16th Nov 2006 07:00
Bank of Ireland(Governor&Co)16 November 2006 Bank of Ireland Group Interim Statement for the half-year to 30 September 2006 Bank of Ireland Group Interim Statement for the half-year to 30 September 2006 Performance Highlights Half-Year Half-Year % Change 30-9-2006 30-9-2005Group Profitability (• Million)Profit before tax (PBT) 887 848 5Non-core items: Gain on disposal of business assets 40 183 Gross-up for policyholder tax in the Life 15 31 business Hedge ineffectiveness on transition to IFRS (1) (21) Restructuring programme (19) (10) 35 183Underlying profit before tax 852 665 28 Per Unit of €0.64 Ordinary Stock (•)Basic earnings per share 76.7c 74.6c 3Underlying earnings per share 73.0c 57.3c 27Dividend 21.0c 18.2c 15 Divisional Pre-tax Performance (• Million)*Retail Republic of Ireland 339 268 26Bank of Ireland Life 67 68 (1)Wholesale Financial Services 253 166 52UK Financial Services 222 167 33Asset Management Services 33 51 (35)Group Centre (62) (55) 13Underlying profit before tax 852 665 28 Group Performance*Net interest margin (%)** 1.73 1.79Cost/income ratio (%) 53 57Cost-income jaws (%) 9 3Annualised impaired loan loss charge 9bps 11bpsReturn on equity (%) 25 25 Balance SheetTotal stockholders' equity (• Million) 5,839 4,532 29Total assets (• Billion) 178 146 22Total lending (• Billion) 120 97 24Total customer accounts (• Billion) 71 57 24 CapitalTier 1 ratio (%) 7.7 7.3Total capital ratio (%) 10.9 10.6Risk-weighted assets (• Billion) 109.3 88.5 23 * Based on underlying performance, which excludes the impact of non-core itemsabove. ** The Group net interest margin of 1.73% includes the favourable impact of 5bpsarising from the categorisation of income under the application of IAS 32 & 39.Excluding this favourable impact, the adjusted Group net interest margin is1.68%. Bank of Ireland Group Interim Statement for the half-year to 30 September 2006 "This has been another excellent performance by Bank of Ireland Group in thehalf-year to the end of September 2006, delivering on our promise of consistentand sustainable growth in all of our main businesses and markets. The strengthof our franchise and the commitment and skill of our employees will enable us tocontinue to drive this momentum across the Group. We are confident of deliveringan excellent full year performance to March 2007." Brian Goggin, Bank of Ireland Group Chief Executive, commented Group Performance Highlights* • Excellent underlying Group profit growth of 28% - in all our main businesses and markets • Delivering successfully on our growth & investment strategies • Exceeding objectives of our Strategic Transformation Programme • Group income growth of 14% driven by very strong lending and resources growth • Slowing rate of margin attrition • Cost growth well contained at 5% with excellent improvement in our efficiency ratios (cost/income ratio down 4% to 53%) • Excellent asset quality - annualised impairment being 9bps • Strong Capital ratios - Total Capital and Tier 1 ratios at 10.9% and 7.7% respectively • Strong business momentum resulting in revised guidance - with EPS growth of c. 20% to March 2007 from a base of 118.5c for the year to March 2006 Divisional Highlights* • In Retail Republic of Ireland: PBT +26% o Excellent business momentum with strong growth in resources and lending o Significant efficiency gains resulting in improved cost/income performance • In Life: Operating profit +27% o Excellent sales growth and effective cost-control driving performance o In the current period, weaker stock markets impacting negatively on the mark to market of Embedded Value, and no change in discount rate resulting in PBT performance down 1% • In Wholesale: PBT + 52% o Businesses across the Division performing strongly o Investment in expanding Corporate Banking franchise driving a particularly strong performance o Arrangement fees and some provision write-backs during the period contributing to this performance • In UKFS: PBT +33% o Particularly strong performance from UK Financial Services o Benefits of investment in Business Banking a key driver of performance - delivering excellent loan and resource growth o Mortgage Business positioned well & delivering strong growth in specialist lending o UK Post Office joint ventures progressing well • In Asset Management Services: PBT -35% o Good progress in integrating newly acquired businesses o New leadership and restructured investment team in BIAM *Note: based on underlying performance Forward-Looking Statement This statement contains certain forward-looking statements as defined in the USPrivate Securities Litigation Reform Act of 1995 with respect to certain of theBank of Ireland Group's ("the Group") plans and its current goals andexpectations relating to its future financial condition and performance and themarkets in which it operates. Because such statements are inherently subject torisks and uncertainties, actual results may differ materially from thoseexpressed or implied by such forward-looking statements. Such risks anduncertainties include but are not limited to risks and uncertainties relating toprofitability targets, prevailing interest rates, the performance of the Irishand UK economies and the international capital markets, the Group's ability toexpand certain of its activities, competition, the Group's ability to addressinformation technology issues and the availability of funding sources. The Bankof Ireland Group does not undertake to release publicly any revision to theseforward-looking statements to reflect events, circumstances or unanticipatedevents occurring after the date hereof. For further information please contact: John O'Donovan Geraldine Deighan Dan LoughreyChief Financial Officer Head of Group Investor Relations Head of Group Corporate CommunicationsTel: 353 1 632 2054 Tel: 353 1 604 3501 Tel: 353 1 604 3833 Bank of Ireland will host a results presentation at 9.00am today, 16th November2006 at the following venues: Bank of Ireland Head Office, Lower Baggot Street, Dublin 2UBS Investment Bank, 1 Finsbury Avenue, London EC2M 2PP This presentation will be simultaneously webcast on our website:www.bankofireland.ie/investor Overview The Bank of Ireland Group is pleased to announce an excellent performance forthe six-month period to 30 September 2006. Group profit before tax (PBT) is up5% to €887 million and basic earnings per share up 3% to 76.7c. Excludingnon-core items (outlined on page 18 of this document), Group underlying PBT isup 28% to €852 million and underlying EPS is up 27% to 73.0c. This performanceis driven by the rigorous execution of strategy against a backdrop of stronglyperforming economies. Our strategy is to maximise our returns from our leading position in Ireland,substantially grow our businesses in the UK and grow our portfolio of niche,skill-based businesses internationally. New business growth across the Group isstrong with loans and resources both up 24%. Cost growth is firmly contained andthe Strategic Transformation Programme is ahead of target. We continue to makesignificant progress in achieving efficiency gains across the Group and our cost/income ratio continues to improve, down 4% to 53% in the reporting period. Thecontinuing benign credit environment has contributed to the exceptionally lowloan loss charge, which at 9bps annualised remains significantly below trend. The reorganisation we announced in mid-September 2006 (effective 1 October 2006)with the creation of our new Capital Markets Division now aligns our structuremore closely to our strategy. This Division, together with Retail FinancialServices Ireland and UK Financial Services Divisions, are all delivering strongmomentum and excellent profit performance. We completed, on 31 October 2006, the sale of our 90.444% equity stake in ourstockbroking firm, Davy, for a cash consideration of €316.55 million. The profiton disposal after tax is expected to be approximately €225 million and will bereflected in the results for the year ending 31 March 2007. Outlook The economic outlook for the markets in which we operate remains positive,underpinning the strong momentum in our business. As a result of the strongperformance in the first half of our financial year, we are guiding underlyingEPS growth of c. 20% for the full year (from a base of 118.5c for the year toMarch 2006). Divisional Performance Divisional Profit Before Tax 30-9-2006 