Jordan Mortgage Refinance Company
Public Shareholding Company
Notes to the Financial Statements
December 31, 2010

(In Jordanian Dinars )
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1. General

Jordan Mortgage Refinance Company was established on 5 June 1996 in accordance with Jordanian Companies Law No. (22) Of 1997 and registered under No. (314) as a public shareholding company and was granted the operating license on 22 July 1996. The company's head office is in the Hashemite Kingdom of Jordan and its main objectives are:

- Development and improvement of the housing finance market in Jordan by enabling licensed banks and other financial institutions to increase their participation in granting housing loans.

- Enhancement and development of the capital market in Jordan by issuing medium and long-term bonds.

The financial statements were authorized for issue by the Company's Board of Directors in their meeting held on 28 January 2010 and it is subject to the General Assembly approval.

2. Significant Accounting Policies

Basis of preparation

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards.

The financial statements have been prepared on a historical cost basis except for investment securities, which have been measured at fair value.

The financial statements are presented in the Jordanian Dinar which is the functional currency of the Company.

Adoption of new and revised IFRS standards

The accounting policies are consistent with those used in the previous year .

The Company has adopted the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Company's financial statements for the annual period beginning 1 January 2010:

The following amendments to existing standards have been published that are mandatory for accounting periods after 31 December 2010. The Directors anticipate that the adoption of these Standards in future periods will have no material impact on the financial statements of the Company.

Use of Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities and disclosure of contingent liabilities. These estimates and assumptions also affect the revenues, expenses and the provisions. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty and actual results may differ resulting in future changes in such provisions.

Management believes that the estimates are reasonable and are as follows:

- Management reviews periodically the tangible assets in order to assess the depreciation for the year based on the useful life and future economic benefits. Any impairment is taken to the income statement.

- And estimate of the collectible amount amount of trade accounts receivable is made when collection of the full amount is no longer probable for individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually
significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates

  Cash and Cash Equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the Cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short- term highly liquid investments.

  Accrual Accounts

Accrued payments are recognized upon receiving goods or performance of services.

  Available for sale investments

Available for sale investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs.

Available for sale investments are subsequently carried at fair value without any deduction for transaction costs by reference to their quoted market price at the balance sheet date. Investments for which fair value cannot be reliably determined are stated at cost. Impairment loss is recognized in net profit or loss for the period.

Gains or losses on measurement to fair value of available for sale investments are recognized directly in the fair value reserve in shareholders equity, until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period.

Available-for-sale investments are classified as current assets if management intends to realize them within twelve months of the balance sheet date.

Fair value

For fair value of investments, which are traded in organized financial markets, is determined by reference to the quoted market bid price at the close of the business on balance sheet date. For investments which are listed in inactive stock markets, traded in small quantities or have no current prices, the fair value is measured using the current value of cash flows or any other method adopted. If there is no reliable method for the measurement of these investments, then they are stated at cost less any impairment in their value.

Impairment of Financial Assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in Comprehensive income

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statements.

The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of brining the asset to its working condition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

Depreciation is computed on a straight-line basis using the following annual depreciation rates:

The useful life and depreciation method are reviewed periodically to ensure that the method and period of deprecation are consistent with the expected pattern of economic benefits from items of property and equipment.

 Loans and bonds

Interest on long-term loans and bonds are recorded using the accrual basis of accounting and recognized in the comprehensive income statement

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

Provision for End of Service Indemnity

The provision for end of service indemnity is calculated based on the contractual provisions of the employment.

Offsetting

Revenues

Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of revenue can be measured reliably. Interest is recognized on a time proportion basis that reflects the effective yield on the assets. Dividends are recognized when the shareholders' right to receive payment is established

Income tax

Income tax expenses are accounted for on the basis of taxable income. Taxable income differs from income declared in the financial statements because the latter includes non-taxable revenues or disallowed taxable expenses in the current year but deductible in subsequent years, accumulated losses acceptable by the tax law, and items not accepted for tax purposes
or subject to tax.
Taxes are calculated on the basis of the tax rates according to the prevailing laws, regulations, and instructions of the countries where the Company operates.

3. Cash and Cash Equivalents

Bank deposits mature within (1) to (18) months, with fixed interest rate ranging between (3.5%) and (6.25%).

4. Refinance Loans

This item represents loans granted to local banks for the purpose of financing housing loans.

