1st Aug 2007 07:00
Allied Irish Banks PLC01 August 2007 Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) Part 2 Notes to the accounts Half-year 30 June 2007 AIB Bank Capital AIB Bank Poland Group Total ROI Markets UK1 Segmental information • m • m • m • m • m • mOperations by business segments(1)Net interest income 868 285 339 139 36 1,667Other income 238 254 78 192 (12) 750Total operating income 1,106 539 417 331 24 2,417Administrative expenses 505 220 182 165 95 1,167Amortisation/impairment ofintangible assets 9 3 - 9 7 28Depreciation of property, plantand equipment 17 4 5 8 8 42Total operating expenses 531 227 187 182 110 1,237Operating profit/(loss) before 575 312 230 149 (86) 1,180provisionsProvisions for impairment of loans and receivables 46 (22) 7 (6) - 25Provisions for liabilities and 2 2 - - - 4commitmentsAmounts (written back)/written off financial investments available - 1 - - - 1for saleOperating profit/(loss) 527 331 223 155 (86) 1,150Associated undertakings 7 - - - 74 81Profit on disposal of property - - - - 41 41Construction contract income - - - - 44 44Profit on disposal of businesses - 2 - - - 2Profit before taxation - continuing operations 534 333 223 155 73 1,318Balance sheetLoans and receivables to customers 66,160 24,206 24,269 5,457 125 120,217Total assets 72,322 61,977 27,963 8,279 6,675 177,216Customer accounts 40,680 16,279 15,466 6,598 - 79,023Total liabilities(2) 48,224 83,573 16,563 7,565 10,597 166,522Total risk weighted assets 58,592 42,248 24,720 6,527 3,209 135,296Ordinary shareholders' equity(2) 3,849 2,776 1,624 429 211 8,889Capital expenditure 40 13 4 8 27 92 Notes to the accounts 1 Segmental information (continued) Half-year 30 June 2006 AIB Bank Capital AIB Bank Poland Group Total ROI Markets UK • m • m • m • m • m • mOperations by business segments(1)Net interest income 745 239 287 112 46 1,429Other income 212 227 75 160 (27) 647Total operating income 957 466 362 272 19 2,076Administrative expenses 445 196 166 134 77 1,018Amortisation/impairment ofintangible assets 9 2 - 11 5 27Depreciation of property, plantand equipment 19 4 5 11 4 43Total operating expenses 473 202 171 156 86 1,088Operating profit/(loss) before 484 264 191 116 (67) 988provisionsProvisions for impairment of loansand receivables 35 (37) 7 7 - 12Provisions for liabilities and - 3 - (3) - -commitmentsAmounts (written back)/written offfinancial investments available for - - - - - -saleOperating profit/(loss) 449 298 184 112 (67) 976Associated undertakings 4 2 - 2 80 88Profit on disposal of property - - - - 90 90Construction contract income - - - - 34 34Profit on disposal of businesses - 26 - - - 26Profit before taxation - continuing operations 453 326 184 114 137 1,214Discontinued operation - net of taxation 132 - - - - 132Balance sheetLoans and receivables to customers 52,691 19,830 19,234 3,804 103 95,662Total assets 58,261 50,134 21,851 7,702 6,125 144,073Customer accounts 36,264 12,919 12,163 5,218 - 66,564Total liabilities(2) 40,350 65,269 13,056 6,790 9,462 134,927Total risk weighted assets 45,997 39,106 19,874 4,478 1,612 111,067Ordinary shareholders' equity(2) 3,070 2,610 1,326 299 108 7,413Capital expenditure 48 14 6 5 21 94 Notes to the accounts 1 Segmental information (continued) Year 31 December 2006 AIB Bank Capital AIB Bank Poland Group Total ROI Markets UK • m • m • m • m • m • m Operations by business segments(1)Net interest income 1,581 490 593 236 99 2,999Other income 434 464 154 302 (27) 1,327Total operating income 2,015 954 747 538 72 4,326Administrative expenses 945 425 332 290 182 2,174Amortisation/impairment of intangible assets 17 4 - 21 11 53Depreciation of property, plant and equipment 38 9 11 19 10 87Total operating expenses 1,000 438 343 330 203 2,314Operating profit/(loss) before 1,015 516 404 208 (131) 2,012provisionsProvisions for impairment of loans and receivables 78 5 26 9 - 118Provisions for liabilities and (4) 1 - (2) (10) (15)commitmentsAmounts (written back)/written off financial investments available (1) 2 - - - 1for saleOperating profit/(loss) 942 508 378 201 (121) 1,908Associated undertakings 18 2 - 6 141 167Profit on disposal of property 6 - 1 - 358 365Construction