30-9-2005 % Change •m •mRetail Republic of Ireland 339 268 26Bank of Ireland Life 67 68 (1)Wholesale Financial Services 253 166 52UK Financial Services 222 167 33Asset Management Services 33 51 (35)Group Centre (62) (55) 13Underlying profit before tax 852 665 28Non-core items 35 183Profit before tax 887 848 5 Retail Republic of Ireland Retail Republic of Ireland delivered an excellent performance for the half-yearto 30 September 2006 with pre-tax profit growth of 26% to €339 million. Totaloperating income rose by 15% and operating expenses by 6% - a 9% cost-incomejaws. This excellent performance was enabled by the continuing buoyancy of theIrish economy and the strength of our leading franchise in Ireland: the broadestdistribution platform; the most extensive suite of retail and business bankingproducts and services; commitment to service excellence and focus on efficiency. Retail Republic of Ireland: Income Statement 30-9-2006 30-9-2005 % Change •m •mNet interest income 632 546 16Other income* 189 168 13Total operating income 821 714 15Total operating expenses (449) (423) 6Impairment losses on loans and (33) (23) 43advancesProfit before tax 339 268 26 * Includes share of associates/joint ventures. Income growth was driven by the strong business momentum across our retailactivities with total lending and resource growth of 25% and 16% respectively.In Business Banking, our focus on strengthening our competitive position in theSME segment has delivered with September 2005 to September 2006 growth in ourloan book of 29%. Our mortgage business loan book grew by 25% compared toSeptember 2005. Interest rate increases are beginning to impact onaffordability, particularly in the residential property first time buyersegment. While the mortgage market remains highly competitive, our distributioncapability and service proposition have ensured that Bank of Ireland retains aleading position for mortgages in Ireland. Our Private Banking businessperformed particularly well. Our personal lending book grew by 19% with creditcard volumes buoyant. Cost management was excellent and we achieved significant improvement in thecost/income ratio with a reduction from 59% to 55%. The impairment losses on loans and advances were €33 million or 16 bpsannualised as a percentage of average advances. This compares to €23 million or14 bps annualised for September 2005 and reflects the rise in volume andchanging mix of business. Asset quality remains excellent. Bank of Ireland Life Bank of Ireland Life, the Group's life and pensions business, continues toperform strongly with impressive sales growth and effective cost control themain drivers of performance. IFRS operating profit grew by 27% to €71 million. The Life business achieved excellent growth in new sales volumes with a 26%increase to €199 million on an annual premium equivalent basis. The completionof the investment last year in our new life administrative platforms hasresulted in the Life company achieving significant efficiency gains in theprocessing of new life business volumes and plans are well advanced for furtherenhancement of our pension processing capability for individual pensions. The Bank of Ireland Life business has a leading position in the Irish marketresulting from the combination of our multi-channel distribution platform andunique sales model. This combination together with the continuing favourableeconomic and demographic backdrop ensures the outlook for the Life businessremains positive. IFRS Performance Life Business: Income Statement 30-9-2006 30-9-2005 % Change •m •mIncome 121 104 16Costs (50) (48) 4Operating profit 71 56 27Investment variance (4) 8Discount rate change - 4Profit before tax 67 68 (1) Profit before tax at €67 million was 1% lower than the previous half year due toa negative investment variance of €4 million compared to a positive contributionin the prior period. The prior period also benefited from the positive impact ofa 0.5% reduction in the discount rate to 7.5%. There was no change to thediscount rate in the current reporting period. Embedded Value Performance The alternative method (which is widely used by the life assurance industry) ofpresenting the performance of our Life business is on an Embedded Value basis.The Embedded Value basis translates estimated future distributable earnings to apresent value and is set out in the following table. Under this treatment, ourLife business also shows a strong performance with operating profit up 19% to€81 million. The value of new business has grown particularly strongly withmargins increasing from 18% to 23%, reflecting the economies of scale fromhigher volumes and very low cost growth. A negative investment variance in thecurrent period compared to a positive investment variance in the prior period,and the change to the discount rate in the prior period with no change in thecurrent period, have resulted in profit before tax being 35% lower. 30-9-2006 30-9-2005 % Change •m •mNew business profits 45 29 55Existing business profitsExpected return 39 35Experience variance 8 12Operating assumption changes 4 5Inter-company payments (15) (13)Operating profit 81 68 19Investment variance (15) 25Discount rate change - 8Profit before tax 66 101 (35) The Embedded Value methodology for the Life business includes a Value of Inforceasset both in respect of contracts classified as Insurance and contractsclassified as Investment. In contrast, the IFRS statutory results include aValue of Inforce asset in respect of insurance contracts only. The key assumptions used in the calculation of this asset are a discount rate of7.5% (September 2005: 7.5%), future growth rate on unit-linked assets of 5.5%(September 2005: 5.5%) and the rate of tax assumed to be levied on shareholderprofits of 12.5% (September 2005: 12.5%). Actuarial assumptions are alsorequired in relation to mortality, morbidity and persistency rates and thesehave been derived from the company's experience. Wholesale Financial Services The Wholesale Financial Services Division (WFS) comprises Corporate Banking,Global Markets, Davy Stockbrokers and IBI Corporate Finance. Profit before taxin WFS increased by 52% to €253 million for the six months to September 2006. WFS: Income Statement 30-9-2006 30-9-2005 % Change •m •mNet interest income 282 181 56Other income 126 130 (3)Total operating income 408 311 31Total operating expenses (151) (128) 18Total operating profit 257 183 40Impairment losses on loans andadvances (4) (17) (76)Profit before tax 253 166 52 Total operating income rose by 31% to €408 million for the six months toSeptember 2006 driven principally by strong lending volumes, higher margin andhigher loan arrangement fee income earned in Corporate Banking. Lending volumesincreased by 20% and margins improved, reflecting the mix in the loan book. Thegrowth in net interest income and other income is distorted by thecategorisation of income under IAS 32 and 39. Excluding this impact, netinterest income grew by 40% and other income grew by 19%. Operating expenses rose by 18% driven by a combination of continuing investment,higher performance related pay, higher volume, inflation and higher compliancespend. Credit quality remains good with impairment losses on loans and advances of €4million for the six months to September 2006, or 4bps annualised when expressedas a percentage of the loan portfolio. This compares to €17 million or 19bpsannualised in the first six months of the prior year. Corporate Bankingcontinues to benefit from the current benign credit environment together withsome provision write-backs, amounting to €16 million, during the period. WFS: Business Unit Profit Before Tax 30-9-2006 30-9-2005 % Change •m •mCorporate Banking 158 90 76Global Markets 71 63 13Other 24 13 85Profit before tax 253 166 52 Corporate Banking delivered particularly strong profit growth of 76% for thefirst half of this year, resulting from strong growth in lending volumes andoverall margins. The strategy in Corporate Banking is to continue to grow bothour domestic franchise and to broaden our international business by focusing onniche skills-based activities. This is yielding results with the delivery ofimpressive loan and profit growth. Our Global Markets business delivers a comprehensive range of risk managementproducts to the Group's customer base and acts as Treasurer for the Group.Profit for the period increased by 13% in