The aggregate amounts of annual principal maturities of refinance loans are as follows:

5. Other Current Assets

6.  Property & Equipment

7. Bonds

This item represents bonds issued by the company and carry a fixed interest rate between (4.6%) and (9%). The bonds outstanding balance is payable as follows:

8. Government’s Loan

This item represents the $19,600,000 loan granted to the Company by the Jordanian Government and financed by the World Bank. It was reduced in 2001 by $ 600,000; the remaining granted loan is only $ 19,000,000. The outstanding balance of the loan is payable as follows:

9. Central Bank of Jordan loan

This item represents the present value of the debt instrument of JD 40,275,412 issued to the favor of Central Bank of Jordan . The instrument matures on 7/6/2035 and carries fixed interest rate of (5.12%) per annum payable on the instrument's maturity date.

10. Other Current Liabilities

11. Shareholders Equity

Paid in Capital

The Company's authorized and paid up capital is JD (5) Million divided equally into (5) Million shares with par value of JD (1) each.

Statutory Reserve

The accumulated amounts in this account represent 10% of the Company's net income before income tax according to the Companies Law. The statutory reserve is not available for distribution to shareholders.

Voluntary Reserve

The accumulated amounts in this account represent cumulative appropriations not exceeding 20% of net income. This reserve is available for distribution to shareholders.

Proposed Dividends

The Board of Directors will propose to the General Assembly in its meeting which will be held during 2011 to distribute cash dividends to the shareholders by 16% of the share capital of JD (5) million

The General Assembly has resolved in its meeting held in 2010 to distribute 20% cash dividends to the shareholders

12. Interest Income

13. Interest Expense

14. Administrative Expenses

15. Fees and other Expenses

16. Earning Per Share

17. Executive Management remuneration

The remuneration of executive management during the years 2010 and 2009 amounted to JD 279,549 and JD 278,982 respectively.

 18. Segment Reporting

The Company is engaged mainly in one activity which is mortgages refinancing within the territory of Jordan.

19.  Income Tax

- The company has settled its tax liabilities with the Income Tax Department up to the year ended 2008.

- The annual income tax form presented for the year 2009, the income tax department has not reviewed the company's records to date.

- The income tax provision for 2010 was calculated in accordance with the Income Tax Law.

20.  Litigations

The Company appears as a defendant in a law suit amounting to JD 390,746. The court order the Company to pay JD 37,879 in addition to the amount paid previously amounting to JD 72,234, the Company has taken a provision against those
amounts. However, the court has assessed additional liability on the Company by JD 8,844. The company appeal to the high court to repeal the court of appeal decision , on 11 April 2010 the high court return the case to the court of appeal and the case is still pending in the court.

21•  Analysis of the Maturities of Assets and Liabilities

The following table illustrates the analysis of assets and liabilities according to the expected period of their recoverability or settlement.

22 . Interest Rate Re-pricing Gap

The Company adopts the assets - liabilities compatibility principle and the suitability of maturities to narrow gaps through categorizing assets and liabilities into various maturities or price review maturities, whichever are nearer, to lower risks in interest rates, studying gaps in the related interest rates.

23. Financial Instruments

Financial instruments comprise financial assets and financial liabilities. Financial assets of the Company include deposits at banks, refinance loans and available for sale investments. Financial liabilities of the Company include bonds, Government's loans and Central Bank of Jordan loan.

Fair Value

The fair values of the financial assets and liabilities are not materially different from their carrying values as most of these items are either short-term in nature or re-priced frequently.

 Credit Risk

Credit risk arises principally from banks' deposits and loans granted to the financial institutions to refinance housing loans. The Company limits its credit risk by adopting conservative lending standards and setting limits to its customers, noting that the Company does not bear any loss arising from any default in the refinanced loans, as it is carried out in full by the financial institutions. The maximum exposure to credit risk is represented by the carrying value of each financial asset.

The balance of the largest client amounted to (48) Million JD for the year ended 2010 against (43) Million JD for the year ended 2009.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its net financial obligation. In this respect, the Company's management diversified its funding sources, and managed assets and liabilities taking into consideration liquidity and keeping adequate balances of cash, and cash equivalents and quoted securities.

The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date:

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates will affect the Company's income or the value of its holdings of financial instruments. As most of the Company's financial instruments have fixed interest rate and carried at amortized cost, the sensitivity of the Company's results or equity to movements in interest rates is not considered significant.

Equity Price Risk

Equity price risk results from the change in fair value of the equity securities. The Company manages these risks by investing in capital protected portfolios not exceeding 20% of its equity with reputable financial institutions in accordance with
the investment policy set by the Board of Directors. If the quoted market price of listed equity securities had increased or decreased by 10%, the net result for the year would have been reduced / increased by JD 7,875 during 2010 (2009 JD 8,125).

24. Capital Management

The Company manages its capital structure with the objective of safeguarding the entity's ability to continue as a going concern and providing an adequate return to shareholders by pricing products and services commensurately with the level of risk.