contract income - - - - 96 96Profit on disposal of businesses - 79 - - - 79Profit before taxation - continuing operations 966 589 379 207 474 2,615Discontinued operation - net of taxation 116 - - - - 116Balance sheetLoans and receivables to customers 60,018 20,808 21,606 4,573 110 107,115Total assets 66,200 54,093 24,580 7,195 6,458 158,526Customer accounts 40,841 14,285 13,546 6,203 - 74,875Total liabilities(2) 46,253 71,666 14,555 6,939 9,201 148,614Total risk weighted assets 53,307 39,764 22,334 5,698 1,931 123,034Ordinary shareholders' equity(2) 3,513 2,620 1,472 376 127 8,108Capital expenditure 104 24 15 24 64 231 Notes to the accounts 1 Segmental information Half-year 30 June 2007(continued) United Republic of United States of Rest of Ireland Kingdom Poland America the world Total • m • m • m • m • m • m Operations by geographical segments(3)Net interest income 1,037 440 155 27 8 1,667Other income 461 38 217 28 6 750Total operating income 1,498 478 372 55 14 2,417Administrative expenses 752 223 167 19 6 1,167Amortisation/impairment ofintangible assets 18 - 10 - - 28Depreciation of property, plantand equipment 28 6 8 - - 42Total operating expenses 798 229 185 19 6 1,237Operating profit before 700 249 187 36 8 1,180provisionsProvisions for impairment ofloans and receivables 47 (16) (6) - - 25Provisions for liabilities and 6 (2) - - - 4commitmentsAmounts written off financial investments available for sale 1 - - - - 1Operating profit 646 267 193 36 8 1,150Associated undertakings 7 - - 74 - 81Profit on disposal of property 41 - - - - 41Construction contract income 44 - - - - 44Profit on disposal of businesses - 2 - - - 2Profit before taxation -continuing operations 738 269 193 110 8 1,318Balance sheetLoans and receivables to 80,350 31,255 5,457 2,433 722 120,217customersTotal assets 124,227 37,052 9,771 5,404 762 177,216Customer accounts 48,331 22,736 6,612 1,344 - 79,023Total liabilities(2) 119,170 34,503 8,363 4,388 98 166,522Ordinary shareholders' equity(2) 5,576 2,241 505 515 52 8,889Capital expenditure 77 5 8 - 2 92 Notes to the accounts 1 Segmental information Half-year 30 June 2006(continued) Republic of United Poland United Rest of Total Ireland Kingdom States of the world America • m • m • m • m • m • mOperations by geographical segments(3)Net interest income 891 381 126 26 5 1,429Other income 310 113 188 31 5 647Total operating income 1,201 494 314 57 10 2,076Administrative expenses 642 213 137 21 5 1,018Amortisation/impairment ofintangible assets 15 1 11 - - 27Depreciation of property, plantand equipment 25 6 12 - - 43Total operating expenses 682 220 160 21 5 1,088Operating profit before 519 274 154 36 5 988provisionsProvisions for impairment ofloans and receivables 28 (19) 4 (1) - 12Provisions for liabilities and commitments - - - - - -Amounts written off financial investments available for sale - - - - - -Operating profit 491 293 150 37 5 976Associated undertakings 6 - 2 80 - 88Profit on disposal of property 90 - - - - 90Construction contract income 34 - - - - 34Profit on disposal of businesses 26 - - - - 26Profit before taxation - continuing operations 647 293 152 117 5 1,214Discontinued operation - net of taxation 132 - - - - 132Balance sheetLoans and receivables to 63,329 25,538 3,804 2,557 434 95,662customersTotal assets 99,707 30,907 7,721 5,299 439 144,073Customer accounts 43,091 16,879 5,218 1,372 4 66,564Total liabilities(2) 97,003 26,369 6,798 4,741 16 134,927Ordinary shareholders' equity(2) 4,593 1,909 338 538 35 7,413Capital expenditure 82 6 5 1 - 94 Notes to the accounts 1 Segmental information Year 31 December 2006(continued) Republic of United Poland United Rest of Total Kingdom States of the world Ireland America • m • m • m • m • m • m Operations by geographical segments(3)Net interest income 1,899 769 264 54 13 2,999Other income 665 240 351 61 10 1,327Total operating income 2,564 1,009 615 115 23 4,326Administrative expenses 1,401 425 297 42 9 2,174Amortisation/impairment of intangible assets 32 1 20 - - 53Depreciation of property, plant and equipment 54 12 20 1 - 87Total operating expenses 1,487 438 337 43 9 2,314Operating profit before 1,077 571 278 72 14 2,012provisionsProvisions