challenging market conditions. Wecontinue to broaden the geographic scope of our activities, further build on ourtechnical capability with the recruitment of highly skilled teams, and workclosely with other Group businesses to deliver an integrated service to ourcustomers. In October 2006 we also opened a treasury operation in the US. The other businesses within the Division, Davy and IBI Corporate Finance,continued to perform well during the period. On 31 October 2006, the Bank completed the sale of its 90.444% stake in Davy tothe management and staff of Davy. The profit on the disposal is expected to beapproximately €225 million after tax and will be reflected in the results forthe year ending 31 March 2007. UK Financial Services (Sterling) 30-9-2006 30-9-2005 % Change Adjusted ** Adjusted** £m £m 30-9-2005 % Change £mNet interest income 255 230 11 217 18Other income* 70 60 17 52 35Total operating 325 290 12 269 21incomeTotal operating (165) (169) (2) (145) 14expensesImpairment losses on (8) (7) (7)loans and advancesProfit before tax 152 114 33 117 30 * Note: includes share of associates/joint ventures ** September 2005 figures adjusted for the trading impact of the B&W branchnetwork The UK Financial Services Division (UKFS), which incorporates Business Banking,our Mortgage business and our joint ventures with the UK Post Office, deliveredan excellent performance during the period demonstrating the success of ourrestructuring and investment programmes over the last 18 months. Profit beforetax increased by 33% to £152 million. The Divisional performance during the period is not directly comparable with theprior period as the disposal of the Bristol & West branch network in September2005 impacts on the year on year analysis of income and cost growth. On an adjusted basis total operating income rose by 21% to £325 million for thesix months to 30 September 2006; net interest income rose by 18% with verystrong volume growth for both lending 25%, and resources 35%, the key drivers ofperformance; other income rose by 35% with fee income from the sales ofinsurance products in the Post Office Financial Services joint venture (POFS) aparticular feature. On an adjusted basis operating expenses increased by 14% to £165 million for thehalf-year to 30 September 2006, due to the timing of marketing expenditurerelating to new product launches in POFS and volume related expenses in ourBusiness Banking activities. Impairment losses on loans and advances are similar to last year at 5 bpsannualised and overall asset quality remains strong. UKFS: Business Unit Profit Before Tax 30-9-2006 30-9-2005 % Change £m £mMortgages 74 65 14Business Banking 70 54 30Consumer Financial Services: 11 7 57• POFS (8) (12)• FRES (post tax) 19 19Disposal of BWFS - (4)Other* (3) (8) 63Total 152 114 33 * Note: includes the amortisation of intangible assets associated with the UKPost Office Financial Services (September 2006: £4m, September 2005: £4m). The Mortgage business delivered a profit of £74 million, an increase of 14% forthe half year. The residential mortgage book increased by 15% to £23 billionwith particularly strong growth in both our self-certified and buy-to-letspecialist portfolios, which increased 29% and 24% respectively. Totaloperating income growth was 8% as margin attrition impacted net interest incomewhilst costs remained flat half-year on half-year. Credit performance remainsexcellent with our arrears levels significantly below the industry average andthe loan loss charge for mortgages showed no change from September 2005. Ourcommitment to service excellence, and a particular focus on the intermediarychannel, which represents 90% of our overall business, has resulted in thisstrong performance in our niche segments in an increasingly competitiveenvironment. The performance of Business Banking is a particular highlight with profit beforetax increasing by 30% to £70 million. Our investment in building ahigh-performing team of business bankers has delivered very strong results.Total operating income and costs grew by 22% and 14% respectively. Assetquality remains strong. Volume growth is high with loan book growth of 47% andresource growth of 25%. Customer acquisition continues at an increasing pace in our joint venture withthe UK Post Office (POFS). Customer numbers have increased to 660,000 byend-September with the business now adding over 50,000 new customers everymonth. We are experiencing strong sales growth in our insurance and credit cardproducts and we have attracted over £1 billion in our Instant Saver accountssince launch in April 2006. The losses in the venture continue to decline, downby 33% to £8 million in the half-year to September 2006. Against the backdrop of a challenging market, profit remained unchanged from oursecond joint venture with the UK Post Office for the provision of personalforeign exchange services, First Rate Exchange Services (FRES). Asset Management Services Asset Management Services: Income Statement 30-9-2006 30-9-2005 % Change •m •mNet interest income 3 5 (40)Other income 103 110 (6)Total operating income 106 115 (8)Total operating expenses (73) (64) 14Profit before tax 33 51 (35) Asset Management Services (AMS) comprises Bank of Ireland Asset Management(BIAM), Bank of Ireland Securities Services (BoISS), our holdings in IridianAsset Management (92%), Guggenheim Advisors (71.5%) and the 50% joint venture weestablished with private equity firm Paul Capital in June 2006, Paul CapitalInvestments. Profit before tax for the Division for the half-year to 30September 2006 was €33 million, a decrease of €18 million over the prior periodreflecting the impact of the mandate losses in BIAM in the current and priorperiods. Fund outflows from BIAM have slowed with funds under management at 30September 2006 of €43 billion compared to €45 billion as at 31 March 2006. The focus within the Division over the last six months has been on acceleratingthe turnaround in performance in BIAM with the restructuring of the investmentmanagement team, continuing the product diversification and the integration ofnewly acquired businesses within the Division. Group Centre Group Centre, which comprises earnings on surplus capital, unallocated supportcosts and some smaller business units, had a net cost of €62 million in the halfyear to 30 September 2006, compared to €55 million in the six months toSeptember 2005. The key drivers behind this cost are an increased compliance spend, inparticular Basel II and Sarbanes-Oxley, and funding costs of capital raised. Review of Group Performance Group Income Statement Group Income Statement 30-9-2006 30-9-2005 % Change •m •mNet interest income 1,287 1,075 20Other income 594 574 3Total operating income (net of 1,881 1,649 14insurance claims)Operating expenses (1,010) (962) 5Impairment losses on loans and (48) (50) (4)advancesShare of associates and joint 29 28 4ventures (post-tax)Underlying profit before tax 852 665 28Non-core items: Gain on disposal of business 40 183 assets Gross-up for policyholder tax in 15 31 the Life business Hedge ineffectiveness on (1) (21) transition to IFRS Restructuring programme (19) (10)Total non-core items 35 183Profit before tax 887 848 5 Taxation (154) (139) 11Minority interest 2 3Dividends to preference stockholders (7) (6)Profit attributable to ordinary 728 706 3stockholdersBasic EPS cents per share 76.7 74.6 3Underlying EPS cents per share 73.0 57.3 27 The following commentary is based on the Group's performance excluding theimpact of non-core items. A reconciliation of the impact of these non-core itemson the income statement line items is shown on pages 18 and 19 of this document. Income Total income increased by 14% to €1,881 million driven by strong volumeincreases in both lending and resources across the Group, together with theexcellent performance from our fee-earning activities in our Life business,Retail Republic of Ireland, UK Financial Services and Wholesale FinancialServices. Total income after adjusting for the impact of acquisitions anddisposals increased 16% year on year. Total Income 30-9-2006 30-9-2005 % Change •m •mTotal operating income 1,881 1,649 14Acquisitions/Disposals (11) (31)Total income excluding impact of 1,870 1,618 16acquisitions and disposals Net interest income increased by 20% for the half-year to 30 September 2006.This performance has been impacted by the distorting effect of income