reporting date were as follows:

2014 2013

USD 114.39 106.00

GBP 176.82 175.33

CAN 97.02 99.64 JPY 0.96 1.01

EUR 138.83 146.17

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(i) Foreign currency risk (cont’d):

Sensitivity to exchange rate movements:

A (weakening)/strengthening of the JMD against the currencies indicated, at the

reporting date, would have increased/(decreased) profit and equity by the amounts

shown below. This analysis is performed on the same bases as for 2013 and has been computed on the basis that all other variables remain constant.

2014 2013 strengthening/ Effect on strengthening/ Effect on

Currency (weakening) profit and equity (weakening) profit and equity

% $’000 % $’000

USD 1 ( 54,453) 1 ( 46,173)

-10 544,529 -15 692,601

GBP 1 ( 206) 1 ( 199) -10 2,063 -15 2,979

CAN 1 ( 72) 1 ( 73)

-10 722 -15 1,092

JPY 1 ( 28) 1 ( 51) -10 275 -15 762

EUR 1 ( 54) 1 ( 123)

-10 535 -15 1,847

(ii) Interest rate risk

Interest rate risk is the risk of loss from fluctuations in future cash flows or fair

values of financial instruments due to changes in market interest rates.

Various quantitative models are used to manage interest rate risks, including stress testing and dollar value change as a result of one basis point movement (DV01).

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(ii) Interest rate risk (cont’d)

The following table summarises the carrying amounts of assets, liabilities and equity

to arrive at the branch’s interest rate gap based on the earlier of contractual repricing

and maturity dates.

2014

Immediately 1 to 3 3 to 12 Greater than Non-rate

rate sensitive months months 12 months sensitive Total

$’000 $’000 $’000 $’000 $’000 $’000

ASSETS

Cash and cash equivalents 577,888 - - - 7,868,992 8,446,880

Resale agreements 652,023 - 1,801,642 - - 2,453,665

Loans, less allowance for

impairment losses 203,733 1,081,099 823,016 402,550 4 2,510,402

Investment securities 312,923 - - 760,440 5,020 1,078,383

Property, plant and equipment - - - - 200,490 200,490

Income tax recoverable - - - - 240,264 240,264

Other assets - - - - 312,153 312,153

Customers’ liabilities under

acceptances, guarantees and

letters of credit, per contra - - - - 217,121 217,121

Employee benefit asset - - - - 506,054 506,054

Total assets 1,746,567 1,081,099 2,624,658 1,162,990 9,350,098 15,965,412

LIABILITIES AND HEAD OFFICE'S EQUITY

Deposits 5,405,738 158,804 367,333 - 5,042,738 10,974,613

Note payable - 400,000 - - - 400,000

Acceptances, guarantees and

letters of credit, per contra - - - - 217,121 217,121

Other liabilities - - - - 337,727 337,727

Employee benefit obligation - - - - 144,080 144,080

Deferred taxation - - - - 170,881 170,881

Head Office equity - - - - 3,720,990 3,720,990

Total liabilities and Head

Office equity 5,405,738 558,804 367,333 - 9,633,537 15,965,412

Total interest rate sensitivity

gap (3,659,171) 522,295 2,257,325 1,162,990 ( 283,439)

Cumulative gap (3,659,171) (3,136,876) ( 879,551) 283,439 -

2013

Immediately 1 to 3 Three to Greater than Non-rate

rate sensitive months 12 months 12 months sensitive Total

$’000 $’000 $’000 $’000 $’000 $’000

Total assets 4,839,845 3,669,821 376,511 2,580,116 6,789,800 18,256,093

Total liabilities and Head

Office equity 7,262,534 2,386,618 156,351 - 8,450,590 18,256,093

Total interest rate sensitivity

gap (2,422,689) 1,283,203 220,160 2,580,116 (1,660,790)

Cumulative gap (2,422,689) (1,139,486) (919,326) 1,660,790 -

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At the reporting date the interest rate profile of the branch’s interest-bearing financial

instruments was:

2014 2013

$’000 $’000

Fixed rate instruments:

Financial assets

Cash and cash equivalents 577,888 3,277,682

Resale agreements 2,453,665 3,298,000

Loans 2,329,782 2,515,245 Investment securities 1,060,355 1,160,206

Financial liabilities Deposits 5,837,056 9,185,503

Notes payable 400,000 -

Variable rate instruments:

Financial assets

Loans 180,616 1,198,534 Investment securities 13,008 13,004

Fair value sensitivity to interest rate movements:

A change of +250 and -100 (2013: +250 and -100) in basis points in interest rates for

Jamaica and +200 and -50 (2013: +200 and -50) in United States dollar financial

instruments at the reporting date would have increased or (decreased) equity and profit by the amounts shown below.

The analysis assumes that all other variables, in particular, foreign currency rates, remain constant. The analysis is performed on the same basis for 2013.

2014 2013 Effect on Effect on Effect on Effect on Change in basis points equity profit equity profit $’000 $’000

USD Interest rates +200bps/200bps (28,422) - (30,472) - -50bps/50bps 7,598 - 8,221 -

JMD Interest rates +250bps/250bps (30,362) (4,149) (41,363) (6,838) -100bps/100bps 12,955 2,925 17,816 2,273

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December 31, 2014




Cash flow sensitivity of variable rate financial instruments:

A change of +250 and -100 (2013: +250 and -100) basis points in interest rates for

Jamaica and a change of +200 and -50 (2013: +200 and -50) basis points in interest

rates for United States dollar financial instruments at the reporting date would have increased or (decreased) profit and equity by the amounts shown below. The

company does not have any variable rate financial instruments denominated in

United States dollars.