for impairment ofloansand receivables 70 41 9 - (2) 118Provisions for liabilities and (14) 1 (2) - - (15)commitmentsAmounts written off financial investmentsavailable for sale 1 - - - - 1Operating profit 1,020 529 271 72 16 1,908Associated undertakings 20 - 6 141 - 167Profit on disposal of property 364 1 - - - 365Construction contract income 96 - - - - 96Profit on disposal of businesses 77 1 - 1 - 79Profit before taxation - continuing operations 1,577 531 277 214 16 2,615Discontinued operation - net of taxation 116 - - - - 116Balance sheetLoans and receivables to 70,886 28,546 4,578 2,454 651 107,115customersTotal assets 109,272 33,908 9,109 5,578 659 158,526Customer accounts 47,559 20,072 6,214 1,026 4 74,875Total liabilities(2) 104,609 31,932 7,812 4,202 59 148,614Ordinary shareholders' equity(2) 5,164 2,022 398 478 46 8,108Capital expenditure 192 15 24 - - 231 (1) The business segment information is based on management accounts information. Income on capital is allocated to the divisions on the basis of the capital required to support the level of risk weighted assets. Interest income earned on capital not allocated to divisions is reported in Group. (2) The fungible nature of liabilities within the banking industry inevitably leads to allocations of liabilities to segments, some of which are necessarily subjective. Accordingly, the Directors believe that the analysis of total assets is more meaningful than the analysis of ordinary shareholders' equity or liabilities. (3) The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction. Notes to the accounts 2 Interest and similar income Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Interest on loans and receivables to banks 243 140 307Interest on loans and receivables to customers 3,449 2,460 5,444Interest on trading portfolio financial assets 180 181 380Interest on financial investments available for sale 482 349 797 4,354 3,130 6,928 3 Interest expense and similar charges Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Interest on deposits by banks 741 495 1,163Interest on customer accounts 1,082 692 1,597Interest on debt securities in issue 739 424 955Interest on subordinated liabilities and other capital 125 90 214instruments 2,687 1,701 3,9294 Dividend income The dividend income relates to income from equity shares held as financial investments available for sale. 5 Net trading income Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Foreign exchange contracts 37 61 101Profits less losses from trading portfolio financial assets 40 (4) 60Interest rate contracts (11) 18 4Equity index contracts 9 4 8 75 79 173 6 Other operating income Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Profit/(loss) on disposal of available for sale debt 3 1 (4)securities 1 7 15Profit on disposal of available for sale equity shares 30 19 4Miscellaneous operating income 34 27 57 Notes to the accounts Half-year Half-year Year 30 June 30 June 31 December 2007 2006 20067 Administrative expenses • m • m • mPersonnel expensesWages & salaries 579 501 1,074Share-based payment schemes 27 23 57Retirement benefits 81 77 144Social security costs 71 60 119Other personnel expenses 41 38 108 799 699 1,502General and administrative expenses 368 319 672 1,167 1,018 2,174 8 Profit on disposal of property 2007 The sale of 16 branches as part of the sale and leaseback programme announced in2006 gave rise to a profit on disposal of • 41m. The leases qualify as operating leases and the profit arising on thesetransactions is included in profit on disposal of property. 2006 The following table sets out the profit recognised on the sale of properties in2006: Profit Recognised • m Bankcentre Headquarters Building - Blocks A to D 167Bankcentre Headquarters Building - Blocks E to H 89Donnybrook House 2911 Branches 73 358 Blocks E to H of the Bankcentre Headquarters Building were disposed of in thefirst half of the year while the remaining disposals took place in the secondhalf of the year. The profit on sale of additional properties which are not partof the sale and leaseback programme amounted to • 1m and • 7m respectively forthe half year ended 30 June 2006 and year ended 31 December 2006. Half-year