streamsassociated with acquisitions and disposals during the current and prior periods,together with the impact of the application of IAS 32 and IAS 39 in the currentperiod. These standards have the effect of recognising certain income streams asnet interest income, which in the prior period would have been recognised asother income. The financial reporting impact of the application of IAS 32 andIAS 39 is to increase net interest income by €36 million with a correspondingdecline in other income. Net Interest Income 30-9-2006 30-9-2005 % Change •m •mNet interest income 1,287 1,075 20Acquisitions/Disposals: - (19)IAS 32 and 39 impact (36) -Net interest income excluding impact of acquisitionsand disposals & IAS 32 and 39 1,251 1,056 18 Net interest income, excluding the impact of the above items, increased by 18%to €1,251 million in the half-year to 30 September 2006. This excellentperformance was driven by the continued strong growth in loans and resourcesacross the Group. Loans to customers increased by 24% and resources grew by 24%.A number of drivers contributed to this volume growth: the continuing favourableeconomic backdrop to our activities in Ireland and the UK; the strength of ourfranchise in Ireland, supported by the scale of our multi-channel distributionnetwork; the further delivery from our investment in our UK Business Banking andCorporate Banking teams. Group Net Interest Margin 30-9-2006 30-9-2005 % Change •m •mAverage interest earning assets (•billion)Domestic 96 78Foreign 53 42Total 149 120 24Net Interest Margin (%)Domestic net interest margin 1.90 1.86Foreign net interest margin 1.41 1.66Group net interest margin 1.73 1.79IAS 32 and 39 impact 0.05 -Adjusted net interest margin 1.68 1.79 The Group net interest margin, excluding the positive impact of IAS 32 and IAS39, decreased by 11bps to 1.68% for the 6 months to 30 September 2006 from 1.79%for the 6 months to 30 September 2005. The drivers of margin attrition are:balance sheet structure where the growth in average loans exceeded that ofaverage deposits over the period, lower lending margins, and a contraction inmargins arising from the sale of the Bristol and West branch network The pace of margin attrition, in what is a very competitive environment, isexpected to slow as the rate of loan growth relative to resource growth becomesmore aligned and the increasing interest rate environment continues topositively impact liability margins. Other Income increased by 3% during the year. This performance was affected bythe application of IAS 32 and IAS 39 and the distorting effect of income streamsfrom acquisitions and disposals. Excluding these items other income hasincreased by 10% to €619 million in the six months to 30 September 2006. Other Income 30-9-2006 30-9-2005 % Change •m •mOther income 594 574 3Acquisitions/Disposals (11) (12)IAS 32 and 39 impact 36 -Other income excluding impact of 619 562 10acquisitions and disposals & IAS 32and 39 The drivers of this increase are broadly based across the Group: excellent newbusiness sales growth in the Life business; higher arrangement fees in CorporateBanking; increased sales of insurance products in POFS; increased fees from arange of activities in Retail Republic of Ireland. This overall strongperformance was partly offset by the decline in income from BIAM, and thenegative investment variance and impact of the change in the discount rate inthe prior period in the Life business. Operating Expenses Total Operating Expenses increased 5% in the six months to 30 September 2006 orby 8% excluding the impact of acquisitions and disposals. Efficiency improvements remain a core focus and we continue to make significantprogress in this regard. Our cost/income ratio continues to improve with afurther reduction of 4 percentage points from 57% in September 2005 to 53% inSeptember 2006. Total Operating Expenses 30-9-2006 30-9-2005 % Change •m •mOperating expenses 1,010 962 5Acquisitions/Disposals (12) (36)Operating expenses excluding the impact of 998 926 8acquisitions and disposals The cost base in the prior period included €36 million relating to the Bristol &West branch network, which was sold in September 2005. The cost base in thecurrent period to 30 September 2006 included costs of €12 million associatedwith acquisitions. The main drivers of total operating expenses (excluding acquisitions anddisposals) were: • Investment costs of 3% relating to the development of our Global Markets and Corporate Banking activities in Europe and the United States together with the costs associated with the launch of new products in POFS. • Compliance costs of 1% associated with the Sarbanes-Oxley and Basel II programmes. • Business as usual cost growth of 7% where 3% is due to volume growth and performance related compensation and is driven by the significant growth in new business across the Group. The remaining 4% is due to inflation. • Cost savings of (3%) arising from the continued successful implementation of the Strategic Transformation Programme in the current period. We have continued to make excellent progress on the implementation of theStrategic Transformation Programme. We are confident of delivering savings inthe current financial year ahead of our cumulative target of €75 million withachieved savings in the half year to 30 September 2006 of €40 million. Impairment of Loans and Advances The ongoing benign economic environment continues to support excellent assetquality across the Group. The impairment charge for the six months to 30 September 2006 amounts to €48million or 9 bps when expressed as an annualised percentage of average loans.Impairment losses on loans and advances are at historically low levels. Loanlosses have benefited from some provision write-backs during the period, inparticular write-backs in Corporate Banking amounting to €16 million. Wecontinue to maintain a satisfactory level of provisions against impaired loans,with a coverage ratio of 47%, a level we are comfortable with as mortgagesrepresent 46% of our total lending. Total balance sheet provisions were €398 million at 30 September 2006, comparedto €343 million in September 2005. Asset Quality 30-9-2006 30-9-2005 Change Total average customer advances (•bn) 107 87 23%Impaired loans (•m) 844 693 22%Impairment provision (•m) 398 343 16%Coverage ratio (%) 47 50 (3%)Impairment losses on loans and advances (•m) 48 50 (4%)Impairment losses on loans and advances (annualised bps) 9 11 (2 bps) Share of Associates and Joint Ventures Profit after tax from associated undertakings and joint ventures, which mainlyrelates to First Rate Exchange Services, remained broadly in line with the priorperiod at €29 million in the six-month period to 30 September 2006, against thebackdrop of challenging market conditions. Balance Sheet - Capital and Funding Total assets increased 22% from €146 billion to €178 billion in the year to 30September 2006. Customer loans and advances increased by 24% and total resourcesincreased by 24%. Risk weighted assets grew by 23% from €88.5 billion to €109.3 billion. % Growth September 2006 over September 2005 Risk Weighted Loans and advances to Resources Assets customersRetail Republic of Ireland 27 25 16Wholesale Financial Services 17 20 21UK Financial Services 27 25 35Group 23 24 24 Capital Bank of Ireland has maintained a strong capital position. At September 2006, ourTotal Capital Ratio was 10.9% compared to 10.6% at September 2005. Our Tier 1Ratio at 30 September 2006 was 7.7% compared to 7.3% in September 2005. During the period the Group raised £500 million (€738 million) of non-equityTier 1 Capital. 