The analysis assumes that all other variables, in particular, foreign currency rates,

remain constant. The analysis is performed on the same basis as for 2013.

2014 2013

Change in basis points Effect on Effect on

profit or loss profit or loss and equity and equity

$’000 $’000

JMD Interest rates +250bps/250bps 4,841 30,288

-100bps/100bps (1,936) (12,115)

(e) Operational risk:

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes

associated with the branch’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks, such as those arising from

legal and regulatory requirements and generally accepted standards of corporate behaviour.

Operational risks arise from all of the branch’s operations.

The branch’s objective is to manage operational risk so as to balance the avoidance of

financial losses and damage to the branch’s reputation with overall cost effectiveness and to

avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address

operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall branch standards for the

management of operational risk in the following areas:

requirements for appropriate segregation of duties, including the independent

authorisation of transactions;

requirements for the reconciliation and monitoring of transactions;

compliance with regulatory and other legal requirements;

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(e) Operational risk (cont’d):

documentation of procedures including controls;

requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

requirements for the reporting of operational losses and proposed remedial action;

development of contingency plans;

training and professional development;

ethical and business standards;

risk mitigation, including insurance where this is effective.

Compliance with the branch’s standards is supported by a programme of periodic reviews

undertaken by the internal audit unit. The results of internal audit reviews are discussed

with the management of the business unit to which they relate, with summaries submitted to the BRCC Committee and senior management of the branch.

(f) Capital management:

Regulatory capital

The branch’s regulator, Bank of Jamaica, sets and monitors capital requirements for the

branch as a whole.

In implementing current capital requirements, Bank of Jamaica requires the branch to

maintain a prescribed ratio of capital to total risk-weighted assets.

The branch’s regulatory capital is analysed into two tiers:

Tier 1 capital, which includes ordinary share capital, retained earnings reserve,

statutory reserve fund less the aggregate of accumulated operating losses, any net loss

position on revaluation reserves arising from fair value accounting and other

regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes. Core capital must be at least 50% of

capital base.

Tier 2 capital, which includes qualifying subordinated liabilities, and general

provisions for losses up to a maximum of 1.25% of the branch’s risk-weighted assets.

Risk-weighted assets for the branch are determined according to specified requirements that

seek to reflect the varying levels of risk attached to assets and to exposures not carried on

the statement of financial position.

The branch’s policy is to maintain a strong capital base so as to maintain the confidence of

investors, creditors and the market, and to sustain future development of the business.

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(f) Capital management (cont’d):

Regulatory capital (cont’d)

The branch’s regulatory capital position at December 31, was as follows:

2014 2013 $’000 $’000

Tier 1 Capital before deductions

Assigned capital 207,609 207,609

Statutory reserve fund 207,609 207,609 Retained earnings reserve 1,528,592 1,528,592

Total Tier 1 Capital 1,943,810 1,943,810

Tier 2 Capital

General provision for losses on assets, being

total Tier 2 capital 27,325 39,004

Total regulatory capital 1,971,135 1,982,814

Total risk-weighted assets 15,928,534 16,541,753

Capital ratios

Total regulatory capital expressed as a percentage

of total risk-weighted assets – Actual 12.00 % 12.00% – Required 10.00 % 10.00%

Total tier 1 capital expressed as a percentage of

risk-weighted assets – Actual 12.00 % 12.00%

– Required 10.00 % 10.00 %

The branch complied with all externally imposed capital requirements throughout, and at

the end of, the year. There were no material changes in the branch’s management of capital during the year.

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24. Commitments

Rental is incurred by the branch under the extension of two operating lease agreements, expiring April 31, 2016 and December 1, 2016. Lease rentals are payable as follows:

2014 2013 $’000 $’000

One year following the reporting date 83,066 76,973

Subsequent years through December 1, 2016 110,253 102,860

193,319 179,833

25. Contingent liabilities

(i) The branch is a defendant in a lawsuit in which the plaintiff is claiming damages in the

sum of $6,838,000 and interest at a commercial bank rate, for inducement of a breach and/or repudiation of a lease agreement made on or about June 1, 1997. On January 12,

2009, judgement was delivered against the branch. The branch filed a cross appeal against

the finding and this was argued in 2013. In November 2014, the Court of Appeal ruled in

favour of the plaintiff and awarded judgement in the sum of $1,725,344. Costs were also awarded, however these have not yet been quantified and in any event it is expcted that

these costs will be fully indemnified by the former lessors.

No provision has been made in the financial statements for this claim.

(ii) At the reporting date, the branch has foreign exchange forward contracts of $1,988,040,396 (2013: $1,889,747,598), which are perfectly hedged, with varying

maturity dates. The contracts are reflected at fair value using a forward rate as at year end.

Gains or losses on the contract are reflected in profit or loss.

26. Subsequent event

In January 2015, the branch sold certain Government of Jamaica investments securities to a third

party based on negotiated prices. These securities had a fair value of $661.22 million as at year

end and were subsequently sold for $625.35 million.

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