Half-year Year 30 June 30 June 31 December9 Construction contract income 2007 2006 2007 • m • m • m Construction revenue 82 62 171Construction expense (38) (28) (75) 44 34 96 In 2005, AIB sold land at its Bankcentre headquarters to a syndicate ofinvestors, the Serpentine Consortium. The consortium has outsourced the construction of a new development on the above land to BlogramLimited, a subsidiary of Allied Irish Banks, p.l.c. on a fixed price contractbasis. The total consideration amounts to • 367.8m of which • 55.0m has beenreceived. At 30 June 2007, • 278.2m was due from the consortium in respect of construction contracts inprogress. This contract is due for completion in the last quarter of 2007. Dohcar Limited, a subsidiary of Allied Irish Banks, p.l.c., has contracted withthe Serpentine Consortium to lease the property on completion at an initial rentof • 16.1m per annum for a period of 30 years with a break clause at year 23.The nature of this transaction, which includes the sale of land, an agreement toconstruct a building and an agreement to lease the building represents a linkedtransaction and meets the definition under IFRS of a sale and leaseback. Becausethe significant income from the transaction arises from the constructioncontracts, the income is recognised in accordance with IAS 11, 'ConstructionContracts'. Notes to the accounts 10 Profit on disposal of businesses 2007 The profit on disposal of business in 2007 of • 2m (tax charge of • 0.6m)relates to the final payment arising from the sale of the Govett business in2003. 2006 The profit on disposal of businesses in 2006 of • 79m includes profit relatingto the transfer by Ark Life of investment management contracts in conjunctionwith the sale of Ark Life of • 26m (tax charge • nil); AIB's 50% stake in AIB/BNY Securities Services (Ireland) Ltd of • 51m (tax charge C nil); KetchumCanada Inc. of • 1m (tax charge • nil), and the accrual of • 1m (tax charge€0.3m) arising from the sale of the Govett business in 2003. Of the aboveprofits, • 26m regarding the sale of Ark Life occurred in the first half of theyear, while the remaining profits occurred in the second half of the year. 11 Income tax expense - continuing operations Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • mAllied Irish Banks, p.l.c. and subsidiaries Corporation tax in Republic of Ireland 92 Current tax on income for the period (3) 120 252 Adjustments in respect of prior periods - 3 89 120 255 Double taxation relief (16) (14) (23) 73 106 232Foreign tax Current tax on income for the period 136 139 220 Adjustments in respect of prior periods 1 (6) (14) 137 133 206 210 239 438Deferred taxation Origination and reversal of temporary differences 28 (18) (5) Other 1 - - 29 (18) (5)Total income tax expense - continuing operations 239 221 433Effective income tax rate - continuing operations 18.1% 18.2% 16.6% Notes to the accounts 12 Earnings per • 0.32 ordinary share Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m (a) Basic 1,041 1,089 2,185 Profit attributable to equity holders of the parent (38) (38) (38) Distributions to other equity holdersProfit attributable to ordinary shareholders 1,003 1,051 2,147Weighted average number of shares in issue during the period 874.5m 868.0m 870.1m Earnings per share - basic EUR 114.7c EUR 121.2c EUR 246.8c(b) Diluted Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Profit attributable to ordinary shareholders (note 12(a)) 1,003 1,051 2,147 Dilutive impact of potential ordinary shares in subsidiary and - (1) (2)associated companiesAdjusted profit attributable to ordinary shareholders 1,003 1,050 2,145 Number of shares (millions)Weighted average number of shares in issue during the period 874.5 868.0 870.1 Dilutive effect of options outstanding 6.5 6.6 7.0Potential weighted average number of shares 881.0 874.6 877.1Earnings per share - diluted EUR 113.8c EUR 120.1c EUR 244.6c(c) Continuing operations - basic Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Profit attributable to ordinary shareholders (note 12(a)) 1,003 1,051 2,147 Discontinued operations - 132 116Profit attributable to ordinary shareholders - continuing operations 1,003 