30-9-2006 30-9-2005Risk Weighted Assets (•bn) 109.3 88.5Total Capital Ratio (%) 10.9 10.6Tier 1 Ratio (%) 7.7 7.3 The Group has strong capital resources and our approach to capital managementensures that we have adequate capital to support our business plans. Funding Funding sourced from the wholesale markets has reduced from 45% to 44% of totalbalance sheet (excluding Bank of Ireland Life assets held on behalf ofpolicyholders) between 30 September 2005 and 30 September 2006. This reductionresults from a significant increase in the pace of customer deposit growth,particularly in UKFS. Balance Sheet Funding 30-9-2006 30-9-2005 % %Deposits by banks 17 22CP/CDs 12 13Senior Debt/ACS 15 10Wholesale Funding 44 45Customer Deposits 43 42Capital/Sub. Debt 8 7Other 5 6Total 100 100 Wholesale funding is managed to ensure maximum diversification across maturity,investor type and geography and to minimise the concentration of funding withineach particular market segment. The wholesale market continues to becharacterised by strong investor demand for Bank of Ireland paper. During thehalf-year to 30 September 2006 the Group issued its second US Extendible NoteTransaction raising US$2 billion, and in September 2006 issued €1.5 billion5-year senior notes from its Euro Note Programme. The Group also issued a further €2 billion of asset covered securities in a7-year benchmark deal. The Group remains well placed to access wholesale funding sources. The Groupfunding strategy remains to grow core customer deposits and to access wholesalefunding in a prudent, diversified and efficient manner. Effective Tax Rate The taxation charge for the Group was €154 million compared to €139 million inthe half-year to 30 September 2005. The effective tax rate was 17.4% compared to 16.4% in the half-year to 30September 2005. The rate has increased largely as the tax charge for the periodto September 2005 contained the benefit from the non-taxable gain in relation tothe disposal of the Bristol & West branch network. This factor more than offsetsthe benefits of the abolition of the financial levy and the reduced gross-up forpolicyholder tax in the Life Business. Dividend In accordance with Group policy, the Interim Dividend is set at 40% of the totaldistribution per unit of Ordinary Stock for the prior year. The Court hastherefore recommended an Interim Dividend of 21.0 cent per unit of OrdinaryStock; this results in an increase of 15% over the corresponding period lastyear. This dividend will be paid on or after 16 January 2007 to Stockholders whoare registered as holding Ordinary Stock at the close of business on 24 November2006. These dates have been revised to facilitate the reintroduction of theStock Alternative Scheme and the dividend will be paid in cash and/or additionalstock, at the election of Stockholders. ROE Return on equity, excluding the impact of non-core items (set out on pages 18and 19) was 25% for each of the half-years to 30 September 2006 and to 30September 2005. Income Statement 30 September 2006 - Business Segments 6 months ended 30 September 2006 Total Insurance income, Impairment Share of Net net net of losses on income Profit Interest premium Other Total Insurance insurance Operating loans & from before Income income Income Income Claims claims expenses advances associates taxation Retail Republic of 632 - 188 820 - 820 (449) (33) 1 339IrelandBOI Life 4 920 51 975 (858) 117 (50) - - 67Wholesale Financial 282 - 126 408 - 408 (151) (4) - 253ServicesUK Financial Services 372 - 74 446 - 446 (241) (11) 28 222Asset Management 3 - 103 106 - 106 (73) - - 33ServicesGroup Centre (6) 16 (22) (12) (4) (16) (46) - - (62) Group - underlying 1,287 936 520 2,743 (862) 1,881 (1,010) (48) 29 852 Gain on disposal of - - 40 40 - 40 - - - 40business assetsGross up of policyholder - - 15 15 - 15 - - - 15tax in the Life businessHedge ineffectiveness on - - (1) (1) - (1) - - - (1)transition to IFRSRestructuring programme - - - - - - (19) - - (19) Group total 1,287 936 574 2,797 (862) 1,935 (1,029) (48) 29 887 The reconciliation shows the Group and Divisional underlying income statementswith a reconciliation of the impact of the non-core items in arriving at theGroup total income statement. Income Statement 30 September 2005 - Business Segments 6 months ended 30 September 2005 Total Insurance income, Impairment Share of Net net net of losses on income Profit Interest premium Other Total Insurance insurance Operating loans & from before Income income Income Income Claims claims expenses advances associates taxation Retail Republic of 546 - 167 713 - 713 (423) (23) 1 268IrelandBOI Life 4 515 288 807 (691) 116 (48) - - 68Wholesale Financial 181 - 130 311 - 311 (128) (17) - 166ServicesUK Financial Services 338 - 60 398 - 398 (248) (10) 27 167Asset Management 5 - 110 115 - 115 (64) - - 51ServicesGroup Centre 1 14 (14) 1 (5) (4) (51) - - (55) Group - underlying 1,075 529 741 2,345 (696) 1,649 (962) (50) 28 665 Gain on disposal - - 183 183 - 183 - - - 183 Gross up of - - 31 31 - 31 - - - 31policyholder tax in theLife business Hedge ineffectiveness (21) (21) (21) (21)on transition to IFRSRestructuring programme - (10) - - (10)Group total 1,075 529 934 2,538 (696) 1,842 (972) (50) 28 848 The reconciliation shows the Group and Divisional underlying income statementswith a reconciliation of the impact of the non-core items in arriving at theGroup total income statement. CONSOLIDATED INCOME STATEMENT (UNAUDITED) Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m INTEREST INCOME (Note 4) 3,698 2,929 5,954 INTEREST EXPENSE (Note 5) (2,411) (1,854) (3,647) NET INTEREST INCOME 1,287 1,075 2,307 Insurance net premium income 936 529 1,298Fees and commissions income 490 457 912Fees and commissions expense (91) (97) (170)Net fees and commissions income 399 360 742Net trading income 2 11 30Life assurance investment income and gains 44 312 625Other operating income (Note 6) 121 68 165Profit on disposal of business activities 8 183 176 TOTAL OPERATING INCOME 2,797 2,538 5,343Increase in insurance contract liabilities and claims paid (862) (696) (1,666) TOTAL OPERATING INCOME, NET OF INSURANCE CLAIMS 1,935 1,842 3,677 TOTAL OPERATING EXPENSES (Note 7) (1,029) (972) (2,020) OPERATING PROFIT BEFORE IMPAIRMENT LOSSES 906 870 1,657Impairment losses (Note 12) (48) (50) (103) OPERATING PROFIT 858 820 1,554Income from associated undertakings and joint ventures 29 28 45 PROFIT BEFORE TAXATION 887 848 1,599Taxation (Note 9) (154) (139) (303) PROFIT FOR THE PERIOD 733 709 1,296 Attributable to minority interests (2) (3) (9)Attributable to stockholders 735 712 1,305 PROFIT FOR THE PERIOD 733 709 1,296 Earnings per unit of €0.64 ordinary stock (Note 10) 76.7c 74.6c 136.4c Diluted earnings per unit of €0.64 ordinary stock (Note 10) 76.2c 74.0c 135.4c CONSOLIDATED BALANCE SHEET (UNAUDITED) 30-9-2006 30-9-2005 31-3-2006 •m •m •mASSETSCash and balances at central banks 840 730 1,899Items in the course of collection from other banks 839 722 930Central government and other eligible bills 9 180 8Trading assets (Note 13) 477 640 620Derivative financial instruments 2,295 2,023 2,085Other financial assets at fair value through P/L (Note 13) 10,984 9,277 10,580Loans and advances to banks 8,251 9,658 10,576Available-for-sale financial assets (Note 13) 32,515 26,522 28,205Loans and advances to customers (Note 11) 114,356 91,286 101,246Interests in associated undertakings 25 17 21Interest in joint ventures 131 89 75Intangible assets - Goodwill 361 285 375Intangible assets - Other 597 569 590Investment property 1,042 620 807Property, plant & equipment 716 696 860Assets classified as held for sale (note 14) 1,849 - -Deferred tax asset 27 111 30Other assets 2,529 2,888 3,447Total assets 177,843 146,313 162,354 30-9-2006 30-9-2005 31-3-2006 •m •m •mEQUITY AND LIABILITIESDeposits by banks 28,593 30,237 32,312Customer accounts (Note 15) 70,791 57,319 61,710Items in the course of transmission to other banks 304 99 284Derivative financial instruments 2,060 1,952 1,647Liabilities to customers under investment contracts 6,380 5,633 6,650Debt securities in issue 43,940 31,011 36,814Insurance contract liabilities 6,122 4,163 5,192Other liabilities 3,816 4,635 4,711Deferred tax liabilities 226 163 207Other provisions 114 156 153Post retirement benefit obligations 851 1,236 808Subordinated liabilities (Note 16) 7,223 5,125 6,493Disposal Group classified as held for sale (note 14) 1,551 - -Total liabilities 171,971 141,729 156,981EquityShare capital (Note 17) 663 663 663Share premium account (Note 18) 767 767 767Retained profit (Note 18) 3,669 2,523 3,330Other reserves (note 18) 993 795 803Own shares held for the benefit of life assurance (253) (216) (235)policyholders Stockholders equity 5,839 4,532 5,328Minority interests 33 52 45 Total equity 5,872 4,584 5,373 Total equity and liabilities 177,843 146,313 162,354 Consolidated Statement of Recognised Income and Expense (unaudited) Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Net gain on property revaluation - - 187Net change in cash flow hedge reserve 34 (77) (7)Net change in Available for Sale reserve 1 59 (104)Net actuarial gains/losses in defined benefit pension schemes (30) (257) 113Foreign