919 2,031Weighted average number of shares in issue during the period 874.5m 868.0m 870.1m Earnings per share - basic EUR 114.7c EUR 105.9c EUR 233.5c(d) Continuing operations - diluted Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • m Profit attributable to ordinary shareholders - continuing operations 1,003 919 2,031(note 12(c)) - (1) (2)Dilutive impact of potential ordinary shares in subsidiary andassociated companiesAdjusted profit attributable to ordinary shareholders - continuing 1,003 918 2,029operations Number of shares (millions)Weighted average number of shares in issue during the period 874.5 868.0 870.1 Dilutive effect of options outstanding 6.5 6.6 7.0Potential weighted average number of shares 881.0 874.6 877.1Earnings per share - diluted EUR 113.8c EUR 105.0c EUR 231.4c Notes to the accounts Profit attributable Earnings per share Half-year Half year Year Half-year Half-year Year 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 200613 Adjusted earnings per share • m • m • m cent cent cent(a) Basic earnings per shareAs reported (note 12(a)) 1,003 1,051 2,147 114.7 121.2 246.8Adjustments:Construction contract income (38) (29) (82) (4.3) (3.4) (9.4)Hedge volatility(1) 21 15 4 2.4 1.7 0.5Profit on disposal of property (35) (66) (290) (4.0) (7.6) (33.4)Profit on disposal of businesses* - (154) (189) - (17.7) (21.7) 951 817 1,590 108.8 94.2 182.8 Profit attributable Earnings per share Half-year Half year Year Half-year Half-year Year 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 • m • m • m cent cent centDiluted earnings per shareAs reported (note 12(b)) 1,003 1,050 2,145 113.8 120.1 244.6Adjustments:Construction contract income (38) (29) (82) (4.3) (3.3) (9.3)Hedge volatility(1) 21 15 4 2.4 1.7 0.5Profit on disposal of property (35) (66) (290) (4.0) (7.6) (33.2)Profit on disposal of businesses* - (154) (189) - (17.6) (21.5) 951 816 1,588 107.9 93.3 181.1 * The 30 June 2006 and 31 December 2006 figures included • 128m and • 112mrespectively in relation to Ark Life which is included within discontinuedactivities. Profit attributable Earnings per share Half-year Half year Year Half-year Half-year Year 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 • m • m • m cent cent cent(b) Basic earnings per share- continuing operationsAs reported (note 12(c)) 1,003 919 2,031 114.7 105.9 233.5Adjustments:Construction contract income (38) (29) (82) (4.3) (3.4) (9.4)Hedge volatility(1) 21 15 4 2.4 1.7 0.5Profit on disposal of property (35) (66) (290) (4.0) (7.6) (33.4)Profit on disposal of businesses - (26) (77) - (2.9) (8.8) 951 813 1,586 108.8 93.7 182.4 Profit attributable Earnings per share Half-year Half year Year Half-year Half-year Year 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 • m • m • m cent cent centDiluted earnings per share- continuing operationsAs reported (note 12(d)) 1,003 918 2,029 113.8 105.0 231.4Adjustments:Construction contract income (38) (29) (82) (4.3) (3.3) (9.3)Hedge volatility(1) 21 15 4 2.4 1.7 0.5Profit on disposal of property (35) (66) (290) (4.0) (7.6) (33.2)Profit on disposal of businesses - (26) (77) - (2.9) (8.7) 951 812 1,584 107.9 92.9 180.7 (1) Included in net trading income. Notes to the accounts 13 Adjusted earnings per share (continued) Although not required under IFRS, adjusted earnings per share is presented tohelp understand the underlying performance of the Group. The adjustments in 2007and 2006 are items that management believe do not reflect the underlyingbusiness performance. The adjustment in respect of profit on sale of propertyrelates only to the profit on sale of properties that are subject to sale andleaseback arrangements (note 8). The adjustments listed on the previous page areshown net of taxation. 30 June 31 December 30 June 2007 2006 200614 Trading portfolio financial assets • m • m • m Loans and receivables to banks 2 3 3Loans and receivables to customers 17 25 18Debt securities: Government securities 151 274 717 Other public sector securities - - 39 Other debt securities(1) 9,158 8,527 9,913 9,309 8,801 10,669Equity shares 142 124 130 9,470 8,953 10,820 (1) Other debt securities include • 4,971m (December 2006: • 4,832m) of bankeurobonds and • 3,450m (December 2006: • 3,039m) of corporate collateralised mortgage obligations. 