exchange translations 84 53 (17) Income/expense recognised in equity 89 (222) 172Profit for the period 733 709 1,296 Total recognised income/expense for the year 822 487 1,468Attributable to:Equity holders of the parent 824 490 1,477Minority interests (2) (3) (9) 822 487 1,468 Implementation of IAS32/39 and IFRS 4 as at 1 April 2005 - 28 28Attributable to:Equity holders of the parent - 28 28Minority interests - - - - 28 28 CONSOLIDATED CONDENSED CASH FLOW STATEMENT (UNAUDITED) Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •mOperating activities: Operating profit 858 820 1,554 Adjust for non cash items:Profit on disposal of businesses (8) (183) (176)Depreciation and amortisation 76 81 166Impairment losses 48 50 103Movement on share based payments reserve 6 6 11Profit on sale of property, plant and equipment - - (4)Interest on subordinated liabilities 173 124 256Other non cash items (51) (39) (73) Net cash flow from trading activities 1,102 859 1,837 Changes in operating assets and liabilities: 5,174 3,477 5,011 Net cash flow from operating activities before tax and dividend 6,276 4,336 6,848Taxation paid (34) (40) (230) Net cash flow from operating activities 6,242 4,296 6,618 Investing activities: Dividend received from Joint Venture - - 25Acquisitions/disposals of businesses (18) 229 91Net purchases /sales of financial assets (4,294) (5,485) (7,217)Purchase of property, plant, equipment, investment property and (391) (178) (509)intangible assetsProceeds from disposals of property, plant and equipment,investment property and intangible assets 55 10 219 Net cash flow from investing activities (4,648) (5,424) (7,391) Financing activities: Interest paid on subordinated liabilities (73) (30) (233)Proceeds from issue of subordinated liabilities 733 883 2,414Proceeds from issue of ordinary stock 42 30 36Equity dividends paid (334) (282) (459)Dividends paid to minority interests (3) (4) (6)Dividends paid on other equity interests (7) (6) (13) Net cash flow from financing activities 358 591 1,739 Net increase/(decrease) in cash and cash equivalents 1,952 (537) 966 Cash and cash equivalents at start of period 6,162 5,217 5,217Exchange movements 41 10 (21) Cash and cash equivalents at end of period 8,155 4,690 6,162 1 ACCOUNTING POLICIES AND PRESENTATION OF FINANCIAL INFORMATION The accounting policies applied by the Group in the preparation of the interimfinancial statements for the half year ended 30 September 2006 are in accordancewith the recognition and measurements principles of International FinancialReporting Standards as adopted by the EU and are with the same as those set outin the Annual Report and Accounts for the year ended 31 March 2006. The Group has chosen not to adopt IAS 34 'Interim Financial Reporting' inpreparing its 2006 interim accounts since adoption of this standard is notmandatory until the EU Transparency Directive is implemented through the IrishStock Exchange's Listing Rules. This interim financial information does not comprise statutory accounts withinthe meaning of Section 19 of the Companies (Amendment) Act 1986. The statutoryaccounts for the financial year ended 31 March 2006 were approved by the Boardof Directors on 30 May 2006 and contained an unqualified audit report and havebeen filed with the Companies Office on 10 August 2006. Following revised interpretations of the requirements of IFRS and theapplication of the hedging requirements of IAS 39, the Group balance sheet, asat 30 September 2005, reflects some reclassifications within the balance sheetand an immaterial reduction in net equity as compared to the figures previouslypublished. There has also been an increase in the carrying value of goodwillwith a corresponding increase in liabilities. 2 ACQUISITIONS AND DISPOSALS On 21 April 2006 the Group completed the sale of Enterprise Finance Europe GmbHfor a consideration of €10.5million giving rise to a profit on disposal of€7.8m. On 20 June 2006 the Group announced that it had established a joint venture withPaul Capital Partners (PCP), a leading US private equity specialist, to provideprivate equity fund of funds products and advisory services to institutional andother investors worldwide. The new joint venture is called Paul CapitalInvestments, LLC (PCI) and is based in San Francisco, California. The Group paidUS$25m for a 50% share in PCI and may increase its shareholding up to 70% noearlier than 2008 on a pre-agreed basis. On 31 October 2006, the Group completed the sale of its 90.444% equity stake inDavy Stockbrokers to the management and staff of Davy for a consideration of€316.55m. This values the overall business at €350m. The profit on disposalafter tax is expected to be approximately €225m and will be reflected in theGroup results for the year ending 31 March 2007. The assets and Liabilities ofDavy have been classified as held for sale on the balance sheet (see note 14)under IFRS 5. In line with the Standard no prior year restatement of BalanceSheets have been made. On 21 September 2005 the Group disposed of the Bristol and West branch networkfor a consideration of £155.6m. 3 SEGMENTAL ANALYSIS The segmental analysis of the Group's results and financial position is set outbelow by business class and by geographic segment. For the geographic analysisIreland (excluding Northern Ireland) includes profits generated in theInternational Financial Services Centre. Revenue is defined as gross interestincome, non interest income, insurance net premium income, net of insuranceclaims and income from associates and joint ventures. The Group has six businessclasses detailed in the table below. During the year to 31 March 2006 thedivisional segments were restructured with the PO Joint Venture and First RateEnterprises moving into UK Financial Services from Group Centre and WholesaleFinancial Services respectively. Prior year results have been adjusted toreflect this change. The analysis of results by business class is based on management accountsinformation. Transactions between the business segments are on normalcommercial terms and conditions. Internal charges and transfer pricingadjustments have been reflected in the performance of each business. Revenuesharing agreements are used to allocate external customer revenues to a businesssegment on a reasonable basis. 3 SEGMENTAL ANALYSIS (continued) (a) BUSINESS SEGMENTS Retail Wholesale UK Asset Republic of BOI Financial Financial ManagementHalf year ended Ireland Life Services Services Services Group Eliminations Group30 September Centre2006 •m •m •m •m •m •m •m •mNet interest 632 4 282 372 3 (6) 1,287incomeInsurance netpremium income - 920 - - - 16 936Other income 188 66 126 74 103 9 566Profit on disposalof businessactivities - - - - - 8 8Total income 820 990 408 446 106 27 2,797Insurance claims - (858) - - - (4) (862)Total income, net 820 132 408 446 106 23 1,935of insuranceclaimsOperating expenses (411) (48) (145) (222) (70) (57) (953)Depreciation andamortisation (38) (2) (6) (19) (3) (8) (76)Impairment losses (33) - (4) (11) - - (48)Income fromassociates andjoint ventures 1 - - 28 - - 29Profit beforetaxation -continuingoperations 339 82 253 222 33 (42) 887 Sale of businessassets - - - - - (40) (40)Gross up ofpolicyholder taxin the Lifebusiness - (15) - - - - (15)Hedgeineffectiveness ontransition to IFRS - - - - - 1 1Restructuringprogramme - - - - - 19 19Group profitbefore taxexcluding theimpact of aboveitems 339 67 253 222 33 (62) 852 Total assets 90,438 13,000 152,848 62,647 2,889 23,884 (167,863) 177,843Total liabilities 88,603 12,861 151,745 60,323 2,417 23,885 (167,863) 171,971Capital 23 1 4 35 4 15 - 82expenditure(i) (i)Capital expenditure comprises additions to property and equipment andintangible assets including additions resulting from acquisitions throughbusiness combinations. 