15 Loans and receivables to customers 30 June 31 December 30 June 2007 2006 2006 • m • m • m Loans and receivables 115,966 103,651 92,306Amounts receivable under finance leases and hire purchase contracts 3,397 3,003 2,923Unquoted securities 1,565 1,166 1,073Provisions for impairment of loans and receivables (note 16) (711) (705) (640) 120,217 107,115 95,662 16 Provisions for impairment of loans and receivables 30 June 31 December 30 June 2007 2006 2006 • m • m • m At beginning of period 707 676 676Exchange translation adjustments (1) (1) (14)Charge against income statement 25 118 12Amounts written off (25) (96) (36)Recoveries of amounts written off in previous years 7 10 4 At end of period 713 707 642 At end of period: Specific 497 518 468IBNR 216 189 174 713 707 642Amounts include: Loans and receivables to banks 2 2 2Loans and receivables to customers (note 15) 711 705 640 713 707 642 Notes to the accounts 17 Risk elements in lending Management has set out below the amount of loans, without giving effect toavailable security and before deduction of provisions, classified as (a)Impaired loans and (b) Accruing loans which are contractually past due 90 daysor more as to principal or interest: 30 June 31 December 30 June 2007 2006 2006 • m • m • m Impaired loans(1) 403 396 332Republic of Ireland 273 304 198United Kingdom 219 232 248Poland - 1 9Rest of world 895 933 787 Accruing loans which are contractually past due 90 days or more as to principal or interest(2) Republic of Ireland 177 142 158United Kingdom 39 73 109 216 215 267 (1) Total interest income that would have been recorded during the half-year ended 30 June 2007, had interest on gross impaired loans been included in income, amounted to • 12m for Republic of Ireland (31 December 2006: €18m; 30 June 2006: • 9m), • 8m for United Kingdom (31 December 2006: • 12m; 30 June 2006:• 4m) and • 8m for Poland (31 December 2006:• 17m; 30 June 2006: • 9m). Interest on impaired loans (net of provisions) included in income for the half-year ended 30 June 2007 totalled • 10m (31 December 2006: • 21m; 30 June 2006: • 10m). (2) Overdrafts generally have no fixed repayment schedule and consequently are not included in this category. 30 June 31 December 30 June 2007 2006 200618 Financial investments available for sale • m • m • mDebt securities:Government securities 6,968 7,490 8,273Other public sector securities 1,909 1,855 915Bank and building society certificates of deposit 2,138 1,591 1,232Bank securities 8,822 7,008 6,465Other debt securities 2,064 1,428 1,607 21,901 19,372 18,492Equity shares 332 293 172 22,233 19,665 18,664 Notes to the accounts 19 Customer accounts 30 June 31 December 30 June 2007 2006 2006 • m • m • m Current accounts 26,611 25,151 22,512Demand deposits 9,843 8,924 8,372Time deposits 33,536 33,831 29,764 69,990 67,906 60,648Securities sold under agreements to repurchase 1 1 3Other short-term borrowings 9,032 6,968 5,913 9,033 6,969 5,916 79,023 74,875 66,564 Contract amount20 Memorandum items: contingent liabilities and commitments 30 June 31 December 30 June 2007 2006 2006 • m • m • mContingent liabilities: :Guarantees and assets pledged as collateral securityGuarantees and irrevocable letters of credit 6,008 5,902 6,526Other contingent liabilities 1,267 1,191 1,090 7,275 7,093 7,616Commitments:Other commitments 24,190 24,056 22,380 31,465 31,149 29,996 The Group's maximum exposure to credit loss under contingent liabilities andcommitments to extend credit, in the event of non-performance by the other partywhere all counterclaims, collateral or security prove valueless, is representedby the contractual amounts of those instruments. 21 Subordinated liabilities and other capital instruments In March 2007 and June 2007, Japanese Yen ('JPY') 15bn and JPY 5bn CallableSubordinated Step-up Fixed/Floating Rate Notes due March 2042 were issuedrespectively under the • 30bn Euro Medium Term Note Programme. Interest ispayable semi-annually at a rate of 2.75% per annum, up to 8 March 2037 andthereafter at a rate of 0.78% per annum above 6 month JPY-LIBOR-BBA, payablesemi-annually. Both the JPY 15bn and JPY 5bn Callable Subordinated Step-up Fixed/Floating Rate Notes are redeemable in whole but not in part on any interestpayment date falling on or after 8 March 2037. 