3 SEGMENTAL ANALYSIS (continued) (a) BUSINESS SEGMENTS Retail Wholesale UK Asset Republic of BOI Financial Financial ManagementYear ended Ireland Life Services Services Services Group Eliminations Group31 March Centre2006 •m •m •m •m •m •m •m •mNet interestincome 1,119 8 454 722 7 (3) - 2,307Insurance netpremium income - 1,264 - - - 34 - 1,298Other income 351 681 243 94 215 (22) - 1,562Profit on disposalof businessactivities - - - 176 - - - 176Total income 1,470 1,953 697 992 222 9 - 5,343Insurance claims - (1,655) - - - (11) - (1,666)Total income, netof insuranceclaims 1,470 298 697 992 222 (2) - 3,677Operating expenses (790) (92) (271) (448) (133) (120) - (1,854)Depreciation and (81) (3) (17) (33) (4) (28) - (166)amortisationImpairment losses (54) - (23) (26) - - - (103)Income fromassociates andjoint ventures 5 - - 40 - - - 45Profit beforetaxation 550 203 386 525 85 (150) - 1,599 Sale of businessactivities - - - (176) - - - (176)Gross up ofpolicyholder taxin the Lifebusiness - (69) - - - - - (69)Hedgeineffectiveness ontransition to IFRS - - - - - 7 - 7Restructuringprogramme - - - - - 32 - 32Group profitbefore taxexcluding theimpact of aboveitems 550 134 386 349 85 (111) - 1,393 Total assets 77,935 12,326 136,774 54,580 2,906 19,533 (141,700) 162,354Total liabilities 76,320 12,210 135,896 52,501 2,506 19,248 (141,700) 156,981Capital 55 - 10 58 26 30 - 179expenditure(i) SEGMENTAL REPORTING (continued) (a) BUSINESS SEGMENTS Half year ended Retail BOI Wholesale UK Asset30 September 2005 Republic of Life Financial Financial Management Ireland Services Services Services Group Eliminations GroupRestated* Centre •m •m •m •m •m •m •m •mNet interest 546 4 181 338 5 1 1,075incomeInsurance net - 515 - - - 14 529premium incomeOther income 167 319 130 60 110 (35) - 751Profit on - - - 183 - - 183disposal ofbusinessactivitiesTotal income 713 838 311 581 115 (20) 2538Insurance claims - (691) - - - (5) (696)Total income, net 713 147 311 581 115 (25) 1842of insuranceclaimsOperating (383) (45) (122) (227) (62) (52) (891)expensesDepreciation and (40) (3) (6) (21) (2) (9) (81)amortisationImpairment losses (23) - (17) (10) - - (50)Income from 1 - 27 28associates andjoint venturesProfit before 268 99 166 350 51 (86) 848taxation Sale of business - - - (183) - - (183)activitiesGross up of - (31) - - - - (31)policyholder taxin the LifebusinessHedge - - - - - 21 21ineffectivenesson transition toIFRSRestructuring - - - - - 10 10programmeGroup profitbefore taxexcluding the 268 68 166 167 51 (55) - 665impact of aboveitems Total assets 70,279 10,332 123,715 49,366 2,572 17,001 (126,952) 146,313Total liabilities 68,665 10,216 122,869 47,260 2,170 17,501 (126,952) 141,729Capital 26 10 4 17 1 10 - 68expenditure(i) *Restated to reflect changes in organisational structure announced last year. 3 SEGMENTAL REPORTING (continued) (b) Geographical Segments Half year ended 30 September 2006 Ireland United Kingdom Rest of World Inter-segment Total Revenue •m •m •m •m •m Revenue 3,318 2,161 141 (1,154) 4,466 Profit before taxation 708 166 13 - 887 Ireland United Kingdom Rest of World Eliminations Total •m •m •m •m •m Total assets 156,699 71,426 4,930 (55,212) 177,843 Capital expenditure(i) 45 35 2 - 82 Half Year ended 30 September 2005 Ireland United Kingdom Rest of World Inter-segment Total Revenue •m •m •m •m •m Revenue 2,535 1,996 113 (823) 3,821 Profit before taxation 471 355 22 - 848 Ireland United Kingdom Rest of World Eliminations Total •m •m •m •m •m Total assets 128,780 60,096 3,997 (46,560) 146,313 Capital expenditure(i) 50 17 1 - 68 Year ended 31 March 2006 Ireland United Kingdom Rest of World Inter-segment Total Revenue •m •m •m •m •m Revenue 5,327 3,861 234 (1,883) 7,539 Profit before taxation 1,078 478 43 - 1,599 Ireland United Kingdom Rest of World Eliminations Total •m •m •m •m •m Total assets 143,484 63,680 3,885 (48,695) 162,354 Capital expenditure(i) 95 58 26 - 179 4 INTEREST INCOME Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Loans and advances to banks 154 202 238 Loans and advances to customers 2,849 2,164 4,576 Finance leasing & instalment credit 85 111 197 Available for sale assets 604 433 934 Other 6 19 9 3,698 2,929 5,954 5 INTEREST EXPENSE Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Interest on subordinated liabilities 168 124 250 Other interest payable 2,243 1,730 3,397 2,411 1,854 3,647 6 OTHER OPERATING INCOME Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Profit on disposal of investment securities - 1 4 Other insurance income 79 49 151 Gain on Sale of Head Office Premises 32 - - Other income 10 18 10 121 68 165 7 TOTAL OPERATING EXPENSES Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Staff costs 605 571 1,167 Other administrative expenses 348 320 687 Depreciation and amortisation of intangibles 76 81 166 Total operating expenses 1,029 972 2,020 8 EMPLOYEE INFORMATION The average full time equivalents categorised in line with the business classes,are as follows: 30-9-2006 30-9-2005 31-3-2006 Retail Republic of Ireland 8,217 7,931 7,987BOI Life 1,071 1,065 1,063Wholesale Financial Services 1,491 1,363 1,436UK Financial Services 3,435 4,288 3,930Asset Management Services 635 640 655Group Centre 1,002 1,133 1,119 15,851 16,420 16,190 9 TAXATION ON PROFIT ON ORDINARY ACTIVITIES Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •mCurrent TaxIrish Corporation Tax Current year 120 81 191 Prior years (1) 3 8Double taxation relief (10) (13) (20)Foreign tax Current year 45 53 86 Prior years - - (3) 154 124 262Deferred TaxOrigination and reversal of temporary - 15 41differences 154 139 303 10 EARNINGS PER UNIT OF €0.64 ORDINARY STOCK The calculation of basic earnings per unit of €0.64 Ordinary Stock is based onthe profit attributable to Ordinary Stockholders divided by the weighted averageOrdinary Stock in issue excluding Treasury stock and own shares held for thebenefit of life assurance policyholders. Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006Basic Profit attributable to Ordinary Stockholders €728m €706m €1,292mWeighted average number of shares in issue excluding Treasurystock and own shares held for the benefit of life assurancepolicyholders 948m 946m 947m Basic earnings per share 76.7c 74.6c 136.4c Diluted The diluted earnings per share is based on the profit attributable to Ordinary Stockholders divided bythe weighted average Ordinary Stock in issue excluding Treasury stock and own shares held for thebenefit of life assurance policyholders adjusted for the effect of all dilutive potential OrdinaryStock. Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 Profit attributable to Ordinary Stockholders €728m €706m €1,292m Weighted average number of shares in issue excluding Treasury 948m 946m 947mstock and own shares held for the benefit of life assurancepolicyholdersEffect of all dilutive potential Ordinary Stock 7m 8m 7m 955m 954m 954m Diluted earnings per share 76.2c 74.0c 135.4c 11 LOANS AND ADVANCES TO CUSTOMERS 30-9-2006 30-9-2005 31-3-2006 •m •m •m Loans and advances to customers 111,336 88,256 98,497Loans and advances - finance leases and hire purchase receivables 3,417 3,373 3,108 114,753 91,629 101,605Provision for impairment (Note 12) (397) (343) (359) 114,356 91,286 101,246 12 IMPAIRMENT LOSSES ON LOANS AND ADVANCES Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •mOpening balance 360 319 319Exchange adjustments 2 2 (1)Charge against profits 49 50 100Amounts written off (19) (40) (85)Recoveries 9 12 21Other movements (3) - 6 Closing balance 398 343 360of which relates toLoans and advances to Customers 397 343 359Loans and advances to Banks 1 - 1 398 343 360 13 FINANCIAL INSTRUMENTS 30-9-2006 30-9-2005 31-3-2006 •m •m •m(a) Trading assets Loans to banks - - - Loans to customers - - - Debt securities: Government securities 140 347 156 Other debt securities 337 271 440 Equity instruments - 22 24 477 640 620 30-9-2006 30-9-2005 31-3-2006 •m •m •m(b) Other financial assets at fair value through P/L Loans to banks 258 - - Loans to customers - - - Debt securities: Government securities 2,057 1,873 2,033 Other debt securities 502 1,711 725 Equity instruments 8,167 5,693 7,822 10,984 9,277 10,580 30-9-2006 30-9-2005 31-3-2006 •m •m •m(c) Available for sale financial assets Loans to banks - - - Loans to customers - - - Debt securities: Government securities 6,370 5,862 5,881 Other debt securities 26,117 20,628 22,299 Equity instruments 28 32 25 32,515 26,522 28,205 14 ASSETS & LIABILITIES CLASSIFIED AS HELD FOR SALE Under IFRS 5 the Group are required to classify non-current assets as held forsale if their carrying amount will be recovered principally through a saletransaction rather than continuing use. Based on the criteria of IFRS 5 theGroup has reclassified the following assets and liabilities as being "held forsale". 30-9-2006 •m Assets: Group Property 140 Assets of Davy's 1,630 Other assets held for sale 79 1,849 Liabilities: Liabilities of Davy's 1,551 15 CUSTOMER ACCOUNTS 30-9-2006 30-9-2005 31-3-2006 •m •m •mCurrent accounts 17,009 14,624 15,876Demand deposits 22,418 17,531 18,344Term deposits and other products 29,050 24,528 25,877Other short-term borrowings 2,314 636 1,613 70,791 57,319 61,710 16 SUBORDINATED LIABILITIES 30-9-2006 30-9-2005 31-3-2006 •m •m •mOpening balance 6,493 4,086 4,086Implementation of IAS32/IAS39 on 1 April 2005 - 127 127 6,493 4,213 4,213 Exchange adjustments (17) 8 (9)Issued during period 733 883 2,414Fair value movements 12 20 (127)Amortisation 2 1 2 Closing balance 7,223 5,125 6,493 17 SHARE CAPITAL 30-9-2006 30-9-2005 31-3-2006 •m •m •mAllotted and fully paidEquity950.1m units of €0.64 of Ordinary Stock 608 607 60775.0m units of €0.64 of Treasury Stock 48 49 49 656 656 656Other equity interests1.9m units of Non-Cumulative Preference Stock of Stg£1 each 3 3 33.0m units of Non-Cumulative Preference Stock of €1.27 each 4 4 4 663 663 663 18 RESERVES Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Share premium account Opening balance 767 767 767 Closing balance 767 767 767 Capital reserve Opening balance 359 562 562 Implementation of IAS32/IAS39 & IFRS4 on 1 April 2005 - (251) (251) 359 311 311 Transfer from retained profit 65 65 48 Closing balance 424 376 359 Retained profit Opening balance 3,330 2,424 2,424 Implementation of IAS32/IAS39 on 1 April 2005 - (32) (32) 3,330 2,392 2,392 Profit for period 733 709 1,296 Equity dividends (334) (282) (459) Dividends on other equity interests (7) (6) (13) Transfer to capital reserves (65) (65) (48) Minority interest 2 3 9 Profit retained 329 359 785 Reissue of treasury stock under employee stock schemes 42 30 36 Transfer from revaluation reserve - - 4 Actuarial losses on pension funds (30) (257) 113 Other (2) (1) - Closing balance 3,669 2,523 3,330 18 RESERVES (continued) Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •m Revaluation reserve Opening balance 342 159 159 Transfer to retained profit on sale of property - - (4) Revaluation of property - - 212 Deferred tax on revaluation of property - - (25) Closing balance 342 159 342 Available for sale reserve Opening balance 26 - - Implementation of IAS32/IAS39 on 1 April 2005 - 130 130 Movement during period 1 59 (104) Closing balance 27 189 26 Cash flow hedge reserve Opening balance 60 - - Implementation of IAS32/IAS39 on 1 April 2005 - 67 67 Movement during period 34 (77) (7) Closing balance 94 (10) 60 Other equity reserve Opening balance 114 - - Implementation of IAS32/IAS39 on 1 April 2005 - 114 114 Movement during period - - - Closing balance 114 114 114 Share based payments reserve Opening balance 27 16 16 Charge to income statement 6 6 11 Closing balance 33 22 27 Foreign exchange reserve Opening balance (125) (108) (108) Exchange adjustments during year 84 53 (17) Closing balance (41) (55) (125) 19 MEMORANDUM ITEMS Contract Amount 30-9-2006 30-9-2005 31-3-2006 •m •m •mContingent liabilitiesAcceptances and endorsements 34 30 37Guarantees and assets pledged as collateral security 1,508 1,241 1,354Other contingent liabilities 613 631 675 2,155 1,902 2,066 Commitments 33,768 29,086 30,937 20 AVERAGE BALANCE SHEET AND INTEREST RATES The following tables show the average balances and interest rates of interestearning assets and interest bearing liabilities for each of the half years ended30 September 2006 and 2005 and the year ended 31 March 2006. The calculationsof average balances are based on daily, weekly or monthly averages, depending onthe reporting unit. The average balances used are considered to berepresentative of the operations of the Group. Rates for the half years areannualised. Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 Average Interest Rate Average Interest Average Interest Rate Balance •m % Balance •m Balance •m % •m •m Rate % •mASSETSLoans to banksDomestic offices 8,882 142 3.2 8,227 198 4.8 9,268 226 2.4Foreign offices 582 12 4.1 252 4 3.2 238 12 5.0Loans to customers (1)Domestic offices 58,484 1,548 5.3 46,455 1,093 4.7 49,969 2,309 4.6Foreign offices 50,476 1,388 5.5 40,583 1,182 5.8 43,106 2,264 5.3Central government and othereligible billsDomestic offices - - - 231 1 0.9 126 1 0.8Foreign offices - - - - - - - - -Debt SecuritiesDomestic offices 28,376 569 4.0 22,709 408 3.6 24,380 869 3.6Foreign offices 1,671 35 4.2 906 25 5.5 1,518 64 4.2Other financial instrumentsat fair value through P/LDomestic 49 - - 102 - - 152 1 0.7Foreign 268 6 4.5 714 18 5.0 232 10 4.3Total interest earningassetsDomestic offices 95,791 2,259 4.7 77,724 1,700 4.4 83,895 3,406 4.1Foreign offices 52,997 1,441 5.4 42,455 1,229 5.8 45,094 2,350 5.2Net swap interest - 3 - - - - - 34 - 148,788 3,703 5.0 120,179 2,929 4.9 128,989 5,790 4.5Impairment losses onloans and advances (381) (320) (341)Non interest earningassets 21,071 19,349 18,615 Total assets 169,478 3,703 4.4 139,208 2,929 4.2 147,263 5,790 3.9 20 AVERAGE BALANCE SHEET AND INTEREST RATES (continued) Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 Average Average Average Balance Balance Balance Interest Rate Interest Rate Interest Rate •m •m % •m •m % •m •m %LIABILITIES AND STOCKHOLDERS' EQUITYDeposits by banksDomestic offices 28,136 505 3.6 21,613 370 3.4 17,038 478 2.8Foreign offices 2,528 58 4.6 1,718 29 3.4 2,041 74 3.6Customer accountsDomestic offices 31,094 114 0.7 27,694 225 1.6 35,817 446 1.2Foreign offices 23,614 754 6.4 22,081 633 5.7 20,579 1,100 5.3Debt securities inissueDomestic offices 32,102 653 4.1 20,017 331 3.3 23,800 827 3.5Foreign offices 6,793 159 4.7 5,797 142 4.9 6,393 301 4.7SubordinatedliabilitiesDomestic offices 3,504 79 4.5 2,544 51 4.0 2,955 120 4.1Foreign offices 3,013 94 6.2 1,979 73 7.4 2,284 137 6.0Total interest bearingliabilitiesDomestic offices 94,836 1,351 2.8 71,868 977 2.7 79,610 1,871 2.4Foreign offices 35,948 1,065 5.9 31,575 877 5.6 31,297 1,612 5.2 130,784 2,416 3.7 103,443 1,854 3.6 110,907 3,483 3.1 Non interest bearingliabilitiesCurrent accounts 11,599 10,133 10,578Other non interest 21,421 21,249 20,987bearing liabilitiesStockholders' equity 5,674 4,383 4,791including non equityinterest Total liabilities and 169,478 2,416 2.9 139,208 1,854 2.7 147,263 3,483 2.4stockholders' equity (1) Loans to customers include non accrual loans and loans classifiedas problem loans. 21 RATES OF EXCHANGE Principal rates of exchange used in the preparation of the accounts are asfollows: Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 Closing Average Closing Average Closing Average•/US$ 1.266 1.2733 1.2042 1.2286 1.2104 1.2126•/Stg£ 0.6777 0.6847 0.6820 0.6805 0.6964 0.6826 22 CAPITAL ADEQUACY DATA Half Year Half Year Year 30-9-2006 30-9-2005 31-3-2006 •m •m •mAdjusted capital baseTier 1 8,464 6,418 7,334Tier 2 4,389 3,687 4,653 12,853 10,105 11,987 Supervisory deductions (926) (765) (870) 11,927 9,340 11,117Risk weighted assetsBanking Book 104,760 84,803 93,398Trading Book 4,504 3,685 4,112 109,264 88,488 97,510 Capital ratiosTier 1 Capital 7.7% 7.3% 7.5%Total Capital 10.9% 10.6% 11.4% 23 The interim financial statements were approved by the Court of Directors on15 November 2006. Independent review report to the Governor and Company of the Bank of Ireland Introduction We have been instructed by the Governor and Company of the Bank of Ireland toreview the financial information for the six months ended 30 September 2006comprising the Consolidated Income Statement, Consolidated Balance Sheet,Consolidated Statement of Recognised Income and Expense and ConsolidatedCondensed Cash Flow Statement and the related notes 1 to 19. We have read theother information contained in the interim statement and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities The interim statement, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The ListingRules of the Irish Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of Interim Financial Information issued by the Auditing Practices Boardfor use in the United Kingdom and the Republic of Ireland. A review consistsprincipally of making enquiries of group management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Irish Stock Exchange and for no other purpose. Wedo not, in producing this report, accept or assume responsibility for any otherpurpose or to any other person to whom this report is shown or into whose handsit may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. PricewaterhouseCoopersChartered AccountantsDublin 15 November 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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