22 Derivative financial instruments The following table presents the notional principal amount and fair value ofinterest rate, exchange rate, equity and credit derivative contracts for 2007and 2006 30 June 2007 31 December 2006 Notional Fair values Notional Fair values Amount Assets Liabilities Amount Assets Liabilities • m • m • m • m • m • mInterest rate contracts 311,375 2,341 2,464 217,435 2,253 1,922Exchange rate contracts 16,431 171 187 20,226 199 186Equity contracts 6,694 511 499 6,485 438 423Credit derivatives 780 - 1 570 - -Total 335,280 3,023 3,151 244,716 2,890 2,531 Interest rate contracts are entered into for both hedging and trading purposes.Exchange rate, equity and credit derivative contracts are entered into fortrading purposes only. Notes to the accounts 22 Derivative financial instruments (continued) The Group uses the same credit control and risk management policies inundertaking off-balance sheet commitments as it does for on balance sheetlending including counterparty credit approval, limit setting and monitoringprocedures. In addition, in relation to derivative instruments, the Group'sexposure to market risk is controlled within the risk limits in the Group'sInterest Rate Risk and Foreign Exchange Risk Policies and is further constrainedby the risk parameters incorporated in the Group's Derivatives Policy asapproved by the Board. 23 Average balance sheets and interest rates The following tables show the average balances and interest rates of interestearning assets and interest bearing liabilities for the half year ended 30 June2007 and year ended 31 December 2006. The calculation of average balancesinclude daily and monthly averages for reporting units. The average balancesused are considered to be representative of the operations of the Group. Half-year ended 30 June 2007 Year ended 31 December 2006Assets Average Interest Average Average Interest Average balance Rate balance Rate • m • m • m • m • m • mLoans and receivables to banksDomestic offices 8,147 192 4.8 4,930 191 3.9Foreign offices 1,830 51 5.6 2,307 116 5.1Loans and receivables to customersDomestic offices 74,931 2,139 5.8 62,641 3,162 5.1Foreign offices 38,626 1,331 6.9 33,133 2,177 6.6Trading portfolio financial assetsDomestic offices 7,775 170 4.4 9,205 349 3.8Foreign offices 1,093 10 1.8 1,316 31 2.3Financial investments available forsaleDomestic offices 15,353 359 4.7 14,671 588 4.0Foreign offices 4,983 123 5.0 4,339 209 4.8Total interest earning assetsDomestic offices 106,206 2,860 5.4 91,447 4,290 4.7Foreign offices 46,532 1,515 6.6 41,095 2,533 6.2Net interest on swaps (23) 85Total average interest earning 152,738 4,352 5.7 132,542 6,908 5.2assetsNon-interest earning assets 9,762 8,827Total average assets 162,500 4,352 5.4 141,369 6,908 4.9Percentage of assets applicable to foreign activities 31.1 31.5 Notes to the accounts 23 Average balance sheets and interest rates (continued) Half-year ended 30 June 2007 Year ended 31 December 2006Liabilities and shareholders' equity Average Interest Average Average Interest Average balance Rate balance Rate • m • m • m • m • m • mDue to banksDomestic offices 29,113 683 4.7 28,375 1,067 3.8Foreign offices 2,414 58 4.8 2,098 96 4.6Due to customersDomestic offices 37,352 540 2.9 36,101 809 2.2Foreign offices 26,048 540 4.2 21,282 768 3.6Other debt issuedDomestic offices 22,473 453 4.1 13,615 456 3.4Foreign offices 10,602 286 5.4 10,144 499 4.9Subordinated liabilitiesDomestic offices 3,776 96 5.2 3,542 182 5.2Foreign offices 1,013 29 5.8 551 32 5.8Total interest earning liabilitiesDomestic offices 92,714 1,772 3.9 81,633 2,514 3.1Foreign offices 40,077 913 4.6 34,075 1,395 4.1Total average interest earning 132,791 2,685 4.1 115,708 3,909 3.4liabilitiesNon interest earning liabilities 21,208 18,263Total liabilities 153,999 2,685 3.5 133,971 3,909 2.9Ordinary shareholders' equity 8,501 7,398Total average liabilities and shareholders' equity 162,500 2,685 3.3 141,369 3,909 2.8Percentage of liabilities applicable to foreign operations 30.9 30.2 24 Post-balance sheet events On 31 July 2007, subsequent to the interim balance sheet date, an interimdividend of EUR 27.8 cent per share was declared by the Board of Directors forpayment on 25 September 2007. The interim dividend amounts to • 245 million andhas not been recorded as a liability in the balance sheet. 25 Approval of accounts The accounts were approved by the Board of Directors on 31 July 2007. Financial and other information Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 Operating ratios 51.2% 52.4% 53.5% Operating expenses/operating income 31.0% 31.2% 30.7% Other income/operating incomeNet interest margin: Group 2.20% 2.29% 2.26%Domestic 2.02% 2.04% 2.04%Foreign 2.61% 2.84% 2.77% Rates of exchange•/US $ Closing 1.3505 1.2713 1.3170 Average 1.3317 1.2287 1.2566 •/Stg Closing 0.6740 0.6921 0.6715 Average 0.6750 0.6883 0.6822 •/PLN Closing 3.7677 4.0546 3.8310 Average 3.8439 3.8991 3.8965 Capital adequacy information Half-year Half-year Year 30 June 30 June 31 December 2007 2006 2006 • m • m • mRisk weighted assets Banking book:On balance sheet 115,061 89,394 101,285Off-balance sheet 12,451 13,203 13,033 127,512 102,597 114,318Trading book:Market risks 7,098 8,000 8,172Counterparty and settlement risks 686 470 544 7,784 8,470 8,716Total risk weighted assets 135,296 111,067 123,034Capital 10,264 8,913 10,116 Tier 1Tier 2 3,966 3,815 3,838 14,230 12,728 13,954Supervisory deductions 173 349 310Total 14,057 12,379 13,644Capital ratiosTier 1 7.6% 8.0% 8.2%Total 10.4% 11.1% 11.1% The interim dividend has been deducted in arriving at the capital ratios forJune 2007 and June 2006. The final dividend was not taken into account in thecalculation of the Tier 1 and Total capital ratios at 31 December 2006. TheFinancial Regulator has issued a requirement that a Prudential Filter be appliedto proposed final dividends with effect from July 2007. If applied at 31December 2006, the Tier 1 and Total capital ratios would be 7.9% and 10.8%respectively. Changes to supervisory rules during 2007 also require certain supervisorydeductions to be 50% from Tier 1 and 50% from Tier 2. Applying these principlesto previous periods would have reduced the reported Tier 1 capital ratio by0.1%. The total capital ratio is not impacted by this change. Independent review report of KPMG to Allied Irish Banks, p.l.c. Introduction We have been engaged by the company to review the financial information for thesix months ended 30 June 2007, which comprises the statement of accountingpolicies, consolidated interim income statement, consolidated interim balancesheet, condensed interim statement of cash flows, consolidated interim statementof recognised income and expense, condensed consolidated interim reconciliationof movements in shareholders' equity and the related notes on pages 22 to 37. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Irish Stock Exchange and the UK Financial Services Authority. Ourreview has been undertaken so that we might state to the company those matterswe are required to state to it in this review report and for no other purpose.To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company for our review work, for thisreview report, or for the conclusions we have reached. Directors' responsibilities This interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors are responsible for preparing this interim report inaccordance with the Listing Rules which require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual financial statements except where anychanges, and the reasons for them, are disclosed. 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 Ireland and the United Kingdom. A review consists principally ofmaking enquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (UK and Ireland) and therefore provides a lower level of assurance thanan audit. Accordingly, we do not express an audit opinion on the financialinformation. 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 months ended 30 June 2007. KPMGChartered AccountantsDublin31 July 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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